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A Treatise
ON THE LAW OF
BANKS AND BANKING
By the Editorial Staff of The Michie Company
UNDER THE SUPERVISION OF
THOMAS JOHNSON MICHIE
Volume I
Tbe Michie Company, Law Publishers

Charlottesville, Va.
1913
/3//rt/
Copyright 1913
BY
The MichiE Company
TABLE OF CONTENTS*^
VOLUME I
CHAPTER I.
I. Control and Regulation in General.
S 1. Right of Banking in General 2

§ 2. What Are Banks 6
§ 3. Power to Control and Regulate 13
§ 4. Constitutional and Statutory Provisions 15
§ 5. Charter Provisions 16
§ 6. Authority or License to Do Business 17
§ 7. Unauthorized Banking 17
§ 8. In General 17
§ 9. Validity of Transactions \.and Liabilities Incurred 19
§ 10. •
Penalties and Actions The'tefor 32
§ 10 (1) Statutory Provisions and Construction 22
§ 10 (2) Enforcement 23
§ 10 (2a) Petition— Sufficiency 23
§ 10 (2b) Replication to Plea 23
§ 10 (2c) Quo Warranto 24
§ 10 (2d) Jurisdiction and Venue 24
§ 10 (2e) Service of Process and Execution 25
§ 11. Criminal Prosecutions 25
§ 11 (1) Offense as Statutory One 25
§ 11 (2) Indictment 26
'.
§ 11 (3) Information 26
§ 12. License Fees and Taxes 26
§ 12 (1) Povifer to Impose 26
§ 12 (2) Exemptions 28
. § 12 (3) Interest 28
12 (4) Effect of Payment
§ 28
§ 13. Limitation of Indebtedness 29
§ 14. Reserves 29
§ 15. Safety Funds and Deposits of Securities 30
§ 15 (1) Necessity and Constitutionality 32
§ 15 (2) Obligation Therefor and Payment 32
§ 15 (3) Lien of State —
Substitution of Other Securities..' 32
§ 15 (4) Effect of Failure to Deposit 32
§ 15 (5) Loss 33
§ 15 (6) and Control
Custody, Title 33
§ 15 (7) Payment of Debts Therefrom 34
§ 15 (8) School Funds 35
§ 16. Reports and Statements 35
§ 16 (1) Duty to Make and Effect of Failure 35
§ 16 (2) Time to Make 36
VI TABLE OF CONTENTS.
§16(3) Form and Contents 36

§ 16 (4) Verification 37
§ 16 (5) Returns as Notice of Bank's Condition 38
§ 17. Public Examiners 38
§ IT (1) Appointment 38
§ 17 (3) Compensation 39
§ IT (3) Removal 39
§ IT (4) Powers , 39
§ 17 (5) Effect on Title to Property and Rights of Action 41
§ 18. Foreign Banks 41
§ 19. Penalties for Violations of Regulations 42
§ 20. Offenses by Banks or Bankers 42
§ 21. OflEenses by Persons Dealing with Banks . . , 42
CHAPTER II
II. Banking Corporations and Associations.

A. Incorporation, Organization, and Incidents of Existence.
§ 22. Nature and Formation in General ,

45
§ 23. Incorporation 46
§ 23 (1) Power Incorporate
to 46
§ 33 (2) Conditional Incorporation —
Conditions Precedent and Begin-
ning of Corporate Existence 48
§ 23 (3) Results of Incorporation 49
§ 23 (3a) As and Powers
to Liabilities, Privileges 49
§ 23 and Amendment or Repeal....
(3b) Charter as Contract, 50
§ 23 (3c) Sale of Franchise and Effect 53
§ 23 (3d) Xotice of Charter 52
§ 23 (4) Amendment 53
§ 34. Partnerships and Joint Stock-Companies 53
§ 35. Special Charters or Acts 53
§ 25 (1) Power to Grant '.
53
§ 25 (2) Operation and Effect 54
§ 25 Amendment, Renewal and Repeal
(3) 54
§ 36. General Laws 55
§ 27. Defective Incorporation or Organization 56
§ 28. Evidence of Existence 59
§ 28 (1) In General 59
§ 28 (la) Presumptions and Burden of Proof 59
§ 28 Xotice
(lb) Judicial 60
§ 28 (Ic) As Question for Jury 60
§ 38 (Id) Of National Banks 60
§ 28 (2) Charter or Certificate 60
§ 38 (3) Parol Evidence 61
§ 28 (4) User and Repute 62
§ 29. Term of Existence 62
§ 30. Extension, Renewal or Transfer of Franchise 63
§ 30 (1) Extension or Renewal 63
§ 30 (2) Assignment and Transfer of Rights, Franchises, etc 63
§ 31. Name 64
§ 31 (1) Statutory Requirements 64
§ 31 (2) Change of Name 65
tABLE OF CONTENTS. VII
§ 33. Location and Place of Business 66

§ 33. Branches 67
§ 33 (1) Distinct Corporate Existence and Authority 67
§ 33 (2) Creation 6S
§ 33 (3) Powers -68
§ 33 (4) Actions 68
§ 34. Constitution, Charter and By-Laws 69
§ 34 (3) Charter as Notice 69
§ 34 (3) By-Laws 69
§ SiYz. Repeal or Amendment 70
CHAPTER III.
B. Capitai,^ Stock and Dividends.

§ 3,5. Statutory Provisions 75
§ 36. Amount and Shares
of Capital 75
§ 37. Increase of Capital Stock and Number of Associates 78
§ 37 (3) Mode and Validity 78
§ 37 (3) Apportionment and Disposition of Increased Stock 79
§ 38. Reduction of Capital Stock 80
§ 38 (3) Mode and Validity 80
§ 38 (3) Disposition of Proceeds of Surrendered Stock 80 ,
§ 38 (4) Relief against Reduction 81

§ 38^. Surrender of Stock to .Bank 81
§ 39. Subscription to and Issue of Stock 83
§ 39 (1) Right to Subscribe 83,
§ 39 (2) Form and Requisites, Validity and Effect 83

§ 39 (2a) Bona Fides of Subscription 83
§ 39 (3b) Form and Sufficiency 83
§ 39 (3c) Nature and Effect
Obligation of 84
§ 39 (2d) Rescission of Subscription 84
§ 39 (3) Oversubscription and Overissue 84
§ 39 (4) Stock Certificates 85
§ 39 (5) Payment 86
§ 39 (5a) Medium 86
§ 39 (5b) Time 87
§ 39 (5c) Assessments or Calls for Payment 88
§ 39 (5d) What Constitutes Payment 88
§ 39 (5e) Presumption and Proof of Payment 89
§ 39 (6) Stock Mortgages and Bonds 89

§ 39 (7) Liability for and Collection of Unpaid Balances 91
§ 39 (7a) InGeneral 91
§ 39 (7b) Persons Liable 92
§ 39 (7ba) State 93
§ 39 (7bb) Married Women 92
§ 39 (7bc) Trustees 93
§ 39 (7bd) Assignor or Transferrer 92
§ 39 (7be) Assignee or Transferee 93
VIII TABLE OF CONTENTS.
§ 39 (7c) Facts Relieving from Liability 93

§ 39 (7ca) Banks Having No Legal Existence 93
§ 39 (7cb) Irregularity of Organization ".
94
§ 39 (7cc) Irregularities in Subscription 94
§ 39 (7cd) Fraud and Misrepresentation 94
§ 39 (7ce) Agreements Relieving against Liability 95
§ 39 (7cf) Payment, Release or Discharge 96
§ 39 (7cg) Redemption of Share of Bank's Bills 96
§ 39 (7ch) Reduction of Capital Stock 96
§ 39 (7ci) Part of Shares Assessed 96
§ 39 (7cj) Estoppel of Director Who Became Creditor.. 96
§ 39 (7ck) Collusion between Bank and Judgment Cred-
itors 97
§39 Purchase of Shares by Bank
(7cl) 97
§ 39 (7cm) Illegal Transaction of Business 97
§ 39 (7d) Ascertainment of Balances Due and Adjustment of
Liabilities 97
§ 39 (7e) Operation of Assignment for Benefit of Creditors.... 97
§ 39 (7f) Enforcement 98
§ 39 (7fa) Levy of Assessment and Sale of Stock 98
§ 39 (7fb) Nature and Form of Action 99
§ 39 (7fc) Jurisdiction 100
§ 39 (7fd) Limitations and Time to Sue 100
§ 39 (7fe) Appearance and Process 100
§ 39 (7ff ) Parties 100
§ 39 (7flfa) Parties Plaintiff 100
§ 39 (7fib) Parties Defendant 101
§ 39 (7fg) Pleading 101
§ 39 (7fh) Set-Off ; 101
§ 39 (7fi) Evidence 102
§ 39 (7fj) Findings and Judgment 102
S 40. Transfer of Stock 102
§ 40 (1) Assignability 102
§ 40 (2) Persons Who May Acquire or Sell 103
§ 40 (2a) In General 103
§ 40 (2b) Directors of Bank 103
§ 40 (2c) Bank Itself 103
§ 40 (2d) Bank Purchasing Stock in Other Bank 104
§ 40 (3) Validity, Manner and Sufficiency 104
§ 40 (3a) Fraud or Misrepresentation 104
§ 40 (3aa) Effect 104
§ 40 (3ab) Rescission 105
§ 40 (3b) Authority from Holder or Power of Attorney 105
§ 40 (3c) Form and Sufficiency 106
§ 40 (3ca) In General 106
§ 40 (3cb) Certificate Containing" Blank Form of .Assign-
ment 107
§ 40 (3cc) Compliance with Formalities and Rules 108
§ 40 (3cca) In General 108
§ 40 (3ccb) Right to Establish and Enforce 108
§ 40 (3ccba) In General 108
§ 40 (3ccbb) Particular Rules and Formali-
ties 108
TABI,]]; OF CONTENTS. IX
§ 40 (3ccbba) Consent of Directors 108

§ 40 (3ccbbb) Production and Cancella-
Old Certificates.
tion of 108
§ on Bank's Books.
40 (3ccbbc) Entry 109
§ 40 (Sccc) Waiver of Compliance with By-Laws.. 112
§ 40 (3cd) Issue of New Stock Certificate 113
§ 40 (3d) Pledge or Collateral Security 112
§ 40 (3e) Gifts 114
§ 40 (3f) Usurious Transfers 114
§40(4) Operation and Effect 114
§ 40 (4b) Rights and Liabilities of Transferree 115
§ 40 (4c) Title, Rights and Liabilities of Transferree 115
§ 40 (4cb) Liability for Unpaid Balances and Assess-
ment 115
§ Absence of Contract
40 (4cba) In 115
§ 40 (4cbb) Assumption by Purchaser 116
§ 40 (5) Refusal of Bank to Allow Transfer 117
§ 40 (5a) Right to and Liability for Wrongful Refusal 117
§ 40 (5b) Compelling Transfer and Action for Damages 118
§ 40 (5ba) Jurisdiction and Form of Action 118
§ 40 (5bb) Limitations 119
§ 40 (5bc) Process 119
§ 40 (5bd) Parties 119
§ 40 (5be) Evidence 120
§ 40 (5bf) Variance 120
§ 40 (5bg) Judgment 120
§ 40 (6)Restraining Transfer of Stock 121
§ 40H- Liability of Stock for Debts of Stockholders 131
§ iaVz (1) In General 131
§ 40^ (3) Attachment, Execution, Judicial and Tax Sales 131
§ 41. Profits and Dividends 133
§ 41 (1) Power and Discretion of Directors 133
§ 41 (la) In General 132
§ 41 (lb) Insolvent Banks 123
§ 41 (Ic) Tax Dividends 123
§ 41 (2) Accumulation of Surplus Fund 123
§ 41 (3) Payment of Dividends 134
§ 41 (3a) Duty to Pay 134
§ 41 (3b) To Whom Payable 134
§ 41 (3c) Medium 125
§ 41 (3d) Application to Debt of Stockholders 125
§ 41 (3e) Interest 125
§ 41 (4)Action to Recover or to Enjoin Misapplication 125
§ 42, Lien of Bank on Stock and Dividends 126
§ 42 (1) Creation and Existence 126
§ 43 (la) At Common Law 126
§ 43 (lb) Under Charter or Statute 126
§ 42 (Iba) In General 136
§ 43 (Ibb) Retroactive Effect of Statutes 127
§ 42 (Ibc) Reservation by a By-Law 127
§ 43 (Ibd) Contract or Stipulation in Certificate 128
X TABLE OP CONTENTS.
§ 42 (Ic) Stock on Face Transferable

Its 129
§ 43 (Id) Stock Held
Trust in 129
§ 42 (le) Shares Pledged to the Bank 130
§ 42 (If) Bank Prohibited from Dealing in Its Own Stock 130
§ 42 (Ig) Death of Stockholder 130
§ 42 (2) Nature, Operation and Efifect 131
§ 42 (2b) AsExtending to Dividends 131
§ 42 (2c) Debts Secured 131
§ 42 (2d) Priorities and Rights against Persons Dealing with
Stockholders 133
§ 43 (2da) General Rule as to Notice of Lien 133
§ 42 (2db) Assignee and Purchasers 134
§ 42 (2dba) In General 134
§ 42 (2dbb) Indebtedness Incurred before Notice
Transfer
of 134
§ 42 (2dbc) DebtsContracted after Notice of As-
signment 135
§ 43 (3dbd) Loan to Stockholder Larger than Au-
thorized 135
§ 42 (Sdbe) Certificate for Repayment of" Concelled
Stock 136
§ 42 (.2dc) Pledges 136
§ 42 (3dd) Creditors and Purchasers at Execution of
Sheriff's Sale 137
42 (2de) Right to Refuse Transfer
§ 138
§ 43 (3) Discharge, Estoppel, Forfeiture, Release or Waiver 140
§ 42 (3a) Waiver or Discharge 140
§ 43 (3aa) Authority 140
§ 43 (3ab) What Constitutes 141
§ 43 (3b) Estoppel 143
§ 43 (3c) Forfeiture 143
§ 42 (4) Enforcement and Settlement 143
§ 42 (4a) Manner 143
§ 42 (4b) Form of Action 144
§ 42 (4c) Jurisdiction ^ . . 144
§ 42 (4d) Process 144
§ 42 (4e) Limitations 144
§ 42 (4f) Pleading 144
§ 43 (4g) Redemption 144 .
§ 43>4. Voting Power of Stock 145
CHAPTER IV.
C. Stockholders.
§ 42^. Persons Who May Be Stockholders 151

§ 43. Rights and Liabilities as to Bank 152
§ 43 (1) Right to Inspect Books 152
§ 43 (2) Ownership of Capital Stock 153
§ 43 (2a) General Rule 153
§ 43 (2b) Trust Fund for Benefit of Creditors 154
§ 43 (2ba) In General 154
TABLE Olf CONTENTS. XI
§ 43 (2bb) Priority of Bank Bills 154

§ 43 (2bc) Following Capital Stock as Trust Fund after
Distribution 154
§ 43 C2c) Enable Bank to Resume Business
Payment to 157
§ 43 (3) Power to Bind Corporation 157
§ 43 (4) Dealings with Bank 157
§ 43 (4a) As Principle or Surety on Note 157
§ 43 (4b) Sale of Stock to Bank 157
§ ayi- Shareholders' Meetings 157
§ 45. Suing or Defending on Behalf of Bank 157
§ 45 (1) Failure or Refusal of Bank to Sue 157
§ 45 (2) Enjoining Illegal Acts and Practices 159
§ 45 (3) Recovery for Fraudulent or Illegal Acts or Practices 159
§ 45 (4) Quo Warranto and Proceedings in Nature Thereof 159
§ 45 (4a) Testing Legality of Incorporation 159
§ 45 (4b) Testing Validity of Election of Officers 160
§ 46. Liability for Debts and Acts of Bank 160
§ 47. Nature and Extent ".
160
§ 47 (1) In General 160
§ 47 (154) Stockholders' Agreements 161
§ 47 (2) Charter and Statutory Provisions 161
§ 47 (3a) Special Charter Provisions 161
§ 47 (2b) Constitutional and Statutory Provisions 161
§ 47 (3ba) Constitutionality Generally 161
§ 47 (2bb) Applicability and Rules of Construction 162
§ 47 (2bc) Retroactive Efifect 162
§ 47 (3bd) Exterritorial Operation 162
§ 47 (2be) Repeal 162
§ 47 (3) Contractual 163
§ 47 (4) Primary and Secondary Liability 163
§ 47 (5) Joint or Several 164
§ 47 (6) As Principle or Surety 164
§ 47 (7) Banks to Which Applicable 165
§ 47 (7a) What Constitutes a Bank 165
§ 47 ( 7b) Specially Chartered Banks 165
§ 47 (7bb) Change of Name under General Law 165
§ 47 (7c) Banks of Issue Vel Non 166
§47 (7d) Pre-ExistingFuture Banks
and 166
§ 47 (7e) Illegally or Irregularly Organized Banks 168
§ 47 (7f ) Reorganized Banks 169
§ 47 (7g) State Banks 169
§ 47 (7h) National Banks , 170
§ 47 (8) Stockholders Who Are Liable 170
§ 47 (8a) Stockholders Defined 170
§ 47 (8b) Subscribers and Stockholders of Record 170
§ 47 (8ba) General Rule 170
§ 47 (8bb) Requisites and Sufficiency of Subscription or
Acquisition of Shares 170
§ 47 (8c) Agent or Broker 173
§ 47 (8d) Pledgee 173
§ 47 (8e) Representati-ies and Trustees 173
XII TABLE OF CONTENTS.
§ 47 (8f) Beneficiaries of Stock Held in Trust : 174

§ 47 (8g) State : 174
§ 47 (8h) Corporations and Other Banks 174
§47 (9) Creditors and Indebtedness Secured 174
§ 47 (9a) Retroactive Effect of Statutes 174
§ 47 (9b) Creditors Entitled to Enforce 175
§ 47 (9ba) General Creditors 175
§ 47 (9bb) Bill Holder 176
§ 47 (9bc) Indorsers 176
§ 47 (9c) Indebtedness Secured 176
§ 47 (9ca) When Payable 176
§ 47 (9cb) Debts Due or Owing from Stockholder 176
§ 47 (9cc) Debts Incurred Prior to Purchase of Stock 177
§ 47 (9cd) Debts Contracted after Death of Stockholder. 177
§ 47 (9ce) Ultra Vires Undertakings 177
§ General
47 (9cea) In 177
§ 47 (9ceb) Establishment of Branch Bank 177
§ 47 (9cec) Agreements for Liquidation 177
§ 47 (9cf) Particular Obligations 177
§ 47 (9cfa) Bank Bills or Notes 177
§ 47 (9cfb) Deposits 178
§ 47 (9cfc) Judgments against Bank 178
§ 47 (9cfd) Fees and Costs of Creditor's Suit 178
§ Receivership
47 (9cfe) Costs of 179
§ 47 (9cff) Loss Occasioned by Receiver 179
§ 47 (9cfg) Agreements for Liquidation of Bank.. 179
§ 47 (10) When Liability Arises and Conditions Precedent 179
§ 47 (10a) When Liability Arises 179
§ 47 (lOaa) In General 179
§ 47 (lOab) Bank Bills and Notes 180
§ 47 (lOac) Public Funds 180
§ 47 (10b) Demand of Payment and Protest 180
§ 47 (10c) Proceedings against Bank and Receivership 181
§ 47 (lOca) Necessity and Sufficiency Generally 181
§ 47 (lOcb) Filing Claim with Receiver 181
§ 47 (lOcc) Judicial Determination of Insolvency 181
§ 47 (lOcd) Judicial Ascertainment of Indebtedness and
Exhaustion of Assets 182
§ 47 (lOcda) In General 183
§47 (lOcdb) Exhaustion of Assets 183
§ 47 (lOcdc) In New York
'
183
§ 47 (lOce) Judgment against Bank, Execution and Re-
turn 183
§ 47 (lOd) Dissolution of Corporation 184
§ 47 (lOe) Exhaustion of Other Remedies 185
§ 47 (lOf)Order of Court Directing Receiver to Enforce 185
§ 47 (11) Facts Relieving from Liability or Defenses 185
§ 47 (11a) Illegality or Irregularities in Organization 185
§ 47 (llaa) In General 185
§ 47 (llab) Denial of Corporate Existence 186
§ 47 (lib) Invalidity and Irregularity in Issue of Stock 186
§ 47 (lie) Irregularities in Methods of Business 186
§ 47 (lid) Insolvency of Other Stockholders 187
TABLE Olf CONT]<;ntS. XIII
§ 47 (lie) Payment, Satisfaction and Discharge 187

§ 47 (Ilea) Payment by Stockholder and Agreements in
Respect Thereto 187
§ 47 (lleaa) Payment to Other Creditors 187
§ 47 (lleaaa) Payment before Suit....: 187
§ 47 (lleaab) Payment after Suit Commenced. 187
§ 47 (lleaac) Payment in Other Suits 187
§ 47 (lleab) Redemption of Bank's Bills and Notes
by Stockholder 187
§ 47 (lleac) Agreements Providing Funds to Cover
Bank's Liabilities 187
§ (Head) Dividends Paid from Bank's Assets.. 188
47
§ 47 (lleb) Prior Recovery or Payment of Judgment.... 188
§ 47 (llec) Confession of Judgment in Favor of Another
Creditor 188
§ 47 (lied) Subsequent Proceedings by Another to En-
force Same Liability 189
§ 47 (llee) Former Judgment against the Bank 189
§ 47 (llf) Bill Holders Entitled to Priority as to Suing Cred-
itors 189
§ 47 (llg) Release by Bank ,
189
§ 47 (llga) In General 189
§47 (llgb) Resolution of Board of Directors 189
§ 47 (llh) Assignment of Sufficient Assets for Payment 190
§ 47 (Hi) Reorganization of Bank 190
§ 47 (llj) Dissolution, Expiration and Forfeiture of Charter.. 190
§ 47 (Ilk) Discharge in Bankruptcy 190
§47 (111) Possession of Unreported Assets by Receiver 191
§ 47 (11m) Waiver and Estoppel 191
§ 47 (12) Measure or Amount of Liability 191
§ 47 (12a) Jn General 191
§ 47 (12b) Ratable Shares 193
§ 47 (12c) Contingencies Which Enlarge Liability 193
§ 47 (12d) Facts and Contingencies Reducing Liability 193
§ 47 (12da) Payment of Premium for Stock 193
§ 47 (12db) Reduction of Capital Stock 193
§ 47 (12dc) Application of Collateral Security 193
§ 47 (12e) Interest 193
§ 48, Effect of Transfer of Stock 194
§ 48 (1) Liability of Original Holder 194
§ 48 (lb) Requisites and Sufficiency of Transfer 195
§ 48 (Iba) Persons Making Transfer 195
§ 48 (ibaa) Subscribers 195
§ 48 (Ibab) Pledgees 195
§ 48 (Ibb) Persons to Whom Transfer Made 195
§ 48 '(Ibc) Time
Transfer of 196
§ 48 (Ibd) Consideration 197
§ 48 (Ibe) Bona Fides of Transferee and Solvency of
Bank 197
§ 48 (Ibea) In General 197
§ 48 (Ibeb) Intent to Avoid Liability 197
§ 48 (Ibec) Colorable Transfers 202
XIV TABLE OF CONTENTS.
§ 48 (Ibed) Gifts 203

§ 48 (ibee) Transfer of Pledged or Hypothecated
Stock 203
§ 48 (Ibf) Entry on Stock Book 203
§ 48 (Ibg) Publication of Notice of Transfer 206
§ 48 (Ibh) Record in Clerk's Office 207
§ 48 (Ic) Nature and Extent of Liability 207
§ 48 (lea) In General 207
§ 48 (Icb) Existing and Subsequent Creditors 207
§ 48 (2) Transferee's Liability 208
§ 48 (2b) Requisites and Sufficiency of Transfer 209
§ 48 (2ba) Consent of Transferee. . s 209
§ 48 (2bb) Solvency of Time
Bank at of Transfer 209
§ 48 (2bc) Entry on Bank's Books 209
(2bd) Pledgee
§ 48 210
(3be) Trustee and Representatives
§ 48 211
§ 48 (2c) Nature, Duration and Extent 212
§ 48 (2ca) Duration 212
§ 48 (2cb) Liability for Antecedent and Subsequent Debts. 212
§ 48 (2cc) Dividends Fraudulently Received by Trans-
ferer 212
§ 48 (2cd) Indemnifying Transferer 313
§ 48J4. Assessment by State Official to Make Good Impairment of Cap-
ital Stock 213
§49. Actions and Proceedings to Enforce 214
§ 49 (1) Nature and Forms 214
§ 49 (la) Legislative Regulations 214
§ 49 General
(laa) In 214
4 49 (lab) Retroactive Effect of Statutes 214
§ 49 (lb) Statutory Remedy Exclusive 215
§ 49 (Ibb) Ancillary Suit in Other Jurisdiction 215
§ 49 (Ic) Forms of Action 216
§ 49 (lea) Creditors Suit and Receivership 216
§ 49 (Icb) Action at Law by Creditor 218
§ 49 (Icba) Right to Sue 218
§ 49 (Icbb) Enjoining Creditors from Prosecuting
Suit 219
§ 49 by Receiver of Bank
(Ice) Action at Lavir 219
§ 49 (led) Action by Attorney General to Dissolve Bank. 219
§ 49 (Icda) Right to Enforce Stockholder's Liabil-
ity 219
§ 49 (Icdb) Intervention by Creditor 220
§ 49 (Ice) Superintendent of Bank Authorized to Enforce. 220
§ 49 (Icf) Nonresident Stockholder 220
§ 49 (2) Jurisdiction 221
§ 49 (2a) Existence of Legal Remedy 221
§ 49 (2b) Court in Which Receivership Pending 221
§ 49 (2c) Courtsof Foreign Jurisdiction 222
§ 49 (2d) Loss or Divesture 222
§ 49 (3) Courts and Venue 222
TABLB OF CONTENTS. XV
§ 49 (4) Set-Off and Counterclaim 223

§ 49 (4a) Set-Off 223
§ 49 (4b) Counterclaim 224
§ 49 (5) Time Sue and Limitations and Laches
to 224
§ 49 (5a) Time to Sue 224
§ 49 (5b) Wlhat Statutes Applicable 225
§ 49 (5c) In What
Actions Available 226
§ 49 (5d) When Statutes Begins to Run 226
§ 49 (5e) Period of Limitations and Suspension of Statute.... 227
§49 (5f) Operation and Stay of Proceedings 328
§ 49 (5g) Laches and Lapse of Time • 228
§ 49 (syi) Process and Appearance 229
§ 49 (6) Parties 229
§ 49 (6a) Parties Plaintiff 229
§ 49 (6aa) Necessity and Proper Parties 229
§ 49 (6aaa) Suit to Enforce Liability for Debts of
Bank 229
§ 49 (6aaaa) In General 229
§ 49 (6aaab) Creditors 229
§ 49 (Gaaac) Corporation or Bank 330
§ 49 (6aaad) Receivers 330
§ 49 (6aaae) Assignees for Benefit of Credit-
ors 231
§ 49 (6aaaf) Trustees 231
§ 49 (6aaag) Superintendent of Banks 231
§ 49 (6aaah) Comptroller of Banks 331
§ 49 Attorney General
(6aaai) 231
§49 (6aaaj) County Treasurer 232
§ 49(6aab) Suit for Public Moneys 233
§ 49 (6aac) Suit on Stockholder's Bond 233
§ 49 (6ab) Interest 232
§ 49 (6ac) Joinder of Parties Plaintiff 232
§ 49 (6aca) Receivers and Creditors 332
§ 49 (Bach) Creditors and Assignee of Claim against
Bank 233
§ 49 6ad) Bringing in Parties Plaintiff 233
§ 49 (6b) Parties Defendant 233
§ 49 (6ba) Proper and Necessary Parties 233
§ 49 (6baa) Creditor's Suit against Bank 233
§ 49 (6bab) Actions against Stockholders by Cred-
itors 233
§ 49 (6bb) Joinder of Parties 334
§ 49 (6bba) Joinder of Stockholders 334
§ 49 (6bbaa) Action at Law by Creditors.... 334
§ 49 (ebbaaa) In General 234
§ 49 (ebbaab) Stockholders Who Trans-
ferred Stock 234
§ 49 (abbab) Creditors Suits 234
§ 49 (abbaba) In General 234
§ 49 (abbabb) Nonresident Stockhold-
ers 334
§ 49 (6bbac) Actions by Receiver 234
XVI TABLE OF CONTENTS.
§ 49 (6bbb) Joinder of Bank, Its Trustee or As-

signee 2:!
§ 49 (6bbba) Actions by Creditors 235

§ 49 (6bbbb) Actions by Receivers 235
§ 49 (6bc) Bringing in Parties Defendant 236
§ 49 (6bd) Death of Party— Revival ; 236
§ 49 (6be) Dismissal and Striking Off Parties 336
§ 49 (6H) Dismissal of Suit 236
§ 49 (7) Pleading 237
§ 49 (7a) Complaint, Declaration or Petition 237
§ 49 (7aa) Necessary Alkgations 237
§ 49 (7ab) Sufficiency of Allegations 239
§ 49 (7ac) Prayer for Recovery 241
§ 49 (7ad) Amendments and Aider by Verdict 241
§ 49 (7ae) Affidavit and Amount of Indebtedness 241
§ 49 (7b) Cross Bill 242
§ 49 (8) Evidence 242
§ 49 (8a) Presumptions and Burden and Degree of Proof 242
§ 49 (8b) Admissibility 243
§ 49 (8c) Weight and Sufficiency 243
§ 49 (9) Trial and Judgment 244
§ 49 (9a) Reference and Report
Receiver's 244
§ 49 (9b) Findings of Fact and Conclusions of Law 246
§ 49 (9c) Judgment or Decree 246
§ 49 (9ca) Form, Requisites and Validity 246
§ 49 (9cb) Amount for Which Rendered 248
§ 49 (9cc) Second Assessment 248
§ 49 (9cd) Persons Bound and Matters Concluded 248
§ 49 (9cda) Judgment in Creditor's Suit against
Bank 248
§ 49 (9cdaa) Persons Bound 248
§ 49 (9cdaaa) Stockholders 248
§ 49 (9cdaab) Stockholders Not Served. 249
§ 49 (9cdaac) Nonresident Stockholder. 249
§49
(9cdab) Matters Concluded 249
§ 49 (9cdb) Judgment against a Bank as Stockholder. 250
§ 49 (9ce) Lien and Priority 251
§ 49 (9cf) Payment and Discharge 251
•
§ 49 (9cg) Enforcement 251
§ 49 (9cga) Execution '
251
§ 49 (9cgb) Action on Judgment or Assessment.... 251
§ 49 (10) Liability for Expenses 252
CHAPTER V.
D. Officers and Agents.

§ 50a. Definitions and General Considerations 256
§ 51. Election or Appointment, Qualification and Tenure 256
§ 51 (1) Authority to Employ Officers and Agents — How Appointed.. 256
§ 51 (2) Eligibility — Statutory and Charter Provisions 257
TABLE OF CONTENTS. XVI
§ 51 (3) Election 258

§ 51 (4) Qualification 259
§ 51 (4a) Oath 259
§ 51 (4b) Bond 260
§ 5.1- (5) Beginning and Duration of Term 262
§ 51 (6) Removal or Discharge 263
§ 51 (7) Trial of Right or Title to Office 264
§ 52. Meetings of Directors 265
§ 53. Rights and Liabilities as to Bank and Stockholders 267
§ 34. Nature and Extent 267
§ 54 (1) In General 267
§ 54 (la) Powers, Duties and Liabilities of Directors 267
§ 54 (lb) President's Powers, Duties and Liabilities 273
§ 54 (Ic) Cashier's Powers, Duties and Liabilities 274
§ 54 (Id) Wrongful Acts from Which No Loss or Injury Re-
sults 276
§ 54 (le) Liability for Acts Done during Absence, Sickness,
etc 276
§ 54 (If) Duty with Respect to Statements of Bank's Condition. 277
§ 54 (Ig) Duty with Respect to Handling and Safe-Keeping of
Funds, Securities, etc 278
§ 54 (2) Misappropriation of Funds 279
§ 54 (3) Duties and Liabilities with Respect to Loans, Discounts,
Overdrafts, etc 283
§ 54 (4) Liability of One Officer for Acts of Another 290
§ 54 (5) Right of Stockholders to Enforce Liability 293
§ 54 (6) Individual Interest in Transaction 296
§ 54 (7) Compensation of Officers 304
§ 54 (8) Power to CloseBank or Decline Deposits 307
§ 54 (9) Liability on Bond : 307
§ 54 (9a) Duration Liabihty
of 307
§ 54 (9b) Risks and Delinquencies Covered by Bond.., 309
§ 54 (9c) False Representations in Procuring Bond 312
§ 54 (9d) Supervision and Notice of Default or Loss 314
§ 54 (9e) Filing Claim for Loss 317
'
§ 54 (9f ) Actions on Bonds 319

§ 55. Actions and Proceedings to Enforce Liability 319
§ 55 (1) Nature and Form Jurisdiction — 319
§ 55 (2) Limitations and Laches 320
§ 55 (3) Parties 322
§ 55 Pleadings
(4) 323
§ 55 (5) Evidence, Issues, etc 328
§ 55 (6) Trial 332
§ 56. Liability of Directors and Officers to Third Persons 333
§ 57 (1) In General 333
§ 57 (la) Affirmative View 333
§ 57 (lb) Negative View 343
§ 57 (Ic) Constitutional and Statutory Provisions 346
§ 57 Individual Liability upon Obligations of
(2) Bank 347
§ 57 (3) Liability for Ultra Vires Acts 349
§ 57 (4) For Incurring Excessive Indebtedness 351
1 B & B—
XVHI TABI<E OF CONTENTS.
§ 57 (5) Liability with Respect to Reports, Statements, and Repre-

sentations 354
§ 57 Receiving Deposits after Insolvency
(6) 358
§ 57 (7) Sale of Drafts of Insolvent Bank 362
§ 57 (8) Liability with Respect to Special Deposits 362
§ 57 (9) Personal Liability with Respect to Loans, Discounts, and
Investments 363
§ 57 (9a) At Common Law 363
§ 75 (9b) Loans and Investments in Violation of Statute 364
57 (9c) Liability for Acts of Associates and Subordinates
§ 366
§ 57 (10) Individual Liability with Respect to Collections and Pay-
ments 366
§ 57 (11) Individual Liability with Respect to Sale, Transfer or Pur-
chase of Stock 367
§ 57 (12) Wirongfully Declaring Dividends 367
§ 57 (13) Officers of Fraudulentand Illegal Banks 368
§ 57 and Persons Held out as Directors.... 369
(14) Nominal. Directors
§ 58. Actions and Proceedings to Enforce 370
§ 58 (1) Time to Sue and Limitations 370
§ 58 (lyi) Nature and Form of Proceedings 372
§ 58 (2) Set-Oflf 379
§ 58 (3) Parties 379
§ 58 (3b) Joinder of Parties and Causes 381
§ 58 Pleading
(4) 383
§ 58 (4a) General Rules and Observations 383
§ 58 (4b) Where Cause of Action Based upon Negligence,
Fraud or Deceit 385
§ 58 (4c) Matters of Defense 388
§ 58 (5) Evidence 388
§ 58 (5a) Presumption and Burden of Proof 388
§ 58 (5b) Competency and Admissibility of Evidence 389
§ 58 (5c) Weight and Sufficiency of Evidence 390
'.
§ 58 (6) Trial 392
§ 60. Criminal Responsibility 393
§ 60 Constitutional and Statutory Provisions
(1) 393
§ 60 (2) Accessories, Aiders, and Abetters 395
§ 60 (3) Officers of De Facto Banking Corporations .395
§ 61. Offenses 396
§ 61 (1) Illegal and Unauthorized Banking 396"
§ 61 (2) Criminal Liability for Fraud, Negligence, Fraudulent In-
solvency, etc 396
§ 61 (3) Doing Business While Insolvent — Receiving Deposits, etc.. 397
§ 61 (3a) In General '
397
§ 61 (3b) Receiving Deposits after Knowledge of Insolvency.. 398
§ (4) Embezzlement, Misappropriation, False Entries, etc 410
§ 61 (5) False Reports, Statements, and Returns, Exhibiting False
Books, etc 411
§ 61 (6) With Respects to Loans, Discounts, and Overdrafts 413
§ 61 Purchase, Sale or Transfer of Stock
(7) 414
§ 61 (8) Illegal Dividends 414
§ 62. Prosecution and Punishment 415
§ 62 (1) Indictment or Information 415
TABLE OF CONTENTS. XIX
§ 63 (la) Following Words of Statute 415

§ 62 (lb) Existence and Operation of Bank — Defendant's Official
Relation 415
§62 (Ic) Intent— Willful or Intentional 417
§ 62 (Id) Joinder of Parties and Offenses 418
§ 62 (le) Indictments for Particular Offenses Considered 419
§ 62 (lea) Illegal and Unauthorized Banking 419
§ 62 (leb) False Entries 419
§ 62 (lee) False Reports and Statements 420
§ 62 (led) Conversion and Misappropriation of Funds.. 421
§ 62 (lee) Indictment for Aiding and Abetting 422
§ 62 (lef) Overdrawing Account 423
§ 62 (leg) Fraudulent
Insolvency 423
§ 62 (leh) Receiving Deposits after Knowledge of In-
solvency 423
§ 62 (4ei) Illegal Loans, Discounts and Overdrafts 429
§ 62 (2) Evidence 430
§ 62 (2a) Presumption and Burden of Proof 430
§ 62 (2b) Admissibility of Evidence 432
§ 63 (2c) Weight and Sufficiency —
Variance 439
§ 62 (3) Instructions 443
§ 62 (4) Verdict 449
§ 62 (5) Sentence and Punishment 449
CHAPTER VI.
E. Insolvency and Dissolution.
§ 63. Constitutional and Statutory "Provisions 457

§ 63 (1) Constitutionality of Statutes 457
§ and Construction of Statutes
63 (2) Interpretation 460
§ 64. Voluntary Eiquidation and Dissolution 460
§ 64 (1) Voluntary Liquidation 460
§ 64 (la) Definitions 460
§ 64 (lb) Methods of Liquidation 460
§ 64 (Ic) Time of Dissolution 462
§ 64 (Id) Estoppel 462
§ 64 (2) Involuntary Liquidation 462
§ 65. Reorganization 462
§ 65 (1) In General 462
§ 65 (2) Effect of Reorganization 463
§ 65 (2b) On Liability for Debts of Old Corporation 463
§ 65 (3c) On Rights and Liabilities of Stockholders 464
§ 65 (3) Validity of Reorganization Proceedings 465
§ 65 (4) Reorganization Agreements 465
§ 66. Effect on State Bank of Reorganization as National Bank 466
§ 67. Consolidation 468
§ 67 (1) Right to Consolidate 468
§ 67 (3) What Constitutes ! 468
§ 67 (3) Effect of Consolidation 468
§ 68. Grounds of Forfeiture of Franchise or Dissolution 469
XX TABLE OF CONTENTS.
§ 69. Waiver or Remission of Forfeiture 474

§ 70. Proceedings to Enforce Dissolution 475
§ 70 (1) In General 475
§ 70 (2) Nature or Character of Proceeding 476
§ 70 (3) Necessity of Proceeding 478
§ 70 (4) Jurisdiction and Venue .-
479
§ 70 (5) Parties
'.
479
§ 70 (6) Multifariousness 480
§ 70 (7) Pleading 480
§ 70 (8) Judgment 481
§ 70 (9) Abatement and Vacation of Proceedings 482
§ 70 (10) Costs : 482
70 (11) New Trials
§ .- 48S
§ 71. Receivers, Trustees or Commissioners in Proceedings for Dissolution. 482
§ 71 (1) Selection, Appointment and Removal 482
§ 71 (2) Title, Right and Authority 484
§ 71 (3) Salary or Compensation 487
§ 71 (4) Suits by and against 487
§ 71 (4a) Suits by 487
§ 71 (4b) Suits against 488
§ 71 (4c) Revivor of Actions 488
§ 71 (5) Termination of Trust 488
§ 71 (6) Accounting 489
§ 72. Effect of Dissolution 489
§ 72 (1) InGeneral , 489
§ 72 (2) On the Relation of Officers to the Bank 492
§ 72 (3) On Rights of Creditors 493
§ 72 (3b) Rule in Equity '
494
§ 72 (3c) Pre-Existing Liability for Taxes 494
§ 72 (4) On Rights of Stockholders 494
§ 72 (5) On Liability of Stockholders
'
495
§ 72 (6) On Right to Make Collections 495
§ 73. Insolvency and Its Effect in General 496
§ 73 (1) What Constitutes Solvency or Insolvency 496
§ 73 (2) Evidence of Insolvency 498
§ 73 (3) Effect of Insolvency 498
§ 73 (3b) Transacting Business after Knowledge of Insolvency. 499
§ 73 (3c) On the Venue of Suits against Bank 501
§ 73 (4)Rights of Correspondent Bank 501
§ 73 (5) Insolvency of Foreign Banks 502
§ 74. Transfers and Preferences Affected by Insolvency 502
§ 74 (1) In General 502
§ 74 (2) Right of Directors to Prefer Themselves 507
§ 74 (3) Payments to Depositors 507
§ 74 (4) Who Is Entitled as a Preferred Creditor 507
§ 74 (5) Transfers to Pledgees 508
§ 74 (6) Transfer after Appointment of Receiver 509
§ 74 (7) Purchase of Its Own Stock by a Bank 509
§ 75. Rights of Persons Making Deposits after Insolvency 509
§ 75 (1) In General 509
§ 75 (2) Deposits for Collection 517
TABLE OF CONTENTS. XXI
§ 75 (3) Special Deposits 518

§ 75 (4) Rights of Payee of Draft 518
§ 75 (5) Restoration of Consideration on Rescission 519
§ 75 (6) Evidence 519
§ 76. Remedies and Proceedings on Insolvency 519
§ 76 (1) Right Actionof ; 519
§ 76 (3) Modes of Procedure 519
§ 76 (2b) Injunction 520
§ 76 (3c) Summary Remedies 532
§ 76 (3d) Creditors' Suits 522
§ 76 (3) Parties 533
§ 76 (4) Evidence 524
§ 76 (5) Accounting - 525
§ 76 (6) Reference 525
§ 76 (7) Costs 525
§ 76 (8) Supplying Vacancies in Beards of Directors 525
§ 77. Assets and Receivers on Insolvency 525
§ 77 (^) Assets ^ 525
§ (Ha) What Constitutes
77
'
525
§ 77 (âa) In General 525
§ 77 (yibb) Surplus from Sale of Collateral 529
§ 77 i'Acc) Unpaid Subscriptions and Statutory and
Other Liabilities of Stockholders 529
§ 77 (^dd) Credits 5H0
§ 77 (Jêe) County Money Wrongfully in Bank 5:!0
§ 77 (Hb) Distribution of Assets 530

5 77 (1) Appointment and Removal of Receiver 531
§ 77 (la) Purpose of Appointment 531
§ 77 (lb) Selection, Qualification and Compensation 531
§ 77 (laa) In General 581
§ 77 (Ibb) Oath , 531
§ 77 (Ice) Bond 531
§ 77 (Idd) Number of Receivers 532
§ 77 (lee) Compensation 532
§ (77 (Iff) Temporary Receivers , 533
§ 77 (Ic) Grounds for Appointment of Receiver 533
§ 77 (Id) Proceedings for Appointment of Receiver 535
§ 77 (Ibb) Jurisdiction and Powers of the Court 536
§ 77 (Ice) The Petitioner 536
§ 77 (Idd) Notice 537
§ 77 and Answer
(lee) Petition 538
§ 77 (Iff) Hearing and Determination of Motion 538
§ 77 (Igg) The Order of Court 539
§ 77 (le) Removal and Discharge 539
§ 77 (2) Operation and Efifect 539
§ 77 (3a) In General 53a
§ 77 (2b) On. Rights of Attaching Creditors 540
§ 77 (3c) On Right to Sue the Bank 541
§ 77 (3) Title, Rights, Powers and Duties of Receivers 543
§ 77 (3b) Relation of Receiver to Bank and Creditors 542
XXII TABLE OF CONTENTS.
§ 77 (3c) Conflicting Receiverships 543

§ 77 (3d) Title and Rights as to Assets 543
§ 77 (3e) Powers of Receiver in General 543
§ 77 Duties of Receiver in General
(3f) 545
§ 77 (3g) Liabilities of Receivers in General 546
§ 77 (3h) Instructions from Court 547
§ 77 (4) Collection and Protection of Assets 547
§ 77 (4b) Surrender of Assets to Receiver 548
S 77 (4c) Compromise of Claims 548
§ 77 (4d) Proceedings to Collect 543
S 77 (4aa) FormProceedings
of 548
§ 77 (4bb) Jurisdiction and Power of Courts 548
§ 77 (4cc) Parties 549
§ 77 (4e) Retention of Assets by Bank 550
§ 77 (5) Sale or Other Disposition of Assets 550
§ 77 (5a) Marshaling the Assets 550
§ 77 (5b) Sale of Assets 550
§ Purchaser of Notes'
77 (5c) 551
§ 77 (5d) Right of Receiver to Purchase at His Own Sale.... 551
§ 77 (5e) Interest on Purchase Money 553
§ 77 (6) Actions by or against Receiver . 552
§ 77 (6a) Actions by 552
§ 77 (6aa) Jurisdiction 552
§ 77 (6bb) Right of Action 552
§ 77 Whose Name Action to Be Brought
(6cc) In 553
§ Representative Capacity of Plaintiff
77 (6dd) 554
§ 77 (6b) Actions against 554
§ 77 (6c) Defenses 554
§ 77 (6aa) In Actions by Receivers 554
§ 77 (6bb) In Actions against Receivers 555
§ 77 (6d) Set-Offs 555
§ 77 (6aa) Set-Offs by Receivers 555
§ 77 (6bb) Set-Offs against Receivers 556
§ 77 (6e) Plea, Answer and Reply 558
§ 77 (6f) Issues, Proof and Variance 558
§ 77 (6g) Parties 558
§ 77 (6h) Evidence 559
§ 77 (6i) Judgment 559
§ 77 (6j) Costs 559
§ 78. Assignments for Benefit of Creditors 5g0
§ 78 (1) Right to Make 560
§ 78 (2) Involuntary Assignments 5gX
§ 78 (3) Requisites and Validity 56]^
§ 78 (3a) Requisites 561
§ 78 General
(3aa) In 56i
§ 78 (3bb) Execution of Assignment 562
§ 78 (3cc) Assent of Stockholders 562
§ 78 (3dd) Acceptance of Trust by Assignee 563
§ 78 (3b) Validity 563
§ 78 (3aa) In General 563
§ 78 (3bb) Preferences 565
§ 78 (4) Operation and Effect of Assignment 566
table; of contents. xxiii
§ 78 General
(4a) In •
566
§ 78 (4b) What
Passes by Assignment 567
§ 78 (5) The Assignee or Trustee 568
§ 78 (5a) Relation of Trustee to Bank and Creditors 568
§ 78 (5b) Necessity of Assignee ., 568
§ 78 (5c) Selection or Appointment 568
§ 78 (5d) Qualifications of Assignee 569
§ 78 (5e) Joint Assignees 569
§ 78 (5f) Title and Rights, Powers and Duties of Assignee.... 569
§ 78 (5g) Compensation of Assignee 570
§ 78 (5h) Removal of Assignee 570
§ 78 (6) Rights and Remedies of Creditors 570
§ 78 (6a) Assets 570
§ 78 (6aa) What Constitutes 570
§ 78 Assets
(6bb) Collection of 571
§ 78 (6cc) Limitation on Actions by Assignee 571
§ 78 (6b) Presentation, Proof and Payment of Claims 572
§ 78 (6aa) Presentation of Claims 572
§ 78 (6bb) Allowance of Claims 572
§ 78 (6cc) Set-Off 572
§ 78 (6c) Distribution of Assets 573
_ § 78 (6bb) Priorities 573
§ 78 by Creditors
(6d) Actions 573
S 78 (7) Proof of Assignment 574
§ 78 (8) Vacating and Setting Aside Assignment 574
i) 79. Rights of Holders of Circulating Notes' 575
§ 79 (1) Payment out of Assets in General 575
§ 79 (la) Right of Bill Holders to Share in Assets 575
§ 79 (lb) Payment in Bills, Notes or Other Obligations of the
Bank 575
§ 79 (2) Preference 578
§ 79 (3) Penalties and Interest 580
§ 79 Set-Off against Bank or Receiver
(4) 580
§ 79 (5) Rights against Officers of Bank 581
§ 79 Actions by Bill Holders
(6) 581
§ 80. Presentation and Payment of Claims 582
§ 80 (1) Claims Provable and Estoppel to Claim 582
§ 80 (la) Claims Provable 582
§ 80 (Ibb) Claims for Taxes 583
§ 80 (Ice) Claims of Depositary 583
§ 80 (Idd) Paid-Up Stockholders 584
§ 80 (lee) Incidental Expenses in General 584
§ 80 (lb) Estoppel to Claim 584
§ 80 (2) Presentation and Proof 585
§ 80 (2a) Presentation 585
§ 80 (2bb) Notice to Creditors to Present Claims 585
§ 80 (2cc) Time for Presentation or Filing of Claim.... 585
§ 80 (2b) Proof 586
§ 80 (3) Allowance and Payment _, 587
S 80 (3a) By Whom Allowed 587
XXIV TABLE OF CONTENTS.
§ 80 (3a) To Whom Allowed 587

§ 80 (3c) Rights and Liabilities of Creditors Holding Collateral. 587
§ 80 (3d) Hearing and Determination 588
§ 80 (3bb) Raising and Waiving Objections to Allowance
of Claims 589
§ 80 (3e) Payment 589
§ 80 (4) Preferences and Priorities
Generalin 590
§ 80 (4a) Order of Liability of Assets 590
§ 80 (4b) Claims Preferred 590
§ 80 (4bb) feifpenses of Insolvency Proceedings 592
§ 80 (4cc) Claim for Taxes , 593
§ 80 (4dd) Pre-Existing Liens and Equities 593
§ Debts Lawfully and Unlawfully Contracted...
80 (4ee) 593
§ 80 (4ff) Claims of Firm and Individual. Creditors 592
§ 80 (4gg) Claims of State and County 598
§ 80 (4hh) Claims of Forwarding or Collecting Banks... 594
§ 80 (4c) Effect of Fraud 594
§ 80 (4d) Transfer of Right to Priority 595
§ 80 (4e) Allowance of Preferences 595
§ 80 (4aa) In General .'
595
§ 80 (4bb) Funds or Assets Available to Preferred Cred-
itors 596
§ 80 (4f) Estoppel and Election 597
§ 80 (5) Deposits 598
§ 80 (5b) Priorities as between Themselves 603
§ 80 (5c) Deposits by Savings Banks 604
§ 80 (6) Special or Segregated Deposits 604
§ 80 (6b) Checks Deposited for Collection 609
§ 80 (6c) Identification of Fund Deposited 609
§ 80 (7) Deposit of Trust Funds 609
§ 80 (7b) Deposits of Public Moneys 614
§ 80 (7c) Right to Follow and Reclaim Fund 616
§ 80 (7bb) Notice of Character of Deposit 618
§ 80 (7cc) Effect of Beneficiary Taking Collateral Security. 618
§ 80 (7dd) Identification of Fund or Deposit 618
§ 80 (7d) Proceedings to Establish Trust 635
§ 80 (8) Holders of Checks or Drafts 636
§ 80 (8b) Rule in Equity 628
§ 80 (8c) Holders of Protested Paper 628
§ 80 (8d) Drawers of Drafts on Consignment 628
§ 80 (8 J4) Officers and Stockholders 628
§ 80 (8â) Bank Officers 628
§ 80 (8j4b) Stockholders 629
§ 80 (9) Dividends and Interest 630
§ 80 (9a) Dividends 630
§ 80 (9aa) Right to Dividends 630
table; 01? CONTENTS. XXV
§ SO (9aaa) In General 630

§ 80 (9bbb) Rights of Purchasers of Claims 632
§80 (9ccc) Establishment of Right 633
§ 80 (9bb) Distribution of Dividend 633
§ 80 (9b) Interest 633
§ 80 (9aa) Right toand Liability for 633
§ 80 (9bb) Computation of , 633
§ 80 (9cc) Rate of 634
§ 80 (9J^) Set-Off 634
§ 80 (9j4a) In General 634
§ SO (9Kb) Conditions Annexed to Exercise of Right 635
§ 80 (9^0) Claims That May Be Used as Set-Offs 636
§ 80 (gi^d) Estoppel to Interpose Set-Off 638
§ 80 (9^) Proceedings to Compel Payment 638
§ 81. Distribution of Surplus 639
§ 82. Civil Liability on Insolvency 640
§ 83. Criminal Responsibility on Insolvency 640
§ 84. Offenses 640
CHAPTER VII.
III. Functions and Dealings.
A. Banking Franchises and Powers, and Their Exercise in General.

§ 86. What Are Banking Powers in General 642
§ 86 (1) Functions
General in 642
§ 86 (2) Mode of Exercise 643
§ 86 (3) Place of Exercise 644
§ 86 (4) Incidental and Implied Powers 646
§ 87. Construction of Charters and Banking Laws 647
§ 88. Rules of Bank 650
§ 89. Customs and Usages 650
§ 89 (1) Admissibility of Evidence and Its Sufficiency 650
§ 89 (3) Character and Effect • 651
§ 89 (3) Presumption of Action by Directors 654
§89(4) Particular Customs 655
§ 89 (4a) As to Notice of Maturity of Negotiable Paper 655
§ 89 (4b) As to Deposits and Checks and Payment Thereof.... 655
§ 89 (4c) As to Collections 657
§ 89 (4d) As to Loans and Discounts 658
§ 90. Agency of Bank 658
§ 91. Purchasing and Holding Bank's Own Stock 659
§ 92. Purchasing and Holding Stock in Other Corporations 660
§ 93. Property and Conveyances 662
§ 94. In General 662
§ 94 (1) Acquisition and Holding 662
§ 94 (2) Disposal of Property 664
§ 95. Real Property 665
§ 95 (1) Acquisition and Holding 665
§ 95 (la) Right to Acquire and Hold Generally 665
§ 95 (lb) Right to Raise Question of Authority 667
XXVI TABIvE OF CONTENTS.
§ 95 (Ic) Conveyance before Incorporation Complete 668

§ 95 (Id) Mortgages 668
§ 95 (le) Leases 670
§ 95 (2) Disposal of Property 670

§ 96. With Respect to Contracts in General 671
§ 96 (1) Formality and Authentication •,
• 671
§ 96 (2) Notice of Limitations 672
§ 96 (3) Contracts under Seal 672
§ 96 (4) Contracts between Banks Entered into by Contracting Offi-
cers Common to Both 672
§ 96 (5) Contract to Honor Drafts 672
§96(6) Subscription Contract 673
§ 96 (7) Illegal Contracts t 673
§ 96 (8) Ultra Vires Contracts 673
§ 96 (9) Termination 674
§ 97. Borrowing Money 674
§ 98. Bonds, Assignments and Negotiable Instruments 677
§ 98 (1) Bonds and Assignments 677
§ 98 (2) Instruments
Negotiable 677
§ 98 (2a) Power to Make and Issue 677
§ 98 (3b) Power to Deal Therein 679
§ 99. Guaranty and Suretyship 681
§ 100. Torts 683
§ 101. Eflfect of Acts Ultra Vires 684
§ 101(1) In General 684
§ 102 (2) Rights Acquired by Bank 685
§ 101 (3) Rights Acquired against Bank 686
CHAPTER VIII.
B. Representation of Bank by Officers and Agents.
§ 102. Grounds and Extent of Liability in General 693

§ 102 (1) General Principles upon Which Bank Held Liable to Third
Persons 693
§ 102 (3) Power of Directors to Define and Fix Duties 700
§ 102 (3) Manner of Prescribing Powers and Duties 700
§ 102 (4) Manner of Contracting or Representing 701
§ 102 (5) Representative Capacity of Particular Officers Considered. . 702
§ 102 (5a) Directors 702
§ 103 (5b) President —Vice-President .-
704
§ 103 (oc) Cashier 710
§ 103 (5ca) General Nature and Extent of Cashier's Pow-
ers and Duties 710
§ 103 (5cb) Applicability of the Rules of Agency 713
".
§ 103 (5d) Teller 715
§ 103. Statutory Provisions 715
§ 104. Disposition or Encumberance of Property — Acquisition of Property.. 716
§ 104 (1) Power of Directors, Generally 716
§ 104 (3) Power of President 717
§ 104 (3) Powers of Cashier 719
§ 104 (4) Consideration for Transfer of Bank's Property 724
TABLE Of CONTENTS. XXVII
§ 104 (5) Disposition, Encumbrance, or Lease of Real Estaie 725

§ 104 (6) Assignments for Benefit of Creditors 727
§ 104 (7) Acquisition of Property by Officers for Bank 727
§ 105. Contracts 728
§ 105 (yi) General Principles 728
§ 105 (1) Directors '. 733
§ 105 (3) President 736
§ 105 (3) Cashier .'
737
§ 105 (3b) Particular Powers Considered 738
§ 106. Deposits 746
§ 106 (1) In General 746
§ 106 (3) President 748
§ 106 (3) Cashier 748
§ 106 (4) Teller 751
§ 106 (5) Directors 753
§ 107. Collections 753
§ 107 (1) In General 754
§ 107 (3) President 754
§ 107 (3) Cashier 754
§ 107 (4) Teller 755
§ 107 (5) Attorney 755
§ 108. Loans and Discounts 755
§ 108 (1) In General 755
§ 108 (2) Directors 756
§ 108 (3) Committee 756
§ 108 (4) President 756
§ 108 (5) Cashier 757
108 (6) Treasurer and General
§ Manager 759
§ 109. Bills, Notes and Securities 759
§ 109 (1) In General 759
§ 109 (3) President and Vice-President 760
§ 109 (2a) President 760
§ 109 (2b) Vice-President 763
§ 109 Cashier
(3) 763
§ 109 (4) Directors 769
§ 109 (5) Clerk and Actuary 770
§ 110. Actions 770
§ 110 (1) Directors 770
§ 110 (3) President 770
§ 110 (3) Cashier 771
§ 110 (4) Treasurer 773
111. Representations or Admissions
'
§ 773
§ 111 (1) In General 773
§ 111 (3) Directors 774
§ 111 (3) President 774
§ 111 (4) Cashier 776
§ 111 (5) Teller 779
§ 112. Wrongful Acts 780
§ 112 (1) In General 780
§ 112 (3) Torts of Managing Officer and Cashier Generally 780
§ 112 (3a) Acts Not Within Corporate Capacity 780
§ 112 (2b) Acts Without Scope of Authority 780
XXVIII TABLE OF CONTENTS.
§ 112 (3) Particular Torts or Wrongful Acts 781
§ 112 (3a) Fraud

^81
§ 112 (3ab) Fraud in Obtaining Loan for Bank 782

Fraud in Receiving Deposits 782
§ 112 (3ac)
Depreciating Collaterals 783
§ 112 (Sad)
§ 113 (3ae) Fraud in Procuring of Note 783
112 (3af) Fictitious Jintry of Credit 783
§
§ 112 (Sag) Deposit of Worthless Check in Another Bank. 783
§ 112 (Sah) Conspiracy to Defraud Third Person 783
§ 112 (Sai) Banks Retaining Benefits of Transaction 784
§ 112 (Saj) Fraudulent Acts in Personal Transactions 785
§ 112 (Saja) In General..!'. 785
§ 112 (Sajb) Use of Name of Bank 785
§ 112 (Sajc) Buying and Selling Stock 786
§ 112 (Sajd) Fraud on Depositor 786
§ 113 (Sak) Application of Principle of Estoppel 786
§ 112 (Sal) Proof of Fraud ' 786
§ 112 (3b) False Representations as to Credit of Another 786
§ 112 (Sc) Slander of Credit. . 787
§ 112 (Sd) Negligence 787
§ 112 (3e) Receiving ForeignBank Note in Payment.. 787
§ 112 (3f) Organization of Another Bank in Evasion of Charter. 788
§ 112 (3g) Attempt to Prefer Bank Officer to Other Creditors.. 788
§ 113 (4) Embezzlement and Misappropriation 788

§ 112 (4b) Misappropriation of Deposits 789
§ 112 (4bb) Special Deposits for Safe-Keeping 790
§ 112 (4c) Money Received for Transmission 791
§ 112 (4d) Collateral Security 791
§ 112 (4e) Paper Left for Collection 792
§ Bank to Money or Paper Used
112 (4f) Right of to Conceal
Embezzlement 793
§ 113 (4g) Recovery by Bank 793
§ 113. Estoppel to Deny Authority of Officers or Agent 795
§ 113 (1) In General 795
§ 113 (2) Receiving and Retaining Benefits of Transaction 797
§ 113 (3) Delay or Acquiescence 799
§ 113 (4) Prejudice to Other Party 802
§ 113 (5) Loss to One of Two Innocent Persons 803
§ 113 (6) Attempt to Enforce 804
§ 113 (7) Receiver or Assignee for Creditor 805
§ 113 (8) Estoppel of Person Dealing with Bank 805
§ 114. Ratification 805
§ 114 Authority and Acts Which May Be Ratified
(1) 805
§ 114 (2) Wlhat Constitutes and Requisites 807
§ 114 (2b) Knowledge of Facts 807
§ 114 (2c) Negligence 808
§ 114 (2d) Delay or Acquiescence 809
TABLE OF CONTENTS. XXIX
§ 114 (2e)Receiving and Retaining Benefits of Transaction.... 810

§ 114 (2f) Attempt
to Enforce Contract 812
§ 114 (3g) Assertion of Individual Liability of Officer 814
§ 114 (?h) Bank Seeking to Indemnify Itself rigainat Fraao.... 814
§ 114 (3) Operation and Effect .^
814
§ 114 (3b) Adoption of Entire Contract 815
§ 114 (4) Pleading and Proof 815
§ 115. Rights Acquired by Bank 816
§ 116. Notice to Officer or Agent 818
§ 116 (1) In General 818
§ 116 (2) In Respect to Discounts and Securities 830
§ 116 (3) In Respect to Deposits 834
§ 116 (4) Notice Received in Private Business or Outside Scope of
Duties 837
§ 116 (5) Notice to Directors 843
§ 116 (6) Notice of Officer's Own Fraud 849
§ 117. Individual Interest of Officer or Agent as Affecting Person Dealing
with Bank 852
§ 118. Evidence as to Authority 859
VOLUME H
CHAPTER IX.
C. Deposits.
S 119. Relation between Bank and Depositor Generally 883

§ 119 (1) General Rule 883
§ 119 (2) Definitions, Classification and Characteristics 887
§ 119 (2a) Depositor 887
§ 119 (2b) Deposits Defined and Classification 887
§ 119 (2c) Nature and Characteristics' 889
§ 119 (3ca) A Loan 889
§ 119 (2cb) Property of Bank 889
§ 119 (2cba) In General 889
§ 119 (2cbb) Not Capital Stock for Investment 891
§ 119 (2cbc) Chose inAction and Property Right
of Depositor 891
§ 119 (3) What Law Governs 891
§ 119 (4) Right to Examine Bank's Books 892
§ 119 (5) Rules of Clearing House Association 892
§ 119 (6) Particular Deposits •.
893
§ 119 (6a) Deposit of Bank Bills 892
§ 119 (6b) Deposits for Transmission 892
§ 119 (6c) Deposits by One to Credit of Another 893
§ 119 (6d) Deposit by Debtor for Creditor 893
§ 119 (6e) Deposit by Agent to Credit of Principal 893
§ 119 (6f) Deposit Payable to Third Person on Contingency.. 894
XXX TABIvE OF CONTENTS.
§ 119 (6g) Savings Deposits ^

894
§ Held in Trust by Bank
119 (6h) Money 895
§ 119 (6i) Deposit as Indemnity 895
§ 130. Power and Duty to Receive Deposits 895
§ 120 (1) Authority 895
§ 120 (3) Duty to Receive Deposits 897
§ 121. Making, Receipt and Entry 897
§ 121 (1) In General 897
§ 121 (2) Mutuality, Proposal and Acceptance, and Persons Who May
Be Depositors 897
§ 121 (2a) Necessity : 897
§ 121 {2b) Acts Constituting Acceptance 898
§ 121 (2c) Denial of Receipt of Money, 898
§ 121 (2d) Estoppel of Depositor or Waiver of Deposit 898
§ 121 (2e) Persons Who May Be Depositors 899
§ 121 (3) Authority of Officer to Receive Deposit 899
§ 121 (3b) When Officer Represents Bank 900
§ 121 (3ba) In General .'
900
§ 121 (3bb) Certificate Issued before Organization of
Bank 900
§ 121 (3c) Money Entrusted to Employee Not Authorized to
Receive It 900
§ 121 (3cb) Where Money Comes into Custody of Bank.. 901
§ 121 (3d) Fraud or Dishonesty of Bank Official 901
§ 131 (3da) In General 901
§ 121 (3db) Certificate of Deposit with Third Person or
Bank 901
§ 121 (3e) Ultra Vires Collateral Agreements 902
§ 121 (3f) Personal Loan to Officer of Bank 902
§ 121 (4) Receipt of Money and Entry 902
§ 121 (4a) Necessity for Actual Receipt and Promise to Pay.... 903
§ 121 (4b) Mode of Receipt and Entry 903
§ 121 (4bb) Rules of Bank 904
§ 121 (4bc) Place of Delivery to Bank Official 904
§ 121 (4bd) Accepting Credit with Correspondent 904
§ 121 (4be) Depositor Having More than One Account. . 904
§ 121 (4c) Deposit Slips 905
§ 121 (4d) Entry in Deposit or Pass Book 905
§ 122. Deposits Other than Money 907
§ 123-J4. Checks and Drafts Generally 908
§ 124. Checks and Drafts on Depositor's Bank 908
§ 125. Forged or Altered Paper 911
§ 126. Entry to Credit of Depositor 912
§ 126 (1) In General 912
§ 126 (2) Acts Which Constitute 913
136 (3) Person Entitled to Credit
§ 913
§ 126 (4) Credit Subject to Payment 913
§ 127. Title and Right of Bank 914
§ 27 (1) Commercial Paper Received as Money 914
TABLE OF CONTENTS. XXXI

§ 127 (lb) Sufficiency and Operation of Endorsement 918
§ 137 (Ic) Right to Cliarge Back Disfionored Paper 919
§ 127 (Icb) Revesting Title in Depositor 930
§ 137 (Ice) Release of Drawer or Payer 920
§ 137 (Id) Certificate of Deposit Credited as Money 921
§ 127 (le) Deposit of Check to Make Good Overdraft 931
§ 137 (If) Paper Forwarded to Correspondent 931
§ 137 (3) Bank Agent for Collection 921
§ 127 (3) Title as between Bank and Maker or Drawer 922
§ 137 (4) Title as between Depositor and Third Person 922
§ 127 (5) Insolvency of Bank of Deposit 923
§ 137 (6) Insolvency of Payee Bank 924
§ 127 (7) Evidence as to Whether Title Passed to Bank 924
§ 128. Title to and Disposition of Deposits 924
§ 129. In General , 924
§ 139 (1) Title Generally 934
§ 129 (2) Obligation of Bank Generally 935
§ 129 (3) Special Agreements Respecting Disposition 925
§ 129 (4) To Whom Payment to Be Made 927
§ 139 (4a) In General - 927
§ 129 (4b) Payment to Person Other than Depositor 927
§ 129 (4bb) Payment to Wrong Person 927
§ 129 (4bba) In General 927
§ 129 (4bbb) Bank Payee of Check 928
§ 129 (4bbc) Right of Bank to Recover Money.... 929
§ 129 (4bc) Particular Person 929
§ 139 (4bca) Endorsee of Certificate of Deposit.... 939
§ 129 (4bcb) Assignee of Creditors 929
§ 129 (4bcc) Committee or Guardian 929
§ 129 (4bcd) Donee 930
§ 139 (4bce) Partner 930
§ 129 (4bcf ) Surviving Spouse 930
§ 129 (4bcg) Executor or Administrator 930
§ 129 (5) Particular Deposits 932
§ 129 (5a) Joint Deposits 933
§ 139 (5b) Deposit by Firm or Partnership 933
§ 139 (5c) Deposit for Specific Purpose 934
§ Funds Deposited by Mistake
129 (5d) 934
§ 129 (6) Credits Allowed Bank in Case of Wrongful Payment 934
§ 129 (7) Attachment and Garnishment 934
§ 129 (7a) Liability to Attachment 934
§ 129 (7ab) Particular Deposits 935
§ 139 (7ac) Certified Checks Outstanding 937
§ 139 (7b) Sufficiency Processof 938
§ 129 (7c) Time from Which Lien Attaches 939
§ 129 (7d) Defenses by Bank 939
§ 129 (7da) Effect of Admission of Indebtedness 939
§ 129 (7db) Equitable Rights of Third Persons 939
§ 129 (7e) Supplemental Complaint 939
XXXII TABLE OF CONTENTS.
§ 129 (7f) Effect of Payment to Attaching Creditor 939

§ 139 (8) Payment under Execution ,.
939
§ 129 (9) Waiver of Right to Deposit 941
§ 139 (10) Right of Depositor to Recover from Third Person Moneys
Paid by Bank 941
§ 130. Trust Funds 941
§ 130 (1) In General 941
§ 130 (la) Relation Created 941
§ 130 (lb) Eflfect on Character of Title to Fund 941
§ 130 (Ic) Notice of Trust Character of Fund 943
§ 130 (lea) Effect of Notice 943
§ 130 (Icaa) As Impressing Funds of Bank with
Trust .....* 943
Right to Follovif Funds
§ 130 (Icab) 943
§ 130 (Icb) What Constitutes Notice or Knowledge 944
§ 130 (Id) Payment to Trustee 946
§ 130 (Ida) Right of Trustee to Withdraw 946
§ 130 (Idb) Eflfect of Payment to Trustee or Order Gen-
erally 946
§ 130 (Idc) Duty of Bank to See to Application and Lia-
bility for Misappropriation 947
§ 130 (Idea) In Absence of Notice of Intention to
Misappropriate or Divert 947
§ 130 (Idcb) Banks Having Notice of Breach of
Trust 948
§ 130 (Idcc) Banks Participating in Breach of Trust. 949
§ 130 (idcca) In General 949
§ 130 (Idccb) Acceptance in Payment of
Trustee's Debt to Bank 949
§ Deposits
130 (Idd) Joint Trustee 950
§ 130 (le) Payment to Receiver of Depositor 950
§ 130 (If) Payment to Beneficiary of Cestui Que Trust 950
§ 130 (Ig) Attachment and Garnishment 951
§ 130 (111) Loss or Destruction of Deposit 951
§ 130 (2) Public Funds 952
§ 130 (2a) Relation Created by Deposit and Title Generally.'... 952
§ 130 (3ab) Funds Left for Safe-Keeping 953
§ 130 (3ac) Money Borrowed from Bank 953
§ 130 (Sad) Entry of Credit to County 955
§ 130 (2b) Notice of Title 955
§ 130 (2c) Payment to or Order of Officer 956
§ Knowledge of Intention to Divert
130 (3cb) 956
§ 130 (3cc) Bank Participating in Misappropriation 956
§ 130 (3d) Payment to Another than Officer or Order 957
§ 130 (3da) Assignee in Bankruptcy 957
130 (2db) Executor or Administrator of Officer
§ 957
§ 130 (2dc) Attachment or Execution Creditor 957
§ 130 (2e) Right of Ofificer to Follow Funds into Hands of
Third Persons 957
§ l30 (2f) Subject to Order of Successor 957
§ 130 (2g) Preference on Insolvency as to Other Creditors.... 958
,
TABLE OF CONTENTS. XXXIII
§ 130 (2h) Interest on Funds Used by Bank 958

§ 130 (3) Deposits by Factors, Agent or Attorneys 959
§ 130 (3a) Deposits by Agents 959
§ 130 (3aa) Deposits by Agent in His Own Name 959
§ 130 -(Saaa) Effect on Title of Principal 959
§ 130 (Saab) Relation between Bank and Principal. 959
§ 130 (3aac) Payment to Agent 960
§ 130 (3aaca) In General 960
§ 130 (3aacb) Duty of Bank
to See to Appli-
Generally
cation 960
§ 130 (3aacc) Notice of Agent's Want of
Authority 961
§ 130 (3aacd) Losses for Which Bank Liable. 963
§ 130 (3aace) Credits Due to Bank 963
§ 130 (3aacf) Ratification of Act of Agent.. 963
§ 130 (3aacg) Estoppel of Principal to Re- '
cover 964
§ 130 (3aad) Recovery by Principal after Notice... 964
§ 130 (3ab) Deposits by Agent to Credit of Principal 965
§ 130 (Sac) Deposits by Principal to Credit of Agent 966
§ 130 (Sad) Agent Allowed to Check against Deposit of
Principal 966
§ 130 (3ae) Agent Authorized to Sign Principal's Name
to Check 967
§ 130 (Saf) Proceeds of Check Indorsed by Agent without
Authority 968
§ 130 (Sag) Liability of Agent for Loss 968
§ 130 (Sb) Factors and Commission Merchants 969
§ 130 (Sc) Depositor by Broker 969
§ 130 (3d) Deposits of Attorneys 969
§ 130 (Se) Deposits by Officers or Agents of Corporations.... 970
§ 131. Funds of Person Other than Depositor 973
§ 131 (1) Title Generally and Relation Created 972
§ 131 (2) Right of Bank to Assert Title of Legal Owner 97S
§ 131 (3) Estoppel of Legal Owner to Assert Title 974
§ 131 (4) Payment to Depositor Generally , 975
§ 131 (5) Payment Person Making Deposit of Legal Owner
to 977
§ 131' (6) Account Kept in Name of Another than Depositor 978
§ 131 (6a) Deposit by Legal Owner in Fictitious Name 978
§ ISl (6b) Deposit to Credit of Another 979
§ ISl (6ba) Delivery and Acceptance 979
§ 131 (6bb) Deposit by Principal to Credit of Agent and
Vice Versa 980
§ 131 (6bc) Deposit by Husband in Name of Wife 980
§ 131 (6bd) Deposit by Person in Loco Parentis in Name
of Child 980
§ 131 (6be) Moneys Deposited to Pay Creditor 980
§ Tender of
131 (6bf) Deposit a Payment 980
§ 131 (7) Deposits Which Have Been Assigned 981
§ 131 (8) Money in Custody of Public Officer 984
§ 131 (9) Moneys or Credit Fraudulently Obtained by Depositor 984
S 131 (10) Funds of Wife Deposited by Husband and Vice Versa.... 984
1 B & B—
XXXIV TABLE OF CONTE;nTS.
§ 131 (11) Deposits by Executor or Administrator ysO

§ 131 (13) Deposits by Guardian a87
§ 131 (13) Uability to Attachment 988
§ for Transmission to Another Bank for Use of
131 (14) Deposit
Third Person 988
§ 132. Interest on Deposits 989
§ 132 (1) Liability of Bank for Interest 989
§ 132 (la) In the Absence of Contract 989
§ 132 (lb) Under Agreements to Pay Interest 991
§ 132 (2) Time When Interest Begins to Run and Duration 992
§ 132 (3) Rate 993
§ 132 (4) Recovery 994
§ 133. Repayment in General 994
§ 133 (1) Obligation of Bank to Pay 995
§ 133- (la) In General 995
§ 133 (lb) Private Bankers 997
§ 133 (Ic)Source from Which Funds Deposited Derived 998
§ 133 (Id) Effect of Outstanding Checks 998
§ 133 (le) Effect of Receipt of Depositor's Note for Collection. 999
§ 133 (If) Effect of Notice to Depositor to Withdraw Deposit.. 999
§ 133 (Ig) Loss or Theft of Deposit 999

§ 133 (2) Accrual of Right to Repayment 999
§ 133 (2a) Demand and Refusal 999
§ 133 (2b) Right to Written Demand or Order Payment 1000
§ 133 (2c) Right of Bank to Indemnity 1001
§ 133 (3) Mode, Sufficiency and Medium of Payment 1001
§ 133 (3a) What Constitutes Payment 1001
§ 133 (3b) Payment to Agents 1002
§ General
133 (3ba) In 1002
§ 133 (3bb) Unauthorized Payment 1002
§ 133 (3c) Partnership Deposits 1003
§ 133 (3d) Joint Deposits 1003
§ 133 (3e) Payment Pursuant to Execution of Garnishment .... 1003
§ 133 (3f ) Payment to Wrong Person 1003
§ 133 (3g) Remitting Through Mails 1004
§ 133 (3h) Amount 1004
§ 133 (3ha) In General 1004
§ 133 (3hb) Account Stated 1004
§ 133 (3i) Place of Payment 1004
§ 133 (3j) Medium of Payment 1004
§ 133 (3ja) Return of Identical Funds 1004
§ 133 (3jb) Funds Treated as Money by the Parties
Depreciated Currency 1005
§ 133 (3jc) Deposit of Depreciated Bills of Bank 1006
§ 133 (3jd) Deposit of Confederate Currency 1007
§ 133 (3je) Deposit of Gold 1007
§ 133 (3jf) Special Contracts as to Medium 1007
133 (3jg) Customs and Usage
§ 1008
§ 133 (4) Payment in Violation of Injunction 1008
§ 133 (5) Indemnity Bond to Procure Deposit of Public Funds .1009
§ 133 (7) Liability Stockholders
of lOOg
§ 133 (8) Bank Accepting Assignment of Property of Another and As-
suming .Ml Its Debts 1009
TABLE OF C0NT]JNTS. XXXV
§ loy (9) Effect of Sale of Private Bank 1009

§ 134. Application of Deposits to Debts Due Bank or Set Off by Bank.... 1009
§ 134 (1) Right to Make Application in General 1009
§ 134 (la) General Rule 1009
§ 134 (,1b) Nature as Set-Off or Lien 1010
§ 134 (It) Conditions Precedent and Accrual of Right 1011
§ 134 (lea) Maturity Debt 1011
§ 134 (Icb) Mutuality of Obligation 1012
§ 134 (Icba) In General 1012
§ 134 (Icbb) Deposits Made and Debts Owed in
Different Capacities or by Different
Persons 1013
§ 134 (icc) Consent of Depositor 1014
§ 134 (led) Notice to Depositor 1015
§ 134 (Ice) Insolvency of Depositor 1015
§ 134 (Icf) Insolvency of Bank 1017
§ 134 (leg) Death of Depositor 1017
§ 134 (Ich) Time When Right Arises 1018
§ 134 (Id) Funds and Deposits Applicable 1018
§ 134 (Ida) Right to Apply Entire Deposit 1018_
§ 134 (Idb) Deposits in Usual Course of Business 1018
§ 134 (Idc) Source of Deposit 1019
§ 134 (Idea) In General 1019
§ 134 (Idcb) Proceeds of Paper Left for Collection .. lOlU
§ 134 (Idcc) Proceeds of Note or Draft Discounted. 1019
§ 134 (Idcd) Notes Which Bank Refused to Dis-
count 1019
§ 134 (Idd) Deposits after Maturity of Debt 1019
§ 134 (Ide) Deposits or Having Two Accounts 1020
§ 134 (Idt) Deposits in Name of Other than Owner 1030
§ 134 (Idg) Deposits Belonging to a Town 1030
§ 134 (le) Debts to Which Application May Be Made 1020
§ 134 (lea) Debts Due Bank 1020
§ 134 (leaa) In General 1030
§ 134 (leab) Unliquidated Claims 1021
§ 134 (leac) Where Depositor Owes More than
One Debt 1031
§ 134 (lead) Particular Claims or Debts 1031
§ 134 (leada) Matured Notes 1021
§ 134 (leadb) Demand Notes 1032
§ 134 (leadc) Indorsed Notes 1022
§134 (leadd) Joint or Several Notes 1022
§ 134 (leade) Notes of Firm 1022
§ 134 (leadf) Liability on Dishonored Paper. 1022
§ 134 (leadg) Insurance Premium 1022
§ 134 (leadh) Town Warrants 1022
§ 134 (leadi) Debts Secured by Collateral
Security 1022
§ 134 (leadj) Indebtedness Secured by Mort-
gage 1023
§ 134 (leadk) Debt Reduced to Judgment 1023
§ 134 (leadl) Lien Debt Assumed by Depos-
itor 1024
XXXVI TABLE OF CONTENTS.
(leadm) Money Paid on Depositor's

§ 134
Debts ,.
1024
§ 134 (leb) Notes and Acceptances Payable .at Bank 1024
§ 134 (If) Persons against Whom Available 1024
§ 134 (Ifa) Persons Presenting Checks
1025
§ 134 (If b) Attaching Creditors ; 1026
§ 134 (Ifc) Executors or Administrators
1026
§ 134 (Ig) When Application Must Be Made 1026
§ 134 (Iga) Day on Which Obligation Matures 1036
§ 134 (Igb) Application on Last Day Grace
of 1026
§ 134 (Igc) Where Check Presented by Another than De-
positor 1026
§ 134 (Ih) What Constitutes Appropriation 1026
§ General
134 (Iha) In 1026
§ 134 (Ihb) Unauthorized Charge by Bank Clerk 1026
§ 134 (li) Duty or Option of Bank to Avail Itself of Right 1027
§ 134 (Ij) Waiver or Discharge 1027
§ 134 (Ik) Enforcement in Equity 1027
§ 134 (2) Applying Deposits to Debts Not Matured 1027
§ 134 (2a) General Rule 1028
§ 134 (2b) Insolvency of Debtor 1028
§ 134 (2c) Contracts Conferring Right 1030
§ 134 (2d) Against Attaching Creditors 1030
§ 134 (2e) Against Executors or Administrators 1031
§ 134 (3) Applying Deposit to Liability of Indorser, Guarantor or
Surety 1031
? 134 (3a) Depositor Liable as Guarantor, etc., to- Bank 1031
§ 134 (3aa) Right of Bank in General 1031
§ 134 (3ab) Under Bankruptcy Act 1032
§ 134 (Sac) Right of Maker to Have Deposit Applied 1032
§ 134 (3b) Bank Liable as Indorser, etc., for Depositor 1032
§ 134 (4) Deposit Made for Special Purpose 1033
§ 134 (5) Deposits Belonging to Third Persons 1035
§ 134 (5a) In General 1035
§ 134 (5b) Notice to Bank of Adverse Claim 1037
§ 134 (5c) Money Placed to Credit of Debtor Through Mistake. 1038
§ 134 (5d) Application of Special Deposit by Agent to Debts of
Third Persons 1038
§ 134 (6) Applying Funds of Principal or Consignor to Debt of Agent,
Factor or Broker 1038
§ 134 (6a) Application to Debt, of Agent 1038
§ 134 (6b) Application to Debt of Factor or Commission Mer-
chant 1040
§ 134 (6c) Funds Deposited by Agent or Broker in Name of
Third Person 1043
§ 134 (6d) Funds Placed by Mistake to Credit of Local Dealer.1044
§ 134 (6J4) Applying Funds of Agent to Debt of Principal 1044

§ 134 (7) Application of Fund Deposited by One as Trustee 1044
§ 134 (7a) Application to Debts of Trustee 1044
§ 134 (7b) Application to Debts of Beneficiary 1050
§ 134 (8) Applying Individual Deposit to Firm Debt and Vice Versa.1051
§ 134 (8a) Individual Deposit to Firm Debt 1051
§ 134 (8aa) In General IO51
TABLB OF CONTENTS. XXXVII
§ 134 (Sab) Deposit of Partner Continuing Business after

Dissolution 1051
§ 134 (Sac) Deposits by Surviving Partner 1051
§ 134 (8b) Applying Firm Deposit to Individual Debt 1052
§ 134 (Bba) In General 1053
§ 134 (Sbb) Dormant Partner Individually Using Trade
Name 1052
§ 134 (9) Moneys Fraudulently Obtained by Depositor 1052
§ 134 (10) Application after Assignment of Deposit 1053
§ 134 (10a) In General 1053
§ 134 (10b) Assignment for Benefit of Creditors 1053
§ 134 (lOba) In General 1053
§ 134 (lObb). Debts Not Matured 1054
§ 134 (11) Right of Surety, Indorser or Guarantor to Have Deposit of
Principal Applied 1054
§ 134 (12) Right of Acceptor of Bill to Have Deposit of Drawer Ap-
pHed 1058
§ 134 (13) Application of Deposit of Public Officer ; 1059
§ 135. Set-Oflf by Depositor 1059
§ 135 (1) Nature and Extent Generally 1059
§ 135 (lb) Descriptio Persons 1060
§ 135 (Ic) Depositor Attorney for Public Officer 1061
§ 135 (Id) Deposit of Trustee 1061
§ 135 (le) Partnership Deposit 1061
§ 135 (2) Appropriation by Check to Payment of Indebtedness 1061
§ 135 (3) Right of Depositor in Insolvent Bank 1061
§ 135 (3a) In General 1061
§ 135 (3b) Debts and Claims Which May Be Set Off 1061
§ 135 (3ba) Direct and Ascertained Indebtedness 1061
§ 135 (3bb) Matured and Unmatured Debts 1062
§ 135 (3bc) Particular Claims and Obligations 1063
§ 135 (3bca) Notes 1063
§ 135 (3bcaa) In General 1063
§ Bank a State Depositary
135 (3bcab) 1063
§ 135 (3bcac) Church 1063
§ 135 (3bcb) Bond and Mortgage 1064
§ 135 (3bcc) Claim for Dividends Wrongfully Re-
ceived .'
. . 1064
§ 135 (3bcd) Funds Received for Use of Commis-
sioners 1064
§ 135 (3c) Funds and Deposits Which May Be Set Off 1064
§ 135 (3ca) Demand Notice
or 1064
§ 135 (3cb) Unmatured Deposits 1065
§ 135 (3cc) Deposit Made after Suit and before Insolvency. 1065
§ 135 (3cd) Proceeds of Note against Liability Thereon. 1065 .
§ 135 (3ce) Proceeds of Draft against Liability after Dis-

honor 1065
§ 135 (3cf) Deposit as Trustee against Individual Debt.. 1066
§ 135 (3cg) Partnership Deposit against Individual Debt
and Vice Versa 1066
§ 135 (3ch) Deposit of Public Officers' Attorney 1067
§ 135 (3ci) Wife's Money Credited by Mistake to Husband. 1067
XXXVIII TABLE OF CONTENTS.
§ 135 (3cj) Amount Paid on Proposed Increased Capital

Stock 1067
§ 135 (3d) Person against Whom
Set-Off Available 1067
§ 135 (3da) Assignee for Benefit of Creditors 1067
§ 135 (3db) Receiver 1067

§ 135 (3dc) Administrator of Insolvent Private Banker. .1068
§ 135 (3dd) Transferee 'or Pledgee of Bank 1068

§ 135 (3e) Loss of Right of Set-Ofif by Payment of Debt 1070
§ 135 (3f) Interest and Costs
1071
§ 135 (4) Right of Endorser or Surety on Note 1071
§ 135 (5) Right of Principle to Have Deposit of Guarantor Applied .. 1073
§ 135 (6) Right of Guarantor for Repayment of Deposit 1073
§ 145 (7) Right of Assignee of Depositor after Insolvency of Bank.. 1073
§ 136. Lien of Bank on Deposits 1075
§ 137. Payment of Checks 1079
§ 138. Duties and Liabilities of Bank to Depositor 1079 -
§ 138 (1) General Rules and Definitions and Terminology ......... .1079
§ 138 (3) Degree of Care Required ....'. 1080 ,
§ 138 (3) Right to Close Account and Terminate Relation 1080

§ 138 (4) Necessity, Form and Contents of Check 1081
§ 138 (4a) Necessity and Form Generally 1081
§ 138 (4b) Date 1081
§ 138 (4ba) Postdated Checks 1081
§ 138 (4bb) Checks Altered as to Date 1081
§ 138 (4c) Signature and Countersign 1081
§ 138 (4cb) Unsigned Checks 1081
§ 138 (4cc) Joint Deposits 1083
§ 138 (4cd) Partnership or Firm Deposit 1082
§ 138 (4ce) Countersigning 1082
§ 138 (4cea) Partnership Check 1083
§ 138 (4ceb) Corporation 1083
§ 138 (4cec) Receiver's Check, Countersigning by
Judge 1084
§ 138 (4d) Memoranda on Margin or Body of Check 1084
§ 138 (4e) Checks against Deposit of 1084City
§ 138 (5) Consideration 1085
§ 138 (6) Purpose 1085
§ 138 (6a) Checks Given for Unlawful Purpose Generally 1085
§ 138 (6b) Checks Drawn in Connection with Gambling Trans-
action 1085
§ 138 (7) Sanity of Drawer 1085
§ 138 (8) Person Who May Draw 1086
§ 138 (8a) Depositor 1086
§ 138 (8aa) Depositor Not Having Beneficiary Interest .. 1086
§ 138 (8aaa) In General 1086
§ 138 (Saab) Duty to Investigate Destination of
Money 1087
§ 138 (8aac) Bank HavingNotice of Intended
Breach of Trust 1088
§ 138 (8aad) Acceptance in Payment of Individual
Debt 1088
§ 138 (8aae) Charging Individual Check to Trust
Account . . .m 1088
TABLE OP CONTENTS. XXXIX
§ 138 (8ab) In Case of Adverse Claim to Deposit 1089

§ 138 (Saba) Right of Depositor to Notice 1089
§ 138 (8abb) Payment Pendente Lite 1089
§ 138 (Sac) Deposits by Agent 1089
§ by Corporation
138 (8ad) Deposits 1089
§ 138 (8b) Agent of Depositor or Third Person 1089
§ 138 (8ba) Agent Having Authority to Draw Checks 1089
§ 138 (8bb) Checks Drawn by Unauthorized Person 1090
§ 138 (9) Presentment 1092
§ 138 (9a) Stipulation as to Presentment 1092
§ 138 (9b) Time of Presentment 1093
§ 138 (10) Person to Whom Payment May Be Made 1092
.'
§ 138 (10a) In General 1092

§ 138 (10b) Identification of Payee 1098
§ 138 (lOba) Check in Favor of Named Payee or Order.1093
§ 138 (lObb) Bearer Check 1095
§ Checks Indorsed in Blank
138 (lObc) 1095
§138 (lOc) Right to Require Endorsement of Holder 1095
§ 138 (11) Checks Payable to Fictitious Payee 1095
§ 138 (11a) In General 1095
§ 138 (lib) Cashier's Checks 1096
§ 138 (lie) Checks Fraudulently Procured 1096
§ 138 (Ilea) In General 1096
§ 138 (llcb) Payment upon Forged Endorsement of Fic-
Payee
titious 1096
§ 138 (12) Checks Procured by Forgery of Other Documents 1098
§ 138 (13) Knowledge of Outstanding Drafts or Checks 1098
§ 138 (14) Matters Accruing after Issuance of Check 1098
§ 138 (14a) Insolvency of Drawer , 1098
§ 138 (14aa) In General 1098
§ 138 (14ab) Effect of Filing Petition in" Bankruptcy 1098
§ 138 (14b) Death of Drawer 1098
§ 138 (I4c)Death of Payee 1099
§ 138 (15) Presumption and Burden of Showing Payment to Bona
Fide Holder 1099
§ 138 (16) Estoppel of Depositor to Contest Wrongful Payment 1100
§ 138 (16a) In General 1100
§ Examination of Bank Statement or Passbook
138 (16b) 1100
§ 139. Notice Not to Pay or Revocation of Check 1101
§ 139 (1) Customer's Checks 1101
§ 139 (la) Right to Countermand 1101
§ 139 (lab) Checks Operating as Assignment Pro Tanto.llOl
§ 139 (lac) Intention of Parties to Assign All or Part of
Deposit J04 1
§ 139 (lb) Officer to Whom Notice Given 1104

§ 139 (Ic) Effect on .Rights of Holder and Liabilities of Drawer.. 1104
§ 139 (Id) Effect of Payment after Revocation 1104
§ 139 (2) Cashier's Checks 1105
§ 140. Obligation of Bank to Payee or Holder 1105
§ 140 (1) Duty of Bank to Pay in General 1105
§ 140 (lb) Requisites, Form and Contents of Check 1106
XI. TABLB OF CONTENTS.
§ 140 (Iba) Signature and Countersigning 1106

§ 140 (Ibb) Memoranda on Checks 1106
§ in Check
140 (Ibc) Declarations 1106
§ Check
140 (Ibd) Postdated 1107
§ 140 (Ibe) Delivery of Check 1107
§ 140 (Ic) Particular Check 1107
§ 140 (lea) Check against Conditional Deposit 1107
§ 140 (Icb) Checks for Purchase Money 1108
§ 140 (Ice) Overchecks to Be Secured by Draft and Bill
of Lading 1108
§ 140 (led) Duplicate Checks 1108
§ 140 (Id) Time When Payable 1109
'
§ 140 (Ida) In General 1109

§ 140 (Idb) Presentment and Demand 1109
§ 140 (le) Protest ; 1109
§ 140 (If) Right to Require Indorsement 1110
§ 140 (Ig) Check as Lien on Deposit 1110
§ 140 (Ih) Check as Transfer or Assignment of Funds in Bank.. 1110
§ 140 (Iha) Doctrine Generally 1110
§ 140 (Ihb) Right of Payee to Sue Bank 1114
§ 140 (Ihba) Rule in Favor of Right 1114
§ 140 (Ihbb) Rule Denying Right 1115
§ 140 (Ihbba) Statement and Effect Gener-
ally 1115
§ 140 (Ihbbb) Privity of Contract 1118
§ 140 (Ihbc) Check Charged against Drawer 1119
§ 140 (Ihbd) Check Containing Words of Assign-
ment or Transfer 1118
§ 140 (Ihbe) Payee of Check Deposited for Collec-
tion 1119
§ Check Payable in Exchange
140 (Ihbf) 1119
§ 140 (Ihbg) Check against Deposit of Drafts Not
Yet Paid 1120
§ 140 (Ihbh) Deposit Levied on by Execution
against Drawer 1120
§ 140 (Ihbi) Deposit of Drawer Garnished 1120
§ 140 (li) Duty to Retain Deposit to Meet Check n30
§ 140 (Ij) Priorities 1131
§ 140 (Ija) As toAssignment of Deposit 1121
§ 140 (Ijb) Priorities between Check Holder and Attach-
ing Creditor 1121
§ 140 (Ijc) Priority as to Assignee for Creditor 1122
§ 140 (Ijca) Assignee Drawer of 1123
§ 140 (Ijcb) Assignee of Bank 1123
§ 140 (Ik) Effect of Agreement, Rules and Customs of Clear-
ing House 1122
§ 140 (11) Death of Payee 1123
§ 140 (Im) Assignment by Drawer for Creditors 1123
§ 140 (In) Drawers Filing Petition in Bankruptcy 1123
§ 140 (lo) Assignment by Bank for Creditors 1123
§ 140 (Ip) Right of Receiver of Payee 1124
§ 140 (2) Check Paid on 'Unauthorized Indorsement 1124
§ 140 (3) Acceptance of Check 1125
'
TABLE oe CONTENTS. XLl
§ 140 (3a) In General 1125

§ 140 (3b) What Constitutes, Form and Sufficiency 1125
§ 140 (3ba) Definition and Requisites 1125
§ 140 (3bb) Form Generally 1126
§ 140 (3bc) Verbal Acceptance 1126
§ 140 (3bd) Statement That Check "Good," etc 1127
§ 140 (3be) Acceptance by Telegraph or Telephone. .... .1137
§ 140 (3bf) Acceptance Subject to Clearing House Rules.. 1128
§ 140 (3bg) Inferred Acceptance 1129
§ 140 (3bga) In General 1129
§ 140 (3bgb) Detention or Failure to Return Check.. 1129
§ 140 (3bgc) Cancelling Check by Mistake 1129
§ 140 (3bgd) Marking Check "Paid" 1129
§ 140 (3bge) Holding Check to Await Deposit 1129
§ 140 (3bgf) Payment on Forged or Unauthorized
Endorsement 1130
§ 140 (3bgg) Retaining Amount at Request of
Drawer 1131
§ 140 (3bgh) Offer to Pay in Depreciated or Con-
federate Funds 1131
§ 140 ( 3c) Effect of Acceptance 1131
§ 140 (3d) Necessity 1132
§ 340 (3e) Promise to Accept 1132
§ 140 (4) Estoppel of Bank to Resist Liability to Pay 1133
§ 140 (5) Obligation of Bank Where Check in Excess of Deposit 1134
§ 140 (6) Setting Off Debts Owing to Bank by Drawer 1135
§ 140 ( 6a) Matured Demands 1135
§ 140 (6b) Unmatured Demands 1137
§ 140 (6c) General Deposit against Individual Debt of Partner. 1137 .
§ 140 (6d) Application of Collateral 1137

§ 140 (6J4) Application to Debt of Payee or Holder 1138
§ 140 (7) Order of Payment and Priority between Checks 1138
§ 140 (7a) In General 1138
§ 140 (7b) Checks Simultaneously Presented 1139
§ 140 (7ba) Checks Presented by Different Check Hold-
ers '
1139
§ 140 (7bb) Checks Presented Through Clearing House.. 1139
§ 140 (8) Order of Application of Deposits 1139
141. Mode and Sufficiency 1140
§ 141 (1) Placing to Credit of Holder 1140
§ 141 (la) In Genera! 1140
§ 141 (lb; Effect as Payment of Check 1140
§ 141 (Ic) Rescission or Recalling 1141
§ 141 (2) Sending Money by Mail 1142
§ 141 (3) Payment by Check on Another Bank 1142
§ 141 (4) Ofifer to Pay Confederate Funds 1142
§ 141 (5) Retention of Check 1142
§ 141 (6) Payment to Agent of Holder 1143
§ 141 (6a) In General 1143
§ 141 (6b) Check Endorsed to Bearer 1144
§ 141 (7) Payment by Insolvent Bank 1144
§ 141 (8) Presumption of Payment from Possession by Drawee. ... 1144
XI.II TABtE OF CONTENTS.
§ 143. Rights of Bank Paying Check 1144

§ 143 (1) Rights against Drawer 1144
§ 143 (3) Rights against Payee or Holder
1144
§ 143 (2a) Payment Where Insolvent Depositor Indebted to
Bank 1144
§ 143 (3b) Depositor Having Insufficient Funds 1145
§ 142 (2bb) Check Paid without Authority from Direct-
ors 1145
§ 142 (2bc) Payment Obtained by Fraud of Holder 1145
§ 143 (3bd) Mistake as to Amount of Deposit 1145
Checks
§ 142 (2be) Stale 1146
§' 142 (3) Payment by Mistake 1147
§ 142 (3a) In General 1147
§ 142 (3b) Mistake as to Amount 1147
§ 143 (3c) After Check Countermanded 1147
§ 142 (4) Payment from Trustee Account 1148
§ 142 (5) Check Obtained by Fraud 1148
§ 142 (6) Check Put Through Clearing House 1148
§ 143 (7) Liabilities between Banks 1149
§ 142 (8) Knowledge of Personal Transaction of Officer as Knowl-
edge of Bank 1150
§ 143. Liability of Bank to Drawer for Refusal to Pay 1151
§ 143 (1) In General 1151
§ 143 (lb) Check of Former Convict 1151
§ 143 (Ic) Nature and Sufficiency of Deposit 1132
§ 143 (Id) Form, Requisites and Sufficiency of Check 1153
§ Indorsement and Presentment
143 (le) 1154
§ 143 (If) Acts Constituting a Refusal to Pay 1154
§ 143 (2) Nature and Form of Action Therefor 1154
§ 143 (3) Time to Sue and Limitation 1155
§ 143 (4) Pleading 1155
§ 143 (4^) Issues and Proof 1157
§ 143 (5) Evidence 1158
§ 143 (5a) Presumptions and Burden of Proof 1158
§ 143 (6) Trial 1160
§ 143 (6a) Instructions 1160
§ 143 (6b) Questions for Jury 1161
§ 143 (7) Damages 1162
§ 143 (7a) Compensatory or Temperate and Nominal Damages. .1162
.
§ 143 (7aa) Liability 1163

§ 143 (7ab) Measure and Elements 1162
§ 143 (7aba) In General 1162
§ 143 (7abb) Showing of Actual or Special Loss
of Injury 1162
§ 143 (7abba) Depositor a Merchant or
Trader 1162
§ 143 (7abbb) Depositor Not a Merchant or
Trader 1163
TABI,E OF CONTENTS. XI^HI
§ 143 (7abc) Items of Loss or Injury for Which

Damage Allowed 1166
§ 143 (7b) Exemplary or Punitive Damages 1167
§ 143 (7c) Special Damages 1168
§ 143 (7d) Set-Ofif by Bank 1168
§ 143H- Cashier's Checks 1168
§ 144. Notes Payable at Bank ; 1168
§ 145. Certified Checks or Notes 1171
§ 145 (1) Checks 1171
§ 145 (la) Certified Check Defined 1171
§ 145 (lb) Certification Distinguished from Acceptance 1171
§ 145 (Ic) Certification Distinguished from Guaranty 1171
§ 145 (Id) Mode of Certification .'
1171
§ 145 (le) Object of Certification 1172
§ 145 (If) Authority to Certify 1172
§ 145 (Ifa) In General 1172
§ 145 (Ifb) President 1172
§ 145 (Ifc) Cashier 1173
§ 145 (If d) Assistant Cashier 1174
§ 145 (Ife) Teller 1174
§ 145 (Ig) Time of Certification 1174
§ 145 (Ih) Certification Postdated Checks
of 1175
§ 145 (li) Efifect of and Implications Arising from Certification. 1175
§ 145 (lia) In General 1175
§ 145 (lib) Holder's Position That of a Depositor 1178
§ 145 (lie) A Check Not Money— Does Not
Certified
Operate as Payment.. 1179
§ 145 (lid) Bank Bound without Regard to State of
Drawer's Account 1180
§ 145 (lie) Implication That Check Has Passed from
Bank's Custody 1181
§ 145 (lif) Certification Creates No Trust and Gives No
Lien 1181
§ 145 (lig) Bank's Liability Continues Indefinitely 1181
§ 145 (lih) Liability of Bank after Drawer's Funds Have
Been Attached 1181
§ 145 (lii) Certification by Mistake 1181
§ 145 (]ij) Certification Obtained by Fraud. 1182
§ 145 (lik) Certification of Forged and Altered Checks.. 1183
§ 145 (lil) Certification by Agent or Officer of Bank
without Authority or in Violation of Duty... 11 84
§ 145 dim) Certification of Checks Obtained Fraudu-
lently or in a Fictitious Name 1185
§ 145 (lin) Forged Certification 1185
§ 145 (Ij) Effect of Over Certification of Checks by National
Banks 1185
§ 145 (Ik) Cancellation of Check on Application Drawer. .. 1186
of
§ 145 (ll) Efifect of Bank's Mistake in Protesting Certified and
Paying Uncertified Check 1186
§ 145 (Im) Time Demanding Payment of Check
of 1186
§ 145 (in) Rights and Liabilities of Bank Holding Certified
Check Drawn on Another Bank 1187
XhlV TABLE OF CONTENTS.
§145 (lo) Certification Not within Inhibition against Issuing

Notes to Circulate as Money 1187
§ 145 (Ip) Indebtedness of Holder Can Not Be Set Ofif against
Check 1187
§ 145 (Iq) Actions upon Certified Checks 1187
§ 145 (Iqa) By Whom
Action May Be Brought 1187
§ 145 (Iqb) Demand an Essential Prerequisite 1187
§ 145 (2) Notes ^ 1188
§ 145 (2a) Eflfect of Certification 1188
§ by Mistake
145 (2ab) Certification 1188
§ 145 (2b) Effect of Holder's Delay in Obtaining Payment 1189
§ 146. Payment of Lost or Stolen Paper "
1189
§ 146 (1) Certificates of Deposit 1189
§ 146 (2) Checks 1189
§ 147. Payment of Forged or Altered Paper 1190
§ 147 (1) Right of Bank to Recover Back Money Paid 1190
§ 147 (la) Where Signature Forged 1190
§ 147 (lb) Where Indorsement Forged 1193
§ 147 (Ic) Raised or Altered Checks 1195
§ 147 (2) Right of Bank Paying Paper to Bona Fide Holder 1196
§ 147 (2a) In General 1196
§ 147 (2b) Recovery of Payment on Forged Checks to Ficti-
tious Payees 1200
§ 147 (3) Laches as Afifecting Right of Recovery 1201
§ 147 (4) Estoppel of Bank to Resist Liability on Forged Check 1202
§ 147 (5) Procedure to Recover Back 1203
§ 148. Liabilities of Bank to Depositor, Payee or Owner 1203'
§ 148 (1) Liability of Bank to Depositor on Paying 1203
§ 148 (2) Liability of Bank Paying Check on Forged or Fraudulent
Indorsement 1209 ".
. .
§ 148 (3) Negligence of Depositor, and Ratification of Forgery or

Fraudulent Alteration 1221
§ 148 (3a) Negligence of Depositor as Relieving Bank from
Liability 1221
§ 148 (3b) Estoppel or Ratification 1227
§ 148 (4) Laches Depositor in Discovering Forgery or Notify-
of
ing Bank Thereof 1229
§ 148 (5) Necessity of Returning Forged Paper and Demanding Pay-
ment 1239
§ 149. Rights and Liabilities as between Banks 1239
§ 150. Overdrafts 1249
§ 150 (1) In General 1249
§ 150 (2) By Whom Overdrafts Made 1250
§ 150 (3) Right to Make or Refuse Overdrafts 1251
§ 150 (4) Right to Recover Overdrafts 1251
§ 150 (5) Interest on Overdrafts 1254
§ 150 (6) Application of Depositors to Overdrafts 1255
§ 150 (7) Action to Recover Overdrafts 1256
§ 151. Depositors' Passbooks and Accounts 1257
§ 152. Certificates of Deposit 1262
§ 152 (1) In General 1262
§ 152 (2) Power of Bank to Issue Certificates.... 1265
TABLE 01? CONTENTS. XI,V
§ 152 (3) Validity of Certificates 1366

§ 152 (4) Interest'Bearing Certificates 1269
§ 152 (5) Renewal Certificates 1270
§ 152 (6) Construction of Certificates 1271
§ 152 (7) Title to Funds Deposited 1271
§ 153 (8) Transfer of Certificates 127X
§ 152 (8a) In General 1271
§ 153 (8b) Mode Transfer
of 1273
§ 152 (8c) Rights and Liabilities of Parties 1274
§ 153 (8ca) Of Bank 1274
§ 152 (8cb) Of Depositor 1277
§ 152 (8cc) Of Indorser 1277
§ 152 (8cd) Of Transferee :..1277
§ Transfer
153 (8d) Effect of 1381
§ 152 (9) Redemption, Payment and Cancellation 1281
§ 152 (10) Actions on Certificates 1285
§ 153. Special Deposits 1386
§ 153 (1) In General 1286
§ 153 (3) What Deposits Are Special 1287
§ 153 (2a) Deposit Made under Special Agreement 1287
§153 (3b) Deposit for Particular Purpose 1291
§153 (2c) Deposit by Particular Person 1293
§ 153 (2d) Deposit to Be Paid to Particular Person 1293
§ 153 (2e) Deposit Credited to Account 1293
§ 153 (3f) Deposit Subject to Check 1296
§ 153 (3g) Deposit Mingled with Other Funds 1396
§ 153 (2h) Evidence to Prove Deposit Special 1397
§ 153 (3) What May Be Specially Deposited 1297
§ 153 (4) Title and Interest of Bank 1397
§ 153 (5) Power of Bank to Accept 1398
§ 153 -(6) Duty and Liability of Bank 1298
§ 153 6a) In General
( 1398
§ 163 (6b) Degree of Care Required 1300
§ 153 (6c) Liability of Bank as Gratuitous Bailee 1303
§ 153 (6d) Liability of Bank as Bailee for Mutual Benefit or
Hire 1303
§ 153 (6e) Liability for Acts of Officers 1303
§ 153 (6f) Liability of Bank forLoss by Theft 1303
§ 153 (6g) Liability of Bank for Delivering Deposit to Wrong
Person 1306
§ 153 (6h) Liability for Transfer to Branch Bank 1308
§ 153 (6i) Action against Bank 1308
§ 153 (7) Preference of Depositor on Insolvency of Bank 1309
§ 153 (8) Repayment and Revocation of Deposit 1309
§ 153 (9) Proceedings Recover Deposit
to 1311
§ 154. Actions by Depositors or Others for Deposits 1313
§ 154 (1) In General 1313
§ 154 (2a) In General 1316
§ 154 (2b) Accrual of Cause of Actions 1318
§ 154 (2c) Accrual of Cause' of Action on Certificate of Deposit. .1320
§ 154 (2d) Action to Recover Interest 1320

§ 154 (2e) Suspension of Operation 1320
XLVI TABLE OF CONTENTS.
§ 154 (.3) Conditions Precedent 1321

§ 154 (3a) Deposit in General 1321
§ 154 (3b) Certificate of Deposit 1326
§ 154 (4) Parties 1328
§ 154 (5) Pleading 1333
§ 154 (5a) Petition or Complaint 1333
§ 154 (5b) Plea 1335
§ 154 (6) Presumptions and Burden of Proof 1338
§ 154 (7) Admissibility of Evidence 1344
§ 154 (8) Weight and Sufficiency of Evidence 1351
§ 155. Actions by Payee or Holder of Check against Bank 1367
§ 155 (1) Form of Action , 1367
§ 155 (2) Limitation of Action 1367
§ 155 (3) Substituting Drawer as Plaintifif 1367
§ 155 (4) Pleading 1367
§ 155 (4a) Declaration. Petition or Complaint 1367
§ 155 (4b) Answer 1368
§ 155 (4c) Reply 1368
§ 155 (5) Issues and Proof 1368
§ 155 (6) Question for Jury 1369
§ 155 (7) Evidence 1369
§ 155 (7a) Burden of Proof 1369
§ 155 (7b) Admissibility and Competency 1370
CHAPTER X.
D. Collections.
§ 156. Relation between Bank and Depositor for Collection i:-!74
§ 156 (1) In General 1374

§ 156 (2) Consideration for Bank's Undertaking 1376
§ 156 (3) By What Law Contract Governed 1376
§ 156 Revocation of Agency
(4) 1377
§ 157. Power and Duty to Make Collections 1377
§ 158. Making, Receipt, and Entry of Deposit for Collection 1378
§ 159. Title to Paper Received for Collection 1380
§ 159 (1) In General 1380
§ 159 (2) Effect of Restrictive Indorsement 1385
§ 159 (3) Lien of Collecting Bank 1389
§ 159 (4) Right to Set Off Paper against Debt Owing by Bank 1390
§ 159 (5) Eflfect of Pledge or Transfer to Third Person 1391
§ 160. Authority and Acts in Making Collection 1391
§ 161. •
Banks in General i:i91
§ 161 (1) General Rules as to Powers and Duties 1391

§ 161 (3) Effect of Customs and Usages 1392
§ 161 (3) Taking Things Other than Money in Payment 1395
§ 161 (4) Acceptance of Payment of Overdue Paper I399
§ 161 (5) Acceptance of Part Payment I399
§ 161 (6) Surrender of Collateial before Making Collection 1399
§ 161 (7) Right of Action upon Paper Deposited for Collection 1403
§ 161 (8) Liability of Bank to Maker of Note Left for Collection 1404
TABtE OP CONTENTS. XLVII
§ 163. Agents and Correspondents 1404

§ 162 (1) Authority to Appoint Agents to Make Collection 1404
§ 162 (la) In General i
1404
§ 162 (lb) Propriety of Appointment of Drawee as Agent .... 1405
§ 162 (Ic) Authority of Bank to Employ Notary or Attorney .. 1408
§ 162 (2) Nature of Agency Created by Such Appointment 1409
§ 162 (3) Continuance and Termination of Agency 1411
§ 162 (4) Duties, Powers and Liabilities of Agents and Correspond-
ents 1411
§ 163. What Constitutes Collection '
1412
§ 164. Rights and Liabilities as to Proceeds 1415
§ 166. Insolvency of Collecting Bank 1417
§ 166 (1) Holding Bank as Trustee 1417
'.
§ 166 (2) Title of Bank to Paper and Collections Made after Insol-
vency 1432
§ 166 (3) Liability Where Collection is Made by Charging to Account
of Depositor 1434
§ 166 (4) Liability of Transmitting Bank on Insolvency of Corre-
spondent Bank 1437
§ 167. Insolvency of Transmitting Bank 1438
§ 167 (1) General Rule as to Liability of Collecting Bank to Owner
of Paper 1438
§ 167 (2) Right of Correspondent to Retain Proceeds on Account of
Debt Due from Remitting Bank 1442
§ 168. Payment Proceeds
of 1447
§ 169. Liability in General 1447
§ 169 (1) Duty to Account to Principal for Proceeds 1447
§ 169 (2) Duty to Obey Instructions as to Disposition of Proceeds. .1451
§ 169 (3) Duty as to Remittance of Proceeds 1451
§ 169 (4) Sufficiency and Medium of Payment 1451
§ 169 (5) Recovery Back of Payment Made under Mistake 1453
§ 170. Negligence or Default of Agents or Correspondents 1455
§ 171. Failure to Collect 1463
§ 171 (1) Liability of Bank in General 1463
§ 171 (2) Negligence of Collecting Bank in General 1464
§ 171 (3) Negligence in Sending Paper Directly to Debtor 1466
§ 171 (4) Failure to Present or Delay in Presenting Paper for Ac-
ceptance and Payment 1466
§ 171 (5)to Give Notice of Nonpayment or Dishonor
Duty 1471
§ 171 (6) Liability of Transmitting Bank for Default of Correspond-
ent 1476
§ 171 (7) Liability Wliere Checks or Drafts, Received in Payment,
Are Not Paid 1480
§ 171 (8) Notes, Checks, or Drafts Lost in Course of Transmission. 1483 .
§ 171 (9) Failure to Apply Deposit to Note Due from Depositor. ... 1484
*§ 171 (10) Permitting Paper to Be Renewed 1485
§ 171 (11) Failure to Collect Interest 1485
§ 171 (12) Waiver of Right of Action against Bank, or Ratification
of Bank's Acts 1485
§ 172. Failure to Fix Liability of Indorser or of Drawer of Note', Check or
Draft I486
§ 172 (1) In General 14Se
XLvin table; of contents.
§ 172 (3) Duty of Collecting Bank to Protest Paper 1488

§ 172 (3) Liability for Default or Negligence of Correspondents, Sub-
agents, or Notaries 1490
§ 172 Recovery Back by Indorser of Payment Made in Ignorance
(4)
of Bank's Negligence 1495
§ 173. Collection of Lost or Stolen Paper 1495
§ 174. Collection of Forged or Altered Paper 1495
§ myi. Suits by Collecting Bank to Enforce Payment of Paper Transmitted
by Correspondent 1501
§ 174^. Action against Bank for Collection of Forged Paper 1501
§ 175. Actions for Negligence or Default 1501
§ 175 (1) Nature and Form of Remedy 1501
§ 175 (lYi) Who May Sue 1502
§ 175 (2) Pleading .'
1503
§ 175 (2a) Declaration, Petition or Complaint 1503
§ 175 (2b) Answer 1505
§ 175 (2c) Sufficiency of Pleadings to Raise Issue 1507
§ 175 (3) Evidence 1507
§ 175 (3a) Presumptions and Burden of Proof : 1507
§ 175 (3b) Admissibility of Evidence 1510
§ 175 (3c) Weight and Sufficiency of Evidence 1513
§ 175 (4) Instructions 1514
§ 175 (5) Questions for Jury 1515
§ 175 (6) Measure of Damages 1517
CHAPTER XL
E. Loans and Discounts.
§ 175>4. In General 1523
§ 176. Power to Make Loans in General 1527
§ 177. Power Discount
to 1530
§ 178. Requisites and Validity of Loan or Discount 1534
§ 178 (1) In General 1534
§ 178 (2) Where Statute Violated 1536
§ 178 (3) Particular Loans or Discounts 1541
§ 179. Collateral Security 1344
§ 179 (1) Power of Bank I544
§ 179 (2) Conflict of Laws I544
§ 179 (3 ) Persons Liable on Security 1544
§ 179 (4) Manner of Making and Validity of Pledge 1545
§ 179 (5) What May Be Taken as Collateral 1547
§ 179 (6) Title, Lien and Priorities 1548
§ 179 (7) Right to Take Several Securities 1557
§ 179 (8) Equities of Third Persons 1557
§ 179 (9) Custody and Surrender of Security..,.. 1558
§ 179 (10) Collections on Securities 1563
§ 179 (11) Sale of Security ''.^1563
§ 179 (12) Termination and Release .'
15g4
§ 179 (13) Renewal of Security 1565
§ 179 (]4) Effect of Taking Improper Security ISgg
§ 180. Loans to Stockholders, and Stock as Security 1566
table; of contents. xlix
§ 181. Interest or Rate of Discount, and Usury 1569

§ 181 (1) In General 1569
§ 181 (2) Controlled by General Law or Charter 1572
§181 (3) Manner of Calculating Interest 1575
§ 181 (4) What Constitutes Usury 1576
§ 181 (5) Defenses to Usurious Contract and Recovery of Interest
Paid 1583
§ 181 (6) Effect of Usury 1586
§ 183. Application of Proceeds 1589
§ 183. Rights and Liabilities as to Paper Discounted 1589
§ 183 (1) Of Bank 1589
§ 183 (2) .Of Maker 1593
§ 183 (3) Of Indorsers 1593
§ 183 (4) Of Third Persons 1593
§ 184. Renewal of Loan or of Paper Discounted 1594
§ 185. Repayment of Loans 1596
§ 185 (1) What Amounts to Payment 1596
§ 185 (2) Medium of Payment -. ; 1597
§ 185 (3) Loans
Particular 1601
§ 185 (4) Application of Payments 1602
§ 186. Discount of Forged or Fraudulent Paper 1603
§ 187. Actions on Loans or on Paper Discounted 1605
§ 187 (1) In General 1605
§ 187 (2) Defenses 1607
CHAPTER XII.
F. Exchange, Money, Securities, and Investments.
§ 18T'/2. In General 1610
§ 188. Power to Deal in Exchange, Money, and Securities 1611
§ 189. Issue and Payment of Drafts 1611
§ 189 (1) In General 1611
§ 189 (2) Rights and Liabilities of Parties 1612
§ 189 (2a) Of Drawee 1612
§ 189 (2b) Of Payee 1613
§ Forged and Fraudulent Draft
189 (3) 1613
§ 190. Payment of Forged or Altered Paper 1615
§ 190 (1) In General 1615
§ 190 (2) Recovery of Payment 1615
§ 190 (3a) In General 1615
§ 190 (2b) From Drawee 1618
§ 190 (3c) From Indorser 1620
§ 190 (2d) From Bank Certifying 1632
§ 190 (2e) From Holder for Value 1623
§ 190 (3f) Procedure 1624
§ 191. Letters of Credit 1634
§ 192. Purchase and Sale of Exchange 1637
§ 193. Purchase and Sale of Money or Bullion 1637
§ 194. Purchase and Sale of Stock or Securities 1627
§ 195. Loans and Investments by Bank for Others 1628
1 B & B—
L TABLE OF CONTENTS.
CHAPTER XIII.
G. Circulating Notes.
§ 196. Nature and Requisites 1^34
§ 196 (1) Definitions and Distinctions 1634
§ 196 (2) Banknotes as Money 1635
§ 196 (2a) In General 1635
§ 196 (2b) As Medium of Payment 1640

§ 196 (2bb) Debts Due Bank 1641
§ 196 (2bc)Taxes or Other Money Due State 1641
§ 196 (2bd) Offer to Pay— Tender 1646
§ 196 (2c) As a Bill of Credit 1646
§ 196 (3) Requisites 1647
§ 196 (3a) Signing and Countersigning 1647
§ 196 (3b) Date 1648
§ 196 (3c) Xumber 1648
§ 196 (3d) Time of Taking Effect 1648
§ 196 (3e) Transferability and Circulation of Xotes 1648
§ 196 (3f) Warranty 1649
196 (3g) Value of Bank Notes
§ 1650
§ 196 (3h) Right of Lender to Bank to Lien on Notes 1650
§ 197. Power to Issue or Circulate 1650
§ 197 (1) Power to Regulate and Control 1050
§ 197 (2) Right to Exercise Function 3 652
§ 197 (2a) In General
'.
1652
§ 197 (2b) Prohibiting Particular Circulating Mediums 1655
§ 197 (2c) With Reference to Paper Issued in General 1655
§ 197 (2d) Issuing Paper in Similitude of Bank Notes 1656
§ 197 (2e) Post Xotes and Paper Not Payable on Demand 1657
§ 197 (2f) Immediate Unrestricted Circulation 1660
§ 197 (2g) Instrument in Form of Due Bills 1660
§ 197 (3) What Constitutes Issuance as Circulating Currency 1660
§ 197 (4) Presumption of Legality 1660
§ 197 (5) Statutory Invalidation of Issue 1661
§ 198. Restrictions upon Issue or Circulation 1661
§ 199. Deposit of Security 1662
§ 199 (1) Deposit of Security in General 1662
§ 199 (2) Interest on Deposited Securities 1664
§ 200. Unauthorized Issue 1664
§ 201 (1) Issuing, Passing and Receiving as Constituting Crime .... 1664
§ 201 (2) Issuing, Passing or Receiving as Creating Obligations. ... 1666
§ 201 (3) Testing Right to Issue 1666
§ 202. Operation and Effect of Bank Notes 1667
§ 202 (1) Rights of Holders 1667
§ 202 (2) Right of Bank 1669
§ 202 (3) Notes Issued without Authority of Bank lOri
§ 203. Penalties and Actions Therefor , . . 1672
§ 204. Criminal Prosecutions 1672
§ 204 (1) Indictment 1672
§ 204 (2) Evidence 1673
§ 204 (3) Variance 1674
TABI<E OF CONTENTS. 1,1
§ 205. Taxation 1674

§ 306. Penalties for Failure to Keep Notes at Par 1674
§ 207. Payment or Redemption 1675
§ 208 (1) Obligation of Bank in General 1675
§ 208 (2) Presentation and Demand 1676
§208 (3) Payment of Lost or Destroyed Notes 1677
§ 208 (4) Payment of Stolen Bills 1678
§ 308 (5) Payment
of Mutilated Notes 1679
§ 208 (5a) In General 1679
§ 208 (5b) Negotiability of Half of Note 1681
, § 208 (6) Forgery or Alteration 1682
§ 308 (6a) Forged Notes 1682
§ 208 (6b) Alteration 1682
§ 208 (7) Right of Person Taking after Payment Refused 1683
§ 308 (8) Redemption of Overissue 1683
§ 208 (9) Payment of Depreciated Bills 1683
§ 208 (10) Sufificiency and Medium of Payment 1683
§ 208 (11) Rights of Purchaser at Discount 1685
§ 308 (13) Interest on Notes 1685
§ 308 (13) Right of Bank to Set Off Debt 1687
§ 208 (14) Funding Past Notes 1687
§ 308 (15) Contract by Third Person to Redeem Notes 1687
§ 208 (16) Bank Notes Issues without Authority of Bank 1687
§ 308 (17) Exchange on Substitution of Security 1688
§ 208 (18) Special Preference and Lien of Bill Holders 1688
§ 209. From Funds Deposited as Security 1689
§ 210. Penalties for Failure to Pay 1689
§ 210 (1) In General 1689
§ 210 (2) What Amounts to Refusal or Neglect 1693
§ 210 (3) Failure to Indorse Refusal on Bills 1692
§ 310 (4) Sufficiency of Tender to Stop Running of Penalty 1693
§ 310 (5) Procedure to Recover 1694
§ 211. Liability of Stockholders or Officers 1694
§ 311 (1) Members of Association 1694
§ 311 (3) Stockholders 1694
§ 211 (3a) InGeneral 1694
§ 211 (3b) Necessity for Insolvency or Exhaustion of Deposit
with State 1699
§211 (3c) Efifect of Forfeiture of Charter 1699
§ 311 (2d) Liability for Interest 1700
§ 211 (3e) Liability for Bills Wrongfully Issued 1700
§ 311 (3ea) In General 1700
§ 311 (2eb) Effect of Release of Directors or Stockholders. .1701
§ 311 (2f) Liability on Bond 1701
(2g) Liability of State as Stockholder
§311 1702
§ 211 (2h) Liability of Stockholders of Foreign Corporations. .1702
§ 311 (3) Officers 1703
§ 211 (4) Action to Enforce Liability 1703
§ 211 (ia) In General .1703
§ 211 (4b) Limitation Actions
of 1703
§ 211 (4c) Attachment of Bank's Property 1703
§ 211 (4d) Pleading and Evidence 1704
UI TABLE OF CONTENTS.
§ 211 (4e) Judgment 1705

§ 211 (5) Liens and Priorities 1705
§ 212. Actions on Notes or for Nonpayment Thereof 1705
§ —
313 (2) Mode of Procedure Form of Action 1705
§ 212 (3) Enforcing Payment of Lost or Destroyed Notes 1706
§ 212 (4) Limitation of Actions 1707
§ 213 (5) Necessity and Sufficiency of Demand 1708
§ 312 (6) Parties . 1710
§ 312 (7) In Whose Name Action Brought 1710
§ 312 (8) Pleading 1711
§ 312 (8a) In General 1711
§ 212 (8b) To Recover Value of Destroyed Notes 1711
§ 212 (9) Filing Bills or Notes 1711
§ 212 (10) Bill of Particulars 1712
§ 213 (11) Evidence 1712
§ 313 (11a) Burden of Proof 1712
§ 213 (lib) Admissibility of Evidence 1713
§ 312 (lie) Weight and Sufficiency 1713
§ 312 (12) Costs 1714
§ 312^. Foreign Bank Bills 1714
§ 3135/2 (1) Notes of Foreign Bank Doing Domestic Business 1714
§ 312H (2) Circulation of Foreign Currency 1714
§ 312^ (2a) In General 1714
§213^ (3b) Laws Prohibiting Circulation 1714
§ 313^ (3c) Applicable to Particular Persons and
Statutes
Transactions 1716
§ 313 J4 (3d) Unlawfully Issuing Foreign Bills for Circulation. 1717.
§ 21214 (2e) Criminal Prosecution 1717
CHAPTER XIV,
H. Actions.
§ 213. Capacity to Sue and Be Sued 1720

§ 213 (1) Capacity to Sue 1720
§ 213 (la) In General '.
1720
§ 213 (lb) Suits by Foreign Banks 1721
§ 213 (2) Capacity to Be Sued 1722
§ 213 (3) Abatement of Actions 1722
§ 215. Conditions Precedent 1723
§ 215 1) In General
( 1723
§ Demand
315 (3)
'-
1723
§ 216. Nature and Form of Remedy 1724
§ 217. Summary Remedies 1724
§ 217 (1) In General I704
§ 217 (2), Parties 1725
§ 217 (2a) Parties Plaintiff 1725
§ 217 (2b) Parties Defendant 1725
§ 217 (3) Notice of Motion 1725
§ 217 (3a) Functions of Notice 1725
§ 217 (3b) Form and Requisites 1726
§ 217 (4) Who May Give 1727
TABtli OF CONTENTS. IJII
§ 217 (5) Length of Notice 1727

§ 217 (6) Service of Notice and Time of Motion for Judgment 1727
§ 217 (7) Raising and Waiving Objections to Notice 1728
§ 217 (8) Amending Notice or Curing Defects Therein 1728
§ 217 (9) Execution and Return of Process 1728
§217 (10) Certificate as to Indebtedness to Bank 1728
§ 217 (11) Defenses Available to Debtor 17;'9
§ 217 (12) Burden of Proof 172S

§ 217 (13) Record and Judgment 1730
§ 217 (13a) Matters to Be Shown by the Record 1730
§ 217 (13b) The Judgment . 1731
§ 217 (14) Execution without Judgment 1731
§ 217 (15) Affidavit toProcure Execution 1732
§ 217 (16) Review on Appeal 1732
§ 218. Jurisdiction and Venue 1732
§ 218 (la) At Law or in Equity 1732
§ 218 (lb) Particular Courts 1733
§ 218 (2) Venue 1733
§ 219. Time to Sue, and Limitations 1734
§ 220. Parties 1734
§ 221. '
In General 1734
§ 22114. Parties by Representation 1735
§ 222. Use of Name of Bank or Officer 1735
222 (1) Suing in Name of Bank
§ 1735
§ 222 (2) Suing in Name of Officer 1737
§ 222 (3) In Actions by or against Branch Banks 1738
? 222 (4) Raising and Waiving Objections 1738
§ 223, Process and Appearance 173S
§ 223 (1) Process '
1739
§ 233 la) Domestic Corporations
( 1739
§ 223 (laa) Form and Requisites 1739
§ 323 (lab) Upon Whom Served 1739
§ 223 (lac) Place of Service 1740
§ 223 (lad) Raising and Waiving Objections 1740
§ 223 (lb) Foreign Corporations 1740
§ 223 (3) Appearance '.
1741
§ 224. Attachment and Garnishment 1741
§334 (1) Attachment 1741
§ 334 (la) Right to Sue Out Attachment 1741
§ 224 (lb) Territorial Limits 1741
§ 224 (Ic) Form and Requisites 1741
§ 224 (Id) Lien of Attachment 1741
§ 234 (3) Garnishment 1741
§ 224 (3a) Who May Be
Garnished 1741
§ 334 (2b) Liability of Garnishee 1742
§ 224 (2c) Service of Garnishment 1742
§ 224 (2d) Answer of Garnishee 1742
§ 225. Injunction and Receiver 1743
§ 236. Pleading 1743
§ 326 (1) The Declaration, Petition or Complaint 1743
§ 226 (la) Form and Requisites
'.
1743
I.1V TABLE OF CONTENTS.
§226 and Certainty

(laa) Definiteness 1743
§ General
226 (laaa) In 1743
§ 226 (laab) Conclusion of Counts 1744
§ 226 (laac) Prayer for Relief 1744
§ 226 (lab) Surplusage .• 1744
§ 226 (lb) Necessary Allegations 1745
§ 236 (Ibb) In Actions by Banks 1746
§ 226 (Ibba) In General 1746
§ 266 (Ibbb) Amendments 1746
§ 226'(lbc) In Actions against Banks 1746
§ 226 (Ibca) In General 1746
§ 226 (Ibcb) Averment ofDemand 1748
§ 326 (3) Plea or Answer 1748
§ 326 (2a) In General 1748
§ 236 (2b) Actions by or against Assignees 1749
§ 226 (2c) Traversing Bank's Capacity to Sue 1750
§ 236 (3d) Nul Corporation
Tiel 1750
§ 226 (2e) Conclusion of Plea 1750
§ 236 (2f) Matters Provable under General Issue 1750
§ 223 (3) Replication 1750
§ 326 ( 4) Construction of Pleadings 1751
§ 226 (5) Issues, Proof and Variance 1751
§ 237. Evidence 1753
§ 327 (1) Presumptions and Burden of Proof 1752
§ 227 (la) Presumptions . 1752
§ 327 (lb) Burden of Proof 1752
§ 227 (2) Admissibility of Evidence 1753
§ 227 (2a) General Rules as to Admissibility 1753
§ 227 ( 3b) Collateral Evidence 1755
§ 237 ( Best and Secondary Evidence
3c) 1755
§ 337 (2d) Judicial Notice . . 1755
§ 237 (3e) Documentary Evidence 1756
§ 227 (3f) Declarations and Admissions 1757
§ 227 (2g) Parol Evidence 1757
§ 327 (2h) Usages and Customs , 1758
§ 237 (3) Weight and Sufficiency of Evidence 1758
§ 338. Trial 1759
§ 338 (1) Time of Trial 1759
§ 238 (3) Reception of Evidence 1760
§ 228 (3) Instruction 1760
§ 238 (3a) Duty to Instruct 1760
§ 228 (3b) Validity of Instructions 1760
§ 228 (3c) Further Instructions 1761
§ 338 (3d) Construction of Instructions 1761
§ 338 (4) Questions of Daw and Fact 1761
§ 228 (5) Verdict and Findings 1763
§ 338 (5a) Directing Verdict 1762
§ 328 (5b) Findings of Court 1763
§ 229. Judgments 1763
§ 239 (1) In General 1763
§ 239 (2) Judgment by Default 1763
TABLE OF CONTENTS. LV
§ 229 (3) Parties 1763

§ 229 (4) Operation and Effect of Judgment 1764
§ 230. Execution and Enforcement of Judgment 1764
§ 230 (1) Execution 1764
§ 230 (2) Enforcement of Judgment 1764
§ 230 (3a) Supplementary Proceedings 1764
§ 230 (2b) Limitations 1765
§ 231. Costs 1765
§ 331 (1) Right to and Liability for Costs 1765
§ Taxable
231 (2) Items 1765
§ 331^. Appeal and Error 1765
VOLUME III
CHAPTER XV.
IV National Banks.
§ 232. Nature and Status 1777
§ 233. Power to Control and Regulate 1779
§ 233 (1) Power of Congress 1779
§ 233 (2) Power of States ....• 1780
§ 233 (3) Power of Comptroller and Bank Examiner 1785
§ 233 National Bank Examiner
(4) •..1786
§ 235. Regulation and Supervision in General 1786
§ 236. Organization and Corporate Existence 1786
§ 336 (1) In General 1786
§' 236 (la) Power to Create 1786
§ 336 (lb) Articles or Agreement and Comptroller's Certificate. 1787
§ 236 (Ic) Corporate Existence Necessary to Validity of Trans-
actions 1787
§ 336 (Id) Time Limit 1789
§ 336 (le) Corporate Existence Continued- after Time Limit. ... 1789
§ 236 (2) Evidence of Corporate Existence 1789
§ 236 (2a) In General 1789
§ 236 (2b) Certificate of Comptroller 1790
§ 336 (3bb) Admissibility of Certificate 1791
§ 336 (3c) Parol Evidence as to Engaging in General Bank
Business • 1792
§ 236 (3) Estoppel to Deny Corporate Existence 1793
§ 236 (4) Collateral Impeachment of Organization 1792
§ 237. Reorganization of State Banks as National Banks 1792
§ 238. Name • 1796
§ 239. Location and Place of Business • 1796
§ 240, By-Laws •
1797
§ 341. Capital and Shares • 1797
§ 241 (1) Definition and Nature 1797
§ 241 (2) Increase of Capital Stock 1798
LVI TABLE OF CONTENTS.
§ 341 (2a) Requisites and Validity 1798

§ 241 (2ab) Assent of Stockholders 1798
§ 241 (2ac) Payment in Full in Whole of Amount of Sub-
scription 1799
§ 341 (3aca) In General 1799
§ 341 (3acb) Reduction of Amount of Proposed In-
crease 1799
§ Waiver of Right to Insist upon Pay-
341 (3acc)
ment of Full Amount 1800 •
§ 341 (3ad) Approval and Certificate of Comptroller 1801

§ 341 (3ae) Delivery of Certificate of Stock 1803
§ 241 (2b) Recovery Back of Payment Where Increase Fails.. 1803
§ 341 (2c) Estoppel to Question Regularity 1804
§ 341 (3d) Action to Enforce Payment 1804
§ 241 (3) Reduction of Stock 1804
§ 341 Conversion of Stock by Bank
(4) '.
1806
§ 343. Subscription to and Issue of Stock 1806
§ 343 (1) Effect and Purpose of Issue of Certificate 1806
§ 343 (3) Payment 1806
§ 342 (3) Rescission 1807
§ 243 (4) Issuance of Duplicate in Place of Lost Certificate 1807
§ 342 (5) Actions to Enforce
, 1808
§ 243. Transfer of Stock 1808
§ 343 (1) PowerTransfer
to 1808
§ 343 (lb) Executor 1808
§ 343 (2) Persons and Corporations to Whom Transferable 1809
§ 343 (3a) In General . 1809
§ 343 (.3b) Purchase by Bank of Its Own Stock 1809
§ 243 (2c) Purchase of Shares of Another National Bank 1809
§ 343 (3) Mode and Sufficiency 1809
§ 243 (3a) In General 1809
§ 234 (3b) Payment and Delivery of Certificate 1810
§ 243 (3c) Deed 1811
§ 243 (3d) Recording Transfer 1811
§ 243 (3da) Power of Bank to Refuse 1811
§ 243 (3db) Necessity 1811
§ 243 (3dba) In General 1811
§ 243 (3dbb) As between the Parties 1811
§ 343 (3dbba) In General 181J
§ 343 (3dbbb) Priority as to Assignee in
Bankruptcy 1812
§ 243 (3dbbc) Priority as to Attachment. .. .1812
§ 343 (3dbc) Pledge of Stock 1813
§ 343 (3dc) Mode and Sufficiency 1813
§ 343 (3dca) Production or Surrender of Certificate. 1813
§ 343 (3dcb) Issuance of New Certificate 1813
§ 243 (4) Operation and Effect of Transfer 1813
§ 243 (4a) Notice of Provisions of Articles of Association 1813
§ 243 (4b) Right, Title and Liabilities of Purchaser or Trans-
feree 1813
TAriLE 01? CONTENTS. LVII
§ 243 (4c) Effect on Title to Assets of Corporation 1814

§ 243 Pledge
(.4d) 1814
§ 243 (4e) Transfer in Trust 1814
§ 243 (5) Damages for Breach of Agreement to Transfer 1815
§ 243 (6) Enforcement against Bank 1815
§ 243 (7) Remedy in Equity to Set Aside Transfer..'. 1815
§ 344. Dividends • • .
.'
1816
§ 245. Lien of Bank on Stock or Dividends 1817
§ 245 (1) Lien on Stock for Debts Due Bank 1817
§ 245 (lb) Provisions in Charter, By-Laws, and Stock Certifi-
cates 1818
§ 245 (Ic) Express Agreements 1820
§ 245 (Id) Liquidation of Bank 1821
§ 245 (2) Setting Off Debts from Stockholder against Dividends. ... 1821
§ 246. Rights and Liabilities of Stockholders in General 1821
§ 246 (1) Right to Examine Bocks, Papers, .etc 1821
§ 246 (2) Assessment to Restore Impaired Capital Stock 1824
§ 246 (2a) Who May Make 1824
§ 346 (2b) Enforcement 1825
§ 246 (2c) Rights of Paying and Nonpaying Shareholders upon
Bank
Liquidation of 1835
§ 346 (2d) CollateralAgreements between Shareholders 1826
§246 (3) Withdrawal upon Renewal of Charter 1836
§ 346 (4) Right of Voting Trust to Divert Funds 1826
§ 347. Liability of Stockholders for Debts of Bank 1827
§ 248. Nature and Extent -1827 •
§ 248 (1) In General 1827

§ 248 (la) Nature and General Rule as to Liability 1827
§ 248 (lb) Persons Deemed to Be Shareholders for Purpose of
Assessment 1830
§ 348 (Ic) Obligations for Which Stockholders Liable 1834
§ 248 (Id) Amount of Liability 1835
§ 248 (le) Facts Relieving from Liability 1836
§ 248 (If) Persons Who May
Enforce 1836
§248 (Ig) Release, Satisfaction and Discharge 1837
§ 348 (Ih) Right of Stockholder to Prefer Creditors of Bank.. 1837
§ 248 (2) Decision of Comptroller of Currency 1837

§ 248 (2a) Authority, Time and Data 1837
§ 248 (2b) Necessity 1838
§ 348 (3c) Operation and Effect 1838
§ 248 (3cb) Conclusiveness of Decision 1838
§ 248 (3cc) Liquidated Claim Subject to Assignment Sale,
etc., • 1840
§ 248 (2d) Second or Assessment
Successive 1840
§ 348 (3) Liability of One Holding Stock as Trustee 1840
§ 248 (4) Liability of Pledges • •
1842
§ 248 (4a) In General 1842
§ 248 (4b) Unregistered Pledgee 1843
§ 248 (4c) Transfer to Pledgee Absolute in Form 1843
§ 248 (4d) Transfer to Pledgee "as Pledgee" 1845
LVIII TABLB OF CONTENTS.
§ 248 (4e) Transfer to Third Person to Secure Unpaid Debt Due

Pledgee 1H45
§ 248 (4f) Pledgee Forced by Failure of Pledgor into Position of
Ownership 1846
§ 248 (4g) Pledgee Becoming Real Owner of Stock 1847
§ 248 (4h) National Bank a Pledgee 1848
§ 248 (5) Liability of Married Women 1848
§ 248 (6) Deceased Stockholders 1853
§ 248 (6a) Liability of Estate in Hands of Executor or Adminis-
trator 1853
§ 248 (6b) Liability of Devisee and Legatee or of Heir and Dis-
tributee 1855
§ 248 (7) Estoppel to Deny Liability of Sha'reholder 1856
§ 248 (8) Failure of Some Stockholders to Pay Assessments 1859
§ 248 (9) Liability for Interest 1860
§ 249. Effect of Transfer of Stock 1860
§ 249 (1) Liability of Transferror 1860
§ 249 (lb) Knowledge of Insolvency and Intent to' Evade Lia-
bility 1860
§ 249 (Ic) Capacityand Solvency of Transferee 1863
§ 249 (Id) Colorable Transfer 1864
§ 249 (Idb) Transfer by Executor 1865
§ 249 (le) Transfer on Books of Bank 1865
§ 249 (2) Liability of Both Transferror and Transferee 1867
§ 249 (3) Liability of Transferee 1868
§ 250. Actions and Proceedings to Enforce 1870
§ 250 (1) Nature and Form 1870
§ 250 (la) Voluntary Liquidation 1870
§ 250 (lb) Involuntary Liquidation 1873
§ 250 (Iba) Receivership 1873
§ 250 (Ibaa) Necessity for and Powers Generally. ..1873
§ 250 (Ibab) Right of Receiver to Sue 1873
§ 250 (Ibac) Sale or Assignment by Receiver 1874
§ 250 (Ibad) Compromising or Compounding Stat-
utory Liability of Stockholder 1874
§ 250 I'lbb) Action at Law or Suit in Equity 1874
§ and Venue
250 (Ibc) Courts 1876
§ 250 (Ibd) Set-Off by Receiver in Suit on Stockholder's
Deposit Claim 1876
^
§ 250 (Ibe) Enjoining Assessment 1877

§ 250 (3) Conditions Precedent and Defenses 1881
§ 250 (3a) Action of Comptroller 1881
§ 250 (3aa) Involuntary Liquidation of Bank 1881
§ 250 (3ab) Voluntary Liquidation of Bank 1882
§ 250 (3b) Defenses and Facts Relieving from Liability 1882
§ 250 (3ba) Nonexistence or Invalidity of Corporation 1882
§ 250 (3bb) Fraud, Irregularity or Illegality in Organiza-
tion, Management or Issue of Stock 1882
§ 250 (3bc) Fraud or Irregularity in Purchase or Transfer
of Stock 1886
TABLE O]? CONTENTS. LIX
§ 250 (3bd) Withdrawal or Renewal of Charter 1886

§ 250 (3be) Payment of Assessment to Restore Capital
^ Stock 1886
§ 250 (3bf) Voluntary Liquidation 1887
§ 250 (3bg) Illegality of Receiver's Appointment 1887
§ 250 (3bh) Suit Conducted by Private or Special Counsel. 1887 .
§ 250 (3bi) Failure to Collect First Assessment and Re-

alize on Assets 1887
§ 250 (3bj) Sale or Assignment of Claim by Receiver. ... 1888
§ 350 (3bk) Set-Off and Counterclaim 1888
§ 250 (3bka) Counterclaim 1888
§ 250 (3bkb) Set-Ofif 1889
§ 250 (3bl) Compromise by Receiver 1890
§ 250 (4) Parties and Pleading 1890
§ 250' (4a). Parties 1890
§ 250 (4aa) Persons Who May Sue and Parties Plaintifif ... . 1890
§ 250 (4aaa) Involuntary Liquidation 1890
§ 250 (4aab) Voluntary Liquidation 1892
§ 250 (4ab) Defendants 1892
§ 250 (4b) Pleading 1893
§ 250 (4ba) Bill, Petition or Complaint 1893
§ 250 (4baa) Involuntary Liquidation 1893
§ 250 (4bab) Voluntary Liquidation 1895
§ 250 (4bb) Answer 1897
§ 250 (5) Evidence 1897
§ 250 (6a) State Laws as Rules of Decision in Federal Courts.. 1899
§ 350 (6b) Judgment 1899
§ 250 (6ba) Validity, Form and Sufficiency 1899
§ 250 (6bb) Operation and Effect 1899
§ 250 (7) Liability for Costs 1900
§ 251. Election or Appointment of Officers 1900
§ 251'.^. Qualifications of Officers 1902
§ 251^. Resignation and Removal of Officers 1903
253. Rights and Liabilities of Officers 1903
".
§
§ 353 (1) President 1903
§ 253 (2) Directors 1904
§ 253 (2a) In General 1904
§ 253 (2b) For Particular Acts 1905
§ 254. Actions to Enforce Liability 1913
§ 255. Criminal Responsibility of Officers or of Persons Aiding or Abetting
Them 1919
§ 256. Offenses 1919
§ 356 (1) Making False Entries or Reports 1919
§ 256 (lb) What Amounts to False Entry or Report 1922
§ 256 (Ic) By Whom Entry Made 1926
§ 356 (2) Wrongfully Certifying Check 1928
§ 256 (3) Misapplication, Abstraction, or Embezzlement of Funds. ... 1930
§ 356 (3a) In General 1930
§356 (3b) Means of Commission of Offense 1937
LX TABLE OF CONTENTS.
§256 (4) Receiving Deposits after Insolvency 1940

•
§ 356 (5) Aiding or Abetting 1941
§ 357 (1) Requisites and Sufficiency of Indictment 1943
§ 357 (la) Necessity for Indictment 1943
§ 357 (lb) Embezzlement, Abstraction and Misapplication 1944
§ 357 (Ic) False Entries or Reports 1954
§357 (Id) Wrongfully Certifying Check 1960
§ 357 (le) Aiding and Abetting 1961
§ 357 (If) Quashing Indictment 1963
§ 357 (Ig) Construction of Indictm.ent 1963
§ 357 (3) Issues, Proof and Variance 1964
§ 357 (3a) Issues f '
1964
§ 257 (2b) Proof 1964
§ 357 (3c) Variance 1966
§ 357 (3) Evidence 1967
§ 357 (3a) Admissibility 1967
§ As to Misapplication
357 (3aa) ; . . . 1967
§ 357 (Sab) As to Abstraction 1969
§ 357 (Sac) As to False Entries 1969
§ 357 (Sad) As to Unlawfully Certifying Check 1970
§ 357 (Sb) Weight and Sufficiency 1970
§ 357 (4) Trial ' 1973
§ 357 (4a) Jurisdiction 1973
§ 257 (4b) Instructions 1973
§ 357 (4c) Questions of Law and Fact 1977
§ 358. Banking Powers • 1977
§ 359. Property and Conveyances • 1982
§ 359 (1) Right to Acquire Property or Interest Therein 1983
§ 359 la) Real Property
( 1983
§ 259 (lab) As Security for Debt 1985
§ 259 (laba) Where Taken Directly 1985
§ 259 (labb) Where Taken by Assignment 1988
§ 359 (labc) Where Taken by Subrogation 1989
§ 359 (lac) Power to Lease Land 1989
§ 359 (lb) Personal Property 1990
§ 359 (3) Right to Improve Property 1991
§ 359 (3) Right to Convey Property 1993
§ 260. Contracts and Dealings • 1993
§ 360 (1) In General . .1993
§ 360 (3) Acquiring or Dealing in Stock of Other Corporations 1993
§ 360 (3a) In General 1993
§ 360 (2b) As Investment or Speculation 1993
§ 260 (2c) As Satisfaction of Debt '
• 1995
§ 360 (3d) As Security for Loan 1996
§ 260 (3e) As Agent or Broker = 1997
§ 260 (2f) Efifect of Ultra Vires Act 1997
§ 260 (3) Purchase by Bank of Its Own Stock or Loaning Money on
Security Thereof 1998
§ 260 (4) Guaranty or Indemnity 1999
§ 260 (5) Acquiring or Dealing in State and Municipal Securities 2004
§260 (6) Purchase and Discount of Negotiable Paper 2005
TABLE OP CONTENTS. LXI
§ 361. Effect of Acts Ultra Vires 3005

§ 363. Representation of Bank by Officers 3013
§ 363 (1) Power of Bank to Entrust Authority to Its Agents 3013
§ 363 (3) When Officer Regarded as Representing Bank 3013
§ 363 (3a) As Dependent upon Scope or Apparent Scope of Duties. .3013
§ 362 (3ab) Applications of Rules 3014
§ 362 (3ac) Liability of Bank for Mistakes, Fraud, or Mis-
representations of Agents • 3031
§ 362 (3ad) Notice to Officer as Notice to Bank 3033
§ 363 (3b) Ratification of Acts, or Estoppel to Deny Authority of
Officer 3023
§ 363 (3) Effect of Acts of Officers before Organization of Bank.... 3035
§ 363 (4) Power after Bank Has Gone into Liquidation 3035
§ 263. Deposits in General 2025
§ 364. Payment, Acceptance or Certifir.rtion of Checks 3027
§ 365. Certificates Deposit
of 3037
§ 366. Special Deposits 3028
§ 367. Deposits of Public Money 2033
§ 268. Collections 3035
§ 269. Loans and Discounts 2035
§ 269 (1) Power of Bank
General in 2035
§ 269 (2) What Constitutes Discount 2037
§ 269 (3) Power with Regard to Security Taken 2037
§ 369 (4) Failure to Exact Security 3039
§ 369 (5) Loan to Officers 3039
§ 369 (6) Loans Made in Excess of Prescribed Limit 2039
§ 269 (6a) In General 2039
§ 369 (6b) Who May Raise Question 3040
§ 269 (7) Repayment of Loan 2041
§ 270. Interest or Rate of Disccunt, and Usury 2041
§ 370 (1) —
What Law Governs Application of State Laws 2041
§ 270 (2) When Liability to Penalty for Taking Usury Incurred. .. .2043
§ 270 (3) Application of Statute to Discount 3048
§ 270 (4) Renewal of Usurious Note at Legal Rate 2048
§ 270 (5) What Rate of Interest May Be Charged 3048
§ 370 (6) Remedies for Taking Usury 3051
§ 270 (7) Usury as Defense or Set-Off or Counterclaim in Action by
Bank 3051
§ Where Actually Paid
370 (7a) 3051
§ 370 (7b) Where Not Paid 3053
§ 370 (8) Whether Payments Made Shall Be Applied to Principal or .
Forfeited Interest 3055

§ 370 (9) Amount or Extent of Penalty for Taking Usury 3056
§ 370 (9a) In General 2056
§ 270 (9b) Where Interest Actually Paid 2057
§ 270 (9c) Where Interest Not Paid 3059
§ 370 (9cb) Interest Discounted 3059
§370 (9cc) Interest .on Renewal Note 3059
§ 370 Overdrafts
(9cd) Interest on 2060
§ 370 (9ce) Period for Which Forfeited 3060
S 370 (10) Effect of Taking Usury upon Contract 3061
LXII TABLE OF CONTENTS.
§ 270 (.11) Action for Penalty or to Recover Back Usury Paid 2063
§ 370 (11a) Jurisdiction 3062
§ 270 (lib) Who May
Maintain Action 3064
§ 270 (lie) Prerequisites to Bringing Suit 3066
§ i370 (lid) Form of Action 3067
§ 370 (lie) Pleadings 2068
§ 370 (llf) Defenses to Action for Penalty 3068
§ 370 (llg) Limitation of Actions 2069
§ 270 (llh) Burden of Proof 2071
§ 370 (Hi) Effect of Recovery of Penalty 2071
§ 270 (llj) Compromise and Settlement 2071
'.
§270 (12) Criminal Prosecution under State Statute 3072

§ ,271. Dealings in Exchange, Money and Securities 3072
§ 373. Circulating Notes 3073
§ 273. Actions by or against National Banking Associations 2073
§ 373^. Scope of Treatment 3073
§ 274. Capacity to Sue and Be Sued 2074
§ 275. Jurisdiction and Venue 3075
§ 375 (1) Jurisdiction in General 2075
§ 375 (la) Jurisdiction of Federal Courts 2075
§ 375 (laa) Rule Prior to Act of 1882 3075
§ 275 (lab) Rule under Act of 1882 2079
§ 275 (lac) Rule under Acts of 1887 and 1888 2084
§ 275 (lb) Jurisdiction of State Courts 3086
§ 375 (2) Suits by and against Receivers 2091
§ 275 (3) Suits by and against Agents 2094
§ 276. Parties 2094
§ 277. Process and Appearance 2095
§ 278. Attachment and Garnishment 3095
§ 279. Injunction 3104
§ 280. Pleading 3104
§ 2805/2. Execution and Enforcement of Judgment 3108
§ 281. Voluntary Liquidation 2108
§ 381 (1) In General 2108
§ 381 (3) Effect of Liquidation 2110
§ 283. Reorganization 2111
§ 283. Consolidation 3112
§ 284. Forfeiture of Franchise and Dissolution 2113
§ 284 (1) Grounds 2113
§ 384 (3) Effect of Act of Comptroller of Currency in Closing Bank
and Appointing Receiver 3114
§ 284 (3) Proceedings to Enforce Forfeiture 3114
§ 384 (4) Effect of Decree of Dissolution and Forfeiture 3115
^ 285. Inf olvency and Its Effect in General 2116
§ 386. Transfers and Preferences Affected by Insolvency 2120
§ 286 (1) Statutory Prohibition of Preferences 2120
§ 286 2) Statute Construed and Applied
( 3120
§ 286 (3) Right of Debtor to Set Off Claim against Bank
2126
§ 287. Assets and Receivers on Insolvency 2128
§ 287 (1) In General 212b
§ 287 (2) Appointment or Election of Receivers, or Agent of Stock-
holders 2130
TABLE OF CONTENTS. LXIII
§ 287 (2a) Manner 2130

§ Appointment of Receiver by Comptroller of
287 (2aa)
Currency 2130
§ .287 (2ab) Appointment of Receiver by Court of Equity.. 2132
§ 287 (2b) Effect of Appointment of Receiver 2135
§ 287 (3) Status, Powers and Duties of Receiver or Agent 2137
§ 287 (3a) Receivers 3137
§ 287 Agent of Stockholders
(3b) 2144
§ 287 (4) Actions by or against Receiver or Agent., 2144
§ 287 (4a) Authority to Sue or Defend 2144
§ 287 (4b) Jurisdiction 2147
§ 287 (4c) Parties 2148
§ 287 (4d) Conduct of Suits 2149
§ 287 (4e) Pleading 21 49
§ 287 (4f) Proof 2150

§ 287 (4g) Province of Court and Jury 2151
§ 287 (4h) Judgment 2153
§ 287 (4i) Costs 2153
§ 288. Presentation. Allowance, and Payment of Claims 2154
§ 288 (1) In General 2154
§ 288 (2) Allowance or Rejection by Comptroller 2154
§ 288 (3) Claims Provable 3155
§ 288 (4) Basis of Distribution of Assets , 2156
§ 288 ( 5 ) Priorities .'
. . 2153
§ 288 (6) Allowance of Interest on Claims 2161
CHAPTER XVI.
V Savings Banks.
§ 289. Nature and Status ; ... 3165

§ 290. Control and Regulation in General 2167
§ 292. Incorporation and Organization 2167
§ 293. Corporators and Stockholders 2168
§ 294. Officers and Agents 2170
§ 294 (1 ) Eligibility for Office 2170
§ 294 (2) Election 2170
§ 294 (3) Tenure of Office 2171
§ 294 (5) Duties and Liabilities 3171
§ 394 (5a) In General 2171
§ 294 (5b) Liability for Losses on Loans and Investments 2172
§ 294 (5c) Liability for Improvidence and Reckless Extrava-
gance 2176
§ 394 (5d) Liability for Paying Dividends or Interest Not
Earned 3176
§ 294 (5e) Liability of Directors for Cashier's Misapplication of
Funds 2176
§ 294 (5f) Liability of Trustees Who Do Nothing in Execution
of the Corporate Power 2176
§ 394 (5g) Diligence and Good Faith Required in Selling Prop-
erty 2177
LXIV TABLE OF CONTEXTS.
§ 294 (oh) Method of Determining Liability 2177

§ 294 (5i) Mode of Enforcing Liability 2177
§ 294 (6) Prohibition against a Trustee Becoming a Surety 2177
§ 294 (7) Prosecutions .'
217')
§ 295. Powers in General 2177

§ 295 (1) Power to Choose and Admit New Members
Officers 2177'
§ 295 (2) Power to Contract in General 2177
§ 295 (3) Power to Acquire Property 2178
§ 295 (4) Power to Sell Property 2179
§ 295 (5) Power to Borrow Money and Give Security 2179
§ 295 (6) Power to Loan Money 2180
§ 296. Rules of Bank ' 2180
§ 297. Representation of Bank by Officers and Agents 2180
§ 297 (1) In General 2180
§ 297 (2) President 2181'
§ 297 (3) Treasurer 2181

§ 297 (4) Cashier 2184
§ 297 (5) Clerk 2184
§ 297 (6) Estoppel of Bank to Deny Authority 2184
§ 298. Deposits ., 2185
§ 300. By-Laws, Rules or Passbooks as Part of Contract 2187
§301. Title to and Disposition of Deposits 2189
§ 301 (2) To Whom Payments to Be Made 2189
§ 301 (3) Negligence Paying to Wrong Person
in 2191
§ 301 (4) Payment to One Wrongfully in Possession of Passbook. .2193 . .
§ 301 (5) Payment on Death of Depositor 2201

§ 301 (6) Contributory Negligence of Depositor 2208
§ 301J^. .Assignment of Deposits 2209
§ 302. Investments, Loans, and Discounts; 2211
§ 302 (1) In General 2211
§ 302 (2) Investments 2211
§ 302 (3) Loans and Discounts 2212
§ 302 (3a) Power to Loan and Discount 2212
§ 302 (3b) Loans and Discounts in Contravention of Statutory
Prohibitions 2214
§ 302 (3c) Amount That May Be Loaned 2215
§ 302 (3d) Time for Which Loans May Be Made 2215
§ 302 (3e) Requirements as to Value of Real Estate Security .221 j .
§ 302 (3f) Requirement as to Additional Security When Funds

Are Loaned on Stocks or Mortgages 221=1
302 (3g) Usury
§ 2316
§ 303. Interest and Dividends on Deposits — Dividends Distinguished from
Interest 2216
§ 304. Losses 2218
§ 305. Repayment of Deposits 2219
§ 306. Actions 2223
§ 306 (1^) Prerequisites to Action 2223
§ 306 (V/s) Whether Remedy Is at Law or in Equity 2223
§ 306 (lyi) Whether a Joint Action or Separate .Action Proper 2223
§ 306 (1%) ^^'hen Cause of Action .Accr/es 2224
§ 306 (1^) Statute of Limitations 2224
TABLE OF CONTENTS. LXV
§ 306 (2) Parties 2324

§ 306 (2a) To
Actions against Bank 2224
§ 306 (2b) To
Actions against Officers of Bank 2224
§ 306 (3) Interpleader and Substitution of Parties 2225
§ 306 (4) Pleading 2237
§ 306 (4a) In Actions, against Bank 2237
§ 306 (4aa) Complaint 2237
§ 306 (4ab) Answer 2327
§ 306 (4b) In Actions against Officers or Stockholders of Bank. 2228
§ 306 (4ba) Complaint or Bill 3228
§ 306 (4bb) Demurrer 2328
§ 306 (4j4) Demand for an Accounting 3328
§ 306 (5) Evidence 2328
§ 306 (5a) Presumptions and Burden of Proof 2228
§ 306 (6) Trial 2231
§ 306 (6a) Province of Court and Jury 3331
§ 306 (6b) Instructions to Jury 3336
§ 306 (6^) Costs 2236
§ 306 (7) Appeal and Error 3336
§ 306 {714} Custody of Deposits Pending Suit 3337
8 308. Forfeiture of Charter and Dissolution 3237
§ 309. Insolvency and Receivers 2238
§ 309 (1) Power of Bank to Make Assignment for Benefit of Cred-
itors 2338
§ 309 (3) When a Receiver Will Be Appointed 2238
§ 309 (2J4) Duties and Powers of Trustees 22;!3
§ 309 (3) Transfer of Property or Payment of Debts Prior to Ap-

pointment of Receiver 2229
§ 309 (4) Power of Court to Scale Down Deposits and Authorize
Resumption of Business 2240
§ 309 (5) Liability of Stockholders 2340
§ 309 (6) Enforcement by Receiver of Liability of Officers 2240
§ 309 (7) Recovery by Receiver on Bond Given to Enable Bank to
Continue Business 3340
§ 309 (8) Action by Receiver to Protect Bank against Unauthorized
Assignment of Mortgage 3340
§ 309 (9) Receiver's Sales 2241
§ 309 (10) Presentation of Claims 3241
§ 309 (11) Distribution and Application of Assets 3341
§309 (13) Order of Payment — Preference 3342
§ 309 (13a) As between Depositor^ 3242
§ 309 (12aa) In General 2343
§ 309 (13ab) General or Special and Stockholding or
Nonstockholding Depositors 2242
§ 309 (12ac) Depositors in a Corporation Doing Both
a Savings Bank and a Commercial Bank
Business 2244
§ 309 (12b) As between Creditors 2245
§ 309 .(12c) As between Depositors and Creditors 3245
1 B & B—
i,xvi table; of contents.
§ 309 (13) Right of Depositor When Bank Receivers Deposit with

Knowledge of Its Insolvency 2246
§ 309 (14) Set-OfiE of Deposit against Debt Due Bank 2246
§ 309 (15) Eflfect of Agreement to Credit Debt Due Bank with
Amount Paid Depositor
to a 2247
§ 309 (16) Set-Oflf of Stockholder's Indebtedness to Bank against
Amount Appropriable to His Stock 2248
§ 309 (17) Assessments on Stockholders 2248
§ 309 (18) Parties to Actions 2248
CHAPTER XVII.
VI. Loan, Trust, and Investment Companies.

§ 310. Control and Regulation in General 2251
§ 312. Incorporation and Organization 2253
S 31214. Merger 2254
§ 313. Stockholders 2254
§ 314. Officers and Agents 2257
§ 314 (2) Liability 2257
§ 314 (2a) Liability of Officer on Accommodation Note Paya-
ble to the Company 2257
§ 314 (2b) Liability for Converting Money Collected 2258
§ 314 (2c) Liability of Directors for Losses Occasioned by an
Vires Act
Ultra 2258
§ 314 (2d) Liability of Directors for Losses Resulting from
Their Negligence 2258
§ 314 (2e) Liability of Executive Committee for Failure to Ex-
amine Loans 2258
§ 314 (2f) Directors Can Not Delegate Their Responsibility.. .2259
§ 314 (2g) Criminal Liability 2259
§ 315. Functions and Dealings 2259
§ 315 (1) In General 2259
§ 315 (2) Representation by Officers and Agents 2260
§ 315 (2a) In General 2260
§ 315 (2b) President- 2261
§ 315 (2c) Secretary 22G2
§ 315 (2d) Treasurer 2262
§ 315 (2e) A Director Who Is Manager of the Bond Depart-
ment 2262
§ 315 (2f) Cashier and Bookkeeper 2262
§ 315 (2g) Paying Teller 2263
§ 315 (2h) Actuary 2263
§ 315 (2i) Dealings Through a Mutual Agent 226a
§ 315 (3) Deposits 2264
§ 315 (3a) Powers in Relation to 2264
§ 315 (3b) Estoppel to Plead Incapacity to Certify Checks. .. .2264
§ 315 (3c) To Whom
Payments Mr.y Be Made 2264
§ 315 (3d) Rights Depositor and Company
of When a Check
Is Deposited 2265
§ 315 (3e) Interest on Deposits 2265
TABIvE OF CONTENTS. IvXVII
§ 315 (3f) Admissibility of Evidence 2266

§ 315 (4) lyoans and Discounts 2266
§ 315 (4a) Power to Loan and Discount 2266
§ 315 (4b) To Whom the Power Is Entrusted 2266
§ 315 (4c) Loans and Discounts in Contravention of Statutory
Prohibitions 2267
§ 315 (4d) Contracts for Loans Construed 2268
§ 315 (5) Purchases and Sales 2268
§ 315 (6) Investments for Customers 2269
§ 315 (7) Contracts of Suretyship 2269
§ 315 (8) Guaranty of Securities 2269
§ 315 (9) Issuance of Notes 2270
§ 315 (10) Dealings with Trust Funds Belonging to Separate Estates
and Parties 2270
§ 315 (11) Trust Companies Receivers
as 2270
§ 316. Forfeiture of Franchise and Dissolution 2270
§ 317. Insolvency and Receivers 2271
§ 317 (1) Collection of Assets 2271
§ 317 (2) When Receiver Is Entitled to Receive Fund Deposited
with State Treasurer 2271
§ 317 (3) Receiver's Sales 2271
§ 317 (4) Distribution and Application of Assets 2271
§ 317 (4a) What Law Governs Distribution . . . : 2271
§ 317 (4b) What Claims Will Be Allowed 2272
§ 317 (4c) Order of Payment — Preferences and Secured Claims.. 2272
§ 317 (4ca) Trust Companies 2272
§ 317 (4caa) Where Company Held Property as
Trustee or in a Fiduciary Capacity .2272
§ 317 (4cab) As between Depositors 2274
§ 317 (4cac) As between Depositors and Creditors. .2274 .
§ 317 (4cad) As between Savings Depositors, Hold-

ers of Debenture Bonds and Unse-
cured Creditors 2274
.§ 317 (4cae) Amount Recoverable by Secured De-
positors and Creditors 2275
§ 317 (4caf) Rights of Receiver upon Whose Bond
Company Is a Surety 2275
§ 317 (4cb) Investment and Loan Companies 2275
§ 317 (4d) Money Received by Trust Company When Insolvent
to the Knowledge of Its Officers 2276
§ 317 (4e) Application of Funds Collected in One State by Re-
ceiver Appointed in Another 2276
§ 317 (5) Interest 2276
§ 317 (6) Expenses of Administration and Compensation of Receivers. . .2277
§ 317 (7) Actions 2278
§ 317 (7a) Right to Sue 2278
§ 317 (7b) Jurisdiction 2278
§ 317 (7c) Intervention 2279
§ 317 (7d) Evidence —
Sufficiency 2279
§ 317 (7e) Defenses 2279
LXVIII TABIÊ OF CONTENTS.
CHAPTER XYUl.
VII. CLEARING Houses.
§ 318. Nature and Status 2280

§ 320. Settlements and Transactions through Clearing House 2281
§ 320 (1) When Practice of Collecting Checks through Clearing
House Is a General Custom 2281
§ 320 (2) Payment through Clearing House 2281
§ 320 (3) Contract by Bank to Pay Checks on Another Bank Pre-
sented through Clearing House 2282
§ 320 (4) Effect of Indorsements on Checks Passing through Clearing
House ^ 2282
§ 320 (5) Presumption of Good Faith in Bank in Taking up Check.. 2283
§ 320 (6) Rule That Errors in Exchanges Shall Be Adjusted by Banks
Concerned 2283
§ 320 (7) Rule or Custom Limiting Time within Which Receiving
Bank Can Return Notes or Checks That Are Not Good.. 2284
§ 320 (7a) Validity 2284
§ 320 (7b) Construction 2284
§ 320 (7c) Waiver 2286
§ 320 (8) Mutual Credits Given by Banks on Settlement Made through
House
Clearing 2286
§ 320 (9) Reclamation by Bank Charged with Amount of Drafts or
Checks Returned as Not Good 2286
§ 320 (10) Who Is Liable Where Bank Pays Check through Clearing
House by Mistake 2286
§ 320 (11) What Amounts to Negligence in a Clearing-House Agent.. 2286
§ 320 (12) Effect of Insolvency of Bank, a Member of Clearing House.. 2287
§ 321. Rights and Liabilities of Banks and Individuals Not Members 2287
§ 321 (1) Upon Whom Clearing House Rules Are Binding 2287
§ 321 (2) Clearances Made by a Non-Member through a Member. .. .2288
§ 321 (3) Payment to Clearing House of a Draft Where the Owner
Is Not a Member 2289
§ 322. Security for Payment of Balances 2289
§ 323. Actions 2291
§ 323 (1) When Action upon an Account Stated Will Not Lie 2291
§ 323 (2) Parties 2291
§ 323 (3) Pleading 2291
§ 323 (4 Evidence
) 2291
§ 323 (5) Laches as a Defense 2292
CHAPTER XIX.
VIII. Taxation.
§ 324. Nature and Extent of Power to Tax Banks 2295

§ 324 (1) Power of State '
2295
§ 324 (2) Power of United States 2298
§ 324 (3) Power of Territories 2298
§ 324 (4) Purposes of Taxation 2298
§ 324 (5) Delegation of Power 2299
§ 324 (6) Power to Cure Defects or Irregularities 2300
TABLE OP CONTENTS. L,XIX
§ 325. Constitutional Requirements and Restrictions 2301

§335 (1) ConstitutionalProvision as to Situs 2301
§ 325 (2) General Laws, Equality and Uniformity 2303
§ 325 (2a) In General 3302
§ 335 (3b) Classification of Subjects and Uniformity as to Same
Subject 3305
§ 325 (3) Double Taxation 3313
§ 335 (4) Taxation According to Value 2317
§ 325 (5) Method of Determining Value 2318
§ 336. Liability of Banks and Their Property to Taxation 2318
§ 326 (1) Of Banks Other than National 2318
§ 336 (lb) Franchises and Privileges 3323
§ 326 (Ic) Capital and Stock 3334
§ 326 (lea) Capital 2324
§ 326 (Icb) Capital Stock 2326
§ 326 (Id) Share of Stock in Hands of Stockholders 2330
§ 326 (le) Dividends, Surplus and Undivided Profits 2336
§ 336 (If) Deposits 3340
§ 336 (Ig) Loans, Investments and Securities 2344
§ 336 (Ih) Ownership or Possession of Property 3347
§ 326 (li) Taxationon Circulation 3348
§ General
326 (lia) In 2348
§ 326 (lib) Purpose of Provisions Taxing Circulation. .2348
§ 326 (lie) Provisions Construed and Applied 2349
§ 326 (2) Of National Banks 3350
§ 326 (2a) Federal Taxation 3350
§ 336 (3b) State Taxation 2350
§ 326 (3bb) Real Property 2353
§ 326 (2bc) National Bank Shares 3354
§ 326 (2bca) In General 2354
§ 326 (2bcb) Prohibition of Discrimination between
National Bank Shares and Other
Moneyed Capital 2361
326 (3bcc) Limitation as to Place of Taxation of
§
Shares of Nonresidents 3380
§ 336 (3bcd) Validity of Statute Requiring Payment
by Bank as Agent of Stockholders. .3380
§ 326 (2bd) Deposits in National Banks 2382
§ 326 (2be) Taxation on Circulation 3383
? 327. Exemptions . . 3383
§ 337 (1) In General .'
3383
§ 337 (2) Irrevocability of Statutes Providing for Mode of Taxation
and Exemptions 3390
§ 337 (3) Exemption Granted by Charter Personal and Not Trans-
ferable by Sale of Charter 2391
§ 327 (4) Waiver of or Estoppel to Claim Exemptions 3391
§ 327 (5) Acquisition of Exempt Property to Evade Taxation 3392
§ 328. Place of Taxation 2392
§ 328 (1) Banks and Bank Property and Stocks in General 2392
§ 328 (2) National Bank Shares 3395
•§ 339. Levy and Assessment 2398
LXX TABLE OF CONTENTS.
§ 329 (1) Mode of Assessment 239S

§ 329 (la) As Determined by Statute and Charter 2398
§ 329 (lb) Report or Statement by Bank 2400
§ 329 (Ic) Proceedings for Discovery and Valuation of Property.2404
§329 (Id) Valuation of Bank's Property 2404
§ 329 (Idb) Valuation of Franchises and Privileges 2407
§ 329 (Idc) Valuation of Capital or Capital Stock 2408
§ 329 (Idd) Determination of Amount of Deposits 2409
§ 329 (Ide) Valuation of Surplus and Undivided Profits. .2410
§ 329 (Idf ) Valuation of Shares 3410
§ 339 (Idfa) In General 2410
§ 329 (Idfb) Valuation of Rational Bank Shares.. 2415
§ 329 (le) Amendment or Alteration 2420'
§ 329 (If) Additional Supplemental Assessment

or 2420'
§ 329 (Ig) Notice of Assessment 2423

§ 329 (2) Assessment Rolls or Books 2424
§ 329 (3) Equalization of Assessments 2426
§ 329 (4) Review, Correction, or Setting Aside of Assessment 2428.

'.
2428
§ 329 (4b) Grounds of Revievsr 2429
§ 339 (4c) Right of Review 2429
§ 329 (4ca) Persons Entitled 2429
§ 329 (4cb) Estoppel or Waiver 2431
§ 329 (4d) Creation and Organization of Board of Review or
Other Special Tribunal 2433
§ 339 (4e) Authority, Powers and Duties of Board or Officers. .3433
§ 339 (4f) Place and Time of Meeting of Board 3434
§ 329 (4g) Notice to Parties Interested 2435
§ 339 (4h) Complaint or Petition 2437
§ 339 (4i) Determination or Decision 3437
§329 (4j) Review Decision of Board
of 2437
§ 329 (4ja) On
Appeal from County to State Board 2437
§ 339 (4jb) Review by Courts 2438
§329 (4k) Certiorari to Review Assessment 2439
§ 329 (41) Mandamus to Correct Assessment 3441
§ 329 (4m) Injunctions to Restrain Assessment 2441
§ 339 (4n) Actions to Reduce Assessment or Abate Tax 3443
§ 339 (4o) Actions to Set Aside Assessment or for Reassess-
ment 3442
§ 330. Lien and Priority 2443
§ 331: Payment and Refunding or Recovery of Tax Paid 2443
§ 331 (1) Payment '
2443
§ 331 (la) In General 2443-
§ 331 (lb) Mode Making and Medium of Payment
of 2443
§ 331 (Ic) Operation and Effect of Payment 2443
§ 331 (3) Tender 2444
§ 331 (3) Recovery of Taxes Paid 2445.
§ 331 (3a) In General 2445
§ 331 (3b) Actions and Proceedings for Recovery of Taxes Paid.2446
§331 (4) Release or Abatement, Rebates and Discounts 2447
§ 332. Collection and Enforcement 2447
§ 332 (1) Manner 2447
TABIÛ OF CONTENTS. LXXI

§ 332 (lb) Summary Remedies 3447
§ 332 (Ic) Actions for Unpaid Taxes 2448
§ 333 (Icb) Defenses 2449
§ 332 (Ice) Time to Sue and Limitations 2450
§ 332 (led) Parties 2450
§ 332 (Ice) Pleading 2451
§ 332 (Icf ) Evidence 2451
§ 332 (2) Remedies for Wrongful Enforcement 2451
§, 332 (2a) Injunction 2451
§ 333 (3aa) When Proper 3451
§ 332 (3ab) Jurisdiction 2456
§ 332 (2ac) Conditions Precedent 2456
§ 332 (2ad) Parties 2456
§ 332 (2ae) Pleading 2458
§ 332 (2af ) Scope of Inquiry 2459
§ 332 (2ag) Scope
and Extent of Relief 3459
§ 332 (2ah) Imposition of Terms on Granting Injunction 3459
§ 333 (3b) Actions for Damages 2460
§ 333. Forfeitures and Penalties 2460
Table of Cases ; 2461

Index 2627
BANKS AND BANKING
CHAPTER I.
I. CONTEOIj AND REGULATION IN GENERAL.

§ 1. Right of Banking in General.
§ 3. What Are Banks.
§ 3. Power to Control and Regulate.
§ 4. Constitutional and Statutory Provisions.
§ 5. Charter Provisions.
§ 6. Authority or License to Do Business.
§ 7. Unauthorized Banking.
§ 8. In General.
§ 9. Validity of Transactions and Liabilities Incurred.
§ 10. Penalties and Actions Therefor.
§ 10 (1) Statutory Provisions and Construction.
§ 10 (2) Enforcement.
§ 10 (3a) Petition— Sufficiency.
§ 10 (3b) Replication to Plea.
§ 10 (3c) Quo Warranto.
§ 10 (2d) Jurisdiction and Venue.
§ 10 (3e) Service of Process and Execution.
§ 11. •
Criminal Prosecutions.
§ 11 (1) Offense a Statutory One.
§ 11 (2) Indictment.
§ 11 (3) Information.
•§ 13. License Fees and Taxes.
§ 13 (1) Power to Impose.
§ 13 (3) Exemptions.
§ 12 (3) Interest.
§ 12 (4) Effect of Payment.
§ 13. Limitation of Indebtedness.
§ 14. Reserves.
§ 15. Safety Funds and Deposits of Securities.
§ 15 (1) Necessity and Constitutionality.
§ 15 (2) Obligation Therefor and Payment.
§ 15 (3) Lien of State —
Substitution of Other Securities.
§ 15 (4) Effect of Failure to Deposit.
§ 15 (5) Loss.
§ 15 Custody, Title and Control.
(6)
§ 15 (7)Payment of Debts Therefrom.
§ 15 (8) School Funds.
§ 16. Reports and Statements.
§ 16 (1) Duty to Make and Effect of Failure.
§ 16 (3) Time Make.
to
§ 16 (3) Form and Contents.
§ 16 (4) Verification.
§ 16 (5) Returns as Notice of Bank's Condition.
BANKS AND BANKING. § 1
§ 17. Public Examiners.

§ 17 Appointment.
(1)
§ 17 Compensation.
(3)
§ 17 (3) Removal.
§ 17 (4) Powers.
§ 17 (5) Effect on Title to Property and Rights of Action.
§ 18. Foreign Banks.
§ 19. Penalties for Violations of Regulations.
§ 20. Offenses by Banks or Bankers.
§ 21. Offenses by Persons Dealing with Bank.i.
I. CONTROL AND REGULATION IN GENERAL.i

§ 1. Right of Banking in General.^ As Franchise. At common — —
law the business of banking was not a franchise, but a common-law right
of any individual.^ But it can be made a franchise by restraining legisla-
tion, although the contrary has been held by the supreme courts of South
Dakota and Nevada.-* It seems to be universally conceded that absolute
1. Of loan, trust and investment Nevada State, etc., Board, 33 Nev. 333,
companies, see post, "Control and 111 Pac. 295.
Regulation in General," § 310. The business of baSiking "by dis-
Of national banks, see post, counting and negotiating promissory
"Power to Control and Regulate," notes, bills of exchange, drafts, and
§ 233. other evidences of debt, by receiving
As of assessment on stock to make deposits, by buying and selling ex-
good the impairment of capital, see change, coin, and bullion, and by
post, "Rights and Liabilities as to loaning money on personal security,"
Bank," § 43. was not a franchise at common law,
and has not been made such by the
2. Rights of foreign banks, see post,
state of national constitutions; the
"Foreign Banks," § 18. only banking privilege that is made a
Stockholder's liability depending on
franchise being the privilege of issu-
determination of question, see post,
ing bank notes intended to circulate
"Constitutional and Statutory Pro-
as money. State v. Scougal, 3 S. Dak.
visions," § 44.
55, 51 N. W. 858, 44 Am. St. Rep. 756,
Banking, franchises and powers and
15 L. R. A. 477.
their exercise in general, see post,
No special authority necessary for
§§ 86-101.
A common-law right not a fran-
—
private banking. But the business of
3. banking, in its most enlarged signifi-
chise. —Attorney General v. Utica Ins. cation, never required any special au-
Co. (N. Y.), 2 Johns. Ch. 371; S. C, thority, except as to the issuing of
(N. Y.), 15 Johns. 353, 8 Am. Dec. 343; notes and bills to circulate as money,
Nance v. Hemphill, 1 Ala. 551; State v. and as to the right of corporations to
Granville Alexandrian Soc, 11 O. 1; do a banking business, and hence all
Ohio Life Ins., etc., Co. v. Merchants' natural persons may engage therein.
Ins., etc., Co., 30 Tenn. (11 Humph.) 1, 53 Exchange Bank v. Hines, 3 O. St. 1.
Am. Dec. 742; Hazen v. Union Bank, See, also. Dearborn v. Northwestern
33 Tenn. (1 Sneed) 115; State v. Sav. Bank, 42 O. St. 617, 51 Am. Rep.
Lookout Bank, 89 Tenn. (5 Pickle) 851; Pickaway County Bank v. Pra-
278, 14 S. W. 801; Curtis v. Leavitt, ther, 12 O. St. 497; Bonsai v. State, 11
15 N. Y. 9; State v. Scougal, 3 S. D. O. 72; State v. Washington Social Li-
55, 51 N. W. 858, 44 Am. St. Rep. 756, brary Co., 11 O. 96; State v. Urbana,
15 L. R. A. 477; Bank v. San Fran- etc., Ins. Co., 14 O. 6.
cisco, 143 Cal. 276, 75 Pac. 832, 100 4. Subsequently made a franchise
Am. St. Rep. 130, 64 L. R. A. 918. by restraining
legislation. Attorney —
Banking is a lawful business, in General v. Utica Ins. Co. (N. Y.), 2
which it is the inherent right of every Johns. Ch. 371; S. C, (N. Y.), 15
citizen to engage. Ex parte Pittman, Johns. 353. 8 Am. Dec. 243.
31 Nev. 43, 99 Pac. 700; Marymont v. Although this was an expression of
§ 1 CONTROL AND REGULATION IN GENERAL.
prohibition, not merely prohibition except on comphance with certain con-

ditions prescribed as regulations of banking, is not within the constitutional
opinion unnecessary to the decision of the right of supreme control over the
Attorney General v. Utica Ins. Co. (N. business."
Y.), 3 Johns. Ch. 371, the right of a The general expression as to the
legislature to make banking a fran- untrammeled right of a citizen to pur-
chise and to confine its exercise to sue any lawful business or vocation,
those who can produce a grant, seems found in the Slaughter-House Cases,
to have been assumed in many cases. 83 U. S. 36, 109, 31 L. Ed. 394, and
See Bristol v. Barker (N. Y.), 14 Butchers' Union Slaughter-House,
Johns. 305; People v. Brewster (N. etc., Co. V. Crescent City, etc., Co.,
Y.), 4 Wend. 498; People v. Bartow Ill U. S. 746, 28 L. Ed. 585, 4 S. Ct.
(N. Y.), 4 Cow. 290; Pennington v. 652, must be construed not to apply
Townsend (N. Y.), 7 Wend. 276; Hal- to banks, because of the danger of in-
lett V. narrower (N. Y.), 33 Barb. jury to the public from free banking.
537; Austin v. State, 10 Mo. 591; See, also, Lawton v. Steele, 153 U. S.
Nance v. Hemphill, 1 Ala. 551; State 133, 38 L. Ed. 385, 14 S. Ct. 501;
V. Williams, 8 Tex. 255; Goodsill v. Allgeyer v. Louisiana, 165 U. S. 578,
Woodmanse, 1 N. Dak. 346, 46 N. W. 41 L. Ed. 832, 17 S. Ct. 437; Chicago
970, 11 L. R. A. 430, direct authority V. Netcher, 183 111. 104, 55 N. E. 707,
therefor. Indeed the right never 75 Am. St. Rep. 93, 48 L. R. A. 361;
seems to have been questioned until People V. Steele, 231 111. 340, 83 N, E.
the decision of State v. Scougal, 3 S. 336, 14 L. R. A., N. S., 361; 121 Am.
Dak. 55, 51 N. W. 858, 44 Am. St. Rep. St. Rep. 331; In re Jacobs, 98 N. Y.
756, 15 L. R. A. 477. Here it was held 98, 50 Am. Rep. 636; People v. Marx,
that it is not a constitutional exercise 99 N. Y. 377, 2 N. E. 39, 53 Am. Rep.
of legislative power to deprive in-
34; Cooley on Torts, page 277.
dividual citizens of the right to carry
The first restraining law in Ohio,
on the business of banking, other than
affecting the power of individuals and
the issue of "bills or paper credit
associations to engage in the business
designed to circulate as money," which
of banking, was the Act of February
is made a franchise by Const., art. 18,
8, 1815, prohibiting the issue of un-
§ 3, and confer the exclusive privilege
authorized bank paper. Bonsai v.
of carrying on such business upon
State, 11 O. 72; State v. Granville
corporations organized as provided by
Alexandrian Soc, 11 O'. 1. See post,
an act of the legislature, on the
"In General," § 201.
ground that such business is, or may
be made, a franchise by legislative au- Ohioconstitution, 1851, art. 13, § 7,
thority. This case was approved and providing that no act of the general
follovved in Ex parte Pittman, 31 Nev. assembly, "authorizing associations
43, 99 Pac. 700, and Marymont v. Ne-
with banking powers, shall take ef-
vada State, etc., Board, 33 Ncv. 333, fect until it shall have been sub-
111 Pac. 395, and in the latter case it mitted to the people" for approval,
was held, that a similar Nevada act did not deprive unincorporated asso-
ciations of joint partners of the right
was in conflict with Const., art. 1, § 1,
asserting rights to liberty, property, to exercise banking functions, includ-
and happiness; with article 1, § 8,
ing the issuing of notes and bills to
guaranteeing due process of law; and circulate as money; the right to exer-
under which cise the latter function, however, be-
with article 1, § 30,
rights not enumerated are saved to ing conditional as indicated in such
the people. section. Exchange Bank v. Hines, 3
In Goodsill V. Woodmanse, 1 N. O. St. 1.
Dak. 246, 46 N. W. L. R. A.
970, 11 —
Tennessee. The business of bank-
420, it is said: "As a matter of prece- ing was a common-law right, which
dent and authority, the legislative pre- any person, at his discretion, might
rogative, in the exercise of its police lawfully exercise, until it was re-
power in promoting the public safety, strained by the Act of 1837, upon con-
not only to regulate and restrict the siderations of public policy and con-
business of banking, but also to grant venience. Ohio Life Ins., etc., Co. v.
the right to one class, and to prohibit Merchants' Ins., etc., Co., 30 Tenn. (ll
it to others, or even to forbid it alto- Humph.) 1, 53 Am. Dec. 743; Hazen
gether, has never been questioned in V. Union Bank, 33 Tenn. (l Sneed)
the courts, and the legislatures of 115: State v. Lookout Bank, 89 Tenn.
other states have frequently exercised (5 Pickle) 378, 14 S. W. 801.
BANKS AND BANKING. § 1
powers of a state legislature,^ and it is also conceded that regulation is not

only the right but the duty of the legislative power.!^ And it is for the leg-
islature to determine, primarily, what regulations are proper and needfulJ
The important and the one on which the courts differ, is as to
question,
whether regulation carried into prohibition of private banking comes within
the police power. If it does not, then it would seem that the legislature
could not make a franchise of a right which belongs to citizens of the coun-
try generally by common right. But the police power is broad enough to
cover such legislation, and in view of the modern tendency to broaden that
power, the case of State v. Scougal must be regarded as sporadic and not
likely to be followed by many courts. And the decision by the supreme
court of the United States of the bank guaranty fund cases, and what was
there said on this point, confirms this conclusion. In this case, and the com-
panion cases cited in the note, state legislation forbidding private banking
and making incorporation a necessary prerequisite to engaging in the bank-
ing business, is upheld as constitutional under the police power.* Requir-
5. Prohibition and regulation com- 15 N. Y. 9; People v. Bartow (N. Y.),

—
pared. As said in a Wisconsin case: 4 Cow. 290; Attorney General v. Utica
"There, are some fundamental propo- Ins. Co. (N. Y.), 15 Johns. 353, 8 Am.
sitions so well settled that it is only Dec. 243; S. C, (N. Y.), 2 Johns. Ch.
necessary to state them. Among 371; Goodsill V. Woodmanse, 1 N.
these are the following: First, bank- Dak. 246, 46 N. W. 970, 11 L. R. A.
ing is a common-law right pertaining 420; State v. Williams, 8 Tex. 265; 1
equally to every member of the com- Morse, Banks and Banking, 4th Ed.,
munity; second, being a common-law § 13; Zane, Banks &
Banking, §§ 9,
right, it can not be prohibited under 10. See, also, Marymont v. Nevada
a constitution like ours, which recog- State, etc., Board, 33 Nev. 333, 111
nizes the right, and grants power to Pac. 295; State i'. Scougal, 3 S. Dak. 55,
the legislature to regulate and super- 51 N. W. 858, 44 Am. St. Rep. 756,
vise it; third, under such a constitu- 15 L. R. A. 477.
tion as ours,. banking may be regulated _
7. "The question as to what regula-
so far as may be reasonably neces- tions are proper and needful is prima-
sary to secure the public welfare and rily for legislative decision; yet,
safety, but it must be true regulation, when the police power is used to regu-
not prohibition under the guise of late a business or occupation which
regulation. 1 Morse, Banks and Bank- in itself is lawful and useful to the
ing, § 13." Weed v. Bergh, 141 Wis. community, the courts, if called upon,
569, 134 N. W. 664, 25 L. R. A., N. S., must determine finally whether such
1317. See Marymont v. Nevada State, regulations as may have been pre-
etc., Board, 33 Nev. 333, 111 Pac. 395; scribed are_ so far just and reasonable
State V. Scougal, 3 S. Dak. 55, 51 N. W. as to be in harmony with constitu-
858, 44 Am. St. Rep. 756, 15 L. R. A. tional guaranties. Republic Iron, etc.,
477. Co. V. State, 160 Ind. 379, 66 N. E. 1005,
6. Regulation a right dnd a duty.— 62 L. R. A. 136." State v. Richcreek,
"While the business of banking may 167 Ind. 217, 77 N. E. 1085, 5 L. R. A
not be prohibited, it may be regulated, N. S., 874, 119 Am. St. Rep. 491. See,
and it is of the highest importance to also, Marymont v. Nevada State, etc.,
the public welfare that it be regulated Board, 33 Nev. 111
333, Pac. 295;
by wise legislation." Ex parte Pitt- Noble State Bank v. Haskell, 22 Okl
man, 31 Nev. 43, 99 Pac. 700. See State 48, 97 Pac. 590; Goodsill v. Wood-
V. Richcreek, 167 Ind. 817, 77 N. E. manse, 1 N. Dak. 246, 46 N. W. 970
1085, 5 Iv. R. A., N. S., 874, 119 Am. St. 11 L. R. A. 420.
Rep. 491, citing Bank v. Earle, 13 Pet. 8. Regulation carried into prohibi-
519, 10 L. Ed. 374; State Stebbins (Ala.), tion.— Noble State Bank v. Haskell
1 Stew. 299; Nance z/. Hemphill, 1 Ala. 219 U. S. 104, 55 L. Ed. 112, 31 S. Ct.
551; Blaker v. Hood, 53 Kan. 499, 36 Pac. 186, In this case it is said: "The
1115, 24 L. R. A'. 854; Curtis v. Leavitt, question that we have decided is not
§ 1 CONTROI, AND REGULATION IN GENERAL.
ing incorporation as a condition to doing a banking business is regulation,

and not prohibition, and therefore does not unconstitutionally interfere with
the right to transact such business.*
much helped by propounding the Noble State Bank v. Haskell, 319 U. S.

further one, whether the right to en- 104, 55 L. Ed. 112, 31 S. Ct. 186; Good-
gage in banking is or can be made a sill V. Woodmanse, N. Dak. 346, 46
1
franchise. But as the latter question N. W. 970, 11 L. R. A. 420.
See contra.
has some bearing on the former and Ex parte Pittman, 31 Nev. 43, 99 .Pac.
as it will have to be considered in the 700; Marymont v. Nevada State, etc..
following cases, if not here, we will Board, 33 Nev. 333, 111 Pac. 395; State
dispose of it now. It is not answered V. Scougal, 3 S. Dak. 55, 51 N. W. 858,
by citing authorities for the existence 44 Am. St. Rep. 756, 15 L. R. A. 477.
of the right at common law. There As said in Weed v. Bergh, 141 Wis.
are many things that a man might do 569, 134 N. W. 664, 25 L. R. A., N. S.,
at common law that the states may 1317: "If, as matter of fact, the re-
forbid. He might embezzle until a quirement of incorporation is a form
statute cut down his liberty. We can of regulation reasonably calculated to
not say that the public interests to meet and remedy these difficulties,
which we have adverted, and others, though not in the wisest way, it must
are not sufficient to warrant the state be sustained a? an exercise of the po-
in taking the whole business of bank- lice power. We have been referred to
ing under its control. On the con- but one case which holds the contrary
trary we are of opinion that it may doctrine, viz. State v. Scougal, 3 S.
go on from regulation to prohibition Dak. 55, 51 N, W. 858, 44 Am. St. Rep.
except upon such conditions as it 756, 15 L. R. A. 477; which indeed
may prescribe. In short, when the holds that an act requiring incorporation
Oklahoma legislature declares by im- as a condition of doing banking is un-
plication that free banking is a pulj- constitutional. The discussion of the
lic danger, and that, incorporation, in-
question there is long and learned, but
spection and the above-described co- not convincing to us. It is to be noted,
operation are necessary safeguards, further, that the constitution of South
this court certainly can not say that it Dakota contains an unusual provision
is wrong. Goodsill v. Woodmanse, 1 N.
which figures largely in the result.
Dak. 246, 46 N. W. 970, 11 L. R. A. This provision is to the effect that no
420; Brady v. Mattern, 125 Iowa 158, law shall grant to any citizen, class of
100 N. W. 358, 106 Am. St. Rep. 291; citizens, or corporations, privileges or
Weed V. Bergh, 141 Wis. 569, 124 N. immunities which on the same terms
W. 664, 25 L. R. A., N. S., 1217; Com- shall not equally belong to all citizens
monwealth V. Vrooman, 164 Pa. 306, 30 or corporations. The weight of de-
Atl. 217, 44 Am. St. Rep. 603, 35 L. R. cision as well as text-book authority
A. 250; Myers v. Irwin (Pa.), 3 Serg. is the other way, however. 1 Morse,
& R. 368; Myers v. Manhattan Bank, Banks & Banking, § 13; 5 Cyc. Law
20 O. 383; Attorney General v. Utica & Proc, p. 433; Boone, Banks & Bank-
Ins. Co. (N. Y.), 3 Johns. Ch. 371." Woodmanse,
ing, § 10; Goodsill v. 1
Noble State Bank v. Haskell, 319 U. N. Dak. 246, 46 N. W. 970, 11 L. R. \.
S. Ed. 112, 31 S. Ct. 186.
104, 55 L. 430; Myers v. Manhattan Bank, 20 O.
See Shallenberger v. First Nat. 283."
Bank, 319 U. S. 114, 55 L. Ed. 117, 31
Such a statute was upheld by the
S. Ct. 189, following, and on the au-
supreme court of North Dakota, not
thority of. Noble State Bank v. Has-
contravening either § 1 of art. 1 of
kell, 319 U. S. 104, 55 L. Ed. 113, 31
the state constitution or § 1 of the
S. Ct. 186, sustaining the Bank De-
fourteenth amendment to the federal
positors' Guaranty Fund Acts of
Oklahoma, which held that a similar
constitution, in Goodsill v. Wood-
manse. 1 N. Dak. 346, 46 N. W. 970, 11
act of Nebraska, providing for a
L. R. A. 430.
guaranty fund and prohibiting bank-
ing except by corporations formed un- The Pennsylvania statute of 1810,
der the act. is not unconstitutional. prohibiting all existing unincorporated
First State Bank v. Shallenberger, 173 banking companies from doing bank-
Fed. 999. ing business, was constitutional and
9. Weed v. Bergh, 141 Wis. 569, 134 valid. White v. Commonwealth (Pa.),
N. W. 664, 35 L. R. A., N. S., 1317; 4 Bin. 418; Myers v. Irwin (Pa.), 2
Shallenberger v. First Nat. Bank, 319 Serg. & R. 368.
U. S. 114, 55 L. Ed. 117, 31 S. Ct. 189; Statute discriminating against in-
BANKS AND BANKING. §2
The prohibition of private banking necessarily results from the in-
auguration of a banking system for the state in which the business is made
an exclusive corporate franchise. i*>
Banking Through Agency of Corporation a Franchise. —But the
right to carry on the business of banking through a corporation is a fran-
chise.ii
Authority of Corporations for Particular Purposes. — It has been

held that insurance companies have no authority to engage in banking/^ nor
have incorporated religious societies.^*
Authority of Corporation Organized under General Laws. No cor- —
poration organized under the general incorporation act is permitted to en-
gage in the banking business. ^^
§ 2. What Are Banks. is —Bank or Banker and Banking Defined.

—A bank is a quasi pubhc institution/^ for the custody and loan of money,
dividual bankers held unconstitutional. empowered to engage in the business

— "In Alabama a statute which made of banking, and to receive on deposit,
it a misdemeanor for an individual keep, and circulate the money or bank
banker to discount negotiable paper at paper of others. Huber v. United
a higher rate of interest than 8 per Protestant, etc., Congregation, 16 O.
cent was declared to be unconstitu- St. 371.
tionalbecause restriction could
this 14. Corporation organized under
not be placed upon the individual general laws. —Workingmen's Accom-
banker when it did not apply to incor- modation Bank v. Converse, 29 La.
porated banks. Carter v. Coleman, 84 Ann. 369.
Ala. 256, 4 So. 151; Youngblood v. 15. See post, "Foreign Banks," § 18,
Birmingham Trust, etc., Co., 95 Ala. as to foreign banks.
521, 12 So. 579, 36 Am. St. Rep. 245, 20 What is a bank, within statute re-
L. R. A. 58, 10 Am. & Eng. Ann. Cas. quiring a license, see post, "Authority
904, note." Marymont v. Nevada or License to Do
Business," § 6.
State, etc.. Board, 33 Nev. 333, 111 Construction of charter provisions
Pac. 295. as conferring banking powers, or no,
10. Prohibition of private banking. see "Construction of Charters and
— Goodsill V. Woodmanse, 1 N. Dak. Banking Laws," § 87.
246, 46 N. W. 970, 11 L. R. A. 420. See —
Savings banks. See post, "Savings
post, "Unauthorized Banking," § 7, et Banks," §§ 289-309.
seq. As to regulation generally, see —
National banks. See post, "National
post, "Power to Control and Regu- Banks," §§ 232-288.
late," § 3. Bank money and banknotes. See —
11. Banking through agency of cor- post, "Circulating Notes," § 196.
poration. — While the right to do a —
Bank stock. See post, ''.A.mount of
banking business is not a franchise, Capital and Shares," § 36.
and belongs to all citizens generally, —
Capital stock. See post, "Amount
yet the right to carry on such business of Capital and Shares," § 36.
through the agency of a corporation is 16. Bank or banker defined. Knick- —
a franchise, dependent on a grant of erbocker Life Ins. Co. v. Pendleton,
corporate powers by the state. Bank 115 U. S. 339, 29 L. Ed. 432, 6 S. Ct.
V. San Francisco, 142 Cal. 276, 75 Pac. 74; Guthrie v. Harkness, 199 U. S. 148,
832, 100 Am. St. Rep. 130, 64 L. R. A. 50 L. Ed. 130, 26 S. Ct. 4; Patterson v.
918. Marine Nat. Bank, 130 Pa. 419, 18 Atl.
12. Insurance —
companies. A cor- 632, 17 Am. St. Rep. 778; American
poration created for insuring property Nat. Bank v. Morey, 113 Ky. 857, 69
has no authority to engage in banking. S. W. 759.
Blair v. Perpetual Ins. Co., 10 Mo. 559, Although the mere business of bank-
47 Am. Dec. 129. ing is a private business. Osborn v.
13. Incorporated religious socie- Bank, 9 Wheat. 738, 6 L. Ed. 204.
ties.— A religious society incorporated And a bank, when the stock is
under the Act of March 5, 1836, is not owned by individuals, is a private cor-
§ 2 CONTROIv AND EEGULATION IN GBNERAI..
the exchange and transmission of the same by means of bills and drafts^
and the issuance of its own promissory notes, payable to bearer, as currency,
or for the exercise of one or more of these functions, ^^ not always necessa-
rily chartered, 1* but sometimes so,i'' created to subserve public ends,^" or a
financial institution regulatedby law.^^
And state banks are public corporations and state institutions
for certain purposes,^^ but the bank and the state are' different enti-
ties,23 and in assuming to carry on the business and to exercise the functions
poration. State Bank v. Knoop (U. than that indicated above, is not a
S.), 16 How. Ed. 977.
369, 14 L. bank within the meaning of Civil
A bank is an institution organized Code, § 3688, doing away with the
for private business, and with a view necessity for protest in certain cases
to individual profit, although it may in order to bind indorsers. Davis v.
serve a public purpose and such pub- West & Co., 127 Ga. 470, 56 S. E. 403.
he purpose justify its creation. Tal- As meaning incorporated institu-
bott V. Silver Bow, 139 U. S. 438, 35 tions with banking powers under Ohio
L. Ed. 210, 11 S. Ct. 594. —
constitution. Exchange Bank v. Hines,
"Mr. Justice Story, in his learned 3 O. St. 1.
an'd able reinarks in Dartmouth Col-
lege Woodward,Wheat. 518, 4 L.
4
20. Purpose of creation. bank is —A
V. created upon public considerations, to
Ed. 629, says: 'A bank created by the subserve public ends, and not for pri-
government for its own uses, where the vate purposes only. Williams v. Union
stock exclusively owned 'by the gov-
is Bank, 21 Tenn. (2 Humph.) 339.
ernment is, in the strictest sense, a pub-
21. Cannon v. Apperson, 82 Tenn.
lic corporation.' 'But a bank wJiose
(14 Lea) 553.
stock is owned by private persons is
22. State banks.— The Bank of Ten-
a private corporation, although it is
erected by the government, and its nessee is in its nature and character a
public corporation, chartered for the
objects and operations partake of a
State Bank v. Knoop benefit of the state; the faith and
public nature.' "
credit of the state are pledged for its
(U. S.), 16 How. 369. 14 L. Ed. 977.
support. Nashville v. Bank, 31 Tenn.
Free banks under Tennessee Act of
1851-52.— Neiffer v. Bank, 38 Tenn. (1 (1 Swan) 269; Bank v. Woodson, 45
Head) 162.
"Tenn. (5 Coldw.) 176, citing Furman,
Kiggins Munday, 19 Wash. etc., Co. V. Nichol, 43 Tenn. (3 Coldw.)
17. v.
433. also, Vanzant v. Waddel,
See,
233, Pac. 855.
52
18. Not necessarily chartered. The — 10 (2 Yerg.) 260; Bonner v.
Tenn.
Burke, 41 Tenn. (1 Coldw.) 623; State
term "bank" does not necessarily re-
fer to a chartered banking institution,
Bank v. Knoop, 16 How. 369, 14 L.
though it includes all such; and is used Ed. 977.
in the Indiana constitution simply in
But not so within the meaning of a
statute giving the state priority over
reference to that class of banks. Davis
certain other claims. Fields v. Credit-
V. McAlpine, 10 Ind. 137; Norton v.
ors, 33 Tenn. (1 Sneed) 350.
Jewett, 12 Ind. 426.
19. Sometimes so. —
Massachusetts. — "The Bank of Tennessee is a state
institution, chartered by a public lav/."
The word "bank" has long had a well-
defined signification in this common- Shaw V. State, 35 Tenn. (3 Sneed) 86.
wealth, and has been applied to in- 23. "The bank and the
state are en-
stitutions incorporated for banking tirely different entities. While the
purposes, but not to offices kept by state owned all the stock in the bank,
individuals or copartnerships for the appointed its officers, received the
purpose of doing such banking busi- benefit of the profits it made, and dic-
ness as such persons have been au- tated its management; yet it was
thorized to do. Way v. Butterworth, merely a private corporation, and it is
106 Mass. 75; S. C, 108 Mass. 509, 513. to be held and treated accordingly.
—
Georgia. A concern, not chartered, This was expressly determined by this
court in the case of Watson v. Bank."
advertising as bankers, lending money,
discounting notes, bills, etc., but not Keith V. Clarke, 72 Tenn. (4 Lea) 718.
receiving deposits, there being no See, also, Bank v. Dibrell, 35 'Tenn. (3
other evidence of the concern per- Sneed) 379; State v. Bank, 64 Tenn.
forming any other functions of a bank (5 Baxt.) 1.
a BANKS AND BANKING. §2
of banking, the government, thus far, divests itself of its sovereign charac-
ter, and takes that of a private citizen, or corporation. ^^ Banking associa-
tions are moneyed corporations.^^
Banks, in the commercial sense, are of three kinds, to wit: 1, of
deposit; 2, of discount; 3, of circulation. All or any two of these func-
tions may, and frequently are, exercised by the same association; but there
are still banks of deposit, without authority to make discounts or issue a
circulating medium. ^^ Although, under the legislation and decisions of
84. Creditors, 33 Tenn. (1

Fields v. ject to be paid or remitted upon draft,
Sneed) citing Bank v. Planters'
350, check, order; or where money is
or
Bank (U. S.), 9 Wheat. 904, 6 L. Ed. advanced or loaned on stocks, bonds,
244; Bank v. Wister (U. S.), 2 Pet. bullion, bills of exchange, or promis-
318, 7 L. Ed. 437; Turnpike Co. v. sory notes; or where stock, bonds,
Wallace (Pa.), 8 Watts 816. bullion, bills of exchange, or promis-
85. —
General laws. Banking associa- \
sory notes are received for discount
or for sale, are regarded as banks."
tions organized under Eaws, 1838, c.
260, are "moneyed corporations," and Oulton V. Savings Institution (U. S.),
are therefore embraced by the ''Bank- 17 Wall. 109, 21 L. Ed. 618; Richmond
ing Act." Hirschfeld v. Bopp, 27 App. V. Blake, 132 U. S. 592, 33 L. Ed. 481,
Div. ISO, 50 N. Y. vS. 676, reversed 3 S. Ct. 204; Selden v. Equitable Trust
on another point in Hirshfeld v. Fitz- Co., 94 U. S. 419, 24 L. Ed. 249; West-
gerald, 157 N. Y. 166, 46 L. R. A. 839, ern Invest. Banking Co. v. Murray, 6
51 -N. E. 997. See, also, Robinson v. Ariz. 215, 56 Pac. 728.
Bank, 21 N. Y. 406. " 'A bank,' says Morse
(§ 2, Banks,
86. Bank defined.— Bank v. Col- and Banking), 'is an institution usually
lector, 3 Wall. 495, 512, 18 L. Ed. 207; incorporated with power to issue its
Oulton V. Savings Institution (U. S.), promissory notes intended to circulate
17 Wall. 109, 21 L. Ed. 618. as money (known as bank notes); or
Strictly speaking the term bank im- to receive the -money of others on
plies a place for the deposit of money, general deposit to form a joint fund
as that is the most obvious purpose of that shall be used by the institution
such an institution. Originally the for its own benefit, for one or more
^
business 6f banking consisted only in of the purposes of making temporary

receiving deposits, such as bullion, loans and discounts; of dealing in
plate, and the like, for safekeeping notes, foreign and domestic bills of
until the depositor should see fit to exchange, coin, bullion, credits and
draw it out for use, but the business, the remission of money; or with both
in the progress of events, viras ex- these powers, and with the privileges
tended, and bankers assumed to disin addition to these basic powers, of
count bills and notes and to loan receiving special deposits and making
money upon mortgage, pawn, or other collections for the holders of nego-
security, and at a still later period to tiable paper, if the institution sees fit
issue notes of their own intended as a to engage in such business.' " Auten
circulating currency and a medium of V. United States Nat. Bank, 174 U. S.
exchange instead of gold and silver. 125, 43 L. Ed. 920, 19 S. Ct. 628.
Modern bankers frequently exercise 'JMcCulloch, in his Commercial Dic-
any two or even all three of those tionary (vol. 1, p. 63), under the word
functions, but it is still true that an 'Banking,' says: 'Banks are estab-
institution prohibited from exercising lishments intended to serve for the
any more than one of those functions safe custody of money; to facilitate its
is a bank in the strictest commercial payment by one individual to another;
sense. Oulton v. Savings Institution and sometimes for the accommodation
(U. S.), 17 Wall. 109, 21 L. Ed. 618; of the public with loans.' " Niagara
Bank v. Collector, 3 Wall. 495, 512, 18 County Bank v. Baker, 15 O. St. 68.
L. Ed. 207. Reception of money of others and
"Associations engaged in moneyed doing banking business thereon Ôhio —
transactions, whether incorporated or —
Act of 1845. Pickaway County Bank
not, having a place of business where V. Prather, 12 O. St. 497; Huber v.
credits are opened by the deposit or United Protestant, etc., Congregation,
collection of money or currency, sub- 16 O. St. 371; Medill v. Collier, 16 O.
§2 CONTROL AND EEGUI,ATI0N IN GENERAI,.
Ohio and California, and those of other states, banking purposes necessa-
rily include issue of notes. ^"^ And receiving deposits in small sums to be
sent to another state or foreign countries is banking,^^ and so as to receipt
St. 599; United Protestant, etc., Con- The term "banking," as used in the
gregation V. Stegner, 21 O. St. 488. Act of March 12, 1845 (3 Bates' Anno.
Intention to do banking business Stat., § 3821-6), entitled "An act to
sometimes essential. — Bonsai v. State, prohibit unauthorized
providing "That no body politic or
banking," and
11 O. 72.
corporate shall establish a bank, or
Receiving deposits under Ohio Act
engage in the business of banking, to
of 1851.— Medill v. Collier, 16 O. St.
receive on deposit, keep and circulate
599.
the money or bank paper of others,
A corporation engaged in loaning
without express authority of a law of
its own money upon note and mort-
this state," does not refer to unau-
gage is not a banking corporation. thorized banking as such, but only a
Oregon, etc., Invest. Co. v. Rathburn, particular function or department of
Fed. Cas. No. 10,555, 5 Sawy. 33. See,
banking, to wit, the reception on de-
also, Davis v. West & Co., 137 Ga.
posit of the money or bank paper of
407, 56 S. E. 403, where it is intimated
others and the doing of a banking
that the receipt of deposits was neces-
business thereon. Huber v. United
sary to constitute a bank.
Protestant, etc.. Congregation, 16 O.
—
Foreign corporation. A foreign cor- St. 371; United Protestant, etc.. Con-
poration organized under a statute en- gregation V. Stegner, 31 O. St. 488;
titled "An act to provide for the Medill V. Collier, 16 O. St. 599; Picka-
formation of corporations for certain way County Bank v. Prather, 13 O. St.
purposes," and providing that corpora- 497.
tions for manufacturing, mining, or It is no violation of a charter which
chemical purposes or for the purpose contains a clause prohibiting the ex-
of engaging any species of trade or
in ercise banking powers to receive
of
commerce may be formed, and that no money on deposit. State v. Urbana,
corporation organized under the act etc.,Ins. Co., 14 O. 6.
shall possess the power of issuing bills, Individuals issuing notes to pass as
notes, or other evidences of debt for money not included in Ohio statute of
circulation as money, possesses no 1816.— Steedman v. State, 11 O. 82.
power to carry on the business of But see Act of February 16, 1838.
banking, though the certificate of in- Banking purposes as necessarily in-
corporation discloses that it is created cluding issue of notes under California
for the purpose of carrying on the
business of banking to such an extent
—
constitution. The word "banking" as
used in Const., art. 4, § 34, prohibiting
as may be legally done under the con- the from passing any act
legislature
stitution and laws of the state of its granting any charter ^'for banking pur-
organization. Bank v. Collins (N. poses," and Id., § 35, commanding the
Y.), 7 Hun 336. legislature to prohibit any person, as-
87. Although, under Ohio legisla- sociation, or corporation from "exer-
tion,"banking institutions" or "banks" cising the privilege of banking or
appear to be confined to corporations creating paper to circulate as money,"
authorized to issue bills or notes for refers merely to the issuance of bank
circulation as currency. Ohio Life bills or paper to circulate as money.
Ins., etc., Co. V. Debolt (U. S.), 16 Bank v. Hemme,
etc.. Land Co 105 .
How. 416, 14 L. Ed. 997; Exchange Cal. 38 Pac. 963; Bank v. Fair-
376,
Bank v. Hines, 3 O. St. 1; State v. banks, 53 Cal. 196.
Granville Alexandrian Soc, 11 O. 1; —
Iowa. State v. Union Stork Yards,
Lougee v. State, 11 O. 68: Bonsai v. etc.. Bank, 103'Iowa 549, 70 N. W. 753,
State, 11 O. 72; State v. Urbana, etc., 72 N. W. 1076. See post, "Incorpora-
Ins. Co., 14 O. 6, 12; Porter v. Kepler, tion," § 23.
14 O. 127; Porter v. Porter, 14 O. 320; Pennsylvania. Merchants' —Bank v.
Watson V. Brown, 14 O. 473; Johnson Shouse, 103 Pa. 488; Dreisbach v.
V. Bentley, 16 O. 97; Lawler v. Price, 133 Pa. 560, 19 Atl. 569; In re
Walker, 18 O. 151; Myers v. Manhat- Lebanon Trust, etc.. Estate, 3 Pa.
tan Bank, 20 O. 283; Dearborn v. Dist. R. 286. See post, "Constitu-
Northwestern Sav. Bank, 43 O. St. tional and Statutory Provisions," § 4.
617, 51 Am. Rep. 851; 3 Bates' Stat, 28. Receiving deposits to be sent
§ 3831-1. to another state. —
Of national banks',
10 BANKS AND BANKING. §2
of deposits by department store. ^*
But trust companies are not banks in the commercial sense of the
word.^*'
A banker is one who has a place of business where deposits are received
and paid out on checks, and where money is loaned upon security.^ ^
see post, "Power to Control and Regu- table Trust Co., 94 U. S. 419, 422, 24
late," § S33. L. Ed. 249; Richmond v. Blake, 132
The business of receiving deposits U. S. 593, 33 L. Ed. 481, 10 S. Ct. 304.
of money in small sums from time to "A banker, Macleod says, is a trader
time until they reach an amount suffi- who buys money, or money and debts,
cient to be sent to other states or for- by creating other debts, which he does
•eign countries is banking, and as such —
with his credit exchanging for a debt
is a proper subject for regulation in payable in the future one payable on
the exercise of the police power of the demand. This, he says, is the essen-
state. Engel v. O'Malley, 219 U. S. tial definition of banking. 'The first
128, 55 L. Ed. 128, 31 S. Ct. 191, af- business of a banker is not to lend
firming decree (C. C), 182 Fed. 365. money to others but to collect money
29. Receipt of deposits by depart- from others.' (Macleod on Banking,
ment store. —Under Laws 1909, c. 285, vol. 1, 3d Ed., pp. 109, 110.) And Gil-
§ 2024 — declaring the receiving of
781, bart defines a banker to be 'a dealer
money on deposit as a regular busi- in capital, or more properly a dealer in
ness by a person or corporation to be money. He is an intermediate party
a banking business, whether the de- between the borrower and the lender.
posit is made subject to check or is He borrows of one party and lends to
evidenced by a certificate' of deposit, another.' (Gilbart on Banking, vol. 1,
passbook, note, receipt, or other writ- p. 3.)" Auten v. United States Nat.
ing, a department store which received Bank, 174 U. S. 135, 43 L. Ed. 920, 19
deposits up to a certain amount, is- S. Ct. 628.
sued passbooks, paid interest on the "A banker is one who keeps a place
amounts_ deposited, and paid the prin- for the traffic in money; who there re-
cipal, with interest thereon, on de- ceives it from others, and keeps it
mand, in money or goods at the elec- with his own, using the whole fund as
tion of the depositor, was engaged in his own, or remits it at request to
the banking business, and subject to other places; who repays it at the will
the laws regulating it. McLaren v. and call of his customer; who fur-
State, 141 Wis. 577, 134 N. W. 667. nishes money to others on the dis-
30. Trust companies not banks. — count of their obligations, or on
Mercantile Bank v. New York, 121 U. securitiesbrought by them; and who
S. 138, 30 L. Ed. 895, 7 S. Ct. 826. buys and sells bills of exchange. To
Since the decision in Mercantile these is sometimes added the issuing
Bank v. New York, 121 U. S. 138, 30 of his notes to pass as money, when
L. Ed. 895, 7 S. Ct. 826, there has been allowed by law to do so." People v.
no change in the legislation of New Doty, 80 N. Y. (35 Sickles) 325.
York in respect to the powers of trust Attorneys at law, partners in a
companies which calls for any limi- business held forth to the public, by
tation of that decision. Jenkins v. their notes, checks, letter heads, etc.,
Neff, 186 U. S. 230, 46 L. Ed. 1140. as the "Perry County Bank," and who
31. Banker —
defined. The substance receive deposits, etc., are bankers.
of the business of a banker, as defined Commonwealth v. Sponsler, 1 Lack.
by the acts of congress approved June Leg. N. 61.
30. 1864 C13 Stat. 252), and March 3, —
Private Banker. The business of
1865 (13 Stat. 472), is having a place "private banker" is one which may be
of business where deposits are re- carried on in the banker's individual
ceived and paid out on checks, and capacity. Exchange Bank v. Hines, 3
where monev is loaned upon security. O. St. 1.
Warren v. Shook, 91 U. S. 704, 23 L. This term has been commonly used
Ed. 421. in Ohio to distinguish money brokers,
When a corporation or natural per- or dealers in money, who did not is-
son receives from another person, for sue bills or notes to circulate as
discount, bills of exchange or promis- money, from "associations with bank-
sory notes belonging to that other, he ing powers," or banks of issue and cir-
is acting as a banker. Selden v. Equi- culation. Dearborn v. Northwestern
§2 CONTROL AND REGULATION IN GENERAL. 11
The business of banking, as defined by law and custom, consists in the

issue of notes payable on demand, intended to circulate as money where the
banks are banks of issue in receiving deposits payable on demand in dis-
; ;
counting commercial paper; making loans of money on collateral security;

buying and selling bills of exchange; negotiating loans, and dealing in
negotiable securities issued by the government, state and national, and mu-
nicipal and other corporations.^^ Or the exercise of any banking function.^s
Sav. Bank, 43 O. St. 617, 51 Am. Rep. Under statutes requiring reports. —
825. See post, "Reports and Statements,"
"The proper phrase for a banker § 16.
who exercises in his business no more 32. Banking defined. — Mercantile

than the rights and privileges com- Bank v. New York, 121 U. S. 138, 30
mon to all men, as distinguished from L. Ed. 895, 7 S. Ct. 826; Auten v.
a bank or association or person who United States Nat. Bank, 174 U. S.

has taken advantage of the provisions 125, 43 L. Ed. 920, 19 S. Ct. 628; Ex-
of statutes, and by a compliance with change Bank v. Hines, 3 O. St. 1;
the conditions of them has privileges Holladay v. Faurot, 9 W. L. Bull. 92,
not natural and common, is not in- 8 O. Dec. Reprint 633; Ohio Life Ins.,
dividual banker, it is private banker. etc., Co. V. Merchants' Ins., etc., Co., 30
He is private in his business, inas- Tenn. (11 Humph.) 1, 53 Am. Dec.
much as he may conduct it as he 742. See to the same effect. State v.
pleases within law, is not subject to Lookout Bank, 89 Tenn. (5 Pickle)
visitation or scrutiny by the state; 278, 14 S. W. 801.
while those who have started a bank- By § 3407 of the Revised Statutes of
ing business under an enabling stat- the United States, relating to revenue,
ute are public inasmuch as the public it is provided that "every incorporated
have given them the right and have or other bank, and every person, firm
the power to demand securities and or company having a place of busi-
have reports, and to make inquiry into ness where credits are opened by the
the business and how it is conducted. deposit or collection of money or cur-
The individual banker of the statutes rency, subject to be paid or remitted
is a public banker, but he is different upon draft, check, or order, or where
from persons associated for the pur- money is advanced or loaned on
pose of becoming public bankers." stocks, bonds, bullion, bills of ex-
People V. Doty, 80 N. Y. (35 Sickels) change or promissory notes or where
S25. stocks, bonds, bullion, bills of ex-
Banker under Ohio tax laws. The — change or promissory notes are re-
ceived for discount or for sale, shall
term "banker," as used in the constitu-
be regarded as a bank or a banker."
tional provision relating to the taxa-
13 Stat. 251, c. 173, § 79; 14 Stat. 115,
tion of "banks and bankers," denotes
unincorporated "associations with
c. 184, § 9. Richmond v. Blake, 132
U. S. 592, 33 L. Ed. 481, 10 S. Ct. 204;
banking powers,'' as distinguished
Selden v. Equitable Trust Co., 94 U.
from incorporated institutions having
S. 419, 24 L. Ed. 249.
the same powers. Exchange Bank v.
Hines, 3 O. St. 1.
A corporation whose business is
confined to the investment of its capi-
Statutory term "individual banker" tal in bonds secured by mortgage on
held not to include private banker. —
In Laws 1875, c. 371, § 49, forbidding Exercise of any banking func-
33.
"any bank, banking association, or in- tion. — Any person
enga,ged in the busi-
dividual banker to advertise or put ness carried on by banks of deposit
forth a sign as a savings bank," the or of discount or of circulation is do-
term "individual banker" does not ap- ing a banking business, although but
ply to a private banker, who exercises one of these functions is exercised.
in his business no more than the privi- MacLaren v. State, 141 Wis. 577, 134
leges common to all as an individual N. W. 667; People v. Bartow (N. Y.),
banker is one who has availed himself 6 Cow. 290.
of the banking statutes and become Making loans on collateral. The —
empowered to do banking business "banking business," as defined by laws
thereunder. People v. Doty, 80 N. Y. and customs, consists, among other
(35 Sickles) 225. things, in making loans of money on
The business of a stock broker is ordinarily distinct from the business
of a banker, or according to the common understanding a stock broker is
real and to the negotiation,

estate, R. Co., 14 Abb. Prac. 275, 36 Barb.
sale,and guaranty of tliem, is not a 286.
bank or a banker within the meaning A merchants' exchange company, in
of §3407 of the Revised Statutes. order to make loans for the comple-
Selden v. Equitable Trust Co., 94 U. tion of their building, issued several
S. 419, 34 L. Ed. 349; Kiggins v. Mun- hundred bonds, ôme for £200 ster-
day, 19 Wash. 333, 52 Pac. 855; Ore- ling, and the residue for $1,000 each,
gon, etc., Invest. Co. v. Rathburn, Fed. under the seal of the corporation, and
Cas. No. 10,555, 5 Sawy. 32. payable to the obligee or his assigns
It is the business of advancing or in ten years after date, with interest
lending in the mode usual with bank- half-yearly, coupons for which, pay-
ers —that is, on collaterals or on the able to bearer, were annexed to each
pledge of personal property that, by — bond; and mortgages on the real es-
the statute, is defined to be banking, tate were given to a trustee to secure
within the intention of congress, and the payment of the bonds, which were
lending upon mortgages of real estate described in the mortgages. Held,
is not intended. Selden v. Equitable that these bonds were not within the
Trust Co., 94 _U. S. 419, 24 L. Ed. 349. prohibition of the statute relative to
A firm which keeps a deposit ac- "unauthorized banking." Barry v.
count with a bank in a foreign city, Merchants' Exch. Co. (N. Y.), 1
and draws checks thereon when neces- Sandf. Ch. 280.
sary, but is not in any way held out "In the case of the Attorney Gen-
to the public as a banking institution, eral V. Life, etc., Ins. Co. (N. Y.), 9
and does not loan money except on Paige 470, the notes adjudged to fall
landed security, discount commercial within the restraining laws were
paper, or buy or sell drafts in the promissory notes, payable to a clerk
course of business, is not engaged in of the corporation and by him en-
the banking business. Clark v. Wal- dorsed in blank, and were engraved
lick, 56 111. App. 30. with vignettes and other devices of
bank notes. And see on this subject,
collateral security. Earle v. Ameri- Safiford V. WyckofI _(N. Y.), 4 Hill 442.
can Sugar Refin. Co., 74 N. J. Eq. (4 The bonds in question clearly are not
Buch.)_ 751, 71 Atl. 391. within the provisions of the statute
Dealing in money,
securities and against unauthorized banking." Barry
stocks. —A bank is
an institution V. Merchants' Exch. Co. (N. Y'.), 1
whose object is to make gain by deal- Sandf. Ch. 280.
ing in money. It trades in notes,
bonds, bills and other securities for
—
Discounting. The charter of a cor-
poration established for the purpose of
money, and
unless restrained by loaning money provided that "nothing-
charter deals in stocks of
it other therein contained should be construed
companies of whatever description. to authorize the company to discount
Goddin V. Crump, 35 Va. (8 Leigh) notes, or exercise any banking privi-
120. leges whatever." Held, that the tak-
Dealing in bills of exchange for ing of a note for the sum loaned, and
profit. — Ohio Life Ins., etc., Co. v. the receiving the interest on that sura
Merchants' Ins., etc., Co., 30 Tenn. in advance, for the period of the loan,
(11 Humph.) 1, 53 Am. Dec. 742. was thereby prohibited, and that there
The issue of paper designedto cir- could be no recovery on a note thus
culate in the form and similitude of discounted. Philadelphia Loan Co. v.
bank notes is an act of banking. Peo- Towner, 13 Conn. 249.
ple V. River Raisin, etc., R. Co., 12 A
statute giving an insurance com-
Mich. 389. 86 Am. Dec. 64. pany power to loan its money and im-
Issue of bonds transferable by de- prove its profits in the purchase of
—
livery not banking. Bonds of a rail- mortgages and stocks is not in viola-
road corporation, payable at a certain tion of the provisions of the constitu-
day after date, are not in violation of tion relatinar to discounting privileges.
the act to restrain unauthorized bank- Lycoming Fire Ins. Co. v. Newcomb,
ing, although they be transferable by 1 Leg. Chron. 4 Leg. Gaz. 409.
9,
delivery. They can not be considered Literary, scientific and charitable
to circulate as money, since obliga- —
corporations. The provisions of the
tions so circulating are payable on act relating to illegal banking (Rev.
demand. Hubbard v. New York, etc.. Code 1855, p. 386) do not apply tO'
§ 3 CONTROL AND REGULATION IN GENERAL. 13
not a banker. A stock broker may do some of the kinds of business that
are usually done by bankers, and many banks and bankers do business
which, as a general rule, is only done by stock brokers.^^
And a bank is a person under the usury laws.^^

Insurance Company. —An insurance corporation differs radically from
a banking corporation, and the powers given to one can not be exer-
cised by the other without some authority granted by the state through its
legislature. The power to receive in trust for any person moneys or other
valuable thing, and of giving its acknowledgment therefor, and to loan its
surplus funds as provided in its original charter, in no sense authorizes an
insurance company to conduct a general banking business. ^^
—
Express Company. It has been held that an express company is not a
banking corporation, although authorized to draw and deal in bills of ex-
change."^
State and National Bank Distinguished. —In every respect, except the
issuing of bills to circulate as money, state banks carry on a similar busi-
ness, and operations and investments of a like character as national banks.^®
§ 3. Power to Control and Regulate. —In General. —The police

power of a state extends to the regulation of the banking business, and even
literary, scientific, and charitable cor- terest or Rate of Discount, and

porations. The evil the act designed Usury," § 181.
to prevent was the introduction into 36. Insurance company distin-
this by moneyed corporations,
state, —
guished. Memphis City Bank v. Ten-
or corporations engaged in business nessee, 161 U. S. 186, 40 E. Ed. 664,
of profit, of the circulation of foreign 16 S. Ct. 468; Memphis v. Memphis
and worthless bank notes, to the in- City Bank, 91 Tenn. 574, 19 S. W. 1045.
jury of the people of the state. Chris- See, also, Ohio Life Ins., etc., Co. v.
tian University v. Jordan, 33 Mo. 538. Merchants' Ins., etc., Co., 30 Tenn.
Statute against keeping office of de- (11 Humph.) 1, 53 Am. Dec. 743.
posit does not preclude individual The investment of the profits of in-
—
loans. Act April 21, 1818, imposing surance companies in loans secured by
a penalty of $1,000 upon any person mortgage can not be considered as
or association carrying on a banking banking business. Life Ass'n v. Levy,
business unless specially authorized, 33 La. Ann. 1203.
does not preclude individuals and cor- 37. Express company. A corpora- —
porations from lending their money on tion, created under a special act of
promissory notes by way of discount Colorado, whereby it is authorized to
or otherwise. People v. Brewster (N. engage in the express business, and
Y.), 4 Wend. 498. to draw drafts and bills of exchange,
Banking partnerships and joint-stock or sell and buy the same, in the course
companies. See post, — "Partnerships of such business, is not prohibited
and Joint-Stock Companies," § 24. (Rev. St. U. S., §§ 1889, 1924) from
34. Distinguished from stock brok- carrying on such business in Wash-
ing.— Richmond V. Blake, 133 U. S. ington Territory, on the ground that
593, 33 L. Ed. 481, 10 S. Ct. 204. it is a banking corporation, or that it
35. A —
person. The word "person," was not organized under a general in-
corporation law. Wells, etc., Co. v.
as used in the statute against usury,
embraces banks. Stribbling v. Bank, Northern Pac. R. Co., 23 Fed. 469, 10
26 Va. (5 Rand.) 133, followed and Sawy. 441.
approved in Bank v. Merchants' Bank, Cleveland Trust
38. Co. v. Lander,
40 Va. Rob.) 573, 590; Crafford v.
(1 62 O. St. 266, 56 N. E. 1036, affirming
Warwick, 87 Va. 110, 12 S. E. 147, 10 19 O. C. C. 271, 10 O. C. D. 453. As
L. R. A. 139; Crump v. Nicholas, 33 to national banks, see post, "Nature
Va. (5 Leigh) 351. See post, "In- and Status," § 233.
14 BANKS AND BANKING.
to its prohibition except on such conditions as the state may prescribe ;^^
and is sometimes substantially reserved in constitution or charter.*"' From

this a bank can not claim exemption under its charter.* ^ Although the au-
thorities agree that banking may not be absolutely prohibited, were such leg-
islation conceivable.*^ As to whether a legislature may constitutionally
make the right of banking a franchise, and limit it to certain classes only,,
such as corporations, there is a conflict of authority, but by the weight of
authority it may be done. The supreme court of the United States has so
declared.*^
39. Power
to control and regulate. try in the b.usiness of banking, leading,,
—Noble State Bank v. Haskell, 319 U. necessarily, to over issues and conse-
S. 104, 55 L. Ed. 112, 31 S. Ct. 186, af- quent depreciation. It is the duty of
firming decree in 23 Okl. 48, 97 Pac. the government to guard against this
590; Shallenberger v. First Nat. Bank, mischief; and the regulations pro-
219 U. S. 114, 55 L. Ed. 117, 31 S. Ct. vided by law for this purpose, instead
189, reversing decree in First State of being relaxed, should be rigidly
Bank v. Shallenberger, 173 Fed. 999; enforced by the courts." Hightower
State V. Richcreek, 167 Ind. 217, 77 N. V. Thornton, 8 Ga. 486, 52 Am. Dec.
E. 1085, 119 Am. St. Rep. 491, 5 L. R. 412.
A., N. S., 874; Marymont v. Nevada Constitutional provision as to banks
State, etc., Board, 33 Nev. 333, 111 of not exclusive. Const.,
circulation —
Pac. 295; Lee v. O'Malley, 126 N. Y. S. art. authorizing the organization
13,
775, 69 Misc. Rep. 215, order reversed and control of banks of circulation,
in 140 App. Div. 595, 135 N. Y. S. 772; does not prevent the enactment of
Goodsill V. Woodmanse, 1 N. Dak. 346, laws (Laws 1891, c. 43), imposing rea-
46 N. W. 970, 11 L. R. A. 430. sonable regulations on banks of de-
The business of banking is, by rea- posit and discount. Blaker v. Hood,
son of the nature of the business and 53 Kan. 499, 36 Pac. 1115, 34 L. R. A.
the relation which it bears to the 854.
fiscal afifairs of the people and the 40. Substantial reservation. — State
revenues of the state, within the police V. Hastings, 13 Wis. 47.
power of the state, and subject to leg- New York Savings Bank. — Under
islative control. State v. Richcreek, the laws applicable to the Bank for
167 Ind. 217, 77 N. E. 1085, 5 L. R. A., Savings in the City of New York, and
N. S., 874, 119 Am. St. Rep. 491. its charter, granted in 1819, it was
As to right of banking in general, held, in 1865, that the bank commis-
see ante, "Right of Banking in Gen- sioners had the power to visit and in-
eral," § 1. spect the bank under existing laws
Banking business conducted by de- whenever they deemed it necessary,
—
partment store. The legislature may or whenever thereto required by the
define as banking a business con- comptroller of the state, and they
ducted by a department store in which were^ required to report the general
it received deposits, issued passbooks, condition of the bank to the legisla-
and paid the principal, with interest on ture once at least in every three years.
demand, in money or goods, these Bank v. Collector, 3 Wall. 495, 510, 18
things clearly constituting a perform- L. Ed. 307.
ance of some of the functions of a 41. Not exempted by charter. —
bank, and subject it to regulations Cummings v. Spaunhorst, 5 Mo.
provided for the banking business App. 31.
proper. MacLaren v. State, 141 AVis. 42. Regulation, not prohibition, al-
577. 124_ N. W. 667.
Penalizing conduct of business by
lowed. —The
banking business can be
regulated, but not prohibited, and it
—
an insolvent bank. The legislature as is not only the legislature's power, but
an exercise of police power can im- its duty, to regulate the business so as
pose a penalty for the conduct of busi- to reduce failures to a minimum. Ex
ness by an insolvent bank. Ex parte parte Pittman, 31 Nev. 43, 99 Pac. 700.
Pittman, 31 Nev. 43, 99 Pac. 700. See ante, "Right of Banking in Gen-
Enforcement of regulation against
—
panics. "A periodical madness seems
eral," § 1, for full treatment.
43. Right of legislature to prohibit
to pervade every section of the coun- any but certain classes from engaging
§4 CONTEOIv AND RE;GUI<ATI0N IN GENERAL. 15
Requiring Reserve. —Legislation in effect requiring the maintenance of

a reserve is valid.**
Requirement of Residency. —A
requirement that an individual or a
member of a banking firm must be a resident of the state is valid.*^
Restriction on Investment in Real Estate and Fixtures. A restric- —
tion of the amount that can be legally invested in real estate, bank furniture
and fixtures, to a certain prpportion of the capital, is constitutional, and does
not take property without just compensation.*®
§ 4. Constitutional and Statutory Provisions.*'^ — It has been found

convenient to treat of the specific constitutional and statutory provisions
where the branches of the subject to which they severally relate are treated
of. Only some general considerations will be found here.
Submission of General Banking Law to People Amendment. — —
Where a banking law has been adopted in accordance with the constitu-
tional provision taking from the legislature the power to create banks, but
permitting it to submit the question to the people, and, if they shall vote for
banks, to submit to them a general banking law for their adoption or re-
jection, such law can not be materially amended by a statute not submitted
to the people.*^
in banking. — See ante, '-'Right of Bank- Statutes regulating right of bank-

ing in General," § 1, where this ques- ing. — See ante, "Right of Banking in
tion is treated fully. General," § 1; "Power to Control and
44. Acts 1905, p. 183, c. 109, § 3, Regulate," § 3.
subd. 5, requiring a banker to make Constitutional restrictions on power
oath that the net worth of individual of legislature to incorporate. See —
members of the firm, partnership, or post, "Incorporation," § 23.
individual, engaged in the banking Tax and license laws. See post, —
business is equal to an amount at "License Fees and Taxes," § 12.
least double the amount of capital Provisions for stockholders' in-
paid into the bank, is valid, it not pro- —
dividual liability. See post, "In Gen-
hibiting a banker from using all of his eral," 47 (1).
capital in his business, but merely for-
§
Bank depositors' guaranty act. —
bidding him from treating his entire See post, "Safety Funds and Deposits
holdings as capital and in effect re- of Securities," § 15.
quiring him to maintain a reserve. 48. v. State, 46 Wis. 375, 1
Porter
State V. Richcreek. 167 Ind. 217, 77 N. N. W. See, also. Rusk v. Van Nor-
78.
E. 1085, 119 Am. St. Rep. 491, 5 L. strand, 21 Wis. 159, where this prin-
R. A., N. S., 874. See post, "Re- ciple was applied to a law which pro-
serves," § 14. vides that a bank comptroller may,
45. Requirement of residency. — in his discretion, permit the original
State V. Richcreek, 167 Ind. 217, 77 stockholders' bond to be withdrawn,
N. E. 1085, 119 Am. St. Rep. 491, 5 L. and a new bond substituted in its
R. A., N. S., 874. stead, which was held invalid, because
46. Restriction on investment in it affected materially the principle of
real estate and
fixtures. State v. — the banking law, and might thus work
Richcreek, 167 Ind. 217, 77 N. E. J 085, an injury to the bill holders.
5 L. R. A., N. S., 874, 119 Am. St. Rep. General laws. Minnesota
banking —
491, cited approvingly in Noble State Laws 145 (an act entitled "An
1895, c.
Bank v. Haskell, 22 Okl. 48, 97 Pac. act to revise the laws relating to
590, that case affirmed in 219 N. S. banks of discount and deposit"), is
104, Ed. 112, 31 S. Ct. 186.
55 L. not invalid as not complying with
47. Asunauthorized banking.
to — const., art. 9, § 13, as to the issuance
See post. "In General," § 8. or regulation of circulating notes, or
—
Usury laws. See post. "Interest and as impairing the obligation of the con-
tract between banks theretofore ex-
Rate of Discount, and Usury," § 181.
16 BANKS AND BANKING. § 5
—
Scope of Statutes. Legislation applicable in terms to banks has been
held to apply only to banks of issue,*^ and a requirement of payment of a
certain proportion of the capital stock has been held inapplicable to existing
"banks. ^^ An act to restrain unincorporated banking associations has been
held inapplicable to individuals. ^^ And "institution" has been held to in-
clude a private banker in law relating to bank inspection.^^
§ 5, Charter Provisions. — Charter provisions, and their construction

and operation, will be treated under the sections where the subject matter
of such provisions is considered.^^
isting and the state, or upon the only to banks of issue. Merchants'
ground, if it be applicable to such Bank Shouse, 103 Pa. 488; Dreisbach-
v.
banks, that it impairs the contract V. Price, 133 Pa. 560, 19 Atl. 569; In
obligations between its stockholders re Lebanon Trust, etc.. Estate, 3 Pa.
and creditors whose claims arose prior Dist. R. 386. See, also, ante, "What
to the day such law took effect, or Are Banks," § 2.
upon the ground that due process of 50. Laws c. 43, providing for
1891,
law was not provided for in insol- the organization and regulation of all
vency proceedings against banking cor- banks thereafter to be created, and
porations, or upon the ground that the for the regulation of all banks which
act itself is in violation of art. 4, § 33, continue to do business for a longer
of the constitution. Anderson v. Sey- time than six months thereafter, and
mour, 70 Minn. 358, 73 N. W. 171. declaring that a bank thereafter cre-
As to general banking laws and ated shall have 50 per cent of its
their repeal, see the following cases: capital stock paid in before it shall be
Wilson V. Tesson, 13 Ind. 285; Cas- entitled to do business, does not pro-
cade Bank v. Yoder, 39 Mont. 203, 103 hibit a banking corporation in exist-
Pac. 499; Smock v. Farmers' Union ence at its passage from continuing in
State Bank, 32 Okl. 825, 98 Pac. 945. business with only 30 per cent of its
But Wisconsin Laws 1891, c. 263, capital stock paid in. Putnam v.
§ 6, as amended by Laws 1895, c. 160, Hutchison, 4 Kan. App. 373, 45 Pac.
authorizing the formation of corpora- 931.
tions to engage in the usual business 51. Bristol V. Barker (N. Y.), 14
of trustees, and providing that noth- Johns. 305. See, also, post, "Increase
ing therein shall be construed to give of Capital Stock," § 37; "Subscription
the right to issue bills to circulate as to and Issue of Stock," § 39.
money, or deal in bank exchange, or 52. Laws 1903, p. 81, c. 79, § 2, re-
to do a banking business, confers no lating to bank inspection, provides
banking powers, and is not void be- that where reference is made to banks,
cause not submitted to vote of the bankers, or banking in the act, the
people as required by Const., art. 11, same shall be construed as applying
§ 5. Roane Iron Co. ?'. Wisconsin to any corporation, association, firm,
Trust Co., 99 Wis. 273, 74 N. W. 818. or individual engaged in such business;
And Rev. St., Wis., § 3345, direct- and § 26 (page 88) declares that every
ing a preference to the United States, officer, agent, or clerk of any banking
the state, and any county, city, town, institution within the title, who sub-
or village therein, out of the assets scribes or makes any false statement,
of an insolvent corporation in process or enters or subscribes or exhibits any
of being closed up under the statutes, false paper, etc., shall be subject to
is applicable to banking corporations, imprisonment, etc. Held, that the
and is not in contravention of this term "institution" as so used, included
constitutional provision. Northwest- a private banker, and hence the sec-
ern Nat. Bank v. Superior, 103 Wis. tion was "not unconstitutional, as con-
43, 79 N. W. 54. ferring a special privilege on private
Submission of incorporating statute bankers. State v. Struble, 19 S. Dak
lo popular vote, see post, "Incorpora- 646, 104 N. W. 465.
tion," § S3. As to bank examiners, see post
49. Act April 16, 1850, entitled an § 17 (1) to 17 (5).
^'Act regulating banks," does not ap-
ply to savings and deposit banks, but
53. Charter provisions. As to con-
struction of charters as granting bank-
—
§ 8 CONTROL AND RBGUIÂTION IN GUNERAL. 17
§ 6. Authority or License to Do Business. "^ Prescriptive Right- —

— It has been held that a corporation might obtain the right to exercise bank-
ing franchises by prescription. ^^
Necessity for License or Grant from State. The occupation ot —
banking can be, and usually is, forbidden except upon license issued.^®
—
Before Issuance of Certificate. A bank which has not received a cer-
1:ificate from the bank commissioner authorizing it to transact business may
^'^
negotiate notes, so as to bind itself, and pass a valid title thereto.
§ 7. Unauthorized Banking § 8. - —
In General. Where an as- — —
sociation or corporation, not endowed with the power to receive deposits
and contract to pay interest thereon, does so, its acts are ultra vires. ^^
Where a corporation which is prohibited by its charter from engaging in
the business of banking, dealt in bills of exchange for profit as a business
or pursuit, it engaged in the business of banking and its acts were ultra
vires. 59
Power of Legislature to Restrain from Banking. —Under a clause,
in an act of incorporation, providing that the action of the corporation shall
te "subject to such rules and regulations as the legislature, from time to
time, may think proper to' make," the general assembly may restrict such
ing powers or not, see post, "Construc- sive privileges of banking, are repug-
tion of Charters and Banking Laws," nant to the constitution as not being
§87. "laws of the land," of general applica-
As to suspension of specie pay- tion. Hazen v. Union Bank, 33 Tenn.
ments, "Constitutional and Statutory- (1 Sneed) 115. See ante, "Right of
Provisions," § 63. IBanking in General," § 1.
54. Authority or license to do busi- Common-law right of banking re-
Jiess. See— the following sections stored by Tenn. Act of 1859-60, Ch.
129, in form of a licensed privilege. —
treating of unauthorized banking.
License fees and taxes, see post, State V. Lookout Bank, 89 Tenn. (5
"License Fees and Taxes," § 13. Pickle) 278, 14 S. W. 801; Ohio Life
55. Prescriptive right. It seems — Ins., etc., Co. V. Merchants' Ins., etc.,
Co., 30 Tenn. (11 Humph.) 1, 53 Am.
that a corporation may obtain the
Dec. 742; Hazen v. Union Bank, 33
right to exercise banking franchises
Tenn. Sneed) 115.
(1
by prescription, the term of prescrip-
tion being twenty years. See State v.
Before issuance of certificate.
57. —
Kellogg V. Douglas County Bank, 58
Miami Exporting Co., 11 O. 126;
Kan. 43, 48 Pac. 587, 62 Am. St. Rep.
Miami Exporting Co. v. Clark, 13 O.
596.
1; Morris 'Way, 16 O. 469.
v.
As to constitutional and statutory
56. charter Domestic
Banking — provisions, see ante, "Constitutional
Necessity for. —
The occupation of and Statutory Provisions," § 4.
"banking is forbidden, except upon li- As to incorporation and necessity
cense issued. National Bank v. Chat- therefor, see post, "Incorporation," §
tanooga, 55 Tenn. (8 Heisk.) 814. 23, and its subdivisions.
Tias
Underthe Act of 1827, no person
the right, unless, indeed, he have
58. Unauthorized banking. Stefan —
V. Brennan, 92 111. App. 291; Chapman
a grant from the state, to establish V. Lynch, 156 N. Y. 551, 51 N. E. 275.
-any banking institution, or to issue any 59. Ohio Life Ins., etc., Co. v. Mer-
notes, bills, or other paper for such chants' Ins., etc., Co., 30 Tenn. (11
purpose. Ohio Life Ins., etc., Co. v. Humph.) 1, 53 Am, Dec. 742.
Merchants' Ins., etc., Co., 30 Tenn. As to constitutional and statutory
(11 Humph.) 1, 53 Am. Dec. 742. provisions generally, see ante, "Con-
But it has never been considered stitutional and Statutory Provisions,"
that the laws containing these exclu- § 4.
B & B—
18 BANKS AND BANKING. 8
company from exercising the franchise of banking.®"

Statutory Provisions and the Repeal Thereof. —The prohibition of
a particular kind of banking, such as the receipt on deposit of the money or
bank paper of others, does not prohibit unauthorized banking as such.^^
Statutes against unauthorized banking are not impHedly repealed by other
statutes in pari materia where not necessarily inconsistent.® 2
Acts must be done in banking business to fall under prohibitive stat-
ute.®^
Transaction of Business by Incomplete Organization. The trans- —
action of business by an incompletely organized banking association is an
evasion of the statute against unauthorized banking.®*
—
Foreign Corporations Effect of Restraining Acts. Incorporation —
under the laws of another state will not relieve a bank from the operation
of the laws of a state where it operates relating to unauthorized banking.®^
—
Necessity for Ouster. But to prevent a bank from continuing illegally
60. Restraining power of legislature. and pursuit of banking. The same may
— State v. Granville Alexandrian Soc, be said of a corporation. Ohio Life
11 O. 1. Ins., etc., Co. v. Merchants' Ins., etc.,
61. The Ohio
act to prohibit unau- Co., 30 Tenn. (11 Humph.) 1, 53 Am.
thorized banking
by corporations, Dec. 742.
passed March 12, 1845, and providing, 64. I n c o mp
1 e te organization. —
"That no body politic or corporate Where "seven (or more) citizens of
shall establish a bank, or engage in this state" associated to establish an
the business of banking, to receive on office of discount, deposit, and circula-
deposit, keep and circulate the money tion, under the act to authorize the
or bank paper of others, without ex- business of banking, approved Febru-
press authority of a law of this state," ary 27, 1850, and executed, acknowl-
does not prohibit unauthorized bank- edged, and recorded, in the offices of
ing as such, but merely a particular the secretary of state and the clerk of
kind of banking, to wit, the receipt on the county where said office was pro-
deposit of the money or bank paper of posed to be located, the certificate re-
others and the doing of a banking busi- quired by the sixteenth section of the
ness thereon. Huber v. United Prot- act, which certificate also stated that
estant, etc., Congregation, 16 O. St. the associates had elected one of their
371. See also, Pickaway County Bank number to be president of the associa-
I'.Prather, 12 O. St. 497. See, also, tion, and the association went into op-
Medill V. Collier, 16 O. St. 599; United eration without further organization,
Protestant, etc.. Congregation v. Steg- except the election of a cashier, the
ner, 21 O. St. 488, construing this act, transaction of banking business by
and State v. Urbana, etc., Ins. Co., said association, or by the president
3 4 O. 6. alone whom they had selected, was an
62. Repeal by implication. —Wilson evasion of the statute. Kinsela v. Cat-
V. Spencer, 22 Va. (1 Rand.) 76, 10 Am. aract City Bank, 18 N. J. Eq. 158.
Dec. 491: Bank v. Stegall, 41 INliss. 142; 65. Foreign corporation —
Effect of
Mills V. State, 23 Tex. 295.
The prohibition in the Tennes-
—
restraining acts. Myers v. Manhattan
63. Bank, 20 O. 283.
see Act of 1827 goes to the business But these acts were not intended to
and occupation of banking, and not to exclude foreign capital or to prevent
any one or more of the acts in detail, the exercise of all banking functions
which are banking functions, and by foreign banks in Ohio, but only
therefore, any person may, without be- such ftmctions as the legislature deemed
coming a banker, borrow or loan advisable to confine to banks incorpo-
money, and be a depository of money, rated under the laws of Ohio. Pick-
buy or sell exchans'e, and be the drawer away County Bank z: Prather. 12 O.
or holder of any kind of commercial St. 497. See also, State f. Urbana, etc.,
paper, as notes, bills, and drafts, pro- Ins. Co.. :4 O. 6. See, also, post, "For-
vided, that it be not in the business eign Banks," § 18.
§9 CONTROIv AND REGULATION IN GBNEEAI,. 19
to exercise its franchise after repeal of its charter, there must be a judg-
ment of ouster upon an information in quo warranto.®®
§ 9. Validity of Transactions and Liabilities Incurred.®'' —In

General —Effect on Securities. —All securities given to an unauthorized
banking company are void.®^ But a note given as collateral security for a
loan of small checks, intended to circulate as banknotes, is not affected with
invalidity.®* Mortgages to a bank organized under an unconstitutional
statute are unenforcible.'^®
Construction of Statutes. —A statute to suppress private banking has
been held to prohibit all transactions and contracts connected with estab-
lishing such a bank and its illegal operations.' ^ Such penal provisions can
66. Necessity for ouster. Upon in- — vanced consisted of small checks drawn
formation in the nature of a quo war- by plaintiff on a- bank where he had no
ranto, calling upon the president, di- funds; the checks having the general
rectors, and company of the Miners' appearance of bank notes, and being
Bank of Dubuque to show by what intended to circulate as such. The
warrant they claimed the right to use checks were redeemed at plaintiffs
the franchise; plea, referring to an act own office. Held, that the giving of
of incorporation; replication, that the the checks was not a banking transac-
act of incorporation had been repealed; tion, and hence plaintiff could recover
rejoinder, that the repealing law was on the note. Utica Ins. Co. v. Pardow,
passed without notice to the parties, 2 N. Y. Super. Ct. 552.
and without any evidence of misuse of 70. Mortgage to unauthorized bank.
the franchise; demurrer to the re- — The general banking law of Mich-
joinder, and joinder in demurrer, sus- igan (Sess. Laws 1837, p. 76) being un-
taining the demurrer, without any fur- constitutional and void in so far as it
ther judgment of the court, did not purports to confer corporate powers,
prevent the parties from continuing no foreclosure could be maintained
to exercise the franchise. Miners' upon a mortgage executed to a bank
Bank v. United States (U. S.), 5 How. organized under its provisions. Hurl-
213, 12 L. Ed. 121. but V. Britain (Mich.), 2 Doug. 191.
67. Validity of transactions and lia- 71. —
Illegal private banking. A stat-
bilities incurred. —
See post, "Effect of ute declared by its title to be "an act
to suppress private banking," and
Ultra Vires Acts," § 261, et seq.
Fraudulent organization as barring making it penal to "erect, establish, in-
stitute, or put in operations or to is-
recovery on note against stockholder.
sue any bills or notes for the purpose
— See post, "Liability of Stockholders
of erecting, establishing, or putting in
or Officers," § 211.
operation any banking institution, as-
Of foreign banks doing business in sociation, or concern," covers with its
state without authority, see post, "For-
prohibition not only the primary steps
eign Banks," § 18.
in establishing and putting into opera-
Effect of failure to deposit securi-
tion the bank, but also the whole range
ties, see post, "Safety Funds and De-
of its transactions, by which illegiti-
posits of Securities," § 15.
mate currency is imposed on a com-
68. Securities generally. — Myers v.
munity; and contracts made in further-
Manhattan Bank, 20 O. 383. ance of such transactions are as void
69. Note as collateral for checks as those made to give it original oper-
—
used as bank notes. 2 Rev. Laws, p. ation. Davidson v. Lanier (U. S.), 4
234, invalidates all securities given to Wall. 447, 18 L. Ed. 377.
any company which, without authority It applies to contracts for the pur-
of law, shall issue notes or transact pose of carrying on such business,
any other business which incorporated made after it has been put in opera-
banks may transact by virtue of their tion, such as the acceptance and pay-
corporate powers. Plaintiff loaned de- ment of the bills of such banking com-
fendant money, collaterally secured by pany with the intention of promoting
the deposit of a promissory note in- their circulation; and money so ad-
dorsed by defendant. The sum advanced can not be recovered. David-
not be extended beyond their terms, and a prohibition of the purchase of
bills of exchange does not extend to notes. '''^
Transactions and instruments growing out of but not tainted with
the illegality are legal and valid and can be enforced.'^^
Distinction between Dealings of Authorized and Unauthorized
Banks. —There is a distinction between the unauthorized dealings of an
authorized bank and the dealings of an unauthorized bank, in that the un-
authorized dealings of an authorized bank may be valid as against every
one except the state, as where a bank which is authorized to purchase and
hold only so much land as may be necessary for its immediate use and oc-
cupation purchases more than is necessary for such purpose, the title to
the property in such case vests in the bank and a purchaser from the bank
can not set up the fact of the bank's violation of the charter prohibition.'^*
Relation Created by Deposit in Unauthorized Bank. Money de- —
posited with a concernwhich has not banking powers, under contract
son V. Lanier (U. S.), 4 Wall. 447, 18 honored at maturity. B., C, and D.,
L. Ed. 377. who, with others, were by the terms
In Brown v. Tarkington (U. S.), 3 of the banking law liable for the
Wall. 377, 18 L. Ed. 255, it was held that debts of the bank, in consideration of
notes given for a balance found due the delivery to them by A. of the
on a settlement of accounts with an $15,000, in bills, made and delivered
illegal banking company, and for ad- to E. a promissory note for $1,000,
vances to redeem its circulation, could and also assigned to him certain other
not be enforced in favor of a payee securities, upon the trust that he
who had been participant in the illegal should collect the moneys due and to
business. Davidson v. Lanier (U. S.), become due thereon, and apply the
4 Wall. 447, 18 L. Ed. 377. same to the payment of the drafts
But at common law, individuals
drawn upon A., and in indemnifying
A. against his acceptances thereof.
needed no legislative authority to ex-
Held, that although the general bank-
ercise the right of banking. Bank v. ing law was unconstitutional, and the
Earle (U. S.), 13 Pet. 519, 10 L. Ed.
bills of the bank and the drafts were
274.
illegal and void, yet the notes and as-
72. Prohibition of purchase of bills signment in trust were not tainted with
not extended to notes. By the Re- — the illegality, but were legal and valid,
straining Act (1 Rev. St. p. 713), cor- and that E. could recover upon the
porations other than banking institu- note, without showing that A. had
tions are prohibited from "making been damnified by reason of his ac-
discounts of bills and notes," and by ceptances of the drafts. Smith v.
another section from "buying and sell- Barstow (Mich.), 2 Doug. 155.
ing bills of exchange." Held, that 74. Dealings of authorized and un-
this, being a penal statute, can not
be extended to the purchase of notes,
authorized banks distinguished. —
Banks v. Poitiaux, 24 Va. (3 Rand.">
even if such prohibition would fall 136, 15 Am. Dec. 706, distinguishing
within the same reason as that against Wilson Spencer, 22 Va. (1 Rand.)
V.
bills of exchange. American Life Ins. 76, 10 Am. Dec. 491, in which case it
Co. V. Dobbin (N. Y.), Lalor's Supp. was held that an unincorporated bank
(Hill & Denio) 252. which issued notes contrary to law
73. Transactions and instruments could not enforce payment of a bond
not tainted with illegality. A bank- — given in exchange for such note.
ing institution organized under the A person taking the notes of an
general banking law, which was held unchartered bank doing business con-
unconstitutional, drew certain drafts trary to a penal statute is not neces-
on A. to the amount of $12,000, which sarily in pari delicto with the bank in
A. accepted for the accommodation of the sense that he can be granted no
the bank, on its depositing with him equitable relief from his contract with
$15,000 of its own bills to secure and the bank. Wilson v. Spencer, 22 Va
indemnify him. The drafts were dis- (1 Rand.) 76, 10 Am. Dec. 491.
§9 CONTROI< AND REGUIÂTION IN GENERAI,. 21
whereby such concern promises to pay the amount so deposited with in-
terest, at a certain place and time, is not a technical deposit, but a loan upon
interestJ^
Paper Discounted by Unauthorized Bank. While a note given to—
and discounted by a bank engaged in the business of banking in violation
of law is void,''® yet a note of the treasurer of such corporation, given to
secure the same loan, is not illegal^'
—
Rights of Third Persons. A bill discounted by a bank within the pro-
hibition of a law, will be valid in the hands of a bona fide holderJ® And
75. Deposit in unauthorized bank. — the action. Hamtramck i). Selden, etc.,
State V.Buttles, 3 O. St. 309. Co., 53Va. (12 Gratt.) 28.
76. Notes taken and discounted. — 77. Note to secure same loan. —
Huber v. United Protestant, etc., Con- While a promissory note given to and
gregation, 16 O. St. 371; United Prot- discounted by a corporation for a
estant, etc., Congregation v. Stegner, loan of money, in the course of art
21 O. St. 488; In re Jaycox, Fed. Cas. unauthorized banking business, con-
No. 7,237, 12 Blatchf. 209. trary to the Act of March 12, 1845,
could not be enforced, yet where the
An insurance company not being treasurer of such corporation took
authorized by law to become pro-
prietors of any bank or fund, for the
and appropriated to his private use
purpose of issuing notes, receiving
moneys deposited with it contrary to
deposits, making discounts, or trans-
such act, and being unable, when
called on, to refund the same, secured
acting any other business which in-
corporated banks may lawfully do,
it by his promissory note, such note
any note discounted by them, or
would not be held to have been given
in the course and furtherance of an
security taken for money lent, etc., is
illegitimate business, and an action
void, within the meaning of that stat-
will lie thereon. United Protestant,
ute. Utica Ins. Co. v. Scott (N. Y.),
etc.. Congregation v. Stegner, 21 O.
19 Johns. 1; Utica Ins. Co. v. Hunt
St. 488.
(N Y.), 1 Wend. 56; Utica Ins. Co. v.
Caldwell (N. Y.), 3 Wend. 296.
78.Rights of third persons. The —
bank of K., a banking institution of
But the principal case was reversed the state of Virginia, and authorized
in Utica Ins. Co. v. Scott (N. Y.), 8 by its charter to buy, sell and nego-
Cow. 709, on the ground that the tiate bills of exchange, etc., acting by
pleading raised the issue of the le- its cashier at C, in Ohio, loaned
gality of a loan, not a discoimt, and money on the discount of such bills,
that the insurance company did have and, among others, discounted a bill
authority to loan its surplus funds on drawn by P., and others, upon L,., in
bond, note or mortgage. the city of New York, which bill was
Validity of paper issued and dis- assigned by said bank, before its ma-
—
counted without authority. To an ac- turity, to a third party, without notice,
tion of debt on a note alleged to have actual or constructive, of the manner
been made and discounted by the in which the bill was acquired by the
plaintiffs in Virginia, but made pay- bank. After protest for nonpayment,
able at a bank out of the state, a plea the indorsee brought suit thereon
that the plaintiffs are an unchartered against the drawers. It was held that
banking company, issuing and cir- such indorsee might maintain an ac-
culating their own paper notes or bills tion upon said bill against the draw-
as currency, contrary to law and pub- ers, and that his right to do so was
lic policy; and that they as a banking not affected by § 1 of the Act of
company discounted the said note, March 12, 1845 (1 S. &
C. Stat. 152),
contrary to law and public policy, "to prohibit unauthorized banking,"
sets up a good defense to the action. etc. Pickaway County Bank v.
So in such a case, a plea that the con- Prather, 12 O. St. 497. This decision
sideration of the note declared on was was based upon the assumption that
the bank paper of the plaintiffs un- the discount of the bill was within the
lawfully issued by them as currency, prohibition of the statute, and that
they being an unchartered banking therefore the bill would have been in-
company, presents a good defense to valid in the hands of the bank.
22 BANKS AND BANKING. § 10 (1)
so of a note put in circulation without authorityj^ The fraudulent organi-

zation of a bank can not be set up as a defense against the payment of an
acceptance.®**
Rights of Action —May Compel Accounting from Cashier. —A pri-
vate unchartered company, associated for the purpose of carrying on busi-
ness as a bank, though such associations are contrary to law, will be enter-
tained in a court of chancery, in a suit against its cashier, for an account
of his agency.*! Where the restraining act avoids merely the security, not
the contract of loan, an action for money lent will lie.*^
Curative Legislation. —Notwithstanding a bank may have been organ-
ized contrary to law, still, it is competent for the legislature to pass a stat-
ute of pardon, waiving the wrong; and in such case, the omission or abuse
of authority can not be set up as a defense by the defaulting corporation;
nor relied upon as absolving it from the performance of its obligations.**
—
Liability of OflScers. This is treated elsewhere in this work.**
§ 10. Penalties and Actions Theref or*5 § 10 ( 1 ) Statutory —

—
Provisions and Construction. One statute against illegal banking will
not be held to have been repealed by another which applies to a different
type of the mischief at which both were aimed.*®
79. Circulating noteholders. Con- — ing the note was an illegal exercise of
ceding that a bank was organized and the right to loan, and that it is pro-
bills issued, without the actual pay- hibited by the restraining act, still the
ment of the $350,000 in specie, re- contract of lending affords a good
quired by the charter, and that by rea- cause of action. Utica Ins. Co. v.
son thereof, the state might, at any Kip (N. Y.), 8 Cow. 20; Utica Ins.
time, have recalled its corporate fran- Co. V. Scott (N. Y.), 19 Johns. 1, case
chises, or a stockholder have resisted reversed on another point in (N. Y.),
the payment of stock, or a debtor his 8 Cow. 709; Utica Ins. Co. v. Cadwell
liability to the bank, provided the (N. Y.), 3 Wend. 296. See, however,
rights of third persons were not prej- Curtis V. Leavitt, 15 N. Y. 9; In re
tidiced, it was, nevertheless, a valid Jaycox, Fed. Cas. No. 7,237, 12 Blatch.
corporation, so as to make it liable to 209; New York, etc., Trust Co. v.
creditors for its own acts; and its Helmer, 77 N. Y. 64, where this prin-
stockholders liable to bill-holders, un- ciple of the Utica Ins. Co. cases is
der the charter, for the ultimate re- questioned.
demption of the bills put in circula- Although an association may not
tion by the bank. McDougald v. Bel- have power to do a general banking
lamy, 18 Ga. 411. business, if a person borrows money
80. Liability on acceptance. South- — from such association such money
ern Bank v. Williams, 25 Ga. 534. may be recovered in an action for
81. —
Rights of action. Berkshire v. money had and received, although an
:Evans, 31 Va. (4 Leigh) S23. action could not be maintained upon
82. Action on loan independent of the discount technically. Central
—
security. The charter of the Utica Trust Co. V. Cook County Nat. Bank,
Insurance Company authorizes the 15 Fed. 885.
loan of the company's surplus funds
not required in the business of insur-
83. Curative legislation. — McDougald
V. Bellamy, 18 Ga. 411.
ance. In an action on a note dis-
counted by it, the defendant pleaded
84. Liability of officers.
"Liability for Debts
— See post,
that the company had engaged in
and Acts of
Bank," § 56.
banking business contrary to the law
restraining unauthorized banking, and, 85. Penalties and actions therefor.
while so engaged, had discounted the — Penalties for violation of regula-
note sued on. The second count of tions, see post, "Penalties for Viola-
the declaration was for money lent. tions of Regulations," § 19.
It was held that, conceding that tak- 86. See ante, "In General," § 8.
§ 10 (2b) CONTROL AND REGULATION IN GgNeRAI,. 23
Liability of Directors —
and Stockholders. Where a state law sub-
jects to a penaltyany one who became interested in any banking association
unauthorized by law, and banks are formed under an unconstitutional law,
the obligations of such bank are not enforceable against the directors and
stockholders, the transactions being illegal, and the parties particeps
criminis.*^
§ 10 (2) Enforcement— § 10 (2a) Petition— Sufficiency.—Where

a statute imposed a penalty on the exercise of "banking or discounting priv-
ileges," a petition which charges that the defendants "exercised banking
privileges," is insufficient in law to authorize a judgment against the de-
fendants.^^
§ —
10 (2b) Replication to Plea. When the plea to an action against
the endorser of a note is that it was illegally discounted by an unauthorized
association, the replication that it was an authorized loan of surplus funds,

as was lawful, need not deny the illegal banking. ^^
87. Nessmith v. Shelden, Fed. Cas. constituting the offense charged, the
_
No. 4 McLean 375.

10,135, See post, person or persons who had obtaineil
"Liability for Debts and Acts of the discount or discounts, and thus
Bank," § 46; "Nature and Extent," to raise the foundation for proof that
§ 57. it had been so continued for the space
88. Sufficiency of petition. — State v. of one month.

Tex. 355.
State v. Williams, 8
Williams, 8 Tex. 355.
Wtiere the statute imposes a penalty 89. —
Replication to plea. In an ac-
on the use and exercise of banking or tion by an insurance company incor-
discounting privileges, and also on the porated by statute (Sess. Laws 1816,
issue of each bill, check, promissory c. 52), against the indorser of a promis-
note, or other paper to circulate as sory note, defendant pleaded that

money, and prescribing that each plaintiff, contrary to Sess. Laws 1812,
month that any one should use or ex- c. 71, § 3 (forbidding such institutions
ercise banking or discounting privi- from joining an association, etc., for

leges should be a distinct offense, and the purpose of exercising banking
each bill also a distinct offense, and powers), became a member of such
prescribing one penalty for the use an association, and became proprietor
or exercise of banking or discounting of a bank for the purpose of transact-
privileges, and a different penalty for ing business which incorporated banks
the issue of bills, a petition in an ac- may transact; that for this purpose
tion for using or exercising banking they established a banking house, and
or discounting privileges must specify issued notes, received deposits, and
the particular facts intended to be made discounts as incorporated banks
proved as constituting the offense, and may do; and that the note in question
it is not sufficient to allege that de- was made for the purpose of being,
fendant, 'without authority of law, and was, discounted at their office,
did use and exercise banking privi- they knowing for what purpose it was
leges in this state on and from tlie made. Plaintiffs replied, setting up
first day of April, A. D. 1853, for and the act constituting them a corpora-
during the term of one month, fully tion, which authorized them to loan
completed and ended." State v. Wil- their surplus funds, and alleged that
liams, 8 Tex. 255. they lent a part of their surplus funds
Where a subsequent section of the on the security of the note, showing
same statute declared that each and the particulars, and that the plaintiffs
every month during which the same had subscribed and became members
should be exercised should be a sepa- of an association for the purposes in
rate offense, a petition is defective the plea set forth. Defendant de-
which fails to allege with great par- murred specially, assigning for cause
ticularity, the specific fact or facts that plaintiffs had not in their replica-
24 BANKS AND BANKING. 10 (2d>
§ 10 (2c) Quo Warranto. —When It Lies. —An information, in the

nature of a quo warranto, lies against an incorporated company, for carry-
ing on banking operations without authority from the legislature.^"
Sufficiency of Rejoinder. —A rejoinder admitting the facts alleged as
to insolvency and cessation of business, but which avers recommencement
of business, is sufficient.î
Plea of Not Guilty and Disclaimer of Right Effect. In a proceed- — —

ing in quo warranto charging defendants with illegally exercising a banking
franchise, defendant can plead not guilty, and a disclaimer of any right to
do the acts complained of.^^ And in such case the state is not entitled to
judgment without proof of the charges denied by the plea of not guilty.^^
—
Burden of Proof. An information in the nature of a quo warranto
against a corporation for illegally carrying on a banking business need not
show title in the people to a franchise. It is the duty of the defendant to
show authority for exercising the right.®*
§ 10 (2d) Jurisdiction and Venue.—This depends upon the terms of

the local statutes and is treated entirely in the notes. ®^
tion denied that they illegally estab- individuals, alleging that they had
lished an office or banking house, and exercised and enjoyed, without le-
issued notes, received deposits, and gal authority, the franchise of being
made discounts, as stated in the plea. a banking corporation, it is not suffi-
Held, that plaintiffs were entitled to cient for the defendants merely to
judgment on the demurrer. Utica Ins. show that by an act of the legislature
Co. V. Scott (N. Y.), 8 Cow. 709. a banking corporation was established,
90. When quo warranto lies. —Peo- of which they are members, and by
ple V. Utica Ins. Co. (N. Y.), 15 Johns. virtue of which they exercise the said
353, 8 Am. Dec. 243. franchise: but they must also show
91. Sufficiency of rejoinder.
information in the nature of
— On an that the corporation was in such a
quo a state of organization that it could use
warranto against an incorporated bank the privileges of a bank, and that they
for exercising banking privileges with- are authorized to bind the corporation
out warrant, the respondent pleaded by their acts according to the terms
setting forth its act of incorporation of the charter. State v. Brown, 33
and organization under it. To this it Miss. 500.
was replied that the bank had become Proceedings to forfeit bank charter,
insolvent by the fraud, negligence, and see post, "Proceedings to Enforce Dis-
mismanagement of some of its ot- solution," § 70.
ficers,had stopped payment, and dis-
continued and closed their banking
95. Jurisdiction. —The district court
of the county where an "association
operations, for several years. It was of individuals" for illegal banking, etc.
held, that a rejoinder admitting the (Hart. Tex. Dig., art. 88), keep their
facts alleged, but averring that the office, has jurisdiction to try and de-
bank, on a certain date, had resumed termine a suit, in behalf of the state,
payment, and continued it ever since, to recover the penalty prescribed, for
was sufficient. People v. Niagara a violation of the Texas Act of 1848.
Bank (N. Y.), 6 Cow. 196. Williams v. State, 23 Tex. 264.
92. Plea of not guilty and disclaimer —
Nature of prohibition. In Common-
—
of right. State v. Brown, 34 Miss. wealth V. Scott, 250 Va. (4 Rand.)
688. 143, it was held that the act of 1816,
93. State v. Brown, 34 Miss. 688. 2 Rev. Va. Code, 111, providing that
94. Burden of proof. People— v. it shall not be lawful for an unor-
Utica Ins. Co. (N. Y.), 15 Johns. 353, ganized company to engage in bank-
8 Am. Dec. 243. ing, and that members of such
In a proceeding, in the nature company shall be guilty of a misde-
of a writ of quo warranto, against meanor, was penal, and that there-
§ 11 (1) CONTROL AND REGULATION IN GENEjRAI,. 25
§ 10 (2e) Service of Process and Execution. The Texas statute —

provides for service of citation on the officers of the concern.ss and for
execution against the officers in default of estate of the concern on which
to levy.*''^
§ 11. Criminal Prosecutions —§ 11 (1) Offense a Statutory

One. —The unauthorized exercise of banking or discounting privileges is
a statutory offense, unknown to the common law.^^ All the stockholders
need not be proceeded against under a statute to suppress illegal banking;
to proceed against the officers is enough. ^^ And a proceeding to recover
fore the court of appeals had no Institution of prosecution. The —

jurisdiction in the case of an informa- statute of 1848, intended to suppress
tion against the members. See, also, illegal banking, did not authorize in-
construing this act, Commonwealth v. dictments by the grand juries against
Horner, 37 Va. (10 Leigh) 700; Wil- those who violate its provisions, al-
son V. Spencer, 23 Va. (1 Rand.) 76, though the offense is called, in the
10 Am. Dec. 491. statute, a misdemeanor. It required
Venue. —The Texas statute of 1848 suit to be instituted by the attorney
to' suppress illegal banking, provided general of the state. Mills v. State,
that suit may be brought in the county 23 Tex. 395; Williams v. State, 33
where the company, corporation or Tex. 364.
association keep their office. Mills v. Under Hart. Dig., art. 87, Act of
State, 33 Tex. 295. 1848, "to suppress illegal banking,"
96. Service of process. The stat-— the state had power to test the right
ute of 1848 intended to suppress illegal of a corporation to issue notes as a
banking provides, that service of cita- circulating medium by the proceed-
tion upon the officers shall be deemed ings therein provided, and it was not
sufficient service upon the corporation, necessary to bring a direct proceeding
company or association. Mills v. by quo warranto. Williams v. State,
State, 33 Tex. 395. 23 Tex. 264.
—
Execution. The statute of 1848,
97. Under Virginia statutes. —Under the
to suppress illegal banking, provides Act of 1816, 3 Rev. Va. Code, § 3, it
that where the state recovers judg- was unlawful for any unincorporated
ment in any suit, for a violation of the company to engage in banking. Com-
statute, execution may be levied on monwealth V. Horner, 37 Va. (10
the estate of the corporation, company Leigh) 700; Commonwealth v. Scott,.
or association against whom judg- 25 Va. (4 Rand.) 143; Wilson v.
ment may be rendered, and in default Spencer, 22 Va. (1 Rand.) 76, 10 Am.
of such estate, then execution may be Dec. 491; Moses v. Trice, 63 Va. (21
levied on the estate of the officers of Gratt.) 556, citing Farmers' Bank
such corporations, company or asso- V. Reynolds, 25 Va. (4 Rand.) 186; Ex-
ciation. Mills V. State, 23 Tex. 295. change Bank v. Morrall, 16 W. Va.
98. Offense a statutory one. State — 546.
Under New Jersey statute. ^Per- —
V. Williams, 8 Tex. 255; S. C, 14 Tex.
98; Williams v. State, 23 Tex. 364.
sons are not guilty of carrying on the
Under Texas —
statutes. The Texas business of private banking without
authority, in violation of Gen. St., pp.
Act of March 20, 1848, entitled^ "An
act to suppress illegal banking," is in- 135-137, §§ 7b-77, because as president
tended to apply only to such com- and treasurer of a New Jersey build-
panies, corporations, and associations ing association they participate in its
as act through officers. Mills v. "State, lawful business. State v. Newberry,
23 Tex. 295. 71 N. J. L. (42 Vr.) 18, 58 Atl. 163.
A proceeding against a banking as- 99. Proceedings against officers:
sociation, under the Act of 1848 (Hart. enough without stockholders. In an —
Dig. art. 87), to suppress illegal bank- action under Hart. Dig., art. 87, to
ing, does not call in question the suppress illegal banking, it is not
power of the bank to exercise cor- necessary to prosecute all the stock-
porate powers, except on the subject holders composing such an associa-
of issuing notes. Williams v. State, tion, and it is sufficient to proceed
23 Tex. 364. against the president, cashier, and di-
the capital stock of an offending banking company for the benefit of the
state has been held to be a criminal proceeding. ^
11 (2) Indictment. 2
§ — It is sufficient to charge the offense in the
words of the statute.^
Joint Indictments. — Several persons may be jointly indicted for viola-
tion of the statute to prevent illegal banking.*
§ 11 (3) Information. — See note.^
§ 12. License Fees and Taxes^ —

§ 12 (1) Power to Impose. In —
General.^The pov^rer toimpose a license tax on a bank must be exerted
by legislation, in order that payment may be required, and it must be im-
posed in clear and unambiguous terms,'' but the police power of the state
justifies such an imposition,^ and the fact that national banks are exempt
rectors. Williams v. State, 23 Tex. charge the offense in the words of the
264.' act; and an acquittal on an indictment
Effect of nonjoinder. —The liability so charging the offense will bar a sub-
of defendants (the officers of an illegal sequent indictment for an offense
banking association) is not affected by against the act within the time covered
the nonjoinder, as defendants of other by the former indictment. State v.
members and stockholders, besides Presbury, 13 Mo. 342.
themselves, of what is, by them, 4. Joint indictments. —
State v. Pres-
claimed to be a corporation, of which bury, 13 Mo. 342.
they are officers; because it is a crimi- 5. Against officers of illegal bank-
nal action. Williams v. State, 23 Tex. ing associations, see post, "Prosecu-
264. tion and Punishment," § 62.
1. Proceeding to recover capital In the nature of a quo warranto,
stock a criminal one. Act of 1816,— see post, "Quo Warranto," § 10 (2c).
J 1, provides that it shall not be law- 6. See post, "Taxation," § 324, et
ful for any unauthorized company to seq.
engage in banking, and that every Authority or license to do business.
member, officer, or agent of such com- — See ante, "Authority or License to
pany that may engage in banking Do Business," § 6.
shall be held to be guilty of a mis- Application of statute to foreign
demeanor, and shall be liable to be corporation, see post, "Foreign Banks,"
fined. Section 2 declares that all the § 18.
capital stock of such company shall Savings bank defined. See post, —
be held in trust for the benefit of the "Nature and Status," § 289.
commonwealth, and that it shall be Business of banker and banking de-
the duty of the attorney general to fined. —
The business of a banker, as
institute suit to recover the capital defined by the acts of congress (13
stock aforesaid; that any or all the Stat. 252, 472) providing for a license
members of such company may be to carry on the business of banking,
-made defendants, and they shall be is having a place of business where
severally liable to the commonwealth money is received on deposit, paid out
for their respective proportions of the on checks, and loaned upon security.
capital stock. It was held, that pro- Warren v. Shook, 91 U. S. 704, 23 L.
ceedings under said sections are Ed. 421. See ante, "What Are Banks,"
criminal, and therefore the court of § 2.
appeals has no jurisdiction thereof. 7. Power to impose generally. —
Commonwealth v. Scott, 25 Va. (4 State V. Bank, 48 La. Ann. 1029, 20
Rand.) 143. So. 201.
2. For acting as officer of unau- Justified under police power.
8. —
thorized bank, see post, "Prosecution The police power of the state justifies
and Punishment," § 62. the requirements of Laws N. Y. 1910,
3. Charge in words of statute suffi- c. 348, that a license from the comp-
cient. — In under the
an indictment, troller be obtained by individuals or
fourth section of the statute, "to pre- partnerships desiring to engage in the
-vent illegal banking," it is sufficient to business of receiving deposits of
§ 12 (1) CONTROL. AND REGULATION IN GENERAL. 27
therefrom does not offend against the requirement of equahty and uniform-
ity.^ And there is no right to a reduction after the tax is levied, aUhough
the law has been changed so as to prohibit so large a levy.^'' A bank au-
thorized to deal in securities is not liable to a broker's tax for buying and
selling stocks and bonds.î Where a license tax is required of the presi-
dent, such tax may be collected of him for each bank of which he is presi-
dent. ^^ A change in the settled construction of a statute should not be made
retroactive, so as to impose a tax for past years. ^^
Municipal License Tax. —Under a charter power to tax all persons
exercising within the city any profession, trade, or calling, or business, a
city may tax chartered banks in said city on their business therein to the
extent that private bankers are taxed therein.^* The good faith and rea-
money for safekeeping, or for the pur- that, under the act, where the same
pose of transmission to another, or person is president of two or more
for any other purpose. Engel v. banks, a tax of $10 may be collected
O'Malley, 219 U. S. 128, 55 L. Ed. 128, from him for each bank for which he
31 S. Ct. 191, affirming decree (C. C), was president, and, where plaintiff was
182 Fed. 365. the president of several banks, he is
9. Equality and uniformity. Pol. — liable to be taxed for each bank.
Code, § imposing a license on
4061, Witham v. Stewart, 129 Ga. 48, 58 S.
banks, is not in conflict with Const., E. 463.
art. 15, § 11, providing that "no com- 13. —
Construction Change not re-
pany or corporation formed under the —
trospective. The words, "That for
laws of any other country, state or each business of carrying on a bank,
territory, shall have * * * any greater banking company, association, cor-
rights or privileges than those pos- poration or agency," as used in the
sessed or enjoyed by corporations of Louisiana license law (Act No. 150 of
the same or similar character created 1890), having for a number of years
under the laws of the state," though been construed by those charged with
the national banks organized under its execution as not entitled the state
the United States laws are not sub- to exact a license for "the business
ject to the payment of such license. of carrying on a bank,'' etc., from an
State V. Thomas Cruse Sav. Bank, 21 agency in New Orleans of a foreign
Mont. 50, 52 Pac. 733, 45 L. R. A. 760. bank, where such agency received no
10. No reduction after levy. — deposits, and discounted no commer-
Sayles' Civ. St. of Texas, art. 5049, cial paper, but confined its business
subd. 1, requires occupation taxes to to making advances on cotton and
be paid in advance. An occupation grain en route to Europe, and to the
tax was levied on defendant, a banker, dealing in exchange incidental and
a few days prior to the passage of necessary to that business; and the
Gen. Laws (Called Sess.) 25th Leg., general assembly having, in 1898, im-
p. 50, which amended the act under posed a license on the specific busi-
which such tax was levied by prohibit- ness done by such agency the con-—
ing so large a levy as that made on struction of the Act of 1890 will not
defendant. Held, that the defendant be changed so as to require the agency
was not entitled to a reduction of the to pay back licenses, with heavy pen-
tax already levied. Brooks v. Texas alties, for "the business of carrying
(Civ. App.), 58 S. W. 1032. on a bank," etc., during the years
11. Not liable to broker's tax. — when the previous construction ob-
State V. Nashville Sav. Bank, 84 Tenn. tained. State V. Comptoir Nat., etc.,
(16 Lea) 111. De Paris, 51 La. Ann. 1272, 26 So. 91.
12. Tax on president for each bank 14. Municipal license tax. —Under a
—
over which he presides. Act Dec. 16, grant in its charter to tax brokers and
1902 (Act 1902, p. 30), § 2, par. 2, pro- "all other persons exercising within
vides that the specific tax of $10 for the city any profession, trade, or call-
each of the fiscal years of 1903 and ing, or business of any nature what-
1904 shall be levied on the presidents ever," the city of Macon may tax
of certain corporations doing business chartered banks in said city on their
in the state, including banks. Held business therein to the extent that
28 BANKS AND BANKING. § 12 (4>
sonableness of a charge against banks imposed by a city ordinance under

a law authorizing the licensing of banks being conceded, it will be presumed
to be a license as and not a tax for revenue. ^^

it purports to be,
Amount. —A license tax of $200 imposed by a municipal corporation on

banks is not unreasonable.^®
§ 12 —
(2) Exemptions. Some free banking acts have been held to
exempt banks from any license. i'^ But an exemption of bank stock from
taxation did not exempt it from payment of a license tax.i* A bank is not
exempt from the provisions of a municipal ordinance, taxing every one en-
gaged in any form of business or trade, because it is incorporated under
act of the legislature,^® or because it has paid a state license tax.^
§ 12 (3) Interest. —The rule is that interest is not recoverable unless

the statute authorizes it.^^
§ 12 (4) Effect of Payment. The payment — of a privilege tax may

be made in lieu of all other taxes. ^^
private bankers are taxed therein. nances, on "banks, banking houses,

Macon v. Macon Sav. Bank, 60 Ga. banking companies, or banlcing agen-
133. cies." New Orleans v. New Orleans
, Under a charter authorizing it to Sav. Inst., 32 La. Ann. 527.
license and tax money changers, a mu- And a banking corporation which
nicipal corporation may require bank- organized in the year 1873 under the
ers to take out a license. Hinckley v. free banking law, which had been re-
Belleville, 43 111. 183. enacted in 1870, is liable for the same
15. Presumed
to be license and not license tax as that imposed on other
a tax.— Oil City v. Oil City Trust Co., banking institutions. State v. South-
151 Pa. 454, 25 Atl. 124, 31 Am. St. ern Bank, 31 La. Ann. 519.
Rep. 770. 18. Exemptions from taxation. —
16. Ampunt.—State Columbia, v. 6 New
Banking
Orleans v. New Orleans,
Co., 33 La. Ann. 104; New
etc.,
S. C. 1.
17. Exemptions—Louisiana.—Banks Orleans v. State Nat. Bank, 34 La.
organized under the free banking law Ann, 892.
of Louisiana are exempt by that act 19. Incorporation does not exempt
from paying to the state or any of its from municipal license tax. State v.
Columbia, 6 S. C. 1.
—
municipal corporations a license for
carrying on the business of banking. 20. In payment of state license. —
State V. Southern Bank, 23 La. Ann. A bank is not relieved from paying
271. local license taxes, which have been
Banking institutions, incorporated imposed by a municipal corporation,
under the banking lavjrs of the state, because it has also paid the license tax
with a capital less than the minimum imposed by the state government.
expressed in paragraph 13 of the reve- State V. Columbia, 6 S, C. 1.
nue license law, can not be required to
pay license. State v. Bank, 48 La. Ann.
21. Interest. —
In Brooks v. Texas
(Civ. App.), 58 S. W. 1032, an action to
1029, 20 So. 201. collect a delinquent occupation tax,
But no act or charter can exempt levied under 2 Sayles' Civ. St. of
any bank from license taxation, un- Texas, art. 5049, subd. 5, authorizing
der the constitution of 1868. New Or- such tax on banks, it was held error
leans V. New
Orleans, etc.. Banking to allow interest thereon, as not au-
Co., 32 La. Ann, 104. thorized by statute.
The "New Orleans Savings Institu- 22. Privilege tax in lieu of all other
tion" was at least a bank of deposit, taxes.— Miss. Code 1880, §§ 557, 585,
and, as such, liable to the payment of as amended by Laws 1888, which pro-
the annual license tax imposed by the vide for a privilege tax to be paid by
city of New Orleans, under its ordi- banks, and vary the amount with
^ 14 CONTROL AND REGULATION IN GENERAL. 29
§ 13. Limitation of Indebtedness. ^^ —

Scope of Constitutional
—
Provision. A constitutional provision that banks shall not increase their
indebtedness can not be applied to a bank incorporated before adoption of
the constitution, and which has not accepted any legislation under it.^* And
for bank directors to give a mortgage to a depositor to secure repayment
of his deposits does not violate a prohibition that the directors shall not
increase the indebtedness of the bank without consent of the stockholders. ^^
§ 14. Reserves. —As to validity of legislation therefor, see ante, "Power

to Control and Regulate," § 3.
Construction of Statute. ê —A statutory requirement of the retention of
a certain per cent of net profits as a reserve fund, with a provision allowing
the bank to dispose of any excess thereof over $100,000, does not prevent
the creation of a larger reserve than that.^'' And the discretion of the di-
rectors as to the maximum will not be controlled by the courts, unless un-
fairly or wantonly exercised.^®
reference to the capital stock or as- amended by Laws 1888, providing that
sets, and declare that such tax "shall banks shall tax, whose
pay a privilege
be in lieu of all other taxes, state, amount varies with their "capital
county, and municipal, upon the shares stock or assets," in lieu of all other
and assets of said banks," are not un- taxes. Vicksburg Bank v. Worrell, 67
constitutional, under Const., art. 13, Miss. 47, 7 So. 219.
§ 13, which declares that "the prop- 23. Borrowing money. See post, —
erty of all corporations for pecuniary "Borrowing Money," § 97.
profits shall be subject to taxation, As to of
liability directors for
the same as that of individuals," as >vrongful increase of indebtedness, see
the legislature has the power to ex- post, "Nature and Extent," § 57.
empt property from taxation whether 24. Scope of constitutional pro-
owners be corporations or natural
-the vision. —
Ahl V. Rhoads, 84 Pa. 319.
persons; nor do they violate section 25. Mortgage to depositor to secure
16, which declares that "no county —
deposits. Ahl v. Rhoads, 84 Pa. 319.
shall be denied the right to raise, by 26. As to safety funds and deposits,
special tax, money sufficient to pay see post, "Safety Funds and Deposits
fQ]- * * * conveniences for the people of Securities," § 15.
•of the county, * * * provided the tax
thus levied shall be a certain per cent
27. Construction of statute. — St.
1862, p. 200, c. providing that
187, § 11,
•on all tax levied by the state," as by banking corporations having no capi-
this section the right of the counties tal stock shall retain on each dividend
under it is limited to the levy of "a day at least 5 per cent of the net
certain per cent on all tax levied by profits of the corporation, to con-
the state," and the subjects of taxa- stitute a reserve fund, to be used in
tion are to be determined by the leg- paying any of the losses which the cor-
islature. Vicksburg Bank v. Worrell, poration may sustain, and that the
67 Miss. 47, 7 So. 219. corporation may provide by its by-
Under Act March 8, 1888, § 4, pro- laws for the disposal of any excess in
viding that, if a proper privilege tax the reserve fund over $100,000, and
"had been paid before its passage, it the final disposal upon the dissolution
should protect the privilege to the ex- of the corporation of the reserve fund
piration of the license,where a bank or remainder thereof after payment of
-paid itsprivilege tax for the years losses, does not prevent a corporation
1888 and 1889 it was protected so far from creating a reserve fund in excess
as the privilege was concerned. Vicks- of $100,000. Mulcahy v. Hibernia Sav.,
"burg Bank v. Adams, 74 Miss. 179, 21 etc.. Soc. 144 Cal. 219, 77 Pac. 910.
So. 401. 28. Discretion of directors. Mul- —
Real estate owned by a bank con- cahy V. Hibernia Sav., etc., Soc, 144
stitutes part of its assets, within the Cal. 219, 77 Pac. 910.
-meaning of Code, §§ 557, 585, as In a suit to compel a banking cor-
30 BANKS AND BANKING. 15 (1)
Proceeding to Enforce Distribution of Reserve. —In a suit to com-

pel a banking corporation to distribute part of its reserve fund, the maxi-
mum amount of which is lodged in the discretion of its directors, an aver-
ment in the complaint that the directors acted in bad faith in endeavoring
member of the corporation has no bearing on
to exclude the plainti^ff as a
any question as to the reserve fund.^^ ^nd an averment in the complaint
that it was unnecessary for the corporation to keep in the reserve fund an
amount specified as that kept by the corporation, because it was not in-
debted to any one except its depositors, and had no unpaid losses in its
business, and because no banking corporation in the state carried a reserve
of the size carried by defendant, is a mere conclusion of the pleader, in
the absence of a statement of the amount of the indebtedness of the cor-
poration to its depositors.^**
§ 15. Safety Funds and Deposits of Securitiesî —§ 15 (1) Ne-

cessity —
and Constitutionality. No deposit of money or stock need be
made unless expressly required by the ternis of some statute.^^
Bank Guaranty Funds. —Legislation subjecting state banks to assess-
ments for a depositors' guaranty fund has been held to be a valid exercise
of the police power,^^ although contribution thereto is not made obliga-
poration to distribute part of its re- Under the Alabama free-banking

serve fund, the maximum amount of law of 1868 (Rev. Code, pt. 3, tit. 1,
which in the discretion of its di-
is c 1, § 1644, et seq.); an association,
rectors, the court can not interfere not claiming the right to issue or cir-
with the discretion of directors, and culate its own notes, need not deposit
compel a distribution, in the absence money or transfer stock to the auditor,
of a showing that, in violation of to authorize it to carry on other bank-
plaintiff's rights, the directors had re- ing business. Marion Sav. Bank v..
fused to declare dividends to which Dunkin, 54 Ala. 471.
he was entitled, without just reason, 33. Bank guaranty funds. The Acts —
and notwithstanding they had in their of December 17, 1907, and March 11,
hands ample funds which should be 1909, of Oklahoma, subjecting state-
devoted to that purpose. Mulcahy v. banks to assessments for a depositors'
Hibernia Sav., etc., Soc, 144 Cal. 219, guaranty fund are within the police
77 Pac. 910. power of the state and do not deprive-
Where, under a statute creating a banks assessed of their property with-
banking corporation, the minimum out due process of law or deny to
amount of reserve fund to be accumu- them the equal protection of the law,
lated by it is $100,000, and the maxi- nor do they impair the obligation of
mum is lodged in the discretion of the the charter contracts. Noble State
board of directors, the accumulation Bank v. Haskell, 219 U. S. 104, 55 L.
of a reserve of $3,500,000 does not of Ed. 112, 31 S. Ct. 186, affirming 22"
itself render the accumulation fraudu- Okl. 48, 97 Pac. 590.
lent. Mulcahy :;. Hibernia Sav., etc., Such legislation is not in violation
Soc, 144 Cal. 219, 77 Pac. 910. of the constitutional provision that
29. Proceeding to enforce distribu- "all persons have the inherent right
—
tion of reserve. Mulcahy v. Hibernia to life, liberty, the pursuit of happi-
Sav., etc., Soc, 144 Cal. 219, 77 Pac ness, and the enjoyment of the gains
910. of their own industry;" or that which
30.Averment of legal conclusion. — provides that: "No private property
Mulcahy Hibernia Sav., etc., Soc,
z'. shall be taken or damaged for private-
144 Cal. 219, 77 Pac 910. use, with or without compensation,
31. Reserves. — See ante, "Reserves," unless by the consent of the owner,
§ 14. except for private ways of necessity,
32. Necessity. — Marion Sav. Bank or for drains and ditches across lands
r. Dunkin, 54 Ala. 471. of others for agricultural, mining or
§ 15 (1) CONTROL AND REGULATION IN GENERAL. 31
tory.3* And the permission to national banks to avail themselves of such

a state law does not invalidate it, even if ineffectual,^^ and it is no objec-
sanitary purposes, in such manner as which similar statutes of New York

may be prescribed by law;" or which and Vermont were sustained. See,
provides that "private property shall also, People v. Walker, 17 N. Y. 503;
not be taken or damaged for public In re Reciprocity Bank, 39 Barb. 369,
use without just compensation." 17 How. Prac. 323, reversing 22 N. Y..
Noble State Bank v. Haskell, 32 Okl. 9, where the appellate courts in New
48, 97 Pac. 590. York construed the provisions of said
The police power extends to all the act without the question of their con-
great public needs, Camfield v. United stitutionality ever being raised. And
States, 167 U. S. 518, 43 L. Ed. 360, see Dolley v. Abiline Nat. Bank, 102
and includes the enforcement of com- C. C. A. 607, 179 Fed. 461, 33 L. R. A.,
mercial conditions such as the protec- N. S., 1065, and Assaria State Bank
tion of bank deposits and checks V. Dolley, 319 U. S. 121, 55 L. Ed. 133,
drawn against them by compelling co- 31 S. Ct. 189, affirming Larabee v.

operation so as to prevent failure and Dolley, 175 Fed. 365, sustaining a
panic. Noble State Bank v. Haskell, similar Kansas statute.
219 U. S. 104, 55 L. Ed. 113, 31 S. Ct. 34. Contribution need not be obli-
186, affirming 22 Okl. 48, 97 Pac. 590. —
gatory. A state statute creating a,
The dividing line between what is, bank depositors' guaranty fund for
the purpose of securing the full repa}'-
and what is not, constitutional under
the police power of the state is pricked
ment of deposits in case of the in-
solvency of any bank contributing to
out by gradual approach and contact
the fund is no less a valid exercise of
of decisions on opposing sides; and
the police power because contribution
while the use of public credit to aid
to such fund is not absolutely re-
individuals on a large scale is uncon-
quired. Assaria State Bank z/, Dolley,
stitutional, a statute compelling banks
219 U. S. 121, 55 L. Ed. 123, 31 S. Ct.
to contribute to a guarantee fund to
189, affirming Larabee v. Dolley, 175
protect deposits, such as that of
Fed. 365.
Oklahoma, under consideration in this
35. Effect of permitting national
Noble State
case, is constitutional.
Bank v. Haskell, 319 U. S. 104, 55 L. —
banks to avail of law. The section
permitting national banks to avail
Ed. 112, 31 S. Ct. 186, affirming 32 Okl.
themselves of the privileges of the
48, 97 Pac. 590.
protection of this depositors' guaranty
"The power to compel, beforehand, fund law does not permit an injustice
co-operation, and thus, it is believed, against the state banks, as the na-
to make a failure unlikely and a gen- tional banks which might avail them-
eral panic almost impossible, must be selves of the benefit of the law could,
recognized, if government is to do its if they desire, repudiate the contract
proper work, unless we can say that as ultra vires, and refuse to continue
the means have no reasonable rela- to pay their assessments, thereby en-
tion to the end. Gundling v. Chicago, dangering the assessment fund paid
177 U. S. 183, 44 L. Ed. 735. So far pro rata by the state banks, in the
is that from being the case that the
event of the failure of national banks
device is a familiar one. It was
which have availed themselves of the
adopted by some states the better privileges of said law. Concede that
part of a century ago, and seems such a contract is ultra vires as to
never to have been questioned until national banks, that does not render
now. Danby Bank v. State Treasurer, the law invalid as to state banks. If
39 Vt. 92; People v. Walker, 17 the contract of the banking board is
X. Y. 502. Recent cases going not not binding upon the national banks,
less far are Lemieux v. Young, 311 the converse of the proposition is also
U. S. 489, 496, 53 L. Ed. 295, 39 S. true, that it is not binding upon the
Ct. 174; Ividd, etc., Co. v. Mussel- state banking board. Neither party
man Grocer Co., 217 U. S. 461, 54 could claim any independent benefit
L. Ed. 839, 30 S. Ct. 606." Noble under a void law or statute. At most,
State Bank v. Haskell, 319 U. S. 104, all the national bank could recover, in
55 L. Ed. 13 3, 31 S. Ct. 186, af- such event, would be the money paid
firming 33 Okl. 48, 97 Pac. 590. See, under the same in good faith, when
also. Attorney General v. North not aorainst public policy. Noble
American Life Ins. Co., 82 N. Y. 172; State Bank v. Haskell, 23 Okl. 48, 97
Elwood V. Treasurer, 23 Vt. 701, in Pac. 590.
tion to such legislation that it may incidentally increase competition with

national banks.^^
15 (2) Obligation Therefor and Payment.—The charter of a

§
bank expired on December 31, 1849. Held, that it was not bound to pay
its proportion for that year of the state safety fund due "on or before"
January 1, The state, under an early New York statute (1829).
1850.3^
was held become a trustee of the whole fund, for the benefit of all who
to
might have claims on it, and the people were the proper party plaintiff in
an action to compel a bank to contribute.^s
15 (3) Lien of State— Substitution of Other Securities.

§
*
—
Where a bank purchased state bonds, giving a bond for 30 per cent of the
purchase price, and agreed to deposit bonds as security for circulation, and
these bonds were afterwards withdrawn and other securities substituted,
in the absence of any agreement for any lien or claim on other securities
than the bond given for unpaid installments, the state had no lien on the
securities substituted, for unpaid installments due it from the bank.^^
§ 15 (4) Effect of Failure to Deposit. —When a banking company
36. As affecting national banks. — that that sum continued to be payable

The Bank Depositors' Guaranty Act each year, without any subsequent
of Kansas (Laws 1909, c. 61), which notice from the comptroller, till the
authorized banks incorporated under fund was reimbursed. People v.
the laws of the state and possessing Walker, 21 Barb. 630, reversed in 17
prescribed qualifications to join in con- N. Y. 502, but on another point.
tributing to and maintaining a fund 39. —
Lien of state Substitution of
for certain classes of their depositors
against loss in case of the insolvency
—
other securities. State v. Rusk, 31
Wis. 213.
of any of their number, is not uncon- A bank purchased state bonds, pay-
stitutional on the ground that its ef- ing 70 cents on a dollar, and giving
fect may be to attract depositors from its bond conditioned for the payment
the national to the guaranteed banks, of 30 per cent more, in semiannual in-
and. thus increase competition with the stallments, with an agreement that
national banks, and impair their effi- the bonds so purchased should be de-
ciency as instrumentalities of the na- posited with the bank comptroller as
tional government; such effect, if any, security for the circulation of the
being merely indirect and incidental. bank, and that the state treasurer, in
Dolley V. Abiline Nat. Bank, 102 C. C. case of default in payment of any of
A. 607, 179 Fed. 461, 32 L. R. A., N. S., these installments, might retain for the
1065. reversing order, Larabee v. use of the state, in payment of such
Dolley, 175 Fed. 365. unpaid installments, the amount
37.Obligation therefor and pay- thereof out of the interest falling due
ment.— People V. Walker, 17 N. Y. 502. on the state bonds so deposited, if in
38. State as trustee —
Party plaintiff. the opinion of the comptroller the cir-
— People V. Walker, 21 Barb. 630, re- culation of the bank should be fully
versed in 17 N. Y. 502, but on another secured. These bonds being after-
point. wards withdrawn by the bank, and
The state comptroller notified a other securities substituted, according
bank liable to contribute to the safety to provisions of law, it was held that,
fund that the fund was reduced below in the absence of any agreement for
the amount required by law, and that any lien or claim on other securities
the bank was required to pay to the than the bond, the state had no lien on
treasurer of the state, on or before the securities substituted for unpaid
the 1st of January then next, half of installments due it from the bank.
1 per cent on its capital stock. Held, State V. Rusk, 21 Wis. 213.
16 (6) CONTROIv AND REGULATION IN GENERAI,. 33
has commenced business without depositing the securities required by the

statute, those stockholders who engage in or authorize and sanction* such
business assume its liabilities,*" and the contracts of the corporation will
be void.*i
§ 15 (5) Loss. —
The state is not liable for loss of bonds deposited
with the state treasurer in compliance with statute, in absence of an express
guarantee or contract, or for any deficiency in their amount.*^
§ 15 (6) Custody, Title and Control. —In General. — Such trans-

fers are not absolute, but merely pledges for the purpose of guaranty.*^
Sinking Funds. —Where by the charter of a bank, a sinking fund was
provided pay the holders of the bonds of the state, issued to pur-
for, to
chase stock, such bondholders have no control over the appointment of the
trustees of such fund, nor over the trustees in their management of it. If
they can object to its management at all, they can do so only in a court of
equity; and there, it seems, only for an improper exercise of authority.**
Where the charge of the fund had been given to a "state commissioner,"
the state held the fund in trust and should appoint a trustee to fill any
vacancy,*^ and the commissioners of such a sinking fund may loan the
same at interest.*^
Withdrawal. A — statute providing that, on giving a certain bond, a bank
40. Effect of failure to deposit..

— be foreclosed by the treasurer, and the
Medill V. Collier, 16 O. St. 599. debt collected by a sale of the prem-
41. Contracts void. —
A banking cor- ises. Townsend v. Smith, 12 N. J.
Eq. (1 Beasl.) 350, 72 Am. Dec. 403.
poration organized under the Act of
March 21, 1851, can not lawfully trans- 44. Sinking funds. Young —
v.
act its business until it has complied Hughes (Miss.), 12 Smedes M. 93. &
with that clause of the banking act And where the charge of the fund
requiring the deposit of securities with was by a subsequent legislative enact-
the auditor of the state, before com- ment given to a "state commissioner,"
mencing business; and a failure to who was authorized to coerce pay-
comply with the law will render the ment of debts by suit or otherwise,
contracts of the corporation void. the state commissioner was a proper
Medill V. Collier, 16 O. St. 599. See, party to sue to recover a debt belong-
also, post, "Conditional Incorporation ing to the fund. Young v. Hughes
— Conditions Precedent and Beginning (Miss.), 12 Smedes & M. 93.
45. Fund held by state commis-
of Corporate Existence," 83 (2).
42. Liabilities of state for loss.
§
— —
sioner. In an action in the name of
the commissioner, to recover a debt
Clark V. State, 47 Tenn. (7 Coldw.) 306.
belonging to the fund, it was held,
A bank comptroller holds the securi- on demurrer to the declaration, that
ties deposited with him under the
the state held the fund in trust, and
banking laws as trustee for the banks that it was her duty to appoint a trus-
and bill holders, and there is no lia- tee in case any vacancy occurred.
bility on the part of the state to the
Young V. Hughes (Miss.), 12 Smedes
banks for such deposits. State v.
& M. 93.
Rusk, 21 Wis. 212.
43. Transfers not absolute but in
46.Power to loan. The commis- —
sioners of the sinking fund of the
pledge. — Citizens' Bank v. Gay, 47 La. Planters' Bank have the right to loan
Ann. 551, 17 So. 148. the same at interest, and to sue for
Foreclosure of mortgage. Mort- — and collect it. Montgomery v. Com-
gages assigned to the treasurer of the missioners (Miss.), 7 How. 13; Com-
state as security under the statute to missioners V. Walker (Miss.), 6 How.
authorize banking (Nix. Dig. 48) may 143, 38 Am. Dec. 433.
B & B—
34 BANKS AND BANKING. § 15 -(7)
shall thereafter be exempt from all payments required to be made to the

bank fund, and from all the provisions for the establishment, preservation,
and regulation of said fund, gives a bank no right, by reason of giving such
bond, to withdraw from the bank fund what it has previously paid into
said fund, pursuant to chapter 84.*'' But the inference is drawn from this
case that each contributor has a reversionary interest entitling it to a re-
turn of what remained if the purpose were given up.*^
§ 15 (7) Payment of Debts Therefrom. —

When a bank ceases to
do business in consequence of its insolvency, the balance of, the indebted-
ness of the bank in excess of its property and effects must be paid by the
bank fund,** without regard to who contributed the fund,5o including the
notes of the bank.^^ and the duty may be enforced by mandamus against
the state treasurer. "^
Action by Single Creditor. —A single creditor may sue upon the bond
for prompt repayment of deposit, where it does not appear that there are
others entitled to the security.^^
47. Withdrawal. — Danby Bank v. the bank, if the 'creditors on notes

State Treasurer, 39 Vt. 92. issued before the suspension omitted
Abank, organized under St. 1851, to issue process of execution under
has no to maintain an action on
title the bond, when forfeited, and gave no
a security assigned to the state treas- notice to receivers of notes after-
urer till after a reassignment. South wards issued. In re Dyott (Pa.), 2
Royalton Bank v. Downer, 28 Vt. 635. Watts & S. 463.
48. Reversionary interest. Noble — A
person establishing a bank gave
State Bank v. Haskell, 219 U. S. 104, to trustees a bond to secure
certain
110, 55 L. Ed. 112, 31 S. Ct. 186, af- promissory notes that might be is-
firming 22 Okl. 48, 97 Pac. 590. sued. Held, that it embraced all notes
Payment of debts therefrom.
49. — whatever in the nature of bank notes,
Danby Bank v. State Treasurer, 39 Vt. whether payable on demand, or post
92; Elwood V. Treasurer, 23 Vt. 701. notes payable at a future day. In re
Where, under the general bank-
50. Dyott Watts & S. 463.
(Pa.), 2
ing law the entire safety fund was 52. —
Mandamus. A receiver of an
made liable for the payment of all the insolvent bank is entitled to a man-
debts of any insolvent bank, exclusive damus to compel the state treasurer
of capital stock; and this without to pay to him from the bank fund a
reference to the time when the debts sum sufficient to discharge the excess
accrued, or when the insolvency ac- of the bank's indebtedness beyond its
crued, or at what time any particular effects, provided such fund is large
bank began to contribute, hence, that enough. But the writ should not re-
part of the fund contributed by anv quire payment of any money of the
particular bank could not be withheld state, as distinguished from the bank
from being appropriated for the pay- fund; nor should it require the treas-
ment of the debts of an insolvent urer to pay money of his own, on
bank, upon the ground that the bank the score of his having subjected him-
for the payment of whose debts it was self to liability for the deficit of the
required became insolvent previous fund by reason of his having wrong-
to the time when the bank contribut- fully made payments from the fund
ing such part of the fund came into to banks not entitled to such pay-
existence under its charter. Elwood ments. Danby Bank v. State Treas-
V. Treasurer, 23 Vt. 701. urer, 39 Vt. 92.
51. Notes of a bank, received as 53. Action by single creditor. —
collateral security after such bank has Where a banker executed a bond as
suspended specie oayments, but after- required by Laws 1907, c. 185, as
wards gone on for a time under a amended by Laws 1908, c. 479.' pro-
specific arrangement, are embraced bv viding for a bond conditioned for
a bond given to secure the notes of prompt repayment of deposits, and
§ 15 (8) School Funds.— (Okl.) Comp. Laws 1909', § 7943, pro-

vides a specific system for the protection of any part of the permanent
school fund temporarily deposited in banks or trust companies, and the pro-
tection extended to general depositors by section 323, providing for the
depositors' guaranty fund, does not apply to deposits of the permanent
school fund.°^^
§ Reports and Statementss*— § 16 (1) Duty to Make and

16
Effect of Failure. 55 —
Only reports and statements expressly required of
the banks by law can be demanded of them.^s
—
Statutory Provisions and Repeal. Where a statute requires reports
and published in newspapers, it is not repealed
to be filed in a certain office
by a subsequent statute creating a board of bank commissioners not incon-
sistent with it."''
that a suitmay be brought thereon by necessary implication require a bank-

any party aggrieved, a depositor may ing partnership to make reports as re-
sue alone at law on the bond in the quired by §§ 3817, 3818, Rev. Stat,
absence of any proof of the existence which required certain reports to be
of other creditors, or that the money made to the auditor of the state. Guil-
of any other person has been em- bert V. Kilgour, 8 N. P., N. S., 617. 19
bezzled. Alessandro v. People's O. D. N. P. -670 (see 8 N. P., N. S.,
Surety Co., 143 App. Div. 145, 127 N. 81, 19 O. D. N. P. 837). See ante,
Y. S. 572. See, also, Guffanti v. Na- "Right of Banking in General," § 1.
tional Surety Co., 133 App. Div. 610, A banking partnership is not an "in-
118 N. Y. S. 207, affirmed in 196 stitution" within the meaning of
N. Y. 452, 90 N. E. 174, 134 Am. St. §§ 3817, 3818, Rev. Stat, requiring
Rep. 848. "every banking institution, or corpora-
53a. School funds. Columbia Bank — tion engaged in the business of bank-
and Trust Co. v. United States Fidel- ing," to file certain reports, verified
ity, etc., Co. (Okl,), 176 Pac. 556. by its officers. Guilbert v. Kilgour, 8
54. Falsification of by bank offi- N. P., N. S., 617, 19 O. D. N. P. 670
cers, see post, "Ofifenses," § 61; (see 8 N. P., N. S., 81, 19 O. D. N. P.
"Prosecution and Punishment," § 62. 837).
By trust companies, see post, "Con- 57. Statutory provisions and repeal.
trol and Regulation in General," § 310. —By 1, 1876, each banking
Act April
55. As ground of forfeiture of char- company was required to file, with the
ter, see post, "Grounds for Forfeiture recorder of the county wherein its
of Franchise or Dissolution," § 68. principal office was, certain sworn
on right to sue, see post, "Ca-
Efifect statements, showing the amount of
pacity to Sue and Be Sued," § 213. capital employed by it, and the con-
Liability of officers for failure to dition of its assets and liabilities,
make reports, see post, "Nature and which statements should be published
Extent," § 57. semiannually in a local newspaper.
56. Express authority of law essen. Any bank failing to comply with these
tial to requirement of reports. State — provisions was debarred from suing in
V. Union Bank (La.), 4 Rob. 499, con- any court of the state. Acts 1877-78,
struing Louisiana statute of Feb. 5, p. 740, created a board of bank com-
1842. missioners, whose office was to be at
Bankins: partnership not within stat- San Francisco, and whose duty it was
ute.— Sections 108, 109, of Act 99 O. to investigate and report upon viola-
L. 269, the former requiring ''every tions of the banking law. All banks
banking company, saving bank, * * * were required to report to them semi-
and every person or copartnership do- annually on the state of their business,
ing a banking business." to make cer- and these statements were to be pre-
tain reports, and the latter requiring served and kept for inspection. No
the president, vice president, cashier, ^
mention was made of filing statements
secretary or treasurer to verify such in the recorder's or of publish-
office,
reports, neither expressly nor by ing them in newspapers. All incon-
Denial of Access to State Courts. —Where the statute merely denies

access to the state courts to banks failing to comply therewith, they may
still transact banking business in the state. s*
Be Proceeded against as Insolvent. Sometimes failure
Liability to —
to comply makes the banking association liable to be proceeded against as
insolvent. 59
Untrue Returns to Governor. —Charges in a bill that a small sum was
paid in rtioney for bank stock, and the balance paid in notes for stock notes,
and that the purchasers became president and directors and reported to the
governor that one-fourth of the capital stock was paid in, when the report
was known to be untrue, require an answer and explanation. The charges
uncontradicted warrant the strongest conclusions against the parties. ®°
§ 16 (2) Time to Make. —While a quarterly statement must be made

at the time required by law, or it need not be received,* ^ yet, where an act
(Cal. St. 1876, p. 729), provides that banking corporations shall publish in
January and July of every year statements of their financial condition, yet,
in view of the fact that the only penalty provided for failure to so publish
is that no corporation can maintain an action "until" such statement has
been published, a publication of a statement before the time named in the

statute for the publication of the next statement is sufficient,'' ^ where in-
tended in good faith as a compliance with its requirements.*^
§ 16 (3) Form and Contents. — Substantial Compliance with

Statute. — Substantial compliance with the requirements of the statute re-
quiring the report or statement is necessary.** But substantial compliance
sistent acts were repealed. Held, that plaintiff could not get its statements
there was no inconsistency in the acts, from London before about the mid-
and that the former was not repealed die of February and August, and did
by the latter. Bank v. Cahn, 79 Cal. not publish them until the following
463, 21 Pac. 863. July or January, respectively. Held
58. Denial of access to state courts. that, though it would have been a
— Barling- v. Bank, 50 Fed. 260, 1 C. C. more substantial compliance with the
A. 510, construing Cal. Act April 1, statute to have published the state-
1876 (St. 1876, p. 729). ments as soon as received, yet with-
59. Liability to be proceeded against holding them until the recurrence of
—
as insolvent. Boisgerard v. New York the next July or January would not of
Banking Co. (N. Y.), 2 Sandf. Ch. 33, itself have been considered a fatal de-
affirmed in 4 Ch. Suit, 20, construing feet, since it would have been pre-
statule of 1841. sumed that the delay was caused by
60. Untrue returns to governor. — the supposition that the publication
Schley V. Dixon, 24 Ga. 273, 71 Am. could be legally made only in the
Dec. 121. months named in the statute, and was
61.Quarterly statement. People— therefore intended in good faith as a
V. Campbell, 14 111. 400. compliance with its requirements.
62. Publication before time named Bank v. Alaska Imp. Co., 97 Cal. xvii,
for publication of next statement.— 31 Pac. 729; S. C, 97 Cal. 28, 31 Pac.
Bank v. Madison, 99 Cal. 125, 33 Pac. 726.
762. 64. Substantial compliance with
63. Intention to comply in good statute.— Bank v. Alaska Imp. Co., 97
faith,—The statute requires that the Cal. 28, 31 Pac. 726; S. C, 97 Cal.
statements be published each year in xvn, 3] Pac. 729.
January and July. It appeared that St. 1875-6, p. 729, provides that bank-
§ 16 (4) CONTROI, AND REGUIÂTION IN GENERAL. 37
is sufficient, as, where the statute provides for the publication of two state-
ments, the publication of the two statements in one document is sufficient f^
and under a provision of the statute that the published statement shall con-
tain "the actual condition and value of the assets" of the corporation, a
statement showing the amount of cash on hand and at bankers, the amount
of cash at call and short notice, the amount of investments, the amount of
bills receivable and other securities, and the value of the corporation's
premises, is sufficient.*® Under a statute requiring returns to be made by

the officers of banks, the return of the cashier must be founded on the
books of the bank, and must contain a true statement of the condition of
the bank at the time of making the return.*'^ Under a statute requiring a
quarterly report of the condition of the bank in various particulars, includ-
ing loans and discounts due from the directors, the bank may be required
to state in a general way, the largest amount due any one individual, firm,
or corporation, and also the aggregate of loans upon paper made, accepted
or indorsed by the directors as individuals or as members of firms.**
§ 16 (4) Verification. —The primary meaning of "verify'' is to af-

firm under oath, and a statute requiring a firm doing a banking business to
ing corporations shall publish and rein the document. Bank v. Madison,
cord statements each year in January 99 Cal. 125, 33 Pac. 762.
and July; that one of such statements 66. Statement of condition and
shall show the amount of capital
stock actually paid in, and the other
—
Value of assets. Bank v. Madison, 99
Cal. 125, 33 Pac. 762.
shall show the actual condition and Under a provision that the pub-
value of its assets and liabilities, and lished statement shall contain "the
where the assets are situated. Plain- actual condition and value of the lia-
tiff a statement which, omitting
filed bilities" of the corporation, a state-
the figures, was, under the head of ment showing the amount of capital,
"Liabilities;" "Capital," $ "Cir-
culation," $
"Bills
"Deposits," $-;
;
payable and other liabilities,"

;
— the amount of reserve fund,

amount due depositors, the amount of
the
circulation, the amount of bills payable

$ —; "Undivided net profits," $ ; and other liabilities, the amount of
"Total," $ and under the head of
; rebate, and the amount of undivided
"Assets:" "Specie on hand and cash net profits, is sufficient. Bank v.
at banker's," $ "Bills ;
receivable Madison, 99 Cal. 125, 33 Pac. 762.
_
and other securities," $ "Invest-

;
Under a provision that the published
ments," $ ; "Bank premises,"
statement shall set forth "where" the
"Total," $ a sum equaling assets are situated, a statement re-
the liabilities. that the state-
Held, citing that part of the assets are in
ment was not a substantial compliance London, England, part San Fran-
in
with the statute. Bank v. Alaska
cisco, part in New York City, and part
Imp. Co., 97 Cal. 31 Pac. 28, 726, S.
in Canada, without giving the amount
C, 97 Cal. xvii. 31 Pac. 729. of assets at the places named, is suffi-
65. Publication of two statements Bank v. Madison, 99 Cal. 125,
in one document. — Bank v. Madison,
cient.
33 Pac. 762.
99 Cal. 33 Pac. 762.
125,
67. Return must be founded on
Though the statute provides for the
publication of two statements one of — books of the bank. Commonwealth—
V. Dunham, Thacher Cr. Cas. 519, con-
the capital stock, and the other of the
struing an old Massachusetts statute.
assets and 4iabilities, of the corpora-
tion —
the publication of the two state- Report as to loans and dis-
68.
counts due from directors of bank.
ments as one document is sufficient,
where the amount of the capital stock, People V. Vail (N. Y.), 6 Abb. N. C.
and the actual condition and value of 206, 57 How. Prac. 81, construing New
the assets and liabilities, are set out York statute of 1847.
make reports to the auditor of state, verified by some member of the firm,
calls for reports under oath.®^ A verification to the best of affiant's knowl-
edge and belief is sufficient when that is the language of the statute,'^*' or
where the have actual knowledge of its
specified officer or agent could not
correctness, e. g. of the condition of a foreign corporationJ^ But where
the statute requires a sworn statement, verified by some officer of the bank,
the affidavit must show that the officer at least swears that he believes it
to be true, not merely that it is a copy of another statementJ^
§ 16 (5) Returns as Notice of Bank's Condition. The returns —

required by law to be made to the governor andipublished are a source of
information and opened to every person having dealings with the bank, and
though they may not amount to technical notice, they are a method by which
a diligent person may ascertain the true condition of the bank; but whether
true or untrue such returns are conclusive as to the liability of the bank
and stockholders J ^
§ 17. Public Examiners^ ^ —§ 17 (1) Appointment. —Authority to

Appoint. — It has been held, and no doubt, correctly, that inspections may
be required and the cost thrown on the bank.'^^
Provisional Appointment. —The appointment, during vacation of the
bank commissioner, under a statute providing for his ap-
state senate, of a
pointment with the consent of the senate, was only provisional, and the of-
Verification— Primary meaning.

69. t^nk has its principal place of business
—State V. Trook, 172 Ind. 558, 88 N. E. ;„ London; that the accounts of the
930, construing Ind. Acts, 1905, p. 182, San Francisco agency are made up
c. 109, § 5. ^ twice each year, and forwarded to the
70. Verification to best of affiants London office, where a general state-
knowledge and belief enough.— Daven- ment is prepared, and sent to the San
port V. Prentice, 126 App. Div. 451, 110 Francisco office; that the foreg.oing is
N. Y. S. 1056, construing banking laws a correct copy of the last statement
of New York. _ received. There was nothing in the
71. to foreign corporation.— Un-
As affidavit show that the statement
to
der a provision of the statute that the âs sworn to by any officer or em-
statement of a foreign corporation ployee of the bank, or that the affiant
shall be verified by the agent or man- believed the statement to be true, only
ager of such corporation residing m jât it was a true copy of the last
the state, a verification of the state- statement received. Held, that this
ment of a foreign corporation by its .^âs not a sworn statement, within the
resident agent, that it was true to the meaning of the statute. Bank v.
best of his knowledge and belief, is not Alaska Imp. Co., 97 Cal. 28, 31 Pac.
open to the objection that it was not ygg; S. C, 97 Cal. xvii, 31 Pac. 729
^"P°" Returns as notice of bank's con-
""^t ^^T\ ô^'.\%^^; vfi^''"'' 73.
%^^'Xffirv?t^th'at^^?ateLL\%I%y
of another statement insufficient.-The
fZlT R^^'lô" s'hw'7 f" °"°"'
^,
«?«;
l,\- f^ ^;„"?,'ec.1
?)ixo^-
statute further requires that the state- „. ^r • , . ,
ments filed shall be sworn statements, 74. Of national banks, see post, §
^87, et seq.
verified, in the case of foreign corpo-
rations, by the agent or manager of 75. Inspection and payment there-
the business resident in the state. for. —Charlotte, etc., R. Co. v. Gibbes,
Plaintiff's statement was followed by 142 U. S. 38G, 35 L. Ed. 1051; Xoble
an affidavit of the managing agent at State Bank v. Haskell, 219 U. S. 104,
San Francisco, which stated that the 112, 55 L., Ed. 112, 31 S. Ct. 186.
ficial tenn began to run only on the appointment of such commissioner at

the next session of the senate J"
§ 17 (2) Compensation. — Where the statute creating bank examin-

ers prescribes their compensation, it must prevailJ'^ An act of the legisla-
ture appropriating a certain sum to pay officers appointed at that session
to wind up a certain bank includes an officer appointed to visit such bank
and another one, the amount appropriated being sufficient to pay his salary
as well as the salaries of the other officers appointed for the purpose
stated.''^
§ 17 (3) Removal. — Bank examiners can not be prosecuted under the

statute providing for the removal of public officers from office, for mal-
feasance or neglect of duty, where, by other sections, prosecutions for re-
moval can only be maintained against district, county, municipal or town-
ship officers."^ ^
Power of Governor. —Under the common law and under Const, art. 12,
§ 8, and and Civ. Code, 1902, §§ 340, 393, of South Car-

article 4, § 22,
olina the Governor has no authority to remove from office the State Bank
Examiner whose term of office if fixed at four years by Act Feb. 23,
1906 (25 St. at Large, p. 103), as amended by Act Feb. 20, 1911 (27 St.
at Large, p. 4).'^9^
§ 17 (4) Powers. —
In General. The powers of bank examiners —
depend on the terms of the statutes creating them. 8° The legislature, in
the exercise of its police power, is authorized to regulate the business of
76. Provisional appointment.— State 79a. Power of Government.— Lyon

V. Breidenthal, 55 Kan. 308, 40 Pac. ^- Rhame _(S. C), 75
b. E. 881.
construing Kansas Laws, 1891, c. 80.Particular statutes construed.—

651,
43. See, also, ante, "Constitutional Arkansas.— K'a act relating to the hq-
and Statutory Provisions," § 4.
nidation of a bank, whose property
^ .. A had gone into the possession of trus-
^."\
March S^^^^^^^Tu"
39, 1889 which provides
banking
T
t
r \
for re-
<-
tees named in a deed of the directors,

^^î^.^ f^, ^he appointment of othe;
ports of the business of al
^ûstees, and also of a bank visitor for
institutions to be made to the board
^^^^ ^^^^ ^^^ another. The act re-
of state officers constituted by the act,
j^^^ ^^^ ^^ schedule the property
and for yearly examinations of the af- S^
^j^^ ^^^^^ ^^ „^^;^ trustees/' it be-
fairs of such banks, in § 8 gives the
j^^^tful which ones were meant,
compensation of the bank examiners ^^ ^^^^ provided that in case he was
at $10 a day, but m
"o case to exceed ,^,^4^^ fôm acting as visitor of ei-
$20, to be paid by the bank whose af- \^^^ ^^ ^^^ ^^^^^ ^^^ ^^^^^ ^^^ ^^^
fairs are being examined. Held, that
^^^^ ^^ ^^^ ^^ ^^^^ ^^^ ^^^^ ^^^
the board createa by the act has no au- ^^^ prescribed. Held, that the of-
thority to prescribe a different rate of ^^^^,^ ^j j^^ ^^ ^-^^^^ ^^^ ^^^^ -^ ^. ._
compensation Post v. Benton, 31 ^^^-^^ ^^-^^^^ ^1^;,^ ^j^ property was

Neb. 44, 47 I\. W. 477. -^ ^^^ j^^„^^ ^f ^^^ ^^^^^^^ ^^^^^^ -^
78. Appropriation.— Byrd v. Con- the deed. Byrd v. Conway, 5 Ark. 436.
way, 5 Ark. 436. —
Incorporated
California. commer-
79. Removal — Construction
of stat- cial banks are subject to examination
utes. —
Kilburn v. Law, 111 Cal. 237, 43 by the bank commissioners, under the
Pac. 615, construing Cal. Pen. Code, Act of 1878, creating the board. Wells
§§ 773, 888, 889. v. Coleman, 53 Cal. 416.
banking, and for that purpose may authorize an administrative officer to

adopt a reasonable system of inspection and reports.^^
Examination of Vaults, Books and Papers. Authority for this — is
usually conferred.*^
Judicial Powers —Enjoining Prosecution of Business. —A statute
authorizing bank commissioners to apply for an injunction to restrain the
bank from proceeding further with its business is not unconstitutional as
usurping judicial power,*^ or as compelling the officers and agents of the
bank to furnish evidence to criminate themselves,^* or as impairing the obli-
gation of a contract.*^
Requiring Change of Directors. —Visitorial powers over bankers jus-
tify the requirement of a change in the personnej of directors.**
Power to Bind Bank by Representations. —When a defaulting of-
ficer ofan insolvent bank in charge of a bank examiner, for the purpose of
replenishing the assets of the bank to enable it to resume business, is allowed
to furnish collateral securities for his indorsements on paper previously
sold by him to the bank, representations made by such examiner as to the
liabilities of such officer to the bank and the value and condition of the se-
curities already furnished by him are not binding on the bank ; and one who
furnishes securities to such defaulting officer to be so used by him can not
81. Adoption of system of inspection, diminishes the period for which
tion —
and reports. State v. Struble, 19 the bank is by its charter empowered
S. D. 646, 104 N. W. 465. to act as a corporation and thereby im-
Examination of vaults, books
82. pairs the obligation of a contract; for
—
and papers. Under Act Feb. 5, 1843, as the bank may violate its charter or
the law, there must be some mode
§ 2, No. 32, the board of currency are
entitled to free access to the vaults prescribed for a judicial inquiry into
and books of the banks in New Or- the fact and for giving redress to par-
leans; may call upon their officers at ties who may have suffered, and the
any time; take such memoranda and injunction is not an arbitrary suspen-
lists as they think proper; and require sion of the corporate powers of the
any officer of such banks to submit bank, but a species of compulsory
their books and papers to their inspec- process entirely consonant to the
tion and examination. State v. Union course of the administration of justice
Bank (La.), 4 Rob. 499. in like cases. Commonwealth v.
authorizing injunction
Farmers', etc.. Bank (Mass.), 21 Pick.
83. Statute
against bank. —
Commonwealth v. 542, 32
86.
Am. Dec. 390.
Requiring change of directors. —
Farmers', etc., Bank (Mass.), 21 Pick. Where the promoter of a bank adver-
542, 32 Am. Dec. 290, construing old
tised that its affairs would be placed
Massachusetts statute of 1838. in the hands of directors, who were
84. As compelling self-incrimina- strong, wealthy men and most experi-
tion. —
Neither is it unconstitutional on enced bankers, but in fact he caused
the ground of its compelling the offi- directors to be elected who were men
cers and agents of a bank to furnish inexperienced in financial affairs, of no
evidence to criminate themselves; for independent judgment nor fortime, but
(among other reasons) it imposes a who were wholly subservient to his
penalty only upon those who "with- will, the secretary of state, on ascer-
out justifiable cause" refuse to testify. taining such conditions, was justified
Commonwealth v. Farmers', etc., Bank by Rev._ St. 1899, § 1305, conferring on
.(Mass.), 21 Pick. 542, 33 Am. Dec. 290. him visitorial powers over bankers, to
85. As impairing contract obliga- require a change in the personnel of
tion. —Nor is it unconstitutional on the board of directors. Harlev v. Peo-
the ground that a suspension of the ple's, etc., Bank, 197 Mo. 574, 94 S. W.
proceedings of a bank by tlie injunc- 953.
§ 18 CONTEOt AND REGULATION IN GENERAL. 41
rely on such representations of the examiner as a defense in an action by

the bank to foreclose its lien on such securities. *''
To Examine Records of Bank Commissioner. ^The state bank ex- —
aminer and inspector is authorized by the Oklahoma statute to examine the
records of the bank commissioner, including the records of a failed or in-
solvent bank in his custody as such officer in administering the affairs of
such bank under the powers conferred upon him by said act.**
§ 17 (5) Effect on Title to Property and Rights of Action.—The

legal title to the assets is unchanged, and it may still sue' in regard thereto.*"
§ 18. Foreign Banks. ^"^ —A penal statute in regard to failure to pay

prescribed fees for doing business in the state is not applicable to foreign
banking companies where they are not mentioned,"^ nor a statute punish-
87. Power to bind bank by repre- National banks as foreign corpora-

sentations. —
Tecumseh Nat. Bank v. tions, see post, "Nature and Status,"
Chamberlain Banking House, 63 Neb. § 232.
163, 88 N. W. A. 811.
186, 57 L. R. What are banks, see ante, "What
88. Examination of records of bank Are Banks," § 2.
commissioner. —
Taylor v. Cockrell, 27 Power
—See
to acquire and hold property.
post, "In General," § 94; "Real
Okl. 630, 113 Pac. 1000, construing the
Oklahoma statute. Property," § 95.
89. Effect on title to property and

Power to make loans. See post,. —
"Power to Make Loans in General,"
rights of action. —
Laws 1892, c. 689, §
§ 176.
amended by Laws 1908,
18,
§ 3,
as
authorizes the state superintendent
c. 143,
—
Power of discount. See post, "Power
of Discount," § 177.
of banks to take possession of the
property and business of any corpora-
—
As to circulating notes. See post,.
tion and individual banker, when it ap-
"Power to Issue or Circulate," § 197.
Subjection to laws of state where it
pears that such bank is doing business
in an unsafe or unauthorized manner,
—
operates. See ante, "In General," § 8.
—
91. Amenability to penal statute.
and retain possession till the bank re-
Pol. Code, pt. 3, tit. 1, c. 3, art. 11, §
sumes business, collect money due the
497, as amended by Act March 4, 1897
bank, collect all debts due and claims
belonging to it, and upon an order of (Laws 1897, p. 107), and Laws 1903, p.
184, c. 100, requiring each bank or in-
the supreme court sell or compound
vestment and loan company incorpo-
doubtful debts or sell its realty, pay all
rated under the laws of this state to-
debts of the corporation, and do other
pay certain fees into the state exam-
acts necessary to conserve its assets,
iner's .fund, and requiring each build-
and further provides that the corpora-
ing and loan association, whether for-
tion may resume business upon condi-
eign or domestic, to pay a certain pro-
tions approved by the superintendent.
portion of its assets into the fund, and'
Held, that the statute did not directly
§ 498, providing penalties for failure
deprive a bank, in the hands of the
of any bank, building and loan associa-
superintendent, of title to its assets,
tion, or investment and loan company
or vest it in the superintendent, so
incorporated under the laws of this
that a bank in the hands of the super-
state, "or doing business under any
intendent was the real party in interest,
law of this state concerning corpora-
and the proper party plaintiff in an actions," to pay the fees prescribed in
tion on a promissory note owned by
the preceding section, do not apply to-
it. Lafayette Trust Co. v. Higgin- foreign banking companies doing bus-
botham, 136 App. Div. 747, 121 N. Y. iness in the state, since the statute be-
S. 489.
ing penal, and to be strictly construed,
90. Banking powers
generally. — the phrase quoted can not be read into
See post, "Place of Exercise," § 86 (3). § 497. State v. ^tna Banking, etc.,
Location and place of business, see Co., 34 Mont. 379, 87 Pac. 268. See,
post, "Location and Place of Busi- also, ante, "Power to Impose," §
ness," § 32. 12 (1).
ing embezzlement by officers or employees of banks "in the state. "^^
§ 19. Penalties for Violations of Regulations. — It has been held

that a failure in several respects to comply with a statute requiring reports
and returns, makes the delinquent bank liable for each neglect to the pen-
alty named. S3
20. Offenses by Banks or Bankers."* Sufiiciency of Informa-

§ —
tion. —
In the information against a bank, it is only necessary that the time
and other circumstances, in the description of one of the charges showing
a violation of the charter, be certain to a common intent.^^
§ 21. Offenses by Persons Dealing with Banks. Drawing Check —

—
without Funds. A statute making it a crime to draw or pay a check with-
out funds to draw against has been held to embrace all classes of persons,
not merely bank officers. The essential elements of the crime are the
"'''
drawing of the check, knowledge of insufficiency of drawer's funds to meet

it,and an intent to defraud.^^
Passing of Fictitious Check with Intent to Defraud. —The essentials
of the offense denounced by a statute punishing the passing with intent to
defraud any fictitious check, are the uttering and publishing of a fictitious
check with knowledge of its character and an intent to defraud, and the
92. Under embezzlement statute. — 97. Drawing check without funds.

The Freedman's Savings and Trust — Burkett v. Lanata, 15 La. Ann. 337,
Company, incorporated by act ol tnr- construing Act of March 15, 1855.
gress, L.i:d located in the city of Wash-
ington, is not a bank or corporate body
98. Essential elements. State — v.
Pilling, 53 Wash. 464, 102 Pac. 230.
in Georgia, within the meaning of § The essential elements of the crime
4431 of the Code. Cory v. -State, 55 defined by the Washington Act March
Ga. 236. 3, 1905 (Laws 1905, p. 78, c. 49) § 1,
Commonwealth v. Cooke, 50 Pa.
93. are the drawing of a check on a bank
201, construing Act of May 16, 1861. for the payment of monej', knowledge
Unauthorized banking, see ante, that the drawer has not sufficient funds
"Penalties and Actions Therefor," § 10. to meet the check, and an intent to de-
94. Offenses by banks or bankers. — fraud; and the technical ownership of
Civil liability therefor, see post, "Civil the money paid out by a bank oa a
I/iability on Insolvency," § 82, and check drawn on another bank is not
subdivisions thereunder. material. State v. Pilling, 53 Wash.
Constitutional and statutory provi- 464, 102 Pac. 230.
sions, see ante, "Constitutional and An information alleging that accused
Statutory Provisions," § 4. with intent to defraud prosecutor drew
Criminal responsibility of bank offi- and delivered to a third person a check
cers and agents, see post, "Officers," § on a bank, knowing at the time he had
61; "Prosecution and Punishment," § no funds in or credit with the bank to
62; "Officers," § 84; "Prosecution of meet the check, states the ofifense de-
Punishment," § 85. nounced by Pen. Code, § 476a, prohib-
Unauthorized banking, see ante, iting the drawing of checks with in-
^'Criminal Prosecutions," § 11. tent to defraud. People v. Mohr, 157
Criminal responsibility of bank offi- Cal. 732, 109 Pac. 476.
cers and agents, see post, "Criminal Postdated check. .\ —
prosecution
Responsibility," § 60; "Officers," § 61; held warranted under Pen. Code, §
"Prosecution of Punishment," § 62. 4T6a, for the utterance of a postdated
95. Sufficiency of information. — check, where there were no funds to
Bank r. State, 1 Blackf. (Ind.) 367, 13 meet it. People -c. Bercovitz (Cal.),
Am. Dec. 234. 126 P. 479.
§ 21 CONTROL AND REGULATION IN GENERAL. 43
state need not prove that accused drew or attempted to draw on an account
which he had established in a bank based on the fictitious check, or that the
tajik was in fact defrauded by the transaction. ^^
—
Intent a Question for Jury. The intent is a question for the jury.^
—
Repeal of Statute. A statute making the forgery of a check on a bank
a felony was not repealed by a general revision of the penal laws.^
—
Admissibility of Evidence. On a trial for passing a fictitious check
purporting to have been signed and indorsed by a third person on a desig-
nated bank, evidence of the nonpayment of the check and of the fact that
the third person did not have an account with such bank was admissible.^
And the testimony of the receiving teller of the bank that, referring to the
tank book showing the names of tlie depositors, the name of the third per-
son did not appear as a depositor was admissible as prima facie evidence
that the check was fictitious."*
—
Sufficiency of Evidence. In a prosecution under laws 1905, c. 5468,
for drawing a draft on a bank in consideration of property received with-
out having sufficient money in the bank to pay it, evidence held sufficient
to sustain a conviction. -#
99. Passing fictitious check with in- 5. Sufficiency of evidence. — Ryan v.

tent to defraud. — People v. Walker, 15 State, 60 Fla. 25, 53 So. 448.
Cal. Cr. Apo. 400, 114 Pac. 1009, con- In a prosecution under Laws 1905,
struing Cal. Pen. Code, § 476. c. 5468, making it a felony for one to
1. Intent a question for jury. The — issue a draft upon a bank in payment
of anything of value, the title or pos-
intent with which a depositor of a
bank who had opened a deposit ac- session of which shall have been trans-
count in a fictitious name deposited a ferred upon the faith of the payment
"fictitious check in violation of Pen. of such draft, where he does not, at
Code, § 476, and thereby received the time of making the draft, have
credit on his account therefor, is foi sufficient money on deposit with such
the jury, who need not accept his bank to pay the draft, or has reason
statement of his intent in making the to believe, from an existing contract
deposit, but the establishment of the or from previous dealings with the
account and the subsequent deposit of bank, that the draft will be paid, and
the check creating an opportunity to does not within '34 hours after notice
defraud the bank justify a finding of of nonpayment of such draft, make
full restitution by returning the con-
an intent to defraud. People v. Wal-
ker, 15 Cal. Cr. App. 400, 114 Pac. 1009. sideration, evidence clearly establish-
ing that the draft was presented for
2. —
Repeal of statute. Drew v. Com-
payment at the place named therein,
monwealth (Pa.), 1 Whart. 379, con-
that the drawee could not be found
struing a statute of Penn.
there, that the draft was not paid, that
3. Admissibility of evidence. Peo- — notice of its nonpayment was given to
ple V. Walker, 15 Cal. Cr. App. 400, 114 accused personally, and that it has
Pac. 1009. never been paid, is sufficient, as to pre-
4. People V. Walker, 15 Cal. Cr. sentment and notice of nonpayment,
App. 400, 114 Pac. 1009. to sustain a conviction. Ryan v. State,
60 Fla. 25, 53 So. 448.
CHAPTER II.
II. Banking Corporations and Associations.

A. Incorporation, Organization and Incidents of Existence.
§ 22. Nature and Formation in General.

§ 23. Incorporation.
§ 23 (1) Power to Incorporate.
§ 23 (2) Conditional Incorporation — Conditions Precedent and Beginning
of Corporate Existence. '
§ 23 (3) Results of Incorporation.

§ 23 (3a) As to Liabilities, Privileges and Powers.
§ 23 (3b) Charter as Contract, and Amendment or Repeal.
§ 23 (3c) Sale of Franchise and Effect.
§ 23 (3d) Notice of Charter.
§ 23 (4) Amendment.
§ 24. Partnerships and Joint-Stock Companies.
§ 25. Special Charters or Acts.
§ 25 (1) Power to Grant.
§ 25 (3) Operation and Effect.

§ 25 (3) Amendment, Renewal and Repeal.
§ 26. General Laws.
§ 27. Defective Incorporation or Organization.
§ 28. Evidence of Existence.
§ 28 (1) In General.
§ 28 (la) Presumptions and Burden of Proof.
§ 28 (lb) Judicial Notice.
§ 38 (Ic) As Question for Jury.
§ 28 (Id) Of National Banks.
§ 38 (3) Charter or Certificate.
§ 38 (3) Parol Evidence.
§ 38 (4) User and Repute.
§ 29. Term of Existence.
§ 30. Extension, Renewal or Transfer of Franchise.
§ 30 (1) Extension or Renewal.
§ 30 (3) Assignment and Transfer of Rights, Franchises, etc.
§ 31. Name.
§ 31 (1) Statutory Requirements.
§ 31 (2) Change of Name.
§ 32. Location and Place of Business.
§ 33. Branches.
§ 33 (1) Distinct Corporate Existence and Authority.
§ 33 (2) Creation.
§ 33 (3) Powers.
§ 33 (4) Actions.
§ 34. Constitution, Charter and By-Laws.
§ 34 (2) Charter as Notice.
§ 34 (3) By-Laws.
§ Siyz. Repeal or Amendment,
§ 22 BANKING CORPORATIONS AND ASSOCIATIONS. 45
II.BANKING CORPORATIONS AND ASSOCIATIONS.!

A. INCORPORATION, ORGANIZATION AND INCIDENTS OP EX-
ISTENCE.
§ 22. Nature and Formation in General. —An individual carrying
on the banking business is not a corporation, ^ or a quasi corporation.^
—
Classes of Banks. There are two classes of banks in the states, viz,
state banks and national banking associations.*
—
Purpose of Creation. Banks are created primarily for the public in-
terest.
—
Duties and Liabilities of Promoters. Both in England and in the
United States, promoters of corporations or other enterprises have been
held to occupy a fiduciary relation towards one another, and towards the
company or corporation whose organization they seek to promote. The
principle of law necessarily resulting
from the doctrine is that the promoters
must act in good faith with one another, and with the corporation, and such
special advantages or profits as they reserve to themselves must not be se-
cret. In other words, they will not be permitted to assert, either expressly
or by necessary implication, that they are forming a corporation upon terms
which give them no special profit or advantage, while, in fact they are in-
tending to reap benefit of which their fellow promoters or subsequent sub-
scribers have no notice."
1. Loan, trust and investment com- banks organized undei the laws of
panies, see post, "Loan, Trust and In- this and banking associations
state,
vestment Companies," §§ 310-317; created under the laws of the United
National banks, see post, "National States, which are private associations
Banks," §§ 232-288. Savings banks, see authorized by congress for the joint
post, "Savings Banks," §§ 289-309. purposes of convenience and proiit to
2. The business of banking by an the holders of United States bonds,
individual is his personal and in- and of furnishing the public with a
dividual affair, and suits in relation convenient and uniform circulating
thereto are rightly prosecuted in his in- medium." Linton v. Childs, 105 Ga.
dividual name. Cuyler v. Sandford (N. 567, 32 S. E. 617.
Y.), 8 Barb. 225; Codd v. Rathbone, As to definitions, see ante, "Right
19 N. Y. 37; Hallett v. Harrower (N. of Banking in General," § 1.
Y.), 33 Barb. 537. 5. Purpose of creation of banks. —
An unincorporated bank, exclusively "However repugnant may
be to the
it
owned by a private individual, is not notions or to the practices of some
a legal entity, even though its busi- bankers, banks are created primarily
ness be conducted by a president and for the public interest. Their bills are
cashier. Longfellow v. Barnard, 58 the medium of circulation; their drafts
Neb. 612, 76 Am. St. Rep. 117, 79 N. the medium of exchange; their vaults
W. 255, affirmed on rehearing in 59 are places of deposit; and every man
Neb. 455, 81 N. W. 307. who has occasion to use either and —
3. Not a quasi corporation. A pri-— —
who has not? as well as the state, the
vate bank carried on by an individual proper guardian of the public interests,
is not a quasi corporation under the is legitimately concerned in the main-
banking law. In re Purl's Estate, 147 tenance, in their integrity and strict-
Mo. App. 105, 125 S. W. 849. ness, of all the restraints which the
4. —
Classes of banks State and na-
— wisdom of the legislature has devised
tional. "Judicial cognizance will be for individual and public security."
taken of the fact that there are two State V. Seneca County Bank. 5 O.
classes of banks which are located, St. 171.
operated, and doing business in the 6. Duties and liabilities of promo-
state, which have presidents; to wit. ters. — Shav^nee, etc., Sav. Bank Co. v.
§ 23. Incorporation^ —§ 23 (1) Power to Incorporate. —Con-

gress has power to incorporate a bank,* as a necessary and proper instru-
ment for carrying on the fiscal operations of government. ^ A state may, of
course, charter banks, and the attempt to make the notes of a bank so char-
tered a tender, while ineffectual, does not affect the validity of the incor-
poration,!" unless forbidden by a provision of the constitution, as in
Texas,^^ and in Oregon as to banks of issue.^^ Sometimes it is forbidden
Miller, 24 O. C. C. 198, 14-24 O. C. D. created expressly for the benefit of

198. the state, which had the exclusive
7. Of national banks. —
See post, management of it, and agreed to sup-
"Organization and Corporate Exist- port it. Furman v. Nichol (U. S.), 8
ence," § 236. Wall._ 44, 19 L. Ed. 370.
Power of congress. :McCulloch
8. — —
Ohio. Prior to the declaration of
V. Maryland, 4 Wheat. 316, 4 L. Ed. war in 1812, there were in operation
579; Osborn v. Bank, 9 Wheat. 738, 6 in the state of Ohio only six banks in-
L. Ed. 204; Bank v. Bank, 10 Wheat. corporated as such. Bonsa,! v. State,
333, 347, 6 L. Ed. 334; Minor v. Me- 11 O. 72.
chanics' Bank, 1 Pet. 44, 7 L. Ed. 47; From that time to the adoption of
Casey v. Galli, 94 U. S. 673, 24 L. Ed. the constitution of 1851, banks were
168; Huntington v. Savings Bank, 96 incorporated by and under laws es-
U. S. 388, 24 L. Ed. 777; Legal Tender pecially applicable to such institittions.
Cases, 110 U. S. 421, 445, 28 L. Ed. 204, See Act February 23, 1816, incorporat-
4 S. Ct. 122; Easton w. Iowa, 188 U. ing many banks by name; Act Feb-
S. 220, 47 L. Ed. 452. ruary 24, 1845, incorporating the State
Bank of the United States.— The act Bank of Ohio; Act March 21, 1851, au-
of the 10th of April, 1816, c. 44, to thorizing free banking. The constitu-
"incorporate the subscribers to the tion of 1851, however, placed the in-
Bank of the United States," is a law corporation of banks upon the same
made in pursuance of the constitution. ground with the incorporation of
McCulloch V. Maryland, 4 Wheat. 316, other corporations, with the exception
4 X.. Ed. 579. of banks of issue and circtilation.
9. Osborn v. Bank, 9 Wheat. 738, 6 Const. 1851, art. 13. See, as discussing
L. Ed. 204. these various statutory and constitu-
10. Power —
Briscoe v. Bank,
of state. tional provisions. State v. Chase, 5 O.
St. 528; Citizens' Bank v. Wright, 6 O.
11 Pet. 257, Ed. 709; Nathan v.
9 L.
Louisiana, 8 How. 73, 81, 12 L. Ed. St. 318. See, also, Ridenour v. Mayo,
992; Woodruff v. Trapnall (U. S.), 10 29 O. St. 138; Franklin Bank v. Com-
How. 190, 13 L. Ed. 383. See Ohio mercial Bank, 36 O. St. 350.
Life Ins., etc., Co. v. Debolt (U. S.), —
Tennessee. Bell v. Bank, 7 Tenn.
16 How. 416, 14 L. Ed. 997; Veazie (1 Peck) 269.
Bank v. Fenno (U. S.), 8 Wall. 533, 19 11. Constitutional
prohibition. —
L. Ed. 482, per Nelson, J., dissenting; Texas. — Section 16, art. 16, of
the con-
Lampton v. Commercial ]3ank (Ky.), stitution of Texas. 1876 (Art. VII, §30
2 Litt. 300; Briscoe v. Bank (Ky.), 7 of Const, of 1866), provides that "no
J. J. Marsh, 349; Bank v. Swindler corporate body shall hereafter be
(Ky.), 2 Dona 393; Craighead v. State created, renewed or extended with
Bank, 19 Tenn. (1 Meigs) 199; Bell v. banking or discounting privileges."
Bank, 7 Tenn. (1 Peck) 269. Anderson v. Cleburne Bldg., etc.,
A state, in granting privileges to a Assn.. 4 Apo. Civ. Cases, § 174, 16 S.
bank, with a view of affording a W. 298; Mills -'. State. 23 Tex. 295.
sound currency, or of advancing any But this section was not intended
policy connected with the public in- to prohibit foreign banking corpora-
terest, exercises its sovereignty, for tions from enforcing their legal rights
a public purpose, of which it is the ex- in the courts of this state. Freeman
clusive judge. State Bank v. Knoop V. Bank, 3 App. Civ. Cases, § 338.
(U. S.), 16 How. 369, 14 L. Ed. 977. 12. Oregon. — Const., art. 2, § 1;
Employment of trust funds in state "The legislative assemply shall not
—
bank. It is difficult to see how the have the power to establish or incor-
employment of trust funds by a state porate any bank or banking company
in a state bank made the bank any or moneyed institution whatever; nor
less a state institution, for it was shall any bank," etc., with the privi-
§ 23 (1) BANKING CORPORATIONS AND ASSOCIATIONS. 47
unless authorized by a vote of the people, but "banking powers" under such
prohibitions has usually been held tomean only the power to issue notes to
circulate as money.^^ meant more, a mere remedial amendment would
If it
not come within its scope.^* And if there is any other requirement of the
fundamental law, it must be complied with.^^ But the power is a legisla-
tive one,!'^ and may be exhausted by exercise.
i'''
lege of circulating any paper as money March, 1837, entitled "An act to or-
— held not to constitute two independ- ganize and regulate banking associa-
ent propositions. Not the incorpora- tions," and on the 30th of December,
tion of banks, but the issuance of pa- 1837, an act to amend the former act.
per to circulate as money, is pro- By the first, any persons were allowed
hibited. State V. Hibernian Sav., etc., to form associations for the purposes
Ass'n, 8 Or. 396. of banking upon the terms specified
13. Necessity for authorization by jn the law; and by the second, the
—
popular vote. In Const. 1848, art. 10, stockholders were made liable, in their
§ 5, the words "with banking powers" individual character, under certain cir-
mean power to issue notes to circu- cumstances, for the debts of the as-
late as money. It was not intended sociation. The associations formed
to prohibit the conferring of some of under these acts are corporations
the other banking powers upon cor- within the meaning of the constitu-
porations without a vote of the peo- tion of Michigan, and the acts are un-
ple. People V. Loewenthal, 93 111. 191. constitutional and void, for § 2, art. 12,
Const., art. 8, § 5, requiring all acts forbids the legislature "passing any
and amendments thereto, authorizing act of incorporation unless with the
and creating corporations with bank- assent of at least two-thirds of each
ing powers, to be first submitted to a house,'' and the judgment of the legis-
vote of the people, relates only to lature is required to be exercised upon
banks of issue, and not to those or- the propriety of creating each par-
ganized under the general incorpora- ticular corporation, and two-thirds of
tion act (Code, c. 1, tit. 9), of which each house must sanction and ap-
Acts ISth Gen. Assem., c. 308, fixing prove each individual charter. Ne-
the liability of stockholders, is an smith V. Sheldon, 7 How. 813, 13 L.
amendment. State v. Union Stock Ed. 935.
Yards, etc., Bank, 103 Iowa 549, 73 16. A legislative power.— "All bank-
N. W. 1076, 70 N. W. 753. ing corporations in America are the
—
Kansas. Pape v. Capitol Bank, 30 creatures of legislative will, and no
Kan. 440, 37 Am. Rep. 183. power to create such corporations be-
Ohio. —Dearborn v. Northwestern longs to either of the other depart-
Sav. Bank, 43 O. St. 617, 51 Am. Re«). ments of the state government." Me-
851; Bates v. People's Sav., etc., chanics' Bank v. Heard, 37 Ga. 401.
Ass'n, 42 O. St. 055. The issuing of a proclamation by
14. Mere remedial amendment. — the governor, pursuant to the eleventh
Smith V. Bryan, 34 111. 364, construing section of the Ohio banking law of
an 111. statute facilitating the remedy 1845, setting forth that a company or-
of a creditor of a bank against its ganized as a branch of the state bank
stockholders; Reapers' Bank v. Wil- was authorized to commence and carry
lard. 24 111. 433, 76 Am. Dec. 755, con- on the business of banking, was not
struing 111, statute, amending banking one of the duties enjoined by the con-
law .<!o as not to require separate pre- stitution on the governor and resting
sentation of everv note or bill. in the suoreme executive discretion,
15. Other requirements. —
Alabama. — but a ininisterial act required by stat-
"An incorporated bank, in Alabama, ute, which, upon his being satisfied of
is not only the mere creature of the the existence of certain facts, the gov-
law creating it, as banks are in other ernor, upon neglect or refusal, might
states; but it is the creature of a have been compelled, bv a writ of
peculiar fundamental law; and if its mandamus, to perform, had the statu-
charter is not in conformity to the torv authoritv continued in force.
provisions of the fundamental law, it Whiteman v. Chase, 5 O. St. 528.
is void." Bsnk v. Earle (U. S.), 13 General laws in respect to incorpo-
Pet. 519, 10 L. Ed. 374. "General Laws," § 36.
ration, see post,
—
Michigan. The legislature of Michi- 17. Exhaustion by exercise. The —
gan passed an act on the 15th of fourth section of the Ohio banking
Authority Strictly Construed. — It is the settled rule of construction

that statutes conferring special privileges in derogation of common right
are to be strictly construed, and authority to create new corporations can
not be derived from mere implication.^®
Territorial Limitation. —
But the power does not extend to chartering
.abank to operate in another state.^^
Fraudulent Conduct of Majority of Commissioners. A legislature —
appointed nine commissioners, who, or any three of them, were authorized
to organize a bank. A majority of the whole number corruptly agreed to
transfer the franchise to a citizen of another state. It was held, that in
such case three other of the commissioners had 'valid authority to proceed
with the organization, and that letters patent issued in pursuance of such
'Organization were valid. 2*'
§ 23 (2) Conditional Incorporation Conditions Precedent and —

—
Beginning of Corporate Existence. In a constitutional provision that
the general assembly shall not have power to establish or incorporate any
bank or banking company for the purpose of issuing bills of credit except
•on conditions prescribed in the constitution, the conditions spoken of re-
lated exclusively to the, subject of banking.21
Conditions Precedent. —A charter requirement that the capital stock
be a certain amount is not a condition precedent to the operation of a bank. 22
So where the amount of capital stock is not stated as contemplated by the
gut where conditions precedent are prescribed, they must be
.statute. 23
law of 1845 provided that the number 21. Conditional incorporation. —

-ofbanking companies to be formed in Wright v. Defrees, 8 Ind. 298, con-
a certain county should not exceed struing art. 11, § 1 of Indiana consti-
four. That number of companies was tution.
formed, and some of them subse- Subscription of -^
prescribed capi-
quently ceased to do busmess. Held . , . o^tf
, ., r*^ r
^^^ stock.-The provision in he act of
that, under the statute, as four com-
panics had been chartered, no new congress incorporating the Me-
'^l^^".'" Alexandria which
compaiiies could take the places of the
r ijri,v nu ^ /-vi,-„ requires, ?f"J'.°*
that the capital stock of the
former. Whiteman v. Chase, 5 Ohio
^^^^ ^j^;,; ^^^^^^^ of 50,000 shares, ot
t^" each is not a condition
^^llars
18. Authority strictly construed.-
Precedent: and the bank wen legally
Whiteman v. Chase, 5 O. St, 528, con-
At of£ 'uto opcratioH, with an actual capital
I
struing \u
the
holding the power
rw,-
Ohio Act
incorporation
of
io^r
1845, A
and ,
^
Mechanics'
^ j^V
'
^^
Bank, 1
^ ^
Pet. 44, 7 L.
thereundertohave been exhausted. j,^ ^^ gee. Scott v. Deweese,
also,
19. Territorial limitation.— The state jgl U. S. 202, 45 L. Ed. 822; Aspin-
of Maryland has no right to charter ^^11 v. Butler, 133 U. S. 595, 608, 33
a bank, with power to establish bank- ^ Ed 779 10 S Ct 417
ing companies in Virginia; and such
Corporate stock or capital of sav-
company assuming to act must be held ;„ " u„-i, c \ <<Ot 1, j 1 •>
P°'*' Stockholders,
1
unchartered, within the contemplation

s"/43.4f^-~^"
^^
of the act against banking companies '. '
not deriving a charter from the state. O"increase of stock.— See post, "In-
Atterberry v. Knox (Ky.), 4 B. crease of Capital Stock," § 241 (2).
Mon. 90. 23. Statement of amount of capital
Fraudulent conduct of maiority
20. —
stock. The certificate of incorpora-
of commissioners. —
Commonwealth v. tion of a bank, filed in 1860, omitted
McKean County Bank, 33 Pa. 185. to state the amount of capital stock.
§ 23 (3a) BANKING CORPORATIONS AND ASSOCIATIONS. 49
fumiled.24
Deposit of Securities. —Where the statute forbade the transaction of
banking business until the required deposit of securities was made, all that
could be done by the company, before such deposit, was to organize, deposit
stocks as required by the act, and make needful preparations for the busi-
ness contemplated by the law of its creation. ^^
Beginning of Corporate Existence. ê —Where a bank charter is re-

ceived, and takes day of a certain month, the corporation
effect on the first
may legally act under the charter on that day; and a legal transfer of
shares in the bank may be made on the first day of the same month of the
next year.^''' And a bank created by an act of legislature, providing that a
certain number of directors shall be elected by the legislature, and giving
them all the powers of a banking corporation, although the directors are
not named and the institution is not expressly called so, is a corporation.^^
Where the incorporation statute provides that upon making the certificate
specified and having it recorded the incorporation shall be effectual, from
that time there is a body corporate,^^ but until this is done there is no legal
corporate existence.^"
§ 23 (3) Results of Incorporation —§ 23 (3a) As to Liabil-

ities, Privileges and Powers. —Where a corporation is formed to suc-
Held, that although the Act of April stance that may be looked to in ar-
14, 1853, did not seem to authorize the riving at the good faith of the par-
incorporation of a company without a ties, and in determining the true na-
capital stock consisting of a specified ture of the transaction as to whether
number of shares, yet that under the it were a transfer of stock so as to
amendatory and supplemental Acts of carry succession to the purchasers, or
March 4 and March 24, 1870, and the a mere sale of the charter, it is by no
curative Act of April 1, 1864, there means conclusive. The issuance of
could be no doubt as to the validity certificates of stock is nonessential,
of the incorporation of the bank. Peo- either to the validity of the original
ple V. Perrin, 56 Cal. 345. organization or to the transfer of
24. Conditions precedent must be some to purchasers. The subscrip-
fulfilled. — An
association of persons tion to and payment for stock is all
can not claim a corporate existence that is necessary."
under the free banking act, unless 26. Incomplete organization and in-
they shall have fulfilled the conditions effective choice of directors. See post, —
precedent prescribed by that act. "Election or Appointment, Qualifica-
Workingmen's Accorrimodation Bank tion, and Tenure," § 51.
V. Converse, 29 La. Ann. 369. Transaction of business by incom-
25. Deposit of securities. Medill v. — plete organization as unauthorized
Collier, 16 O. St. 599, construing § 44 banking, see ante, "In General," § 8.
of the Act of 1851 to authorize free 27. Beginning of corporate exist-
banking. Section 44 was repealed by ence. — Agricultural Bank v. Burr, 24
the act of April 1879 (76 O. L. 74).
24, Me. 256.
See, also, ante, "Effect of Failure to 28. Corporation results although not
Deposit," § 15 (4). so called. —
Mahony v. Bank, 4 Ark.
What constitutes sufficient organi- 620.
—
zation Issue of certificates. State v. — 29. Making and recordation of cer-
Butler, 86 Tenn. (2 Pickle) 614, 8 S. W. tificate.— Raff erty V. Bank, 33 N. J. L.
586, citing National Bank v. Watson- 368; Palmer v. Lawrence, 5 N. Y.
town Bank, 105 U. S. 217, 26 L. Ed. Super. Ct. 161.
1039; Cook on Stock and Stockhold- 30. Burrows v. Smith, 10 N. Y. 550;
ers, § 10, and cases there cited, and Valk V. Crandall (N. Y.), 1 Sandf. Ch.
saying: "While this is a circum- 179.
B & B—
50 BANKS AND BANKING. § 23 (3b)
ceed to an unincorporated banking association, as between them the former

succeeds to all the assets, rights and liabilities of the latter.î A state act of
incorporation conferred on a bank a corporate character, but could give that
corporate body no peculiar privileges in the courts of the United States, not
belonging to it as a corporation. Those privileges do not exist, unless con-
ferred by an act of congress. ^^
§ 23 (3ta) Charter as Contract, and Amendment or Repeal. —

bank charter is a legislative contract.^s It is a contract between the stock-
31. Liabilities of association incor- Bank v. Knoop (U. S.), 16 How. 369,
porated unimpaired. Where an un- — 14 L. Ed. 9Y7; Planters' Bank v. Sharp^
incorporated banking association was 6 How. 301, 13 L. Ed. 447; Woodruff
succeeded by a corporation organized V. Trapnall (U. S.), 10 How. 190, 13 L.
to take its good
assets and assume its Ed. 383; Curran v. Arkansas, 15 How.
liabilities, directorates being par-
the 304, 310, 14 L. Ed. 705; Ohio Life Ins.,
tially if not wholly identical, as be- etc., Co. V. Debolt (U. S.), 16 How.
tween the old bank and the new, the 416, 14 L. Ed. 997; Furman v. Nichol
new bank is to be treated in all re- (U. S.), 8 Wall. 44, 19 L. Ed. 370;
spects as the successor of the old, South Carolina v. Gaillard, 101 U. S.
taking the assets that were turned 433, 35 L. Ed. 937; Deposit Bank v.
over as they stood, and assuming the Frankfort, 191 U. S. 499, 513, 48 L.
liabilities. All the knowledge of the Ed. 276.
old bank as to the rights of the par- "A bank, in which stock is held by
ties to the securities transferred is individuals, is a private corporation,
chargeable in law on the new. Lanier and its charter is a legislative con-
V. Nash, 121 U: S. 404, 30 L. Ed. 947, tract, which can not be changed with-
7 S. Ct. 919. out its consent." Jefferson Branch
32. State incorporation confers no Bank v. Skelly, 1 Black 436, 449, 17 L.
privileges in federal courts. The act — Ed. 173; Ohio Life Ins., etc., Co. v.
incorporating the bank professes to Debolt (U. S.), 16 How. 416, 14 L.
regulate, and could regulate, only Ed. 997; State Bank v.Knoop (U. S.),
those courts which were established 16 How. 369, 14 L. Ed. 977.
under the authority of Virginia. It "If it be provided in the charter of
could not affect the judicial proceed- a bank that the and notes of the
bills
ings of a court of the United States, institution shall be received in pay-
or of any other state, or exempt the ment of taxes or of debts due to the
bank from appeals against it there. state, such undertaking on the part of
Young V. Bank, 4 Cranch 384, 397, 3 the state constitutes a contract be-
L. Ed. 655. tween the state and holders of the
"There is a difference between those notes, which the state is not at liberty
rights on which the validity of the to break, although notes issued after
transactions of the corporation de- the repeal of the act are not within
pends, which must adhere to those the contract, and may be refused."
transactions everywhere, and those Pearsall v. Great Northern R. Co., 161
peculiar remedies which may be be- U. S. 646, 663, 40 L. Ed. 838; Wood-
stowed on it. The first are of general ruff V. Trapnall (U. S.), 10 How. 190,
obligation; the last, from their nature, 13 L. Ed. 383; Paup v. Drew (U. S.),
can only be exercised in those courts 10 How. 217, 218, 13 L. Ed. 394; Furman
which the power making the grant can V. Nichol (U. S.), 8 Wall. 44, 19 L.
regulate." Young v. Bank, 4 Cranch Ed. 370; Keith v. Clark, 97 U. S. 454,
384, 3 L. Ed. 655. 34 L. Ed. 1071; Antoni v. Greenhow,
Charter powers construed, see post, 107 U. S. 769, 37 L. Ed. 468, 27 S. Ct.
"Construction of Charters and Bank- 91; Poindexter v. Greenhow, 114 U.
ing Laws," § 87. S. 270. 29
L. Ed. 185. See, also, post,
Ohio. The— Act of 1838, to au- "General Laws," § 36.
thorize free banking, placed associa- As to special charters or acts, see
tions formed thereunder very much post,' "Amendment, Renewal and Ap-
upon the footing of natural persons. peal," § 25 (3).
Niagara County Bank v. Baker, 15 O. As to repeal or amendment when
St. 68. power therefor is reserved, see post,
33. Legislative contract. — State "Repeal or Amendment," § 34^^.
§ 23 (3b) BANKING CORPORATIONS AND ASSOCIATIONS. 51
holders and the state,^* and is strictly construed against the former.^'^ Thus,
a charter provisionmaking the bills or notes of a bank receivable for taxes
or other claims of the state, was a contract. ^^ But an act which merely
provides a new remedy forms no part of the charter of an existing bank to
Between stockholders and state.

34. Union Bank, 33 Tenn. (1 Sneed) 115,
— Nashville
Bank v. Ragsdale (Tenn.), citing Dartmouth College v. Wood-
Peck 296; Union Bank v. State, 17 ward; 4 Wheat. 518, 4 L. Ed. 629;
Tenn. (9 Yerg.) 490. Union Bank v. State, 17 Tenn. (9
35. Between the stockholders and Yerg.) 490. See, also, Furman v.
the state — Construction. —The charter Nichol (U. Wall. 44, 19 L. Ed.
S.), 8
of a bank is a contract between its 370; Woodruff v. Trapnall (U. S.), 10
stockholders and the state, which will How. 190, 13 L. Ed. 383.
be construed strictly against the Special charter or act. See post, —
former, and liberally in favor of the "Amendment, Renewal and Repeal,"
latter, and no privileges or powers will § 25 (3).
be implied. Bank v. Commonwealth, 19 36.Receivability of notes for taxes.
Pa. St. 144. —The provision in § 12 of the charter
Georgia. —
Bank charters are held to of 1838 of the Bank of Tennessee,
be contracts and are to be interpreted "that the bills or notes of said cor-
as such. Adkins v. Thornton, 19 Ga. poration, originally made payable, or
325; Mechanics' Bank v. Heard, 37 which shall have become payable on
Ga. 401, 411. demand, in gold or silver coin, shall
Hence the act creating a bank as a be receivable at the treasury of the
corporation can not be modified or re- state, and by all tax collectors and
pealed by the legislature without the other public officers, in
. all payments
free assent of the corporators, and for taxes or other moneys due to the
then only when such alteration or re- state," made a contract on the part
peal does not affect the rights of its of the state with all persons, that the
creditors. It may be safely asserted state would receive for all payments
that the legislature, its creator, has no for taxes or other moneys due to it,
power of its will merely to dissolve it. all bills of the bank lawfully issued,
As long as it performs its engagement while the section remained in force.
by the act creating it, it has a corpo- The guaranty was not a personal one,
rate existence within the limit of time extending only to the benefit of the
fixed by the act which can not be first holder, but attached to the note
shortened. Mechanics' Bank v. Heard, so issued; as much as if written on
37 Ga. 401, 411. the back of it. It went with the note
South Carolina —
South Carolina v. everywhere, as long as it lasted, and
Gaillard, 101 U. S. 433, 25 L. Ed. 937. although after the note was issued, § 12
—
Tennessee. A charter of a corpora- were repealed. Furman v. Nichol
tion, is, after acceptance by the person (U. S.), 8 Wall. 44, 19 L. Ed. 370. See,
incorporated, an inviolable contract also, Woodruff v. Trapnall (U. S.), 10
between the corporation as it is; also, How. 190, 13 L. Ed. 383.
between the corporation and the stock- Section 603 of the Tennessee Code
holders. Neither can disregard its of 1858, which enacted that besides
obligations, or alter its essential fran- federal money, controllers' warrants,
chises, without the unanimous consent and wildcat certificates, the collector
of the stockholders. Woodfork v. should receive "such bank notes as are
Union Bank, 43 Tenn. (3 Coldw.) 488. current and passing at par," did not
A legislative grant of the ordinary amount to a repeal of the above
franchises for banking is not a partial quoted 12th section; the words of the
law, in the sense of the constitution. code having no words of negation, the
It is in the nature of a contract, rather two enactments being capable of
than a "law of the land," as that term standing together, and implied repeals
is understood to be used in the con- not being to be favored. Furman v.
stitution. It has never, therefore, been Nichol (U. S.), 8 Wall. 44, 19 L. Ed.
considered that laws containing these 370.
exclusive grants of the privilege of This decision did not apply to issues
banking are repugnant to the constitu- of the bank while under the control of
tion, as not being "laws pi the land" the insurgents. Furman v. Nichol (U.
of general application. Hazen v. S.), 8 Wall. 44, 19 L. Ed. 370.
52 BANKS AND BANKING. § 23 (3d)
which it applies.^'^ It is a franchise,*^ which can not be changed without its
assent, unless such power is expressly reserved, or repealed so as to af-

fect contract rights.*^
§ 23 (3c) Sale of Franchise and Efifect.— See note 40.
§ 23 (3d) Notice of Charter. —A party dealing with a bank will be
act no part of
—SouthRemedial
37.
Carolina. —The 'act
charter.
of the
other provisions essentially connected
with the franchise, and necessary to
general assembly of South Carolina, the business of the bank, can not,
passed June 9, 1877, entitled "An act without its consent, become a sub-
to provide the mode of proving bills State Bank
ject for legislative action.
of the bank of the state tendered for V. Knoop 16 How. 369, 14 L.
(U. S.),
taxes, and the rules of evidence ap- Ed. 977; Ohio Life Ins., etc., Co. v.
plicable thereto," created no new con- Debolt (U. S.), 16 How. 416, 429, 14
tract between the state and the tax- L. Ed. 997.
payer or billholder, but merely pro- —
Repeal of charter. Where a bank-
vided a new remedy which formed no ing corporation had no other stock-
part of the contract created by the holder than the state, it is not doubted
charter of the bank, and after its re- that the state might repeal its charter;
peal could not be availed of. South but that the effect of such a repeal
Carolina -v. Gaillard, 101 U. S. 433, 25 would be entirely to destroy the ex-
L. Ed. 937. ecutory contracts of the corporation,
38. Franchise. State — Bank v. and to withdraw its property from the
just claims of its creditors, can not be
Knoop (U. S.), 16 How. 369, 14 L.
Ed. 977; Gordon v. Appeal Tax Court admitted. If such were the effect of
(U. S.), 3 How. 133, 11 L. Ed. 529; a repeal of an act incorporating a
Jefferson Branch Bank v. Skelly, 1 bank containing no express power of
Black 436, 17 L. Ed. 173. repeal, it might be difficult to en-
39. Inviolability. State —Bank v. counter the objection, that the repeal-
ing law was invalid, as conflicting with
Knoop (U. S.), 16 How. 369, 3 4 L. Ed. the constitution of the United States.
977; Curran v. Arkansas (U. S.), 15 This argument was pressed on this
How. 304, 310, 14 L. Ed. 705; Ohio court, in the case of Mumma v. Po-
Life Ins., etc., Co. v. Debolt (U. S.), tomac Co., 8 Pet. Ed. 945,
281, 8 L.
16 How. 416, 14 L. Ed. 997; Deposit and it was met by the following ex-
Bank v. Frankfort, 191 U. S. 499, 513, plicit language: "We are of opinion,
48 L. Ed. 276. that the dissolution of the corpora-
A municipal corporation, in which is tion, under the acts of Virginia and
vested some portion of the adminis- Maryland, can not in any just sense
tration of the government, may t>e be considered, within the clause of the
changed at the will of the legislature. constitution of the United States on
But a bank, where the stock is owned this subject as impairing of the obli-
by individuals, is a private corpora- gation of tlic contracts of the company
tion. Its charter is a legislative con- by those states, any more than the
tract, and can not be changed without death of a private person can be said
its assent. The preceding cases upon to impair the obligation of his con-
this subject, examined, and the case tracts. The obligation of those con-
of the Providence Bank v. Billings, 4 tracts survives; and the creditors may
Pet. 514, 7 L. Ed. 939, explained. State enforce their claims against any prop-
Bank v. Knoop (U. S.), 16 How. 369, erty belonging to the corporation,
14 L. Ed. 977. which has not passed into the hands of
Every valuable privilege given by a bona fide purchasers, but is still held
bank charter, and which conducted to in trust for the company, or for the
an acceptance of it and an organiza- stockholders thereof, at the time of
tion under it, is a contract which can its dissolution, in any mode permitted
not be changed by the legislature, by the local laws." Curran v. Arkan-

where the power to do so is not re- sas, 15 How. 304, 310, 14 L. Ed. 705.
served in the charter. The rate of dis- 40. Sale of franchise. See post, —
count, the duration of the charter, the "Assignment and Transfer of Rights,
specific tax agreed to be paid, and Franchises, etc.," § 30 (2).
bound by the charter of a bank, whose provisions are in conflict with the
usual rules of commercial law.*^
§ 23 (4) Amendment. —Where a constitutional provision requires

amendments to acts authorizing banking corporations to be submitted to
popular vote, this must be complied with.*^ /
§ 24. Partnerships and Joint-Stock Companies.*^ Joint-stock —

banking associations are not corporations, but special partnerships with
Under a statute which provides for the filing
certain corporate attributes.**
with the comptroller, by each and every individual banker, of a certificate
signed by every person interested with him, stating that such person is in-
terested with such banker in the circulating notes obtained or to be obtained
by him, and in the benefits of circulating the same, a party signing such cer-
tificate makes himself liable as a general partner with the individual
banker.* 5 And a banking partnership is within a prohibition against the

use of fictitious names in partnerships.*®
—
Power to Form Partnership. A bank can not enter into a contract of
partnership in the absence of express authority of law therefor, and par-
ticularly not when there is a constitutional prohibition of such action.*^
§ 25. Special Charters or Acts^§ 25 (1) Power to Grant. — In

41. Notice of charter. — Merchants' . 44. —
Not corporations. Curtis v.
Bank v. Central Bank, 1 Ga. 418, 44 Leavitt (N. Y.), 17 Barb. 309.
Am. Dec. 665.
42. Amendment. —
The Act of March
45. Liability of partners. —
Juliand v.
Watson, 43 N. Y. 571, construing N.
29, 1869, incorporating the "Kendall Y. Act of 1854, c. 343, § 6.
County Banking Company," provided Alabama statute. —There can be no
that it should "be located in the county limited partnership for the purpose of
of Kendall," in that state, and that the banking or making insurance, and an
limit of increase to the capital stock association formed in 1838, for the
should be $150,000. The stockholders purpose of issuing bills to circulate as
met June 1, 1872, and, under the Act money, was not prohibited by the
of March 26, 1873, relating to the statute from doing the act. The only
changing of names, locations, and consequence resulting from the act is
stock of corporations, etc., changed to make all the partners alike respon-
the name to "National Savings Bank," sible. McGehee v. Powell, 8 Ala. 837.
the location from Kendall county to 46. Under prohibition against use
Cook county, and increased the capi- of fictitious names. —
Cobble v. Farm-
tal stock to $200,000. Held ultra vires, ers' Bank, 63 O. St. 528, 59 N. E. 221.
under Const. 1870,
ing that
art. 11,
amendments
§ 5,
to
provid-
acts au-
47. Power to form partnership. —
all bank organized under the laws of the
thorizing banking corporations shall state is not only without capacity to
be submitted to the vote of the people, enter into a contract of partnership
etc. Hunt v. National Sav. Bank (111.), with individuals for the building of
11 N. E. 170, affirmed on rehearing in levees, but is prohibited from so do-
129 111. 618, 23 N. E. 388. ing by Const., art. 265, and can not
43. As to whether banks or no, see invoke the aid of a court to enforce a
ante, "What Are Banks," § 2. contract prohibited by the constitu-
Under statutes requiring reports, see tion, to which it never was and never
ante, "Duty to Make and Effect of could have been in legal contempla-
Failure," § 16 (1). tion a party. Interstate Trust, etc.,
Effect as giving an interest in prop- Co. V. Reynolds, 127 La. 193, 53 So.
erty of partnership, see post, "In Gen- 530.
eral," § 94.
the absence of constitutional prohibitions a state legislature may grant a

special banking charter,* ^ or a territorial government may do so.*®
—
Constitutional Prohibition. But such grants are now usually forbid-
den by the organic law.^*' A statute which remedies defects in the organ-
ization of a banking corporation already created is not a violation of a
constitutional provision, prohibiting the granting of special charters for
banking purposes,^! unless disabled by contract from so doing.^^
§ 25 —
(2) Operation and Effect. The operation and effect depends,
of course, upon the terms of the special act.^^
§ 25 (3) Amendment, Renewal and feepeal.^* —Power. —Unless

the right of repeal or amendment be reserved, such banking franchise is an
by the unanimous consent of the stockholders, ^^
irrepealable contract, except
but if extended it comes under the operation of a general reservation of the
power to amend or repeal in an existing statute. ^^
In absence of constitutional pro-

48. city 1813, c. 123, and Acts
by Acts
hibition. —
Henderson Loan, etc., 1831, c.providing that no charter
131,
should be granted to such an institu-
Ass'n V. People, 163 111. 196, 45 N. E.
141- Lampton v. Commonwealth's tion within those limits for a specified
Bank (Ky.), 3 Litt. 300; Briscoe v. time empowering the corporation to
Bank (Ky.), 7 J. J. Marsh. 349; Bank issue negotiable notes. Duncan v.
V. Swindler (Ky.), 2 Dana 393;
Craig- Maryland Sav. Ins. (Md.), 10 Gill &
head V. State Bank, 19 Tenn. (1 J. 299.
Meigs) 199. .
53. Operation and effect. — Powers
Creation of the •'commercial, and
;,
conferred by charter, see post, "Time
agricultural bank" by decree no. 308, to Sue. and Limitations," § 319.
of the congress of Coahuila and
Texas, See State v. Lehre (S. C), 7 Rich.
in 1835.— Williams v. State, 23
Tex. Law 234, construing South Carolina,
264.
Act 18.53 (12 Stat. 212) which renews
49 Territorial government. Bank —„ ,

the charter of the Planters' & Me-
V. Williams (N. Y.), 5 Wend. 478;
Peo- chanics' Bank, and imposes additional
ple V. Marshall (111.), 1 Oilman 673.
liabilities and obligations. And see
50. Constitutional prohibition.— Williams v. State, 23 Tex. 364, con-
struing Decree No. 308, of the con-
Smith V. State, 21 Ark. 294; Syracuse
gress of Texas and Coahuila, in 1835,
City Bank v. Davis (N. Y.), 16 Barb.
188, construing N. Y. Const., art. granting the establishment of a bank.
54. Amendment, renewal, and repeal.
8, § 4-
Arkansas. Charter — provisions au- — Dissolution of bank, see post, "Con-
solidation," § 67; "Effect of Dissolu-
thorizing banking business in^ general,
tion," § 72.
see ante, "Charter Provisions," § 5.
The legislature has no constitutional 55. Power to repeal or amend. —
power to confer banking privileges on Woodfork v. Union Bank, 43 Tenn.
a private corporation, engaged in min- (3 Coldw.) 488, construing charter of
ing and manufacturing slate. Smith v. bank of Tennessee.
State, 21 Ark. 294.
Bank of the United States.— Com-
51. Remedying defective organiza- monwealth V. Bank (Pa.), 2 Ashm.
tion.— Syracuse City Bank v. Davis 349, construing Charter of the Bank
(N. Y.), 16 Barb. 188, construing N. of the United States. And see ante,
Y. Const., art. 8, § 4. "Charter as Contract, and Amend-
52. Contract rights.— Duncan v. ment or Repeal," § 23 (3b).
Marvland Sav. Inst. (Md.), 10 Gill & 56. Extension subject to general
J. 299.
reservation of right to amend. Re- —
The state, a charter con-
by granting newal, see post, "Extension or Re-
ferring on a savings institution within newal," § 30 (1).
the city of Baltimore power to receive The Kentucky statute of 1884 ex-
deposits and discount paper, does not tending the charter of the Northern
violate its pledge to the banks of that Bank of Kentucky without new con-
—
Form of Repealing Act. It is not necessary that the repealmg act
should correspond exactly, in naming the corporation, with the act of in-
corporation which it meant to repeal; but there must be such a corre-
is
spondence as will leave no doubt of the intention of the legislature.®'' Six

months, in an act extending a bank charter, has been held to mean six cal-
endar months. 5^
Majority Required. —When
bank was chartered, the constitution re-
a
quired a two-thirds vote to alter a charter but it was provided in the char-
;
ter that the legislature might "at any time alter, modify, or repeal the same."
The new constitution required a majority vote merely. It was held, that
the bank had no "vested right" to have the charter changed by a two-thirds
vote only. 5^
Reorganization as Creating New Corporation. —This has been held
in a Louisiana case.^"
Debts Not Affected. —Debts contracted with the bank previous to the
passing of the repealing act, are not affected thereby.'^!
§ 26. General Laws. —A statute which provides for the incorporation

of banks, with certain restrictions, in cities, towns, etc., of certain classes,
does not prevent the organization of banks in having a larger pop-
cities
ulation. ^^ j\nd a statute which enacted that members of banking associa-
ditions, except that the extension 58. "Six months" construed. Union —
shall be formally accepted by the Bank v. Forrest, Fed. Cas. No.
bank, shows no intention that the ex- 14,356, 3 Cranch C. C. 218.
tended charter shall not be subject to 59. Majority required. In re Re- —
repeal or amendment in accordance ciprocity Bank, 22 N. Y. 9, affirming
with the provisions of the Act of 39 Barb. 369, 17 How. Prac. 333.
1856. Northern Bank v. Stone, 88 60. Reorganization as creating new
Fed. 413. corporation. Acts —
1853, No. 246,
57. Name of corporation Accuracy — passed for the reorganization of the
—
required. People v. Oakland Connty Citizens' Bank of Louisiana, and in
order to relieve the state from its lia-
Bank (Mass.), 1 Doug. 283.
An act repealing the charter of the bility on certain bonds issued by it
"Bank of Oakland County" can not for the benefit of such bank, and
be construed to be a repeal of the creating the banking department of
charter of "The President, Directors, such bank, and the contract or ar-
and Company of the Oakland County ticles of association of that year
Bank." People v. Oakland County adopted by the creditors empowered
Bank (Mass.), 1 Doug. 282, under such act, created a new cor-
The Kentucky Const., § 59, subsec. poration. Hope V. Board, 108 La. 315,
4, the legislature
prohibiting from 32 So. 547.
passing local or special acts to regu- The banking department of the Citi-
late the punishment of crimes, in con- zens' Bank of Louisiana, created by
junction with K3'. St., § 1202, provid- the act of 1853, being distinct from
ing for the punishment of the offense the bank, was not liable for the bonded
of embezzlement by any officer or debt of the state incurred in 1836 in
agent of any bank, operated to repeal aid of the bank. Hope v. Board, 108
3. bank charter granted by special act La. 315, 32 So. 547.
of the legislature prior to the adoption 61. Debts not affected. Smith v. —
of the constitution, to the extent that Bank, Fed. Cas. No. 13,011, 4 Cranch,
it provided for the punishment of the C. C. 143; Ferguson v. State Bank, 8
offense of embezzlement of the bank's Ark. 416.
funds by any of its officers or agents. 62. General laws. — Dupee v. Swig-
Commonwealth v. Porter, 113 Ky. 575, ert, 137 111. 494, 31 N. E. 633.
<38 S. W. 621, 24 Ky. L. Rep. 364. Acts relating to right of banking in
tions thereafter formed should be individually liable for the debts of the
association, was not an implied incorporation of banking companies after-
wards formed.^* In the absence of indication of a contrary intent, a con-
stitutional provision conferring on the legislature general powers to create
corporations by general laws has been held to include banking corpora-
tions.^* But a proviso excepting banking corporations prevails.^^
Amendment —
or Repeal. The charter of a bank incorporated under a
general law may be modified or repealed by the legislature.^® But the re-
peal of a general incorporation law, for the incorporation of banks, should
not be construed, in the absence of express provisions, to repeal the char-
ters of corporations formed thereunder, when the manifest purpose is to re-
vise the former laws upon the subject and to substitute a new law extending
the provisions of the old, without interfering with corporations formed un-
der it.67
§ 27. Defective Incorporation or Organization. "^ Failure to Pay —

in Capital. —
The failure to pay in the specie required by the charter does
not invalidate the incorporation, if the rights of third persons are not prej-
udiced,*^ nor does the failure to file the affidavit of such payment.'^"
general, see ante, "Constitutional and Carter v. Imperial Trustee Co., 72 N.

Statutory Provisions," § 4. J. L. (43 Vr.)60 Atl. 223.
42,
Incorporation under general laws, 66. Amendmentor repeal. Barnes —
see ante, "Nature and Formation in V. Arnold, 23 Misc. Rep. 197, 51 N. Y.
General," § 22. S. 1109; People v. O'Brien, 111 N. Y.
1. 18 N. E. 693, 2 L. R. A. 255, 7 Am.
63. Implied incorporation. Myers— St. Rep. 684.
V. Irwin (Pa.), 2 Serg. & R. 368, con-
struing Penn. Statute of 1808. 67. Repeal of general law Charters — —
obtained thereunder not repealed.
64. General constitutional provision Smock V. Farmers' Union State Bank,
held applicable.— Const. 1846, art. 8,
23 Okl. 835, 98 Pac. 945. See, also,
§§ 1-3, providing for the formation of ante, "CharterContract, and
as
corporations, the alteration or repeal
Amendment or Repeal," § 33 (3b);
of laws or special acts creating them,
"Amendment, Renewal and Repeal,"
and defining the term "corporations"
§ 25 (3).
as used in said article, apply to bank-
68. Defective incorporation or or-
ing corporations, though § 7 declares
and defines the liability of stockhold-
—
ganization. Efifect of failure to de-
posit securities in safety fund, see
ers in banks of issue, and § 4 provides
ante, "Reserves." § 14.
for chartering savings banks by gen- Liabilities of persons engaged in
eral law, prohibits special charters to
unauthorized banking, see ante,
banks, and requires them to be incor- "Validity of Transactions and Liabil-
porated under general laws. Barnes ities Incurred," § 9.
V. Arnold, 45 App. Div. 314, 61 N. Y.
Proceedings by stockholder ques-
S. 85, affirmed in Barnesv. Arnold, 169 tioning sufficiency of incorporation,
N. Y. N. E. 1093.
611, 62 see post, "Rights and Liabilities as to
65. Proviso excepting banking cor- Bank," § 43.
—
porations. A certificate of incorpora- 69. Failure to pay in capital. —
tion filed under Revision 1896 (P. L. Where a bank has been organized and
p. 277), § 6, which provides that noth- bills issued without the actual pay-
ing contained in the act shall au- ment in of the specie required by its
thorize the formation of any trust charter, so that by reason thereof the
company or banking corporation, can
not include powers of a banking cor- 70. Failure to of pay-
file affidavit
poration or those of a trust company ment. —The fact organizers
that the
or such as are intended to derive profit of a state bank failed to file with the
from the loan and use of money. Mc- coimty clerk an affidavit of the pay-
Personal Liability. —The promoters and organizers of a bank which

attempts incorporation, but does not complete the same, are Hable as part-
ners for debts contracted in the course of business.^ ^ But mere irregular-
ities in organizing a banking corporation will not deprive the officers and
stockholders of the protection of the charter, or subject them to private lia-
bility, when sued as unauthorized bankers.''

De Facto Incorporation What Constitutes.— —An attempt in good
faith to incorporateunder an existing law authorizing incorporation for
banking purposes, and the issuance of articles of incorporation, and acting
thereunder by holding meetings, electing directors and doing other acts as
a corporation, constitutes a corporation de facto in spite of defects and ir-
regularities in the articles of incorporation, and only the state can inquire
state might at any time have recalled open a stockbook, subscribe for shares
its corporate franchise, or a stock- of stock, and a portion pay small
holder have resisted the payment of sums thereon, hold meetings, elect di-
stock, or a debtor his liability to the rectors, publish their names, none of
bank, provided the rights of third whom take any steps to inform the
persons were not prejudiced, it is still public that they do not belong to the
a valid corporation, so far as to make association, enter into and transact
it liable to creditors for its own acts, business as a bank, held, that they are
and its stockholders liable to innocent all liable as partners. Pettis v. At-
bill holders under its charter foi" the kins, 60 111. 454,
ultimate redemption of the bills put A stockholder in Iowa is personally
in circulation by the bank. McDou- liable on his stock in a Kansas sav-
gald V. Bellamy, 18 Ga. 411. ings bank for the debts of the corpo-
Where the charter of a bank re- ration, if a material article of the cor-
quires a certain amount of stock to poration's charter was not signed, and
be paid in before the bank can go the signatures to the charter itself
into operation, and the statute re- were not acknowledged, as required
quires the capital of banks to be paid by the incorporation acts of Kansas,
in cash, if a subscriber for stock is although the necessary certificates be-
allowed by the directors to give a fore a savings-bank business could be
note for his stock, instead of paying commenced were duly filed. Kaiser v.
cash, and the bank goes into opera- Lawrence Sav. Bank, 56 lov/a 104, 3
tion in violation of the charter on a N. W. 772, 41 Am. Rep. 85.
capital which the note is reckoned as
The president of a bank, who signs
a cash payment for stock, the ille-
notes intending to bind the bank, is
gality of the transaction can not be
himself liable thereon, if the bank, by
set up in defense to an action by the
reason of a void charter, has no legal
bank on the note. Pine River Bank v. existence. Allen v. Pegram, 16 Iowa
Hodsdon, 46 N. H. 114. 163.
71. Personal liability. —Pettis v. At- The president of a bank is charge-
kins, TU. 454; McLennan
60 v. An- able withconstructive notice of the
spaugh, 2 Kan. App. 269, 41 Pac. 1063; management of its affairs by the
following McLennan v. Hopkins, 2 Kan. cashier and other subordinate officers;
App. 260, 41 Pac. 1061. and, where such bank is doing busi-
Where persons enter into articles of ness without legal organization, he
association for banking purposes, and,
can not escape the responsibility re-
without any charter, assume a name, sulting from such notice, by showing
ment of its capital stock, as required that he supposed himself the president
of a legally constituted bank, if he has
by law, can only be objected to by
the state, and can not be made a de- contributed the influence of his repu-
fense by one who in the usual course tation to give undeserved credit to a
of business has incurred obligations spurious corporation. Hauser v. Tate,
to the bank. Bank v. Darling, 91 85 N. C. 81, 30 Am. Rep. 689.
Hun, 236, 36 N. Y. S. 153, 72 N. Y. St. 72. Mere irregularities not sufficient.
Rep. 54. — Bartholomew v. Bentley, 1 O. St. 37.
in a direct proceeding whether it is a corporation de jure.'^^' The act of an

incorporated bank in changing its name and place of business, under an
unconstitutional law, and the subsequent exercise of corporate powers under
the new name, with the implied, if not the direct, consent of the state, makes
thebank a de facto corporation^* But an unincorporated bank exclusively-
owned by one person, which never adopted articles of incorporation or pre-
tended to possess or exercise corporate powers, is not a corporation de facto,
though the business was conducted by a president and cashier J ^
Necessity for Authority of Law to Incorporate. Where there was —
no territorial law under which a corporation could be formed for banking
purposes, an attempted incorporation for that purpose is not within the pro-
tection of a statute of the territory protecting de facto corporations from
collateral attack, as that provision only applied to de facto corporations,
which this is not, and the incorporators may be charged as partners on legal
contracts made in the name of such pretended corporation.'''®

Retrospective Curative Legislation. Where a banking corporation—
was attempted to be formed when there was no territorial law authorizing
such incorporation, and subsequently the law was amended so as to author-
ize banking corporations to be created, and a statute provided that any com-
pany theretofore incorporated for banking should be entitled to the benefit
of the amended statutes on filing a certificate with the secretary of the ter-
ritory setting forth its acceptance of such statutes, such bank, though not
filing the certificate, was, when thereafter receiving deposits, a de facto cor-
poration.'''''
Right to Sue. —An unauthorized bank has been held incapable of suing
on a note discounted by it.''*
Right to Question Corporate Existence. —The general appli- rule,

cable to all corporations, that the franchise of a corporation can not be im-
peached or inquired into collaterally, is applicable to corporations exercis-
ing banking franchises.'''^ Its existence can not be questioned by one who
73. De facto incorporation ^What

— tempted to incorporate a bank in ter-
—
constitutes. Shawnee, etc., Sav. Bank ritory then in dispute between that
Co. V. Miller, 24 O. C. C. 198, 14-24 O. state and Ohio, which territory was
C. D. 198. settled to belong to Ohio. After this
Richards v. Minnesota Sav. Bank,
74. settlement, the bank continued to do
75 Minn. 196, 77 N. W. 832. business, and discounted the note sued
75. Longfellow v. Barnard, 59 Neb. on in this case. Held, that the bank is
455, 81 N. W. 307, affirming- on rehear- unauthorized, and can not therefore
ing, 58 Neb. 612, 79 X. W. 255, 76 Am. maintain the action. Myers v. Man-
St. Rep. 117. hattan Bank, 20 O. 28.3.
76. Necessity for authority of law 79. Right to question corporate ex-
to incorporate. — Davis v. Stevens, 104 istence. — Bartholomew v. Bently, 1 O
Fed. 235. St. 37. See, also, Shawnee, Sav.
etc.,
77. Retrospective curative legisla- Bank Co. v. Miller, 14-24 O. C. C. 198
tion.— Mason r. Stevens, 16 S. Dak. 320, 24 O. C. D. 198.
19 N. W. 424. In a suit against a stockholder of a
78. Right to sue. —
The general as- national bank by its receiver for as-
sembly of Michigan, before the admis- sessments, the validity of the incor-
sion of that state into the Union, at- poration of the bank is a collateral is-
•'§ 28 (la) BANKING CORPORATIONS AND ASSOCIATIONS. 59
has dealt with and thus admitted its existence;*" and where an amend-
it
ment bank was offered to the stockholders thereof for

to the charter of a
Iheir acceptance in a prescribed mode, and the bank proceeded to exercise
and enjoy the privileges and immunities secured by the amendment, neither
the bank nor such of its stockholders as consented to and accepted the
amendment can deny that the amendment was accepted in the prescribed
mode, as against the claims of third persons, although in fact the amend-
ment was not accepted as prescribed. ^^
§ 28. Evidence of Existence— § 28 (1) In General— § 28 (la)

—
Presumptions and Burden of Proof. Commencement of business need
not be shown where it is shown that the bank has been duly incorporated.*^
And it has been held that the name of a bank may connote incorporation.*^
Presumption from Legislative Recognition. Well-considered cases —
have gone so far as to hold that when the existence of a corporation has
been recognized by acts of the legislature, all inquiry into the original crea-
tion of the corporation is precluded.**
sue,and the stockholder is estopped Co. V. Merchants' Bank, 59 Hun 561,

from asserting tliat it is not a cor- 14 N. Y. S. 16, 36 N. Y. vSt. Rep. 933.
poration de jure. Davis v. Watkins, 81. Amendment accepted in other
56 Neb. 288, 76 N. W. 575. than prescribed manner. Owen v. —
80. Estoppel to deny corporate ex- Purdy, 12 O. St. 73.
istence. —
Persons dealing with a bank 82. Proof of commencement of
by executing a note and mortgage —
business unnecessary. On trial of an
thereto after its term of corporate indictment for uttering certain forged
existence had expired, were estopped bills with intent to defraud a bank,
from maintaining that the mortgagee where it is shown that the bank has
had no corporate existence when the been duly incorporated, it is unneces-
note was exectited. Citizens' Bank v. sary to show that it has commenced
Jones, 117 Wis. 446, 94 N. W. 329; business. People, v. Peabody (N. Y.),
Campbell v. Perth, etc., Engineering 25 Wend. 472.
Co., 70 N. J. Eq. 40, 62 Atl. 319. 83. Incorporation presumed from
Where a bank had done all the law name. —A finding that plaintiff credit-
required, previous to the appointment ors dealt with a bank as a corpora-
of a commissioner by the governor to tion is sustained by evidence that the
examine its vaults, which the governor bank was named the "Minnesota Sav-
neglected to do, a person who had ings Bank," Laws 1879, c. 109, § 46,
done business with the bank and ad- forbidding any unincorporated bank
mitted its existence by the receipt of to solicit deposits as a "savings bank,"
its funds could not, in a suit against in the absence of any evidence by
him by the receivers of the bank, plaintiffs to the contrary. Richards v.
question the legality of the organiza- Minnesota Sav. Bank, 75 Minn. 196,
tion. Bank v. Renick, 15 O. 322. 77 N. W. 822.
Where one contracts with a bank A mortgage in the form of an abso-
•organized under the Indiana Free Bank lute deed, reciting that the deed is
Act of 1855, he can not as a defense subject to the claim of the Anglo-
to such contract avail himself of the California Bank, Limited, imports
provisions of § 18 of such act, requir- that the bank is a corporation, and, in
ing that the place where the bank is a suit by the bank to foreclose its
located, if not a county seat, shall claim under a mortgage, furnishes
contain not less than 1,000 inhabitants. prima facie evidence of plaintiff's cor-
Allison V. Hubbell, 17 Ind. 559. porate character. Anglo-Californian
Where a bank collects checks pay- Bank v. Field, 146 Cal. 644, 80 Pac.
able to and indorsed in the name of ]080. See, however, Hungerford Nat.
plaintifif as a corporation, the bank is Bank v. Van Nostrand, 106 Mass. 559.
estopped afterwards to deny plaintiff's 84. Presumption from legislative
•corporate character. Craig Medicine recognition. — State v. Butler, 86 Tenn.
§ —
28 (lb) Judicial Notice. Where the charters of banks are, by
statute, made general laws, of which the courts are bound to take notice,
the court will therefore take notice whether or not a particular bank is an
authorized institution.*^ But not of a bank charter granted by a territorial
legislature,*® or of a foreign bank.*'^
§ —
28 (Ic) As Question for Jury. In a suit by a bank, an alleged cor-
poration, on a note made payable to W. or order, the fact that the note is
payable "at such bank" is not conclusive that it is a corporation, but the ex-
istence of the corporation is a question of fact to be submitted to the jury.*®
§ 28 (Id) Of National Banks. —

The mode provided by the national
banking act for proving the organization of national banks should be fol-
lowed.*^
—
§ 28 (2) Charter or Certificate. A bank charter granted by the
governor of a state,^'' or a legislative act of incorporation,^^ which is pre-
(2 Pickle) 614, 8 S. W. 586, citing So- 86; Bonner v. Burke, 41 Tenn. (l

ciety Propagation of the Gospel
for Coldw.) 623.
V. Pawlet, 4 Pet. 480, 7 L. Ed. 937; In The charter of a bank of circula-
re New York, etc., R. Co., 70 N. Y. tion, although the corporation maybe
327, 338. correctly denominated a private cor-
poration,is a public law, and need not
Repeated recognitions of a bank by
be given in evidence. Williams v.
the legislature, in various public laws,
as a legally existing corporation, is,
Union Bank, 21 Tenn. (2 Humph.)
so far as third persons are concerned,
339. See post, "Charter as Notice,"
§ 34 (2).
conclusive evidence of such legal ex-
istence, against which no testimony
The act of Virginia incorporatmg
the Bank of Alexandria is a public
can be heard of the nonfulfillment of
law. Young v. Bank, 4 Cranch 384, 2
the conditions upon which, by the
L,. Ed. 655.
charter, such legal existence was Territorial bank charter. Alex- —
86.
made dependent. Williams v. Union
ander V. Brown, 2 Disn. 395, 13 O.
Bank, 21 Tenn. (2 Humph.) 339.
Dec. 241.
"Again it becomes by such recogni-
tion ipso facto a legal corporation, and
87. Of foreign bank. Brown v. —
State, 11 O. 276; Lewis v. Bank, 12
any defect or irregularity in the pro- O. 132, 40 Am. Dec. 469.
ceedings required by law to be taken
for its organization will be deemed to
88. As question for jury. Hunger- —
ford Nat. Bank v. Van Nostrand, 106
have been waived. Black River, etc., Mass. 559. See, however, ante, Pre-
R. Co. V. Barnard (N. Y.), 31 Barb. 258; sumptions and Burden of Proof,"
Atlantic, etc., R. Co. v. St. Louis, 66 Mo.
§ 28 (la), as to presumption from cor-
228; White's Creek Turnpike Co. v. porate name.
Davidson Co., 3 Tenn. Ch. 396. In
which last case it is said by Judge
89. Of national bank. First Nat. —
Bank v. Randall, 1 App. Civ. Cases,
Cooper, that 'after repeated recogni- 971.
§
tions the existence of a turnpike
of
corporation up to and inclusive of the
Charter or certificate.
90. bank —A
charter granted by the governor of a
last legislature, a collateral impeach- state, reciting his authority, by the
ment of its existence, based on pre- laws of that state, to make such
existing facts, can not be entertained.' grants, and authenticated by the great
See, also, Waterman on Corp., § 42." seal thereof, in the absence of proof
State V. Butler, 86 Tenn. (3 Pickle) that its laws did not warrant such an
614, 8 S. W. 586. exercise of authority on the part of
85. Judicial notice of corporate ex- the governor, is sufficient evidence,
—
istence. Watson V. Brown, 14 O. 473; per se, to prove the existence of such
Brown v. State, 11 O. 276; State v. bank. Agnew v. Bank (Md.), 2 Har.
Shelton, 26 Tenn. (7 Humph.) 31; & G. 478.
Shaw V. State, 35 Tenn. (3 Sneed) 91. Act of incorporation. — It is not
sumed to have been legal and valid,®^ or the original certificate of incorpora-
tion recorded in the proper office, are sufficient evidence of incorporation. ^^
The charter is proved by an authenticated copy or the public statute book
containing it.^*
§ 28 (3) Parol Evidence. —While it has been held that parol evidence
is not admissible to establish the existence of a free bank,^^ ygt on trial of
an indictment for uttering certain forged bills with intent to defraud a bank,
parol evidence has been held admissible to prove the bank's existence. ^^
necessary, in order to maintain an ac- countersigned, was sufficient evidence

tion by an incorporated bank, that of the association's organization, with-
such bank should show a regular or- out direct proof that a copy of its cer-
.ganization according to the directions tificate had been filed with the secre-
of Rev. St., c. 44. It is, in general, tary of state. Leonardsville Bank v.
sufficient to give evidence of the act Willard, 16 Abb. Prac. Ill, affirmed in
•of incorporation, and the actual use 25 N. Y. 574. See, also. People v. Pea-
of the powers and privileges thereby body (N. Y.), 25 Wend. 472.
conferred. Farmers', etc., Bank v. 94. Authenticated copy of charter
Jenks (Mass.), 7 Mete. 592. —
or the statute book. Where an indict-
If a plea of nul tiel corporation be ment for passing counterfeit bank-
filed to a declaration by a bank on .a notes alleged the existing of the bank-
note, and issue be joined thereon, a ing corporation in another state,
copy of the act of incorporation, to- whose bills were counterfeited, it is
gether with proof of user under the held, that it is necessary upon the
charter, is sufficient evidence in be- trial to produce in evidence an au-
lialf of the bank. Henderson v. Mis- thenticated copy of the charter of said
sissippi Union Bank, 14 Miss. (6 bank, or a book purporting to be the
Smedes & M.) 314. public statute book of said state, in
And it has been held that proof of which said charter is printed. Jones
user in addition is not necessary. V. State, 37 Tenn. (5 Sneed) 346.
People V. Peabody (N. Y.), 25 Wend. A properly certified copy of an
472. amended charter of plaintiff banking
—
Of foreign bank. In an action by corporation, signed by the state auditor,
a bank, purporting to be a foreign cor- and a deposition of plaintiff's cash-
poration, to foreclose a mortgage as- ier that the bank had been duly
signed to it, the only proof of incor- organized and acting under the char-
poration was a legislative act of the ter, and for ten years previous had
foreign state incorporating it. Held, been doing business under a previous
that possession of the note and mort- charter; that he had been connected
gage, with proof of purchase and as- with from its first organization; and
it
signment to plaintiff in its corporate that had never been dissolved, and
it
name, proved an acceptance of the was still doing business, to which
charter. Lancaster Sav. Bank v. El- were appended the minutes of a meet-
well, 17 Wash. 446, 49 Pac. 1070. ing, containing a copy of the first
92. Presumption of validity. Upon — charter, and an account of the reor-
the denial of the corporate existence ganization imder the second, was suffi-
of a bank, the court will not assume cient evidence, where, uncontradicted,
that the act of incorporation took to justify a finding that the bank was
place, if at all, under the statute a corporation, Bank*z'. Carr, 130 N.
passed since the adoption of the con- C. 479, 41 S. E. 876.
stitution of 1851, and is therefore void 95. —
Parol evidence. Trice v. State,
for want of compliance with the pro- 39 Tenn. (2 Head) 591.
visions of such constitution. Ridenour 96. Dennis v. People (N. Y.), 1
V. Mayo, 39 O. St. 138. Parker Cr. R. 469; People v. Chad-
93. Original certificate. —
In an ac- wick, 2 Parker Cr. R. 163; Cady v.
tion by a banking association formed Commonwealth, 51 Va. (10 Graft.)
imder the general banking law of 1838, 776. See State- 1/. Williams,' 153 Mo.
the original certificate recorded in the 115, 53 S. W. 424, 75 Am. St. Rep. 441,
county clerk's office, together with when such evidence was held suffi-
proof that the association had done cient in a prosecution for forging of
Tbusiness and issued bills which were a note.
§ 28 (4) User and Repute. —The existence of a banking corporation:

may be proved by reputation,^''^ or user,^^ without direct proof of the fiUng,
of the certificate as required by law,®^ and this appHes to a foreign corpora-
tion.
Existence of National Bank. —On the preHminary examination of the
accused, charged with embezzlement, evidence of the actual existence of a
certain national bank, and of acts done by the accused as president thereof,
is sufficient evidence of the legal incorporation of the bank, and of the con-
nection of the accused with it.^
§ 29. Term of Existence. In General. —

The legal existence of a —
bank continues as long as the act incorporating it remains in f orce.^
Statutory Extension Subsequent to Dissolution. Of course the life —
of a corporation may, for certain purposes, by statute or the charter, be ex-
tended for certain time after its dissolution.*
97. User and repute. State v. Fitz- — allegation to that effect in an indict-
simmons, 30 Mo. 236. ment for forging a bank note. State.
98. Williams v. Union Bank, 21 V. Carr, 5 N. H. 367.
Tenn. (2 Humph.) 339. 99. Without proof of filing of certifi-
In suit by a bank upon a note, proof cate. —
In an action by a banking asso-
that plaintiff is doing business as a ciation, the original certificate recorded,
bank, in the name in which it sued, in the county clerk's office, with proof
has a president and other officers, and that the association who did business
keeps a discount register, is sufficient and issued bills which were counter-
to establish its status. For the pur- signed, is sufficient evidence of its-
pose of the suit, it is immaterial due organization, without direct proof

whether it mere association of
be a that a copy of the certificate was filed,
persons or an incorporated company. with the secretary of state, as re-
Farmers', etc.. Bank v. Williamson, Bl quired by statute. Leonardsville Bank
Mo. 259. V. Willard, 16 Abb. Prac. Ill, affirmed
In by a bank, in which its
a suit in 25 N. Y. 574.
corporate existence is in issue, it is
sufficient for them to show the char-
1. Foreign corporation. Gaines v. —
Bank of Mississippi, 12 Ark. 769; Jen-
ter, and to give parol evidence that
nings V. People, 8 Mich. 81; State v.
they are transacting business as a Fitzsimmons, 30 Mo. 236; Reed v.
bank. Bank v. Allen, 11 Vt. 302. State, 15 O. 217; Sasser v. State, 13 O.
Where the charier of a bank re- 453.
quired notice of its organization by a
certain date, and it was found in
2. Existence of national bank. In —
re VanCampen, Fed. Cas. No. 16,835,
operation afterwards, under the char-
2 Ben. 419.
ter, it must be presumed, in the ab-
sence of evidence to the contrary, that 3. Term of existence. — Lindell v.
the bank was organized as early as Benton, 6 Mo. 361.

the time prescribed. Bank v. Lyman, 4. Statutory extension subsequent
Fed. Cas. No. 924, 20 Vt. 666, 1 —
to dissolution. Where a statute gives
Blatchf. 297. to all companies incorporated under
Evidence of office of discount.— -
it three years, after a dissolution of
Evidence that, at a place having the said corporations by limitation, legis-
name of a bank over its entrance, lative repeal, or otherwise, to wind up
notes were discounted and accounts and settle the affairs of said com-
kept there, is admissible to show that panies, they may, therefore, sue and
the place is a bank. Way v. Butter- be sued as corporations at any time
worth, 106 Mass.- 75. within three years after dissolution.
Evidence that bills are in general Ferguson v. Miners, etc.. Bank, 35
circulation. —Evidence that the bills of Tenn.
Bank
Sneed) 609.
(3 See Nashville
a banking corporation are in general v. Petway, 22 Tenn. (3 Humph.)
circulation is sufficient evidence of the 522, for example of extension by
organization of the bank to sustain an charter provision.
§ 30 (2) BANKING CORPORATIOJJS AND ASSOCIATIONS. 63
Subsequent Acts Extending the Period. — Subsequent acts extending

the period of corporate existence incorporate themselves with the original
charter, and give the same effect to its provisions with the respect to the
period of extension as they had with reference to the original period."
§ 30. Extension, Renewal, or Transfer of Franchise § 30 (1) —

—
Extension or Renewal.^ Terms and Conditions. An act to extend —
the charter of a corporation, by usage, includes the terms or conditions upon
which said extension is granted.''
—
Continuation of By-Laws in Force. Where a bank's charter is re-
newed by direction that the period of its existence shall be extended as
fully as if the extended period had been named in the original charter, the
directors, in a suit by its receiver against them, can not claim that a by-
law adopted previous to the extension, and relied on by the receiver, was
not binding because of the expiration of the original charter.^
Extension by Action of Stockholders Failure to Give Notice of —
—
Meeting. Where the law authorizes the stockholders to extend the cor-
porate existence at any meeting called for that purpose, the failure to give
the usual statutory notice of such meeting will not invalidate the extension
if otherwise regular.
§ 30 (2) Assignment and Transfer of Rights, Franchises, etc.

In General. — It has been held that the rights, franchises, and exemptions
granted to a banking corporation by its and be validly
charter may exist,
transferred, without issuance or transfer of stock certificates,where there

is other satisfactory proof of subscription and payment of stock, and of
organization of the corporation, and of a bona fide transfer, not merely of

the paper charter, but of the stock, franchises, and exemptions of the cor-
poration. i**
5. Subsequent acts extending the 8. Continuation of by-laws adopted

period.— Nashville Bank v. Petway, 22 before extension.— Campbell v. Wat-
Tenn. (3 Humph.) 533. son, 62 N. J. Eq. 396, 50 Atl. 130.
And, therefore, where the charter ^\ ^"^^
provided that the powers and obliga-
p
Ba"k ^%^T°" .a^^^f
v. Yoder, 39 Mont. ''ono~,^nf
302, 103 Pac.
°^'
tions of the corporation shall continue f^' T""*',"'"^
3907.
for the purpose of bringing to a final '^!?^' § , , , .
settlement its affairs which shall be

Assignment and transfer of
^"l
.
"^ht^'
depending on the day the charter ex-
^6 Tenn. fo%
t wTîf.^
(3 Pickle) 614,
/'c ^f^
8 S. W.
pires, specifying the day, and the ex- 1//'
istence of the corporation was subse- ; ^ •,•
,i , ,,
providmg that
. .
, ,
statute, shall
quently extended for twenty years ^ it
"°V ^îssuing circulating

after that date, it was held, that the ^^>^^"^ fo[ an .
individual
^^nker notes under
powers of the corporation for the pur-
""^' banking laws
to sell or
pose of settlement would continue as
if there had been no extension. Nash-
'^^
f
transfer the business of banking, upon
villa Bank v. Petway, 33 Tenn. (3 "-^^ securities deposi ed by him, does
not prevent an abso ute sale by such
.„.,,.
Humph.)
6.
533.
Special charters or acts.— See
„ banker of the bank
operations, including
and
the
banking
securities
ante, Special Charters or Acts, § 25. deposited with the bank department.
7. Usage as to terms and condi- Metcalf v. Messenger (N. Y.), 46 Barb.
tions. — Robinson v. Bank, 18 Ga. 65. 325.
An insurance company can not absorb a bank, either directly or

indirectly, so as todraw unto itself the rights, franchises, and exemptions
contained in the bank charter; but there is no legal objection to the pur-
chase of the stock, franchises, etc., of the bank by shareholders in the in-
surance company. Of this latter character is the transaction in this case.^^
But a transfer of a mere charter conferring a franchise does not convey
the franchise to the transferee. ^^
The judicial sale of a bank franchise transfers to the purchaser oniy
the right to reorganize as a corporation, not an existing franchise to be such
corporation with any of its personal privileges and exemptions. ^^
§ 31. Name —
§ 31 (1) Statutory Requirements. —Under a statute
requiring the name of the county or city in which a bank is formed to ap-
pear in its name, either is sufficient.^-* And where a statute requires that
11. Absorption by insurance coming corporation does not transfer to

pany and purchase by stockholders, the purchaser the franchise to be such
—
thereof distinguished. State v. But- a corporation, but only the right to
reorganize as a corporation, subject
ler, 86 Tenn. (2 Pickle) 614, 8 S. W.
586, where the court said: "For the to the laws, constitutional and other-
complainant it is urged that the trans- wise, existing at the time of the re-
action just detailed was a merger of organization. The franchise to be a
the bank into the insurance company, corporation is distinguished from the
or was a sale by the bank of all its franchise to exercise as a corporation
stock to the Merchants' Insurance the banking powers named in this
Company for the purpose of carrying charter. The exemption from taxa-
to the latter its corporate entity and tion was a personal privilege in favor
franchises, to enable the insurance of the corporation therein specifically
company to control the organization referred to, and it did not pass with
and to become a bank, and that the the sale of that charter, and there is
mere interposition of the directors as no express or clear intention of the
trustees to hold the stock does not law requiring that exemption to pass
•change the effect. The legal proposi- as a continuing franchise to the pur-
tion advanced is sound. There is no chaser thereof. Morgan v. Louisiana,
doubt but that the insurance company 93 U. S. 217, 23 L. Ed. 860; Wilson v.
had no power to purchase, and the Gaines, 103 U. S. 417, 26 L. Ed. 401;
bank no power to sell, so as to vest Louisville, etc., R. Co. v. Palmes, 109
all the stock and franchises of the U. S. 244, 27 L. Ed. 922, 3 S. Ct. 193.
latter in the former, there being no In the face of the constitutional pro-
express authority to do so in either vision prohibiting exemption, it can
charter, nor by any additional legis- still less be claimed that the sale of
lative grant or provision. Green's the charter carried the exemption.

Brice's Ultra Vires, 166; Cook on Mercantile Bank v. Tennessee, 161 U.
Stocks, etc., § 60, pp. 315-317. And it S. 161, 173, 40 L. Ed. 656, 16 S. Ct.
is equally true that if the purchase 461.
was by the one corporation for the A banking corporation may exist
purpose of controlling or absorbing under and by virtue of the purchase
the other, the mere interposition of of the charter at a receiver's sale, and
the directors as trustees would not the legislative recognition and the as-
validate the transaction. Central R. sumption of the state that it is a cor-
Co. V. Pennsylvania R. Co., 31 N. J., poration, and yet not have the title
Eq. 475." State v. Butler, 86 Tenn. to the exemption given by that char-
ter, because it is not in fact or in law
(2 Pickle) 614, 8 S. W. 586.
the same corporation originally in-
12. Transfer of charter conferring
Mercantile Bank v. Ten-
—
franchise. State v. Butler, 83 Tenn.
corporated.
nessee, 161 U. S. 161, 173, 40 L. Ed.
(15 Lea) 104.
656. 16 S. Ct. 461.
13. Judicial sale of franchise. The — 14. Local '
—
designation. Erh v.
judicial sale of the franchise of a bank- Grimes, 94 Md. 92,50 Atl. 397.
the certificate of incorporation of a corporation reincorporating under that

article shall state the proposed name of the new corporation and the former
name of said corporation, where the W. Savings Institution reincorporated
as the W. Savings Bank, the alteration of the name did not affect the va-
lidity of the new corporation.^^ Under a statute prohibiting a foreign
corporation from doing a banking business under a name identical with
or similar to that of a domestic corporation, while the domestic corporation
would be an injunction against such use of such name, yet where
entitled to
used with an addition which prevents it from being misleading, the statute
is not infringed.!^ "The president and directors of" has been held not a
part of a bank's name.^^
§ 31 (2) Change of Name. —Power Change and Effect.

to —
While the state, by its legislature, may change the name of a corporation,
and to this extent recognize its then existence as a corporation, it does not
thereby assure to it any other or different franchises than those which it
is, at the time of such recognition, entitled to.^^
15. Erb. V. Grim'es, 94 Md. 92, 50 vestment business within the mean-
Atl. 397, construing Maryland Code, ing of the statute. International Trust
art. 33, § 83. Co. V. International Loan, etc., Co.,
16. International Trust Co. v. In- 153 Mass. 271, 26 N. E. 693, 10 L. R.
ternational Loan, etc., Co., 153 Mass. A. 758.
271, 26 N. E. 693, 10 L. R. A. 758. The proper party to petition for in-
Laws 1889, c. 452, § 3, provides that junction under § 3 of the act, which
no foreign corporation shall carry on provides that any of its provisions
a banking, mortgage loan and invest- may, on petition, be enforced by in-
ment, or trust business in Massa- junction, is the party aggrieved by the
chusetts under a name previously in actions of the foreign corporation;
use by a domestic corporation, or so and a domestic corporation engaged
nearly identical as to mislead. Held, in loaning and investing moneys re-
that the name "International Loan & ceived by it on securities, and receiv-
Trust Company of Kansas City," or ing, discounting, and paying interest
the same with the addition of the ab- on deposits, is. an aggrieved party, if
breviation "Mo.," is not so nearly the the foreign corporation does business
same as "International Trust Com- under an identical name, or one so
pany" as to mislead; and a domestic similar as to mislead, as the business
corporation which has previously of the two corporations are the same
owned and done business under the or similar. International Trust Qô.v.
latter name is not entitled to an in- International Loan, etc., Co., 153
junction against a foreign corporation Mass. 271, 26 N. E. 693, 10 L. R. A.
to restrain it from doing business un- 758.
der the former name, though defend- 17. The corporate name of the bank
ant's corporate name is actually "In- incorporated by Act Cong. March 3,
ternational Loan & Trust Company," 1817, § 23, is "The Central Bank of
International Trust Co. v. Interna- Georgetown and Washington," and
tional Loan, etc., Co., 153 Mass. 271, not "The President and Directors of"
26 N. E. 693, 10 L. R. A. 758. said bank. Central Bank v. Tayloe,
A foreign corporation engaeed in Fed. Cas. No. 2,548, 3 Cranch, C. C.
the business of buying and selling in- 427.
-vestment securities, consisting chiefly 18. Power to change and effect
of its own debenture bonds, issued thereof.— State v. Butler, 83 Tenn. (15
asainst mortgaees taken by it in Lea.) 104, 111.
other states, and mercantile paper dis- Similarity of new name to that of
counted by it elsewhere and sent into existing corporation. — An order al-
Massachusetts for rediscount, is en- lowing a corporation to change its
gaged in the banking or loan and in- name from the "Bank of Attica" be-
1 B & B—
66 5ÂNKS AND BANKING. § 12
Changing Name by Special Act. An act which merely changes the —

name of a pre-existing corporation is not obnoxious to a constitutional
provision that "no corporation shall be created or its powers increased or
diminished by special laws."^^
Grant of Charter with Privilege to Change Name. — Sometimes a
charter carries the privilege of change of name.^"
Necessity for Submission to Popular Vote. —Where a banking cor-
poration has attempted to change its name under the provisions of an act
which does not apply to banking corporations (because not submitted to
a popular vote as required of all acts creating banking corporations or
amendments thereof) another statute, which ratifies and validates all such
attempted changes, and was adopted by popular vote, does not cause the
changed name to become the legal name of the corporation until the date
when said section went into efifect.^^
Location and Place of Business. 22 Residence of Bank.

§ 32. — —
If the charter of a bank says the bank shall be established at a particular
place, the charter itself means to say that the bank shall be a resident of
that place ;23 and where the charter of a bank provided that its operations
of discount and deposit should be carried on in the village of Ithaca, and
not elsewhere, and the cashier discounted a note at the city of New York,
canceling a debt due the bank from the person at whose request the dis-
count was made, and paying him the balance in cash, it was held that the
transaction was not a violation of the charter, and that the note was valid. 2*
Legislative Determination. And where the principal bank and —
cause of its similarity to the "Bank of Under Const. 111., art. 11, § 5,
Attica in Attica," another banking which provides that no acts creating
corporation, to the "Buffalo Commer- banking corporations, nor amend-
cial Bank," will not be disturbed on ments thereto, shall go into effect un-
the ground of its similarity to the less ratified by popular vote, the Act
"Bank of Commerce in Buffalo.'' In of March 26, 1872, providing for the
re Bank, 59 Hun 615, 12 N. Y. S. 648. change of corporate names (Rev. St.
19. Change of name by special act. 1889, c. 32, § 50), not having been sub-
— State V. Butler, 86 Tenn. (2 Pickle) mitted to popular vote, does not apply
614, 8 S. W. 586, construing art. 11, to banking corporations. Sykes v.
§ 8 ofTenn. Const, of 1870, and citing Pecple, 132 111. 32, 23 X. E. 391.
Wallace v. Loomis, 97 U, S. 146, 24 L. Location and place of business.
22.
Ed. 895; Jones v. Habersham, 107 U. — Control and regulation of foreign
S. 174, 27 L. Ed. 401, 2 S. Ct. 336. banks, see ante, "Foreign Banks,"
20. Grant of charter with privilege § 18.
to change name. — The Tennessee act Limitation of number of banks in a
of 1854, ch. 294, § 68, chartered the locality, see ante, "Xature and For-
Easlern Division Mining Company, mation in General," § 32; "Special
with banking powers, and the privi- Charters or Acts," § 25.
lege of changing its name and title Rights to establish branches, see
whenever deemed necessary. Under post, "Branches," § 33.
the power thus conferred, the name Place of exercise powers of foreign
of said corporation was changed to banks, see post, § 86 (3).
the Central Bank of Tennessee. Lil- 23. Residence of bank. Central —
lard V. Porter, 39 Tenn. (2 Head) 177. Bank v. Gibson, 11 Ga. 453; Davis v.
21. Submission to popular vote. — Central R., etc., Co., 17 Ga. 326.
Sykes v. People, 132 111. 32, 23 N. E. 24. Potter v. Bank (N. Y.), 7 Hilt
391. 530.
\\
branches of the state bank were located by the legislature at certain desig-
nated points, they could only be removed by the same power. ^5 And where
the requirements of law have been complied with a certificate of authority
to transact a banking business can not be refused by the secretary of state
because the business is to be conducted in a department store. ^^
§ 33. Branches —§ 33 (1) Distinct Corporate Existence and

Authority. —While it has been held that branch banks have a distinct cor-
porate existence and authority, by which they may contract for, and ac-
quire, the ownership of property,^^ the weight of authority is that a bank
and its branches constitute but one corporation. ^^ The relation is that of
principal and agent, e. g., that between the bank of the United States and
25. Legislative determination. — V. McVeigh, 61 Va. (20 Gratt.) 457,

Bank v. Woodson, 45 Tenn. (5 Coldw.) it was held,that the act of March 3,
176. 1861, authorizing payipent of debts due
The Farmers' Bank of Virginia, be- to mother banks within the federal
ing a domestic corporation in Vir- lines to be made to branch banks
ginia, before tlie division, and having within the confederate lines, was not
branches in the territory which be- obligatory upon the mother banks,
came West Virginia, from the date of but was unconstitutional as to debts
the division continued in law and in contracted before its passage, al-
fact a domestic corporation of the lat- though payment had been made in
ter state as effectually as it had been confederate money to a branch bank.
under the former state, and as such A bank located within the federal
was liable to be sued, and was not lines took possession, after the war,
liable to be proceeded against as a of the assets of its branch bank lo-
foreign corporation. Farmers' Bank cated within the confederate lines, the
V. Gettinger, 4 W. Va. 305;' Farmers' assets were much less than the in-
Bank v. Willis, 7 W. Va. 31. debtedness of the branch bank to the
26. In department store. Jones v.
Cook, 174 Mo. 100, 73 S. W. 489.
— mother bank. Held, that the bank did
not thereby sanction and ratify the
28. Branches Distinct— corporate acts of the branch bank done under
—
existence. McXeil v. Wyatt, 22 Tenn. the Acts of March 29 and May 16.
(3 Humph.) 125; Bonner v. Burke, 41 1862. Yeaton v. Bank, 62 Va. (21
Tenn. (1 Coldw.) 623. See post, Gratt.) 593.
"Powers," § 33 (3). Payment of debts to parent bank. —
29. Wallace v. State Bank, 7 Ark. The provision in the Code of Virginia,
61; Elliott V. Branch, etc., Bank, 4 that, "though a bank had a branch
Ark. 424; Bower v. Bank, 5 Ark. 234; * * * all its notes should be received
Murphey v. State Bank, 7 Ark. 57; in payment of debts to the bank,
Bank v. Dunn, 17 La. 234; Trezevant whether contracted at the parent
V. Bank (La.), 1 Rob. 465; Farmers' bank, or a branch," applied only while
Bank v. Garten, 34 Mo. 119; Bank v. the debts remained due to the bank.
Smith, 33 Mo. 3£4; Merchants' Bankz'. When a negotiable promissory note
Farmer, 43 Mo. 214; Tompkins v. discounted by the Farmers' Bank of
Branch Bank, 38 Va. (11 Leigh) 372; Virginia had been assigned by the
Mason v. Farmers' Bank, 39 Va. (12 bank to trustees, for the pavment of
Leigh) 84; Farmers' Bank v. Willis, antecedent debts, and the maker, hav-
7 W. Va. 31; Smith v. Lawson, 18 W. ing notice of the assifrnment, after-
Va. 212, 14 Am. Rep. 688. wards acquired notes of the bank, he
No estoppel on a bank establishing could not, with th^se, pav his debt so
a branch bank under § 9, Act Jan. 12, assigned, or set ''-'"-n nfif aeainst it.
1872, requiring it to treat the branch Farmers' Bank v. Willi's. 7 W. "^''a. 31.
bank as an independent bank, exists, Notes discounted bv branch. In —
since that would be to create an in- Smith V. Lawson, 18 W. Va. 212, 14
dependent corporation, which it could Am Rep. 688. it was held, that the
not do. Worth v. Bank, 122 N. C. 397, mother bank has a ris'ht to receive
29 S. E. 775. payment of a negotiable note dis-
Construction of statute. — In Bank counted by the branch.
68 BAXKS AND BAXKIN'G. § 33 (4)
its branches.*" A statute defining "branch banks" has been held not to
include branches of foreign banking corporations, these being included un-
der "banks."si
§ 33 (2) Creation. —The creation of branch banks by the legislature

is constitutional,* 2 and a clause in the constitution providing that the gen-
.eral assembly may incorporate one state bank, and branches, does not pro-
hibit the establishment of one banking institution, with any number of
offices of deposit to transact its business ; and it may locate these offices
at as many points as it may deem advisable,** in the absence of a charter
restriction,** or a statutory one.*'' But there must be legislative authority
before a bank can establish a branch.**'
§ 33 (3) Powers. —The powers of branch banks are limited to the

authority delegated to them by charter,*'^ and even the conferring of au-
thority by charter, which is opposed to the incorporating clause and the
general objects of the charter, is void.*^
—
Acquisition of Property. Branch banks have a distinct corporate ex-
istence by which they may contract for and acquire property, the title to
which, however, becomes vested in "the principal bank in whose name suit
can be maintained for its recovery.**
§ 33 (4) Actions. —And while it has been held that a branch bank
Relation of principal and agent.

30. and the transaction of its business,
-
— Bank
v. Goddard, Fed. Cas. Xo. 917, without the express authority of an
5 !Mason 366; Farmers' Bank v. Calk, act of assembly of this commonwealth
4 Ky. L. Rep. (abstract) 617; Alurphey to do so," the penalty being a for-
V. State Bank, 7 Ark. 57. feiture of charter, is inoperative so far
31. Flumerfelt r. Engle, 50 Wash. as it refers to banks chartered by the
207, 96 Pac. 1045. laws of other states. Bowman v. Cecil
32. Constitutional exercise of leg- Bank (Pa.), 3 Grant Cas. 33.
islative power. People v. —
Marshall 36. Legislative authority essential.
(111.), 1 Oilman 672; Farmers' Bank v. — Bruner v. Citizens' Bank, 134 Kv.
Garten, 34 :\Io. 119. 283, 120 S. 345. W.
33. Number and location of offices 37. Authority limited. — State z\ Ash-
—
unrestricted. State v. Ashley, 1 Ark. ley, 1 Ark. 513.
513. The local boards of a state bank
34. Charter restriction. ^^'here a — can not pass any by-law or ordinance
bank is located in one county by its affecting any other part of the cor-
charter, it violates its charter by es- poration than that over which they
tablishing an agency in another respectively preside, and even then
county, where it receives deposits and their authority is subjected to the con-
buys and sell exchange; but it may trol of the
central board. State v.
lawfully have an agency to redeem its Ashley, Ark. 513.
1
bills. . People v. Oakland County Bank 38. State r. Ashley, 1 Ark. 513.
(Mass.), 1 Doug. 282. Ratification of acts of branch bank.
35. Statutory restriction — Scope.— — Yeaton i\ Bank. 62 Va. (21 Graft.)
Act April 16, 185.0, § 50, providing that 593. See ante, "Distinct Corporate Ex-
"each and every bank in this com- istence and Authority," § 33 (1).
monwealth, or any other state,
hereby prohibited from establishing
is 39. Acquisition of property.
Wyatt, 22 Tenn.
M'Neil —
i: (3 Humph.) 125;
* * * any branch or agency for the Bonner Burke, 41 Tenn. (l Coldw.)
v.
transaction of banking business * * * 623. See, however, ante, "Distinct
at any other place than that fixed and Corporate Existence and Authority,"
named in its charter for its location § 33 (1).
may sue and be sued as a corporation,**' yet the better rule is that such
suits must be brought by or against the mother bank.*^
— —
Garnishment Duty of Branch. It is the duty of a branch bank,
when served with garnishee process, to make the fact known within the
shortest time reasonably practicable to the main bank and to its branches,
where it is known that the depositor whose funds have been garnished has
an account with the other branch.* ^
§ 34. Constitution, Charter and By-Laws*3_§ 34 (1) In Gen-

eral. — Collateral Attack on Charter.— The question as to whether a
bank has violated its charter, can not be inquired into in a collateral pro-
ceeding. This must be done in a proceeding having that single object in
view.**
§ 34 (2) Charter as Notice. —

Provisions of Charter Bind Third
—
Persons. Persons dealing with a banking corporation must take notice of,
and are affected by the provisions contained in its charter.*" But while
knowledge of the provisions of a state bank charter is presumed,*^ this is
not true of the charter of a private bank, which stands on the footing of
a special private act.*^
§ 34 (3) By-Laws.*" — —
Adoption. Banks may enact by-laws to reg-
ulate the means of attaining their corporate ends but these by-laws must ;
be reasonable and consistent with the general laws of the land; and whether
they be so, a court must determine.'^*' They must not be in restraint of
trade, as one restricting alienation of stock has been held to bc^"^ A stat-
40. Actions. — Branch v. Rhew, 37 47. Charter of state bank. All per- —
Miss. 110. sons within the limits of the state are
41. Elliott V. Branch, etc., Bank, 4 presumed to know the purpose of the
Ark. 424; Wallace v. State Bank, 7 creation of the state bank, and the na-
Ark. 61; State v. Ashley, 1 Ark. 513; ture, character and extent of its pow-
Bower v. Bank, 5 Ark. 334; Bank v. ers. Bank v. Woodson, 45 Tenn. (5
Dunn, 17 La. 234; Bonner v. Burke, 41 Coldw.) 176. See, also, Nashville v.
Tenn. (1 Coldw.) 623; Mason z/. Farm- Bank, 31 Tenn. Swan) 269.
(1
ers' Bank, 39 Va. (12 Leigh) 84; 48. Private King v. Doo-
bank. —
Tompkins v. Branch Bank, 38 Va. (11 little, 38 Tenn. (1 Head) 77.
Leigh) 372. 49. By-laws of savings bank as part
42. —
Garnishment Duty of branch. of contract with depositor, see post,
—Bank Clark, 108 111. 163.
v. "By Laws or Pass Books as Part of
43. —
Charter as contract. See ante. Contract," § 300.
"Charter as Contract, and Amend- Rules for transaction of business
ment or Repeal," § 23 (3b). with public, see post, "Rules of Bank,"
44. Collateral attack on charter. — § 88.
Crump V. United States Min. Co., 48 50. —
Adoption Must be reasonable.
Va. (7 Gratt.) 353, 56 Am. Dec. 116; —State v. Bank, 5 Mart. (X. S.) 337.
Banks v. Poitiaux, 24 Va. (3 Rand.) Restraint of trade Alienation
51. —
136, 15 Am. Dec. 706. See post, of —
stock. The right of alienation is
"Grounds for Forfeiture of Franchise an incident of property, and a by-law
or Dissolution," § 68. of a bank prohibiting the alienation
46. Provisions of charter as bind- of stock therein, or putting restric-
—
ing third persons. Bohmer v. City tions thereon, is void, as being in re-
Bank, 77 Va. 445; Hays v. Bank, 18 straint of trade. Moore v. Bank, 52
Tenn. (AI. & Y.) 179. Mo. 377.
70 BANKS AND "banking. § 34^
ute requiring corporations generally to adopt by-laws within one month

has been held not to apply to banks.^^
Regulation of Business. —The regulation of its business and division
into departments is the proper subject of a by-law,^^ or the regulation of
stock transfers and the reservation of a lien.^*
Construction. —A by-law of a bank is a contract between the stock-
holders; and the ordinary rules of construing contracts apply in its con-
struction.56 The construction to be placed on the by-laws and resolutions
of an incorporated bank, in evidence in a case, is for the court. ^^
Mode —Evidence of the cashier of a bank as to what the by-
of Proof.
laws of the bank are inadmissible.^^ is
Binding Force. —Although an incorporated bank be authorized to make

by-laws, rules and regulations, etc., such by-laws and rules can not affect
the rights or interests of third persons.^^
§ 34^-. Repeal or Amendment. Power of Legislature to Repeal,—

—
Alter or Modify. Under the power reserved in the charter of a private
banking corporation, to repeal, alter or modify the charter, the legislature
may repeal the charter, but can not modify it without the consent of the
corporation. But if the corporation refuses to consent to the modification,
itmust discontinue its business as a corporate body.^^ And the acceptance
by the stockholders must be unanimous, where the alterations are funda-
mental.'"*'
52. Smock V. Farmers' Union State plicable to corporations, or by reason

Bank, 22 Okl. 835, 98 Pac. 945. of the provisions of its charter, it is
53. Regulation of business. Pal- — competent for the legislature to re-
mer v. Yates, 5 N. Y. Super. Ct. 137. strict it, or to take it away alto-
54. Regulation of stock transfers gether. Of course this right of the
and liens. — Lockwood v. Mechanics' state to alter or repeal a charter,
Nat. Bank, 9 R. I. 308, 11 Am. Rep. where the legislature has reserved
253. that power, is undoubted. Robinson
55. Construction. —
In re Dunkerson, v. Gardiner, 59 Va. (18 Graft.) 509.
Fed. Cas. No. 4,156, 4 Biss. 227. An action of a branch bank, not hav-
56. Construction of by-laws for ing been assented to by the mother
—
court. Jumper v. Commercial Bank,
48 S. C. 430, 26 S. E. 725.
bank, did not operate to amend the
charter of the mother bank. Yeaton
57. Mode of proof— Evidence of v. Bank, 62 Va. (21 Gratt.) 593.
cashier. —
Lumbard v. Aldrich, 8 N. H. Receipt of banknotes in payment of
31, 28 Am. Dec. 381. —
taxes. The legislature of Tennessee
58. Binding force —
Interests of third had the right, at any time, to repeal
persons unaffected. Farmers', —etc., so much of the charter of the Bank of
Bank v. Smith, 19 Johns. 115. Tennessee, as made it the duty of the
As to showing mistake in account tax collectors to receive its bills or
of deposits, see post, "Making, Re- notes, in payment of all taxes due the
ceipt, and Entry of Deposits in Gen- state. Furman, etc., Co. v. Nichol, 43
eral," § 121. Tenn. (3 Coldw.) 432.
As
to liability for special deposits, 60. Acceptance by stockholders. —
see post, "Special Deposits," § 153. Legislative alterations, in the charter
59. Power of legislature to repeal, of a private corporation, when merely
alter or modify. —
Yeaton v. Bank, 62 auxiliary and not fundamental changes
Va. (21 Gratt.) 593. of the same, may be accepted by a
Where a bank is doinar business un- majority of the corporators, and such
der the general principles of law ap- acceptance will bind the whole; but,
§ 34/2 BANKING CORPORATIONS AND ASSOCIATIONS. n
—
Submission to Popular Vote. Where a constitutional provision re-
quires all amendments to acts authorizing banking corporations to be sub-
mitted to popular vote, this must be done as to all material amendments.*^
Action under New and

Old Charter Both. A banking corporation —
already in being, acting under a former charter or prescriptive usage, which
accepts a new charter before the expiration of the old, may still act under
the former, or partly under both.^^
—
Impairment of Obligation of Contracts. The power can not be ex-
ercised to impair the obligation of a contract, such as one which the cor-
poration has entered into with a third party.^^
Effect of Secession on Rights of State Bank. The acts by which —
it was attempted to declare a state independent, and to dissolve her con-
nection with the Union, had no effect in changing the charter of a bank
therein, but it had the same powers after as before these acts, to carry on
a legitimate banking business."*
if such alteration are fundamental, this commonwealth to go into liquida-

radical, or vital, the acceptance must tion," is not obnoxious to the charge
then unanimous. Woodfork v.
be of interfering with vested rights or
Union Bank, 43 Tenn. (3 Coldw.) 488. impairing the obligation of contracts.
61. Submission of material amend- Robinson v. Gardiner, 59 Va. (18
ment to popular vote. ^Hunt v. Na-— Graft.) 509.
tional Sav. Bank11 N.
(111.), E. 170, The power of the legislature to
affirmed on rehearing in 139 111. 618, change, modify, enlarge or restrain, a
22 N. E. 288. banking corporation, is limited to
62. Action under new and old char- such measures as are merely ancillary
ter both. —
Woodfork v. Union Bank, to the main design of the corporation.
43 Tenn. (3 Coldw.) 488. It can not repeal, impair, or alter the
63. Impairment of obligation of rights and privileges conferred by the
—
contracts. Under the reserved power charter, against the consent, and with-
of the legislature "to alter, modify, or out the default of the corporation, ju-
repeal a charter of any bank," it has dicially ascertained and declared.
not the power to change or modify an Woodfork v. Union Bank, 43 Tenn.
act of incorporation in such a way as (3 Coldw.) 488.
to afifect in a material particular, a An act which repeals so much of a
contract which the corporation has previous act as conferred banking
entered into with a third party. Such powers upon the corporations created
an exercise of legislative power would by said act, is a valid and constitu-
be unconstitutional and invalid, be- tional enactment, where the right to
cause it would impair the obligation alter or repeal was reserved. Fergu-
of a contract. Bank v. McVeigh, 61 son V. Miners, etc., Bank, 35 Tenn.
Va. (20 Graft.), 457; Yeaton v. Bank, (3 Sneed) 609.
62 Va. (21 Graft.) 593; Durfee v. Old See ante, as to impairment of the
Colony, etc., R. Co. (Mass.), 5 Allen contract with the corporation itself,
230; Hamilton Mut. Ins. Co. v. Ho- "Charter as Contract, and Amendment
bart (Mass.), 2 Gray 543. of Record," § 23 (3b).
But where the general assembly has 64. Effect of secession on rights of
reserved the right to alter or repeal state bank. —
State v. Bank, 64 Tenn.
the charter of a bank, an act en- (5 Baxt.) 1; Lane & Co. v. Bank, 56
titled "An act requiring the banks of Tenn. (9 Heisk.) 419.
CHAPTER III.
B. Capital, Stock and Dividends.

§ 35. Statutory Provisions.
§ 36. Amount of Capital and Shares.
§ 37. Increase of Capital Stock and Number of Associates.
§ 37 Mode and Validity.
(2)
§ Apportionment and Disposition
37 (3) of Increased Stock.
§ 38. Reduction of Capital Stock.
§ 38 (1) In General
§ 38 (2) Mode and Validity.

§ 38 (3) Disposition of Proceeds of Surrendered Stock
§ 38 (4) Relief against Reduction.
§ 3854. Surrender of Stock to Bank.
§ 39. Subscription to and Issue of Stock.
§ 39 (1) Right to Subscribe.
§ 39 (2) Form and Requisites, Validity and EffecL
§ 39 (2a) Bona Fides of Subscription.
§ 39 (3b) Form and Sufficiency.
§ 39 (3c/ Nature and Eflfect of Obligation.
§ 39 (2d) Rescission of Subscription.
§ 39 (3) Oversubscription and Overissue.

§ 39 (4) Stock Certificates.
§ 39 (5) Payment.
§ 39 (5a) Medium.
§ 39 (5b) Time.
§ 39 Assessments or Calls for Payment.
(5c)
§ 39 What Constitutes Payment.
(5d)
§ 39 (5e) Presumption and Proof of Payment.
§ 39 (6) Stock Mortgages and Bonds.
§ 39 (7) Liability for and Collection of Unpaid Balances.
§ 39 (7a) In General.
§ 39 (7b) Persons Liable.
§ 39 (7ba) State.
§ 39 (7bb) Married Women.
§ 39 (7bc) Trustees.
§ 39 (7bd) Assignor or Transferrer.
§ 39 (7be) Assignee or Transferee.
§ 39 (7c) Facts Relieving from Liability.
§ 39 (7ca) Banks Having No Legal Existence.
§ 39 (7cb) Irregularity of Organization.
§ 39 (7cc) Irregularities in Subscription.
§ 39 (7cd) Fraud and Misrepresentation.
§ 39 (7ce) Agreements Relieving against Liability.
§ 39 (7cf) Payment, Release or Discharge.
§ 39 (7cg) Redemption of Share of Bank's Bills.
§ 39 (7ch) Reduction of Capital Stock.
§ 39 (7ci) Part of Shares Assessed.
CAPITAL, STOCK AND DIVIDENDS. 73
§ 39 (7cj) Estoppel of Director Who Became Creditor.

§ 39 (7ck) Collusion between Bank and Judgment Creditors.
§ by Bank.
39 (7cl) Purchase of Shares
(7cm) Illegal Transaction of Business.
§ 39
§ 39 (7d) Ascertainment of Balances Due and Adjustment of Lia-
bilities.
§ 39 (7e) Operation of Assignment for Benefit of Creditors.

§ 39 (7f) Enforcement.
§ 39 (7fa) Levy of Assessment and Sale of Stock.
§ 39 (7fb) Nature and Form of Action.
§ 39 (7fc) Jurisdiction.
§ 39"(7fd) Limitations and Time to Sue.
§ 39 (7fe) Appearance and Process.
§ 39 (7ff) Parties.
§ 39 (7fra) Parties Plaintiff.
§ 39 (7flfb) Parties Defendant.
§ 39 (7fg) Pleading.
§ 39 (7fh) Set-Ofif.
§ 39 (7fi) Evidence.
§ 39 (7fj) Findings and Judgment.
§ 40. Transfer of Stock.
§ 40 (1) Assignability.
§ 40 (2) Persons Who May Acquire or Sell.
§ 40 (2b) Directors of Bank.
§ 40 (2c) Bank Itself.
§ 40 (3d)Bank Purchasing Stock in Other Bank.
§ 40 (3) Validity, Manner and Sufficiency.
§ 40 (3a) Fraud or Misrepresentation.
§ 40 (3aa) Effect.
§ 40 (3ab) Rescission.
§ 40 (3b) Authority from Holder or Power of Attorney.
§ 40 (3c) Form and Sufficiency.
§ 40 (3ca) In General.
§ 40 (3cb) Certificate Containing Blank Form of Assignment.
§ 40 (3cc) Compliance with Formalities and Rules.
§ 40 (3cca) In General.
§ 40 (3ccb) Right to Establish and Enforce.
§ 40 (3ccba) In General.
§ 40 (3ccbb) Particular Rules and Formalities.
§ 40 (Sccbba) Consent of Directors.
§ 40 (3ccbbb) Production and Cancellation

Old Certificates.
of
§ 40 (3ccbbc) Entry on Bank's Books.
§ 40 (3ccc) Waiver of Compliance with By-Laws.
§ 40 (3cd) Issue of New Stock Certificate.
§ 40 (3d) Pledge or Collateral Security
§ 40 (3e) Gifts.
§ 40 (3f) Usurious Transfers.
§ 40 (4b) Rights and Liabilities of Transferrer.
§ 40 (4c) Title, Rights and Liabilities of Transferee.
§ 40 (4ca) In General.
§ Unpaid Balances and Assessments.
40 (4cb) Liability for
§ Absence of Contract.
40 (4cba) In
§ 40 (4cbb) Assumption by Purchaser.
§ 40 (5) Refusal of Bank to Allow Transfer.
§. 40 (5a) Right to and Liability for Wrongful Refusal.
§ 40 (5b) Compelling Transfer and Action for Damages.

§ 40 (5ba) Jurisdiction and Form of Action.
§ 40 (5bb) Limitations.
§ 40 (5bc) Process.
§ 40 (5bd) Parties.
§ 40 (5be) Evidence.
§ 40 (5bf) Variance.
§ 40 (5bg) Judgment.
40 (6) Restraining Transfer of Stock.
§
§ 40J4. Liability of Stock for Debts of Stockholders.
§ 40^ (1) In General.
§ 40J/2 (2) Attachment, Execution, Judicial and Tax Sales.
, § 41. Profits and Dividends.
§ 41 (1) Power and Discretion of Directors.
§ 41 (la) In General.
§ 41 (lb) Insolvent Banks.
§ 41 (Ic) Tax Dividends.
§ 41 (2) Accumulation of Surplus Fund.
§ 41 (3) Payment of Dividends.
§ 41 (3a) Duty to Pay.
§ 41 (3b) To -Whom Payable.
§ 41 (3c) Medium.
§ 41 (3d) Application to Debt of Stockholders.
§ 41 (3e) Interest.
§ 41 (4) Actions to Recover or to Enjoin Misapplication.
§ 43. Lien of Bank on Stock and Dividends.
§ 42 (1) Creation and Existence.
§ 42 (la) At Common Law.
§ 42 (lb) Under Charter or Statute.
§ 42 (Iba) In General.
§ 42 (Ibb) Retroactive Effect of Statutes.
(Ibc) Reservation by a By-Law.
§ 42
§ 42 (Ibd) Contract or Stipulation in Certificate
§ 42 (Ic) Stock on Its Face Transferable,
§ 42 (Id) Stock Held in Trust.
§ 42 (le) Shares Pledged to the Bank.
§ 43 (If) Bank Prohibited from Dealing in Its Own Stock.
§ 42 (Ig) Death of Stockholder.
§ 43 (2) Nature, Operation and Effect.
§ 42 (3b) As Extending to Dividends.
§ 43 (2c) Debts Secured.
Stockholders.
§ 42 (2da) General Rule as to Notice of Lien.
§ 42 (3db) Assignees and Purchasers.
§ 36 CAPITAI,, STOCK AND DIVIDENDS. 75
§ 42 (2dba) In General.
§ 42 (2dbb) Indebtedness Incurred before Notice of
Transfer.
§ 42 (2dbc) Debts Contracted after Notice of Assign-
ment.
§ 42 (2dbd) Loan to Stockholder Larger than Author-
ized.
§ 42 (2dbe) Certificate for Repayment of Cancelled
Stock.
§ 43 (3dc) Pledges.
§ 42 (2dd) Creditors and Purchasers at Execution or Sheriff's
Sale.
§ 43 (2de) Right to Refuse Transfer.
§ 42 (3) Discharge, Estoppel, Forfeiture, Release or Waiver.
§ 42 (3a) Waiver or Discharge.
§ 42 (3aa) Authority.
§ 42 (3ab) What Constitutes.
§ 43 (3b) Estoppel.
§ 42 (3c) Forfeiture.
§ 43 (4) Enforcement and Settlement.
§ 42 (4a) Manner.
§ 42 (4b) Form of Action.
§ 42 (4c) Jurisdiction.
§ 42 (4d) Process.
§ 42 (4e) Limitations.
§ 43 (4f) Pleading.
§ 43 (4g) Redemption.
§ 42J4. Voting Power of Stock.
B. CAPITAL, STOCK AND DIVIDEND S.i

§ 35. Statutory Provisions. —The general rules as to the validity and
construction of statutes apply to statutes respecting bank stock and stock-
holders.^
§ 36. Amount of Capital —

and Shares. The capital of a bank is not
an ideal, fictitious, arbitrary sum of money set down in the articles of as-
sociation, but is composed of substantial property, and is that which gives
1. Of national banks, see post, impairment of capital, see post,

"Capital and Shares," § 241; "Lien of "Rights and Liabilities as to Bank,"
Bank on Stock or Dividends," § 345. § 43.
Power of bank to purchase and hold of deposit in actions to re-
Set-off
its own stock, see post, "Purchasing cover dividends wrongfully paid, see
and Holding Bank's Own Stock," § 91. post, "Assets and Receivers on In-
Power of bank to purchase and hold solvency," § 77.
stock in other banks or corporations Civil liability of officer for declar-
in general, see post, "Purchasing and ing dividends after insolvency, see
Holding Stock in Other Corporations," post, "Civil Liability on Insolvency,"
§ 92. § 82.
Stock as security for loan by a bank 2. Construction of "Hereafter." —
lo stockholders, see post, "Loans to See post, "Lien of Bank on Stock and
Stockholders and Stock as Security," Dividends," § 42.
§ 180. Amount of capital. See —
post,
Assessment of stock to make good "Amount of Capital and Shares,'' § 36.
value and solidity to the stock of the institution. It is the foundation of

its credit in the business community.^ Capital used in the business of bank-
ing none the less so because it is borrowed. The mere fact that the
is
money permanently invested in the business is borrowed does not alter its
character as capital, but a temporary loan obtained to meet an emergency
is not capital.*
The capital stock the whole undivided fund paid in by
of a bank is
which is vested in the corporation, to be

the stockholders, the legal right to
used in trust for the benefit of the members.^ If a large surplus be ac-
cumulated and laid by, that does not become a part of it.®
Capital and Capital Stock Distinguishecf. "Capital" and "capital —
stock" of a bank, while sometimes used interchangeably, are not one and
the same thing. "Capital" includes the entire assets of the bank whether
represented by money paid in for stock, surplus, undivided profits or othei
property of the bank while "capital stock" represents only the total amount
derived from the issuance of the shares of stock.''
Capital Stock and Shares Distinguished. The capital stock of a —
bank, and the shares of the capital stock, are distinct things. ^ The shares
3. Nature of capital. Bank Tax. — Assessors (U. S.), 3 Wall. 573, 18 L.

Case, 2 Wall. 200, 208, 17 L. Ed. 793. Ed. 229; New York v. Commission-
And see Per Story, J., dissenting, ers (U. S.), 4 Wall. 244, 18 L. Ed. 344;
Briscoe v. Bank (U. S.), 11 Pet. 257, Bradley v. Illinois (U. S.), 4 Wall.
9 L. Ed. 709. 459, 18 L. Ed. 433; First Nat. Bank v.
Individual and corporate alike. — Kentucky (U. S.), 9 Wall. 353, 19 L.
"There is no difference in the business Ed. 701; Bank v. Tennessee, 161 U. S.
of banking as conducted by individuals 134, 40 L. Ed. 645; Bank v. Tennes-
from the business as conducted by see, 163 U. S. 416, 41 L. Ed. 211; New
corporations, which would warrant Orleans v. Citizens' Bank, 167 U. S.
any different meaning to be given to 371, 42 L. Ed. 202, 17 S. Ct. 905.
the term capital in the two cases. Nor "The shares of capital stock are
can any good reason be stated why a usually represented by certificates.
distinction should be made between Every holder is a cestui que trust to
banking corporations and individual the extent of his ownership. The
bankers in this respect." Bailey v. shares are held and may be bought
Clark (U. S.), 21 Wall. 284, 22 L. Ed. and sold and taxed like other prop-
651. erty. Each share represents an ali-
4. Borrowed capital. — Bailey v. quot part of the capital stock. But
Clark (U. S.), 21 Wall. 284, 22 L. Ed. the holder can not touch a dollar of
651. the principal. He is entitled only to
5. Capital stock. —Union Bank v. share in the dividends and profits.
State, 17 Tenn. (9
Yerg.), 490. Upon the dissolution of the institu-
The is the money paid
capital stock tion, each shareholder is entitled to a
or authorized or required to be paid proportionate share of the residuum
in as the basis of the business of the after satisfying all liabilities. The
bank, and the means of conducting its liens of all creditors are prior to his."
operations. It represents whatever it Farrington v. Tennessee, 95 U. S. 679,
may be invested in. Farrington v. 687, 24 L. Ed. 558.
Tennessee, 95 U. S. 679, 24 L. Ed. 558. The corporation, though holding and
6. Surplus. Farrington — z'. Ten- owning the capital stock, can not vote
nessee. 95 U. S. 679, 24 L. Ed. 558. upon it. It is the right and duty of
7. Capital and capital stock dis- the shareholders to vote. They in this
—
tinguished. West V. Newport News, way give continuity to the life of the
104 Va. 21, 51 S. E. 206. corporation, and may thus control
8. Capital stock and shares different and direct its management and opera-
things. —
Farrington v. Tennessee, 95 tions. Farrington v. Tennessee, 95 U.
U. S. 679, 24 L. Ed. 558; Van Allen v. S. 679, 24 L. Ed. 558.
§ 36 CAPITAL, STOCK AND DIVIDENDS. 77
of Stock are owned by the stockholders individually, but the capital stock
and the profits earned by its use belong to the bank.'' No portion of a
bank's capital stock is private. i** Bank stock consists of a certificate of
the bank that the stockholder is entitled to so many shares of the capital
stock of the bank. him to his proportion of the profits or divi-
It entitles
dends which may be declared from time to time, and, when the institu-
tion closes the business, to his proportion of the capital stock and profits
which may remain to be divided. The stock of an individual is, then, prop-
erty in his own hands and subject to his own control. ^^ Bank stock is per-
sonal property, 12 in the nature of a chose in action, having no locality j"^^
but it is not a legal right to any portion of the property or assets of the
corporation, but only an immediate right to receive a share of the dividends
as they are declared, and a remote right to a share of the effects upon the
The bank stock of an individual does not
dissolution of the institution. ^-^
consist of so much money owned by him in the bank; the money in the
bank is the property of the institution, to the ownership of which the stock-
holder has no more claim than a person has who is not at all connected with
the bank.15
Amount of Capital. —The amount of paid-up capital without which an
incorporated company or private person is prohibited from engaging in the
business of banking is fixed by statute.^^
State V. Farmers' Bank, 11 O.

9. § 28, Tenn. constitution of 1836, "is
94; State v. Franklin Bank, 10 O. 91; meant individual interest in the divi-
Bright-well v. Mallory, 18 Tenn. (lO dends as they are declared, and a right
Yerg.), 196. to a pro rata distribution of the effects
10. No portion of stock private. — of the bank on hand at the expiration
Nashville v. Bank, 31 Tenn. (1 Swan) of the charter," and not the capital
269; Bank v. Woodson, 45 Tenn. (5 stock of the bank. Union Bank v.
Coldw.) 176. State, 17 Tenn. (9 Yerg.) 490.
15. Union Bank v. State, 17 Tenn. (9
11. Brightwell v. Mallory, 18 Tenn.
Yerg.) 490; Brightwell v. Mallory, 18
(10 Yerg.) 196.
12. Personalty. —
Chapman v. National Tenn. (10 Yerg.) 196.
Amount of capital. Rosenberg
16. —
Bank, 56 O. St. 310, 47 N. E. 54, re-
versing 9 O. C. C. 79, 4 O. C. D. 252; 1).Weeks, 67 Tex. 578, 4 S. W. 899;
Stafford v. Produce Exch. Banking Engelke v. Schlenker, 75 Tex. 559, 12
Co., 16 O. C. C. 50, 8 O. C. D. 483. S. W. 999.
The stocks of incorporated banks Rev. St. 1899, § 1299, provides that
are personal property. It needed no no persons shall engage in the busi-
statutory enactment to make them so. ness of private bankers "without a
They are so, upon the common-law paid-up capital of not less than $5,000."
definition. Nashville v. Thomas, 45 Section 1278 provides that incorpo-
Tenn.' (5 Coldw.) 600. rated companies shall not engage in
the business of banking in cities with
National bank shares are personal
a population of 150,000 or more with
property. Chapman v. National Bank,
a less paid-up capital than $100,000,
56 O. St. 310, 47 N. E. 54, reversing 9
and § 1301 provides that all provisions
O. C. C. 79, 4 O. C. D. 252,
of the article, so far as the same are
13. Chose in action. —Union Bank applicable, apply to private bankers.
V. State, 17 Tenn. (9 Yerg.) 490; Mc- Held, that individuals desiring to en-
Laughlin V. Chadwell, 54 Tenn. (7 gage in the business of private bank-
Heisk.) 389. ing in a city of over 150,000 inhabitants
14. McLaughlin v. Chadwell, 54 are not required to have a paid-up
Tenn. (7 Heisk.) 389. capital of over $5,000. Jones v. Cook,
"By bank stock," as used in art. 2, 174 Mo. 100, 73 S. W. 489.
Presumption of Subscription of Minimum Stock. Creditors of a» —

bank have a right to presume that the minimum capital stock allowed by the
charter has been subscribed, from the commencement of business by the
bank, hence to the extent of the minimum Stock, the stockholders are liable. ^^
—
Value of Bank's Shares. The value of a bank's shares depends upon
the value of its franchise, capital, and property of all kinds, less the amount
of its debts. 1®
§ 37. Increase of Capital Stock and Number of Associates.'

—
Limitation of indebtedness, see ante, "Limitation of Indebtedness," § 13.
§ 37 ( 1 ) In General. —A bank may have trie right to increase its cap-

ital or the number of its associate members from time to time as is thought
proper,i8 but where the capital stock is limited by the act of incorporation,
it can not be increased without an enabling act.^^
Maximum and Minimum Capital.Â bank incorporated with the priv-

ilege of creating a stock not less than one sum, nor greater than another,
may commence business with the smaller capital, and afterwards increase
it to the larger. 21
§ 37 (2) Mode and Validity. —A banking corporation may increast

its capital stock only in the manner prescribed by its charter or by the
method prescribed by statute for increasing capital stock. The formalities
required by such charter or statute must be substantially complied with.^^
Thus compliance with requirements as to notice of a stockholders' meet-
ing,23 favorable action of the stockholders,-^ formalities as to filing and
17. Presumption that minimum stock 164 111. 427, 56 Am. St. Rep. 203, 45 N.
subscribed. — Hill
Silvey, 81 Ga.
v. E. 954.
500, 8 S. E. 808, 3 L. R. A. 150. 21. Maximum and minimum capital.
18. Value of shares. Rosenbery v. — — Gray v. Portland Bank, 3 Mass. 364,
Weeks, 67 Tex. 578, 4 S. W. 899; En- 3 Am. Dec. 156.
gelke V. Schlenker, 75 Tex. 559. 12 S. gZ. Mode and validity.—A corpora-
*^- ^' , . , . tion organized under the banking act
19. Increaseof capital or associates. ^^n increase its capital stock only in
—It was so held as to an association jê manner prescribed by § 12 of the
formed under the general banking act ^^^^ gg jn ^pp. 593 (1895) affirmed.
°f. New York of 1838. Comstock v. McNulta v. Corn Belt Bank, 164 111.
W'! °"ghby .(N. Y.), Labors Supp. 437 gg ^m. St. Rep. 303, 45 N. E. 954.
(Hill & Demo) 271. „„ xt r • , .
23. Notice of stockholders meeting.
,
„. T3 u n Bank /TD
20. Bank 1
z..
11
Schuylkdl r> \
(Pa.), 1 ,
1 _a state bank, desiring to increase
Pars. Eq. Cas. 180. .
Liability of stockholders to creditors, 24. Power

of directors without refer-
see post, "In General," § 47 (1).
Under Banking Act, § 2 (3 Starr &
ence to action of stockholders. —
resolution passed by a board of direct-
C. Ann. St. p.- 105; Rev. St. c. 16a), ors can not fix in advance a time for
which provides that the application to increasing the capital stock of a cor-
the auditor for permission to organize poration without reference to the
shall state the amount of capital, an action of the stockholders, or the
application which states the capital method prescribed by statute for in-
stock at $100,000, with a purpose to increasing stock. 63 \\\. App. 593 (1895)
crease it to $300,000, has no effect in affirmed. McNulta v. Corn Belt Bank,
the matter of increasing the capital 164 111. 437, 56 Am. St. Rep. 203, 45 n'
stock. McNulta v. Corn Belt Bank, E. 954.
§ 37 (3) CAPITAI,^ STOCK AND DIVIDENDS. 79
publication of the amendment of the articles of incorporation,^^ submis-

sion of the proposed amendment to the vote of the people,^^ and payment
of the amount of increase,^'' is essential to a valid increase of the capital
stock of a bank.
A fraudulent overissue of certificates of stock by a bank cashier
does not operate an increase of the capital stock of the bank.^s
37 (3) Apportionment and Disposition of Increased Stock.

§ —
Where a banking corporation increases its capital stock, a stockholder or-
dinarily has the right to acquire a quota of the increased shares in propor-
tion to the amount already owned by him.^s
its capital stock in 1891, when the only- all amendments

to acts authorizing
statutes in force as to corporations banking corporations shall be sub-
were Comp. St. 1887, div. 5, c. 25, regu- mitted to the vote of the people, etc.
lating corporations generally, and Hunt V. National Sav. Bank (111.), 11
chapter 27, applicable to banks, hav- N. E. 170, affirmed on rehearing 129
ing fully complied with division 5, c. 111. 618, 22 N. E. 288.
27, § 526, declaring it shall be lawful 27. Payment "in cash" for whole
for any corporation organized under amount of increase. Where a part of—
the act by its by-laws to provide for an increase of capital stock of a bank
an increase of capital stock, etc., such was purchased by the president, and
increase was valid, though it did not paid for with city funds deposited in
comply with chapter 25, §§ 468, 469, re- other banks in his name as city treas-
.fluiring six weeks' notice of a stock- urer, such stock is not absolutely void,
holders' meeting to increase the stock. though Gen. St. 1878, c. 33, § 18, as
Cascade Bank v. Yoder, 39 Mont. 202, amended by Gen. Laws 1881, c. 77, §
103 Pac. 499. 3, provides that "no increase of cap-
25. Filing and pv.blication of amend- ital stock shall be valid until the whole
—
ment of charter. Gen. St. 1878, c. 83, amount of the increase proposed is
§ 18 (Gen. St. 1894, § 2498), providing paid in cash." Dunn v. State Bank, 59
that it shall be lawful for any associa- Minn. 221, 61 N. W. 27.
tion organized under the provisions of 28. Fraudulent overissue by cashier.
chapter 33 to provide by its articles of — A bank cashier having fraudulently
association for an increase of capital overissued certificates of stock, the
stock, authorizes banks organized bank, under authority of the legisla-
under said chapter to increase their ture, took part of its earnings, with
capital stock by amending the articles which it purchased and withdrew
of incorporation though the same nearly the surplus stock over the
all
formalities as to the filing and publi- original capital. On the balance of
cation of the amendment are required this surplus, nothing had ever been
as are required of the original articles. paid into the bank. Held, that its
Palmer v. Bank, 72 Minn. 266, 75 N. capital stock had not been increased.
W. 380. Commonwealth v. Bank (Ky.), 9 B.
26. Submission to vote of people. — Mon. 1.
The Act of March 29, 1869, incorpo- 29. Apportionment of increas e. —
rating the "Kendall County Banking Under the act incorporating the bank
Company," provided that it should "be of Charleston (§ 5), providing that,
located in the county of Kendall," in at any time before the expiration of
that state, and that the limit of in- their charter, the said company may,
crease to the capital stock should be by paying a bonus of two and one-half
$150,000. The stockholders met June per cent, extend the amount of capital
1, 1872, and, under the act of March stock subscribed to a further sum of
26, 1872, relating to the changing of $2,000,000, to be paid in the same man-
names, locations, and stock of corpo- ner with that herein already provided
rations, etc., changed the name to for, the stockholders have the right to
"National Savings Bank," the location apportion the increased capital stock
from Kendall county to Cook county, among themselves. State v. Bank (S.
and increased the capital stock to C). Dud. 187.
$200,000. Held ultra vires, under Right to damages for denial of right.
Const. 18T0, art. 11, § 5, providing that — Where a banking corporation has
§ 38. Reduction of Capital Stock. —Oversubscription of stock, see

post, "Subscription to and Issue of Stock," § 39.
§ 38 (1) In General. —A banking corporation can not reduce its cap-

ital stock in the absence of charter or legislative authority.*"
§ 38
( 2 )
—
Mode and Validity. The formalities prescribed by the au-
thority under which a reduction of the capital stock of a bank is to be made
must be duly performed. A valid reduction pro tanto of a bank's capital
stock is not effected by the purchase of its own stock by the bank,^^ or by
withdrawing stock under the form of loans on private security.*^
§ 38 (3) Disposition of Proceeds of Surrendered Stock. — If a

bank reduce its capital stock without constraint, for the purpose of with-
increased its capital stock, a stock- withdrawn until its whole liabilities
holder can not recover damages of it are satisfied, applied only to banks of
for its action in refusing him the right issue, all its provisions being made
to acquire his quota of the increased with a view to protecting the circu-
shares, proportionate to the amount lating medium, and practically all
already owned by him, unless he has banks of that period being authorized
demanded the shares and ofifered to to issue circulating notes; and hence
subscribe and pay for them within a none of its provisions apply to banks
reasonable or fixed time. Bonnet v. of discount and deposit, as to which"
First Nat. Bank, 34 Tex. Civ. App. 613, an entirely new and a complete system
60 S. W. 335 (see 94 Tex. 703, no op.). was inaugurated by General Incorpo-
Measure o£ damages. Where there — ration Act 1875,
Brooks (Tenn.), 62
c. 142.
W.
Lellyett
596.
v.
has been an increase in the capital S.
stock of a corporation in which a Decline in value of security first ac-
stockholder has the right to share, the —
cepted. Act April 2, 1832 (incorporat-
measure of damages for denial of
a ing the Union Bank of Louisiana), §
such right is the excess of the market 34, relating to the reduction of the
value of the stock above its par value number of shares of stock when the
at the time of its issuance, with in- security ofifered by the subscribers to
terest on such excess. Bonnet v. the corporation is insufficient, does not
First Nat. Bank, 24 Tex. Civ. App. 613, authorize a reduction of the number
60 S. W. 325 (see 94 Tex. 703, no op.). of shares where the property first of-
30. Reduction of capital stock. — fered and accepted to secure the whole
becomes less valuable. Byrne v. Union
bank created with a capital stock lim-
ited by the act of incorporation can Bank Rob. 433.
(La.), 9
not diminish the capital but by a 31. Purchase of its own stock. —
license from the legislature. Bank v. Where a solvent banking corporation,
S.chuylkill Bank (Pa.), 1 Pars. Eq. Cas.
not in contemplation of insolvency,
180.
purchases its own stock in payment
of a previously existing debt due from
In the absence of a clause in a bank
a stockholder, such stock does not
charter authorizing a reduction of the
constitute a reduction pro tanto of the
capital stock to which it has been
bank's capital; the shares under such
raised under a discretionary power to
circumstances being treated as the
increase it, the question, as to whether
property of the bank, subject to be
any such power would exist, could not sold or held for the benefit of creditors
be raised, unless it clearly appears that and the remaining stockholders, to-
the corporation ordered the reduction
gether with any dividends earned
to be made. Neither equivocal acts, thereon. Draper v. Blackwell, 138 Ala.
nor inferences, nor unauthorized acts
183, 35 So. 110.
of a president or directors, will have
32. Withdrawing stock under tKe
the effect. Moses v. Ocoee Bank, 69 form of loans on private security, if
Tenn. (1 Lea) 398.
done with intent to reduce the effect-
Banks circulation and banks of
of ive capital "below the amount required
discount.— Acts 1859-60, c. 27 (Act Feb. by the charter, is a violation of the
6, 1860), providing that no part of the charter. State v. Essex Bank, 8 Vt
capital stock of any bank shall be 489.
§ 38/3 CAPITAL, STOCK AND DIVIDENDS. 81
drawing the excess capital above the amount to which

it was reduced, the
excess is and can not be retained as

distributable arnong the shareholders,^^
a surplus fund;^* but where the original capital had become impaired, the
stockholders have no right to a distribution of any part of such fund,^'^ with-
out provision being first made for payment of the bank's debts. ^®
§ 38 (4) Relief against Reduction. —A stockholder can not have

the benefits of an illegal reduction of the stock of a bank by recovering on
deposit tickets executed in lieu of the cancelled stock and in the same suit
obtain a decree annulling the transaction.^''
§ 38 1 . —
Surrender of Stock to Bank. Under a charter giving a bank
power do a banking business and exercise incidental powers, and vest-
to
ing the management of the business in the directors, the latter have no
power to agree that a stockholder may surrender his stock, and receive
back all, or any part of, the capital he has paid in.^'''''
33.Disposition of proceeds. Mc- — 36. State v. Bank, 65 Neb. 20, 90 N.

Cann First Nat. Bank, 112 Ind. 354,
v. W. 961, 91 N. W. 497.
14 N. E. 351; Wools V. First Nat. Bank,
Where a bank held as collaterals a
112 Ind. 600, 14 N. E. 255; Seeley v.
part of the stock of another bank, and
New York Nat. Exch. Bank (N. Y.), surrendered the same, and accepted in
4 Abb. N. C. 61, 8 Daly 400, affirmed
lieu thereof one-half in new stock and
in 78 N. Y. 608.
one-half in certificates of deposit is-
34. A portion of capital remaining
sued to the stockholders on the reduc-
after a reduction can not be retained
tion of the stock of the bank, as to
as a surplus fund. Seeley v. New
this reduction the bank stood in the
York Nat. Exch. Bank (N. Y.), 8 Daly shoes of an ordinary stockholder, and,
400, 4 Abb. N. C. 61, affirmed in 78 N.
where the certificates were issued
Y. 608.
35. Capital stock impaired. Mc- — without consideration, could not re-
cover against the receiver on its de-
Cann v. First Nat. Bank, 112 Ind. 354, posit certificates. State v. Bank, 65
14 N. E. 251; Wools v. First Nat. Bank,
Neb. 20, 90 N. W. 961, 91 N. W. 497.
113 Ind. 600, 14 N. E. 355.
Where bank subsequently realizes on 37. Relief against reduction. Plain-—
—
"bad debts." The capital of a national tiff recited that defendant bank re-
duced its stock, while worth its par
bank had become impaired by the non-
payment of the interest on some bills value, from $25,000 to $13,500; that on
and notes, which were among its as- the same day the bank, through its
sets, to the amount of $71,000; and, in cashier, paid its stockholders $17 on
order to avoid an assessment by the each $100 of their respective shares of
comptroller, the stockholders reduced stock, and executed its deposit tickets
its capital stock, and carried the bills for a like amount to the various stock-
and notes to the account of suspended holders of the bank, payable January
or "bad debts," which were not there- 1, 1897; and that the reduction of the
after included as assets, although re- stock of the bank, resulting as above
tained in its custody. Some years stated, was in violation of statute, and
afterwards the bank realized $75,000 at a time when the bank was solvent.
from collaterals pledged for the se- Plaintiff also sued on one of the cer-
curity of the bills and notes. On a tificates. The petition further charged
suit by one of the stockholders for the mismanagement of the affairs of the
purpose of compelling the bank to bank by the president and the cashier,
distribute to him a share of the and prayed for a receiver and full
amount realized, proportioned to the equitable relief. Held, that the remedy
amount of stock surrendered, held, at law was adequate. Mansfield z'.
that he could not recover. McCann v. Bank, 74 Mo. App. 200.
First Nat. Bank, 113 Ind. 354, 14 N. E. 37a. Surrender of stock to bank. —
251; Wools V. First Nat. Bank, 112 Ind. Pettibone v. Hawkins, 3 N. Y. Leg.
600, 14 N. E. 255. Obs. 210; Mathes v. Bates, Id. 313.
1 B & B—
82 BANKS ANIX BANKING. § 39
Subscription to and Issue of Stock— § 39 (1) Right to

§ 39.
—
Subscribe. ^8 The right of the public or any individual,^^ the state, or any
college, ecclesiastical society, school corporation, or association for chari-
table purposes, to subscribe for the stock of an incorporated bank, and the
right of the bank to receive subscriptions from such person, etc., depend
upon its charter or the law authorizing it to receive subscriptions.***
All the stock of a state bank may be owned by the state.*i
An attorney may subscribe for bank stock in the name of his principal.*^
Unsubscribed stock is held in trust to be disposed of for all the sub-
scribers and a subscriber who is in arrears in his installments is entitled to
his proportion thereof.**
—
Denial of Right. The refusal to allow a person entitled to subscribe
for stock in a bank must be complained of by such person and not by the
state or a third person,** and the party complaining must show a demand
and offer to subscribe.* ^
38. Right of bank to purchase and state, and none of its stock is private.
hold its own
stock, see post, § 225. Nashville v. Bank, 31 Tenn. (1 Swan)
39. Right to subscribe. State v. — 269.
Bank (S. C), Dud. 187. And see Mc- 42. —
Attorney. The provision in the
Culloch V. State, 11 Incf. 434. charter of a bank tliat "it shall not be
40. College, school, society, etc. — lawful for any person to subscribe for
The Act of 1855, which provides that shares in the name of other persons"
"all banks and banking associations does not exclude a bona fide subscrip-
organized under the Act of 1852, tion by an attorney in the name of his
authorizing the business of banking in principal. But the commissioners to
this state, shall, in addition to the num- take the subscription may, if they
ber of shares authorized, be opened to doubt the good faith of the subscrip-
subscription from the funds of this tion, require further evidence than the
state, the school fund, or from the mere production of a power of at-
funds of any college, ecclesiastical so- torney, to remove their doubts. State
ciety, school corporation, or associa- V. Lehre (S. C). 7 Rich. Law 234.
tion for charitable purposes, etc., pro-
vided that such additional subscrip-
43. Unsubscribed stock. —Where a
bank incorporated when only a por-
is
tions shall in no case exceed ten per tion of its capital stock is subscribed,
cent of the amount of the capital of under a law authorizing such action,
any bank or banking association the bank holds the balance of stock in
actually paid in," applies only to the trust to be disposed of for all the sub-
banks organized under the Act of 1852, scribers, so that it can not divide such
and not to the chartered banks. Char- balance only among those who have
itable Soc. V. Farmers' etc.. Bank, 26 paid up their installments, denying to
Conn. 60. those in arrears their proportion
Within the meaning of § 7 of the thereof. Reese v. Bank, 31 Pa. 78, 72
Act of October, 1811, constituting the Am. Dec. 726.
Eagle Bank a body corporate, and pro-
viding that the bank shall receive sub-
44. Denial of right. —
Under the act
incorporating the State Bank, it was
scriptions to its shares from the funds the duty of the commissioners to
of any college, ecclesiastical society, allow all who presented themselves at
school, or corporation for charitable the appointed time to subscribe, but
purposes, the "Trustees for Receiving their failure so to do must be com-
Donations for the Support of the plained of by those not allowed, and
Bishop," incorporated by the Act of not by the state upon a quo warranto
May, 1799, is a corporation for chari- against the bank, it being a mere ir-
table purposes. Bishop's Fund v. Eagle regularity. McCulloch V. State, 11 Ind.
Bank, 7 Conn. 476. 424.
41. Ownership by state. —
The Bank of 45. Demand and offer to subscribe.
Tennessee is a public corporation, act- —A stockholder of a bank entitled to
ing upon the funds and credit of the a pre-emption of additional stock is-
§ 39 (2b) CAPITAL, STOCK AND DIVIDENDS. 83
§ 39 (2) Form and Requisites, Validity and Effect— § 39 (2a)

Bona Fides of Subscription. —When commissioners are appointed by-
law, to receive subscriptions of stock to a bank, and the subscriptions are

required to be bona fide, they have the discretion to determine vi^hat is a
bona fide subscription.* ^
Fraudulent Subscriptions. —
Where the subscriptions were fraudu-
lently made, with a view to evade the provisions of the charter, the law will
hold the parties bound by their subscriptions, and compellable to comply
with all the terms and responsibilities imposed upon them, in the same man-
ner as if they were bona fide subscribers. It will not make the subscrip-
tion itself a nullity, but it will deprive the subscribers of the power of avail-
ing themselves of the same, and such a fraud can not be set up to the injury
of subsequent purchasers of the stock who became bona fide holders of the
same, without participation in, or notice thereof.*^
—
39 (2b) Form and Sufficiency. An actual subscription for stock
§
in abank is not necessary. There may be a virtual subscription, deducible
from the acts and conduct of the parties ;** hence, no particular form is
essential to the validity of a contract of subscription for shares of stock in
a banking corporation. It is not necessary that the subscription should be
in writing. may be made by parol. It may be made in any way in which
It
other contracts may be made. Whenever an intent to become a subscriber

is manifested, even without a formal subscription, or where it is irregular,
the courts are inclined to infer the contract from acquiescence and accept-
ance of the benefits of membership.*'* When one accepts or assumes the
position and and claims the rights, privileges and emoluments of a
duties,
stockholder, and the bank accepts or acquiesces therein, such person is es-
topped to deny that he is a subscriber even though there may have been
something irregular or defective in the formal manner of his subscription,
or there may have been no formal subscription at alL^"
sued by it can not maintain an action 50. Estoppel to deny subscription.

against the bank for refusing to allow Somerset Nat., etc., Receiver v. Adams,
him to subscribe for the stock with- 24 Ky. L. Rep. 2083, 72 S. W. 1135.
out proof of a demand and offer to Signature of certificate of associa-
subscribe. Wilson v. Bank, 39 Pa. 537. tion. — The New Jersey statute declares
46. Bona fides. —
Napier v. Poe, 13 that persons associating themselves
Ga. 170. together for the purpose of conducting
47. Fraudulent subscriptions. Minor — a banking business shall, under their
V. Mechanics' Bank (U. S.), 1 Pet. 46, hands and seals, make a certificate, "by
7 L. Ed. 47. the terms of which such association
48. Form and sufficiency. — Pacific shall be bound," which shall specify
Nat. Bank v. Eaton, 141 U.
237, 35 S. the names and residences of the share-
L. Ed. 702, 11 S.See, also,
Ct. 984. holders, and the number of shares held
Scott V. Deweese, 181 U.- S. 203, 45 L. by each of them respectively, etc.
Ed. 833, 31 S. Ct. 585; Thayer v. But- Held, in an action by a receiver to en-
ler, 141 U. S. 234, 35 L. Ed. 711, 11 S. force payment of stock subscription,
Ct. 987; Finn v. Brown, 143 U. S. 56, that, where a certificate of association
71, 35 L. Ed. 936, 12 S. Ct. 136. specified the number of shares of stock
49. Somerset Nat., etc.. Receiver v. held by defendant, and was signed by
Adams, 24 Ky. L. Rep. 3083, 73 S. W. him, he was estopped from denying his
1135. subscription. Dayton v. Borst, 30 N.
§ 39 (2c) Nature and Effect of Obligation. —Each individual stock-

holder, by the acceptance of the bank's charter, becomes a party to the con-
tract, and is bound by all its provisions. ^^
§ 39 (2d) Rescission of Subscription. —

A subscription for stock of
a bank and the issue of the same may be rescinded upon the same grounds
and in the same manner as other contracts of subscription for stock.^^ The
right to rescind may be waived. ^^
§ 39 (3) Oversubscription and Overissue. Where the charter of—

a bank or the law under which it is organized provides a method of reduc-
ing an oversubscription to its stock, it must be followed,^* and can not be
Y. Super. Ct. 115, affirmed in 31 N. Y. parties. Rehbein v. Rahr, 109 Wis. 136,
435. 85 N. W. 315.
Directors bound by statement in 53. Waiver of right to rescind. ^The —
—
subscription book. Where the min- right to rescind an issue of bank stock
utes of the proceedings of a corpora- for fraud is waived by the bank's ac-
tion show an order for the opening of ceptance of a surrender of the certifi-
books for subscription to stock cate by a pledgee of the stock, and
therein, and the amount taken by each issue of a new one in its place to the
subscriber is there distinctly set forth, pledgee. Tecumseh Nat. Bank v. Rus-
and where it appears that such sub- sell, 50 Neb. 277, 69 N. W. 763.
scribers had been directors of the cor- A person purchasing stock from a
poration and has the right of access to bank held not entitled, after insol-
the book containing said statement; vency and the institution of a proceed-
held, bound by the record to the ing to wind up its affairs, to rescind
amounts there shown, although no the purchase for fraud although he
actual subscriptions to stock were pro- lived at a considerable distance from
duced. Moses V. Ocoee Bank, 69 Tenn. the bank, and it would have been in-
(1 Lea) 398. convenient for him to ascertain the
51. Shareholder party to charter con- bank's condition. L,ittle v. Owensboro
tract. —
Adkins v. Thornton, 19 Ga. 325. Savings Bank & Trust Co.'s Receiver,
52.Rescission.— Rev. St. 1898, § 3034, 150 S. W. 334.
subsec. 18, provides that any number —
Oversubscription. Union Bank
54.
of persons may associate and become V. McDonough, 5 La. 63.
incorporated, and subsection 19 de- Defendant's charter authorized its
clares that such person shall make a commissioners to open stock subscrip-
certificate stating the names of the tion books, and, in the event of an
shareholders and the number of shares excess of subscriptions, to distribute
subscribed by each, which shall be the stock in such manner as the com-
filed with the register of deeds. Ar- missioners should deem most ad-
ticles of incorporation for a bankjwere vantageous to the bank; that persons
signed by W. R. and R. R. on condition subscribing for twenty shares and up-
that they were not to be bound unless ward should not receive less than
M. the third member of the firm
R., twenty shares, unless such subscribers
of Sons, should also sign and
R.'s or those for a less amount exceeded
agree that the firm should take $3,500 the whole amount of the stock; and
worth of shares. M. R. refused to sign, that each commissioner should not re-
and the promoter of the corporation, ceive more than two hundred and fifty
without the knowledge of W. R. and shares, if without it the whole stock
R. R., filed the articles with their sig- was taken. There was an excess of
natures. Held, that the fact that the subscriptions, and those for twenty
firm refused to accept the shares when shares and upward exceeded the whole
tendered was not sufficient to show a stock. Held, that the commissioners
rescission of the contract in the ab- were entitled to two hundred and fifty
sence of evidence that the corporation shares each, and were then entitled to
accepted the rescission, since on the fil- divide the remainder among the other
ing of the certificate the contract be- subscribers, according to their dis-
came an executed one, and hence irrev- cretion; that they were not obliged to
ocable, without the consent of both give every subscriber some stock, nor
§ 39 (4) CAPITAL, STOCK AND DIVIDENDS. 85
evaded by subdividing a subscription among several nominal subscribers f''

but where no means is provided for effecting a reduction, the commission-
ers can not arbitrarily apportion the stock among part, leaving out others
of the subscribers.^^
Overissue. — Mere formal subscription for all the stock to be issued by a
bank, the subscribers being practically trustees for such new stockholders
as could be induced to. subscribe, is not an overissue, rendering the subse-
quent subscriptions invalid. ^^
§ 39 (4) Stock Certificates. —A

certificate of bank stock is authentic
evidence of title to stock, but it is not the stock itself: It certifies a fact
which exists independently of itself.^^
—
Necessity for Certificate. Without express regulation to the contrary,
a person becomes a stockholder in a bank by subscribing for stock, paying
the amount to the company or its proper officer, and being entered on the
stock book as a stockholder. He may take out a certificate or not, as he
sees fit. A certificate is not necessary to the existence of bank stock. 5"
—
Form and Requisites. A certificate of stock conforming in all re-
to ratably apportion it, and, in the ab- ing out others, but must deduct the
sence of fraud, their exercise of dis- excess from the largest subscriptions
cretion would not be interfered with. in such manner that no subscription is
Clarke v. Brooklyn Bank (N. Y.), 1 reduced while any one remains larger.
Edw. Ch. 361. Meads v. Walker (N. Y.), 1 Hopk. Ch.
Under the Act of 1852 (12 Stat. 212), 587.
chartering certain banks, the commis-
sioners appointed to take subscriptions
57. Overissue. —Tulare Sav. Bank v.
Tabot, 131 Cal. 45, 63 Pac. 172.
had no power, in case of oversubscrip-
tion to the stock, to apportion it
To reorganization of a
facilitate the
state bankas a national bank, it was
among the subscribers. It belonged agreed that certain stockholders should
to the corporation to reduce the sub-
subscribe for all the stock, which was
scriptions pro rata. State v. Lehre
afterwards to be apportioned among
(U. S.), 7 Rich. Law 234.
those stockholders of the state bank
55. The charter of a bank provided
that, if subscriptions to its capital
who desired to take it. Subsequently
one of the stockholders in the state
stock should exceed the aggregate
bank subscribed for shares, and certifi-
limit, the excess should be deducted
cates were issued to him. Held, that
from the largest subscription till they
there was no overissue, invalidating the
equal the next below in amount. A last subscription. Somerset Nat., etc.,
subscriber sought to evade this pro-
Receiver v. Adams, 24 Ky. L. Rep.
vision by subdividing his subscription
2083, 72 S. W. 1125.
among several nominal subscribers.
Held, that the directors could go be- 58. Stockcertificate.— Pacific Nat.
hind the face of the subscriptions Bank v. Eaton, 141 U.
S. 227, 35 L. Ed.
under the implied provision of the 702, 11 S. Ct. 984. See, also, Scott v.
charter against one subscriber acquir- Deweese, 181 U. S. 202, 45 L. Ed.
ing too much stock, and could erase 822, 21 S. Ct. 585; Thayer v. Butler,
the nominal subscriptions. Union Bank 141 U. S. 234, 35 L. Ed. 711, 11 S. Ct.
V. McDonough, 5 La. 63. 987; Finn v. Brown, 142 U. S. 56, 35
56. Under an act incorporating a bank, L. Ed. 936, 12 S. Ct. 136.
and designating commissioners to re- 59. Certificate unnecessary to sub-
ceive subscriptions, and providing that scription. —
Pacific Nat. Bank v. Eaton,
the capital should be a certain amount, 141 U. S. 227, 35 L. Ed. 703, 11 S. Ct.
but making no provision in case of an 984. See, also, Scott v. Deweese, 181
excess of subscriptions, where there U. S. 202, 45 L. Ed. 822, 21 S. Ct. 585;
is an excess, the commissioners, in ef- Thayer v. Butler, 141 U. S. 234, 35 L.
fecting a reduction, can not arbitrarily Ed. 711, 11 S. Ct. 987; Finn v. Brown,
apportion the stock among part, leav- 142 U. S. 56, 35 L. Ed. 936, 12 S. Ct. 136.
86 BANKS AND BANKING. § 39 (5a)
spects to the requirements of the charter or law under which a bank is au-
thorized, is sufficient.^"
A corporate seal is not essential to the validity of a certificate of bank

stock.«i
—
Duplicate Certificate. When certificates of bank stock are lost or
stolen,upon proof of the loss and execution of a sufficient bond, to indem-
nify the bank against loss by the original certificates coming into the hands
of an innocent holder, the owner thereof is entitled to duplicate certificates.
This right may be enforced by mandamus.®^
§ 39 (5) Payinent82«— § 39 (5a) Medium.— Where the charter

or law under which a bank is organized prescribes the medium of payment
of subscriptions to its stock, an organization without such payment is a nul-
lity ."^ Ordinarily payment is to be made in money,*'* cash,^s g^ specie.®^
A banking corporation, in the absence of an enabling statute, is without au-
thority to accept such property as notes, judgments,®''' mortgages, ^^ other
stocks,®* etc., in payment of stock subscriptions, aliter when authorized by
60. Form
of certificate. certificate—A the charter. Napier v. Poe, 12 Ga.
in all respects according to tlie require- 170.
ments of chapter 260 of the Act of The capital stock of a bank is a
1838, authorize the business of
to trust fund for the payment of the note
banking, and concluding with the holders and creditors of the bank; and
words, "We have hereunto respectively therefore, where a subscriber to stock
subscribed and set our hands and is garnished for a debt of the bank
seals," etc., "and the number of shares for a balance due on his subscription,
of the capital stock of the corporation he can not pay in notes of the bank.
aforesaid taken and held by each of us Payment must be made in specie.
respectively," is sufficient to render the King V. Elliott (Miss.) 5 Smedes M. &
signers stockholders, and liable to pay 428.
for the number of shares set against Where a stockholder of a bank was
their names. Cole v. Ryan (N. Y.), 52 delinquent in stock payments, and was
Barb. 168. garnished by judgment debtors of the
61. Corporate seal. — Fitzhugh v. bank, he was liable for the payment of
Bank (Ky.), 3 T. B. Mon. 126, 16 Am. the delinquency in specie, the bank
Dec. 90. stock being payable only in specie.
62. Duplicate certificate. — Hof v. King V. Elliott (Miss.), 5 Smedes &
Western German Bank, 6 Wkly. L. M. 428.
Bull. 665, 8 O. Dec. R. 245.
Liability for debts and acts of
67. Notes and judgments. Codding- —
62a. ton V. Cannady, 157 Ind. 243, 61 N. E-
bank, see post, "Liability for Debts 567.
and Acts of Bank," § 46; "Actions and Where, by theact of incorporation
Proceedings to Enforce," § 49. of bank, the subscribers to stock
a
Lien of bank on stock, and divi- were required to pay, at the time of
dends, see post, "Lien of Bank on subscription, ten per cent in specie,
Stock and Dividends," § 42. on the amount subscribed for, a mere
63. Medium. —
Pacific Trust Co. v. subscription to stock, without paying
Dorsey, 72 Cal. 55, 12 Pac. 49. the ten per cent in specie, the sub-
64. —
Money. Pacific Trust Co. v. scriber executing his note merely to
Dorsey, 72 Cal. 55, 12 Pac. 49. the bank for that sum, would not con-
65. Cash. —
Dunn v. State Bank, 59 stitute the subscriber a stockholder.
Minn. 231, 61 N. W. 27. Such subscription would be void, and
66. Specie. —When a charter re- would impose no obligation on the
quires payments be made on the
to stockholder. Hayne v. Beauchamp
stock in specie, before organization, 5 Smedes & M. 515.
(Miss.),
and the bank is organized without such 68.Mortgages.— See post, "Stock
payment, it is a mere nullity, and can Mortgages and Bonds," § 39 (6).
not exercise any of the privileges of 69. Payment in stock. 'When not —
§ 39 (5b) CAPITAI,, STOCK AND DIVIDENDS. 87
its charter, act of incorporation, or other statute, to except money paid, la-
bor done or property actually received in payment of such subscriptionsJ°
§ 39 (5b) Time. —Where no time is designated for the payment of

the first installment of subscriptions for bank stock, it need not be contem-
poraneous with the subscription J 1 The commissioners to receive subscrip-
tions and payments may allow a reasonable time J ^
—
State a Subscriber. Where the charter of a bank reserved to the state
the privilege of subscribing to a certain portion of the stock, "to be paid
for at such time or times as might be convenient for the state," it was op-
prohibited by law or the charter, pay- declares that nothing shall be deemed
ment for the capital stock of a bank capital so paid except money bona fide
may be made in stock, and if so paid paid to the bank; and that under no
in and accepted, the stock becomes circumstances shall the note or other
the common property of the associa- obligation of a stockholder be treated
tion. Holbrooic V. Union Bank (U. S.), as a part of such paid-up capital. lAnd
7 Wheat. 553, 5 L. Ed. 521. Pen. Code, § 560, provides that "every
Stock, paid in as a part of the capital director of a corporation who concurs
of the Union Bank of Alexandria, bein any vote or act of the directors by
fore its incorporation, became the which it is intended to discount or re-
common property of the association, ceive any note or other evidence of
so as to be subject to be sold and dis- debt in payment of any stock subscrip-
tributed among the members, after tion called or required to be paid, with
the charter, which directed that the the intent to provide the means of
capital stock should consist of money making such payment, is guilty of a
only, was accepted; and those who misdemeanor." Held, that the note of
subscribed the road stock, or their as- a stockholder given to a bank as se-
signees, were not entitled to have the curity for the payment of his first
same returned specifically to them. stock installment was "property ac-
Holbrook v. Union Bank (U. S.), 7 tually received," within the provision
Wheat. 553, 5 L. Ed. 521. of the constitution, for which the bank
"Each share represented an equal was authorized to issue its stock; that
part of the whole capital, comprehend- such note was not void under the above
ing each description of road stock, provisions; and that the amount
and of the money paid in; and there thereof might be recovered by the
was nothing on the face of the certifi- bank from the maker. Pacific Trust
cate, which was transferable, indi- Co. V. Dorsey, 72 Cal. 55, 12 Pac. 49.
cating that one share was more 71. Time.^-The charter of a bank de-
valuable than another. If, instead of clared that "when the amount of
obtaining the act of incorporation, the $250,000 shall have been subscribed
company had expired or been dissolved bona fide, and the sum of ten per cent
by consent, the shares would have paid thereon in specie, the commission-
been equal, and would have entitled ers shall give notice for the election of
the holders to equal portions of the •directors," etc. Held, that payment
whole capital. The dividends, during of the ten per cent need not be con-
the continuance of the company, must temporaneous with the subscription;
have been equal. Had the road stock but, if the subscribers give a draft for
been sold, it must have been carried the payment of the ten per cent in
to the credit of the whole company." thirty days, the subscription is good
Holbrook v. Union Bank (U. S.), 7 against those afterwards applying for
Wheat. 553, 5 L. Ed. 521. the stock, and tendering the money
70. Notes for property actually re- for the ten per cent within the thirty
ceived. —
Const., art. 12, § 11, provides days. Napier v. Poe, 12 Ga. 170.
—
that no corporation shall issue its 72. Discretion of commissioners.
stock "except for money paid, labor If commissioners are required to re-
done, or property actually received." ceive upon the stock ten per cent in
Act April 1, 1876 (St. 1876, p. 729), re- gold or silver, and no time is desig-
quires every banking corporation to nated for the payment, they have the
publish biennial statements of the discretion to allow a reasonable time.
amount of capital actually paid in, and Napier v. Poe, 12 Ga. 170.
tional with the state to pay at any time before the termination of the cbar-
terJ3
§ 39 (5c) Assessments or Calls for Payment. — See post, "Levy

of Assessment and Sale of Stock," § 39 (7fa).
§ 39 (5d) What Constitutes Payment. —A subscription to the stock

of a bank must be fully paid in and dedicated to the business of the bank
in order to discharge the subscriber's obligation.^*
Pretended payment will not discharge the subscriptions.''^
Where notes are executed in payment of subscriptions to bank stock,
the obligation to pay the amount subscribed, will be considered as a debt
subsisting independently of such notes until actually paid.'^^ The notes
themselves are binding,'^'' though the original subscription was void.''* Pay-
73. —
Subscriptions of state. Attorney issued to the vendor was intended to
General v. State Bank, 2l"N. C. 545. go to him as paid up stock, the stock-
74. What constitutes. — McNulta v. holders for whose benefit the charter
Corn Belt Bank, 164 111. 437, 45 N. E. was purchased are liable for its satis-
954, 56Am. St. Rep. 203. faction in proportion to the amount of
Where the stock subscription of a their respective subscriptions. Moses
city in a certain bank was to be paid in V. Ocoee Bank, 69 Tenn. (1 Lea) 398.
city bonds bearing interest, to be met Where, the stockholders of a banking
by its dividends, when the bank had corporation ordered the books to be
to advance the interest before the divi- opened to increase the capital stock
dends became .sufficient, the city was of the corporation a fixed amount, and
bound to refund the amount with in- authorized one of their number to
terest. Commercial Bank v. New Or- give his and their notes for the amount
leans, 11 La. 317. so increased in payment of the same,
75. Pretended payment s. — Sub- which he did, and subsequently, the
scribers to stock can not release their stockholders so executing the note,
obligations by fraudulently providing instructed the cashier to reduce the
funds to be counted by the auditor as stock by the amount thus subscribed,
the paid-up capital of the bank, and alleging the circulation issued upon it
immediately withdrawing them, leav- had been redeemed; held, that the
ing the bank without funds till the stock could not be so reduced, and
stock is sold. McNuIta v. Corn Belt that the creditors of the bank were
Bank, 164 111. 437, 56 Am. St. Rep. 303, entitled to have the amount so sub-
45 N. E. 954. scribed paid up by the stockholders,
76. Notes. —
Moses v. Ocoee Bank, 69 the proceeds arising therefrom to be
Tenn. (1 Lea) 398. applied to the satisfaction of their
Wrongful cancellation of notes. — claims. Moses v. Ocoee Bank, 69
Certain persons purchased the charter Tenn. (1 Lea) 398.
of a banking corporation, paying part 77. In the absence of any statute, a
cash and executing their note for the note given to a bank for a portion of its
balance. After reorganizing the bank, capital stock, which the bank itself had
the vendor of the charter agreed to previously purchased, is not void
accept stock for his debt, which was merely because given for the contract
accordingly issued to him, and the note price of the stock, nor because it was
was transferred to the bank and can- discounted by the bank for the pur-
celed without payment. The cash pay- pose of enabling the purchaser to pay
ment to him, as well as the note, was for the stock. United States Trust
charged to the bank. Held, that the Co. V. Harris, 15 N. Y. Super. Ct. 75.
note so transferred was the property 78. Where the commissioners who
of the bank, was not subject to can- were appointed to receive the subscrip-
cellation without payment, and was tions to a bank and the cash payment
assets of the bank, liable to the claim took, in lieu of the latter, the note of
of its creditors; and that the cash the subscriber, which was discounted
payment was improperly charged to by the bank, and the proceeds on the
the bank; and inasmuch as the stock check of the subscriber, being drawn
ment of stock by stockholders of a bank with mutually indorsed notes of

stockholders or directors is not authorized by a bank charter requiring the
capital stock to be paid in coin, or in bills or notes deemed by the corpo-
rators or directors the equivalent to, or better than, specieJ® Where sub-
scriptions to the capital stock of a bank are paid with such mutually indorsed
notes of the stockholders or directors, without authority conferred by Ihe
bank charter, such notes are to be regarded as valid obligations for the pro-
tection of the issues of the bank and its general creditors, and will bear
interest and be subject to the statute of limitations, and, when paid or col-
lected, are to be credited as payments pro tanto on the unsatisfied stock.®'
The note of a third party deposited by a stockholder of a bank in
payment of his stock and subsequently collected by him, will be treated by
a. court of equity as the property of the bank, and such stockholder will be
charged with the proceeds and interest from the time it was collected, and
upon payment his stock will be credited according to the arrangement made
at the time it was so deposited.*^
—
Payment in Depreciated Bills. Where a subscriber to bank stock has
paid for his stock in depreciated bills of the bank, he is entitled to be cred-
ited with their value at the time of payment.®^
§ 39 (5e) Presumption and Proof of Payment. —Whether a bank

has paid in its capital stock, in gold or silver, within the appointed time after
receiving its is to be ascertained and proved in the manner provided
charter,
by the by the certificate of the commissioners appointed for that
statute,
purpose.®^ Where a bank has been in operation for several years, it is to
be presumed that its capital stock has been paid within the time appointed
after the reception of its charter.^*
§ 39 (6) Stock Mortgages and Bonds. —A bond and mortgage

given for subscription to stock in a bank are valid.*^ When not per-
fectly satisfied with the validity of titles to property offered for mort-
gage, as security for a stock subscription, the directors, in the exercise
of a proper discretion, should withhold the expression of their satis-
faction.®® Such bonds and mortgages can not be enforced against stock-
therefor, put to his credit on his stock 82. Payment in depreciated bills. —
account, it was held that, though the Marr v. Bank, 72 Tenn. (4 Lea) 578.
original subscription for stock was 83_ Presumption and proof. Agri^ —
void, yet the note would be binding, cultural Bank
Burr, 24 Me. 256.
v.
and regarded as given for the pur- Bank v. Burr, 24
g^_ Agricultural
chase of so much stock. Hayne v. -w ocr
Beauchamp (Miss.), 5 Smedes M. & "'^^- ''^^
xr
—
5-^5 85. Bond and^ mortgages
, . i-j:*
Validity.
Mutually indorsed notes of stock-
79. —Valk v. (N. Y.), 1 Sandf.
Crandall
holders.— Moses 'v. Ocoee Bank, 69 Ch. 179. Liability of transferee of
Tenn (1 Lea) 398 stock on stock mortgage, see post,
80. 'Moses V. Ocoee Bank, 69 Tenn. "Transfer of Stock," § 40. Liability of
(1 Lea) 398. stock mortgages for debts and acts ot
81. Notes of a third party deposited bank, see post, "In General," § 47 (1).
by stockholder. — Moses v. Ocoee 86. Approval of directors. Walden —
Bank, 69 Tenn. (1 Lea) 398. v. Union Bank, 6 La. 248.
holders until the conditions upon which they are to be used are performed.*^
Stock mortgages are the property of the bank^* to secure the payment of
the stock subscription and are held for the benefit of the creditors of the
bank,^® and bear interest.^*^
Priorities. —The equities of the creditors in such mortgages are prior and
paramount to the equity of the bank.î
—
Discharge and Satisfaction. The final payment of the subscription
which the mortgage was given to secure operates as a discharge of the mort-
gage indebtedness. 8^
Foreclosure and Sale. —The bank may subject the mortgaged property
to the satisfaction of the debt upon failure of the stockholder to pay his
interest or principal, or both.^^
Performance of conditions prece-

87. by the state, the mortgages should be
dent. —Where
bonds and mortgages transferred to the state and the holders
Held, that the equity of
on incumbered lands are left with the of the bonds.
commissioners of an association formed the state and the bondholders in the
under the general banking law, who stock mortgages so executed was
were appointed to procure subscrip- prior and paramount to the equity of
tions to stock, it being distinctly un- the bank. Wilson v. Biscoe, 11 Ark. 44.
derstood that such bonds and mort- The two conditions in the stock
gages were to be used only in case the mortgages to the Real-Estate Bank
association advanced money by which the one for the payment of the bonds
the incumbrances on the land could be of the state and interest thereon, and
removed, the subscription based on the other for payment of moneys re-
such bonds and mortgages can not be ceived from the bank on stock sub-
enforced against the stockholders until —
scriptions are separate and distinct,
the condition is carried out. Burrows and the former, being prior in time and
V. Smith, 10 N. Y. 550. equity to the latter, can not be ex-
88., Union Bank v. Parkhill, 3 Fla. tinguished by sale under decree for the
660. satisfaction of the latter. Chapman v.
89. The mortgages executed to the State, 39 Ark. 274.
Real-Estate Bank by its stockholders 92. Discharge.—Act 1853, No. 346,
to secure the payment of the stock authorizing the directors of the Citi-
subscribed are held for the benefit of zens' Bank to transfer or set apart a
the bondholders, and to guaranty the stated number of shares of stock as
state against loss for her bonds loaned cash shares, did not discharge a mort-
to the bank to procure capital. Duncan gage given by a shareholder to secure
V. Biscoe, 7 Ark. 175. the unpaid price of his shares, or re-
90. Interest. —
Where a stockholder lease the stock held by the mortgagor
in a bank gave it a bond and mortgage from payment of calls. Breard v. Citi-
in payment for his stock, he can not zens' Bank, 47 La. Ann. 1374, 17 So.
refuse to pay interest provided thereby, 875.
because the directors of the bank do 93. —
Foreclosure Right of bank. —
not declare a dividend on the stock The act incorporating the Union
from the bank's profits; nor will the Bank ,(§ 1) provides that the capital
collection of such interest be restrained shall be raised by means of a loan on
until a dividend is declared. Ely v. the faith of the territory, by the di-
Sprague (N. Y.), Clarke Ch. 351. rectors of the bank. Section 8 pro-
91. Priorities. —
The charter of the vides that, to secure the principal and
Real-Estate Bank provided that all interest of the bonds to be issued by
subscriptions to the capital stock of the territory for the purpose of rais-
the bank should be secured by mort- ing the capital, the subscribers shall
gages executed to the bank, which give a bond and mortgage on prop-
should be conditioned for the payment erty. Section 9 provides that the
of all money received from the bank bonds and mortgages so given shall
on account of subscriptions, and for be deposited in the offices of said in-
the final payment of the bonds of the stitution, and that any stockholder
state issued in aid of the bank, and may at any time release his property
that, to guaranty the bonds so issued by paying his subscription and loans
§ 39 (7a) CAPITAL, STOCK AND DIVIDENDS. 91
The death of the mortgagor does not effect the bank's right to seize
and sell the mortgaged property.^*
Parties. —The bank are the proper parties to foreclose
trustees of the
stock mortgages and they may do
so without making the creditors parties
to the action. 88 The bank comptroller, and not the receiver, is the proper
person to bring a suit on a stockholder's bond.^*^
—
Judgment. Where judgment upon a stockholder's bond was entered by
the bank comptroller under a warrant of attorney for that purpose, the
judgment, if otherwise regular and just, may be allowed to stand. ^^
39 (7) Liability for and Collection of Unpaid Balances

§
§ —
39 (7a) In General. Stockholders are bound to pay up all arrearages
of stock when there are creditors of the bank.^^ Each stockholder is liable
that have been made on the faith of which it was the intention to relieve
it. Section 10 provides that the bonds the bank, must necessarily be before
issued by the territory shall be pay- the ordinary tribunals. Union Bank v.
able to the bank, and negotiated by it. Marigny (La.), 11 Rob. 309.
Section 11 provides that both princi-
pal and interest of said bonds shall be
95. Parties. —The charter of the
Real-
Estate Bank provided that
subscrip- all
paid by the bank as the same shall be- tions to the capital stock of the bank
come due. Held, that the stock mort- should be secured by mortgages exe-
gages belong exclusively to the bank, cuted to the bank conditioned for the
and that, therefore, it is competent for payment of all money received from
the bank to subject the mortgaged the bank on account of subscriptions,
property to the satisfaction of the debt and for the payment of the bonds of
upon failure of the stockholder to the state issued in aid of the bank;
pay his interest. Union Bank v. Park- that, to guaranty the bonds so issued,
'hill, 3 Fla. 660. the mortgages should be transferred
The assignees of the Real-Estate to the state and the holders of the
Bank have no interest whatever, either bonds. Held, that the trustees of the
general or special, in the mortgages bank may, without making the state
executed by stockholders to secure the or the bondholders parties to the ac-
amount of stock subscribed for by tion, foreclose the mortgages, and
them, and they possess no right of ac- sell the lands, to enforce the payment
tion whatever upon such mortgages of the stock loans secured thereljy,
for the purpose of foreclosure. Duncan subject to the prior lien of the state
V. Biscoe, 7 Ark. 175. and bondholders. Wilson v. Biscoe, 11
The securities referred to by § 25 of Ark. 44.
the original banking law, to be sold by
96. It was so held under Wis. Rev.
the comptroller in certain cases, are
St. C. 71, § 40. Rusk V. Van Nor-
those required to be deposited by §§ 5,
strand, 31 Wis. 159, overruling Van
6 of that law, and do not include a
Steenwyck v. Sackett, 17 Wis. 645.
stockholder's bond. Van Steenwyck
V. Sackett, 17 Wis. 645. 97. —
Judgment. Van Steenwyck v.
94. —
Death of mortgagor. The bank's Sackett, 17 Wis. 645, overruled on an-
other point Rusk Van Norstrand, 31
right under the charter (§ 34) to seize z'.
and sell property mortgaged for stock Wis. 159.

is not impaired by the mortgagor's 98. Liability for unpaid balances. —
death; and the bank may proceed ac- Lewis V. Robertson (Miss.), 13 Smedes
cording to circumstances, either via & M. 558.
executiva or via ordinaria. If the pro- A note given for a subscription of
ceeds of the mortgaged property be stock, and discounted by the bank for
insufficient, the bank must go into the that purpose, the first and several
probate court for the balance, and, if other calls having been first paid, is a
not admitted, sue the representatives valid obligation, and may be enforced
of the deceased there; and this, whether by the trustee appointed under the
the original proceedings were via statute of 1843,1 who succeeds to all
executiva or via ordinaria. And these the rights of the bank. Lewis v. Rob-
proceedings, to avoid the delays from ertson (Miss.), 13 Smedes & M. 558.
92 BANKS AND BANKING. § 39 (7bd)
for the deficiency of the stock standing in his name,"^ and it is immaterial
whether the bank was organized under a general incorporation act or an
act providing for the incorporation of banks.
§ 39 (7b) Persons Liable— § 39 (7ba) State.—A state is liable

for an unpaid balance of its subscription to the stock of a bank, but may
restrict or annul the right to call in the unpaid installments of its original
subscription by an act extending the charter of the bank where such ex-
tension was applied for and accepted by the bank.^
§ 39 (7bb) Married Women. —A holder of bank stock who is a mar-

ried woman is liable for an unpaid balance of the original subscription.*
§ 39 (7bc) Trustees. — Bank stockholders of record are liable for

unpaid installments though in fact they hold it as trustees for others.'*
§ 39 (7bd) Assignor or Transferrer. — In some of the states an

original subscriber to the stock of a bank is liable for the whole amount
of his subscription although he has assigned his stock,^ but in most juris-
99. Where several persons associ- 5,000 of which were subscribed for by
ated to establish an office of discount, the state. Upon these 65 per cent, or
deposit, and circulation under the bank $325,000, was paid in prior to 1834. In
Act of February 27, 1850, and seven of that year, upon petition of the presi-
the number subscribed for only 5 dent and directors of the bank, an act
shares each, and the balance of 3,000 was passed, extending its charter, with
shares was subscribed for by the this proviso: "Nor shall anything be
eighth associate, who was also the pres- so construed as to authorize the presi-
ident elect, and one-third of the value dent and directors to call in an addi-
of each share of stock was paid in by tional installment upon the stock
the president, and the other associates owned by the state." Creditors, sub-
paid in nothing, held, that in case of sequent to 1834, claimed that the un-
insolvency each of the associates was paid $175,000 was a trust fund, out of
liable to pay the deficiency of the which they were entitled to be paid.
stock standing in his name, not ex- Held that, notwithstanding the unpaid
ceeding the amount of each share as capital stock of incorporated compa-
fixed by the charter. Kinsela v. Cat- nies is deemed a trust fund for the
aract City Bank, 18 N. J. Eq. 158. payment of corporation debts, yet the
1. In an action by a creditor of a right to call in the unpaid installments
bank against the subscribers to its upon the state ttock was taken away
capital stock, the question whether by the act of 1834. Robinson v. Bank,
such bank was organized under Gen. 18 Ga. 65.
St., §§ 948-974, providing for the or-
ganization of corporations to aggre-
3. Married women.
Dent, 16 Mo. App. 288.
— Simmons v.
gate, save, and invest the funds of

members, and prohibiting the issue of
4. —
Trustees. Rankin v. Fidelity
Ins., etc., Co., 189 U. S. 242, 47 L. Ed.
certificates of shares until all the sub- 792, 23 S. Ct. 553; Hawkins v. Glenn,
scription shall be paid, and providing 131 U. S. 319, 33 L. Ed. 184, 9 S. Ct.
that stock shall not be considered as 739.
acquired until payment in full, or un-
der the general incorporation act, is
5. Assignor or transferror. Under
the general banking act of 1859-60, an
—
immaterial, as it was the duty of sub- original subscriber to the stock of a
scribers under the former act to pay bank is liable for the whole amount of
their subscription in advance, and, not his subscription, although he has as-
having done so, they are still liable. signed his stock; and it is immaterial
Ross V. Bank, 20 Xev. 191, 19 Pac. 243. that the bank was chartered before
2. State. —
A bank was incorporated the passage of the act. The assignee,
with a capital stock of $1,000,000, di- however, is first liable. Marr v. Bank,
vided into 10,000 shares of $100 each, 72 Tenn. (4 Lea) 578.
§ 39 (7ca) CAPITAL, STOCK AND DIVIDENDS. 93
dictions a bona fide assignment and transfer on the books of stock in a

solvent bank relieves the assignor from all liability for an unpaid balance
on his subscription,^ even where the assignment is by a husband to his
wifeJ
Stockholder of Record. —Stockholders of record are liable for unpaid
installments, though in fact they may have parted with their stock.^
§ 39 (7be) Assignee or Transferee. —Where the right of bona fide

transfer is secured by the charter or law under which a bank is organized,
a transferee of the stock succeeds to all the legal responsibilities of the
original owner and is liable for an unpaid balance of the subscription,''
even in case of a transfer by a husband to his wife.^'^
39 (7c) Pacts Relieving from Liability— § 39 (7ca) Banks

§
—
Having No Legal Existence. Where the conditions on which a stock
subscription under the banking law was made have never been complied
with by the association, and no stock has been issued, and where the sub-
scriber has never been treated as a stockholder by such association, it will
be concluded from thereafter claiming the subscription and therefore a ;
receiver can not recover it'.^^ An original subscriber to the capital stock
of a bank can not deny liability on his subscription by showing that the
corporation had no legal existence, or that the issue of the shares was
invalid. ^2
Bona fide assignment. Simmons

6. — come stockholders, and may deposit
7'.Dent, 16 Mo. App. 288; Gilmore v. money with any bank or savings in-
Bank, 8 O. 63. stitution incorporated under the laws
7. Husband — Simmons
to wife. v. of this state," held to impose
married woman stockholder all a
on a
Dent, 16 Mo. App. 388.
Stockholder of record. — Rankin
stockholder's liabilities for unpaid
8.
stock, and therefore a bona fide as-
V. Fidelity Ins., etc., Co., 189 U. S. 343,
signment by a husband to his wife of
47 L. Ed. 793, 33 S. Ct. 553; Hawkins
his stock in a solvent corporation re-
V. Glenn, 131 U. S. 319, 33 L. Ed. 184,
lieved him from all liability. Simmons
9 S. Ct. 739.
V. Dent, 16 Mo. App. 388.
9. Assignee or transferee. — Simmons 11. Bank having no legal existence.
V. Dent, 16 Mo. App. 388. — Burrows v.Smith, 10 N. Y. 550.
Theright of bona fide transfer re- 12. Palmer v. Lawrence, 5 N. Y.
lates to the honest conditions of the Super. Ct. 161.
parties at the time of the transfer. Stockholders in a bank which has
When this transfer is fairly made, new acted as a corporation can not, in a
certificates generally issue, and the ' suit by a receiver to enforce payment
stock assumes a new character as to of their subscriptions, set up that the
the ownership. The new owners incur bank had no legal existence, because
the responsibilities of their position, it had not complied with the require-
and those who honestly make the ments of the law. Voorhees v. Bank,
transfers are discharged. The extent 19 O. 463.
of these responsibilities is usually set- Under the illegal banking Act of
tled at the time of transfer. li not 1855, a stockholder, sued for his sub-
then adjusted, the liabilities of those scription, is not estopped to plead the
implicated may depend upon circum- violation of the act by the corpora-
stances." Gilmore v. Bank, 8 O. 63. tion in bar of the suit. Rev. Code,
10. Gen. St. 1865, p. 366, § 14, pro- 1855. c. 16, §§ 4, 9, North Missouri R.
viding that "married women may be- R. Co. c\ Winkler, 33 Mo. 354.
94- BANKS AND BANKING. § 39 (7cd)
§ 39 (7cb) Irregularity of Organization. —A

subscriber to the stock
of a bank can not plead a mere irregularity or imperfection^^ in the organ-
ization of the bank as a defense to an action to enforce an unpaid sub-
scription.
§ 39 (7cc) Irregularities in Subscription. —Where the subscribers

to the stock of a bank gave their notes in payment of their subscriptions
and became stockholders, they can not claim, as a defense to an action on
the notes, that the bank improperly received the notes in payment instead
of requiring them to pay the money, i* or that they had a secret agreement
that they should have the option to surrender the, stock and have the notes
returned. 18
Stock Held by Bank as Collateral for Purchase Price. —A pur-
chaser of stock, who gave his note for the purchase price and pledged his
certificate with the corporation as collateral for payment thereof, could
not avoid his subscription contract under an act prohibiting a bank from
accepting, as collateral, its own capital stock except where necessary to pre-
vent loss upon a debt previously contracted in good faith, but not imposing
any penalty or forfeiture for its violation. ^^
§ 39 (7cd) Fraud and Misrepresentation. That the subscription—

was fraudulently made,!'' or was obtained by misrepresentation, ^^ will not,
as against creditors, relieve a subscriber to the stock of a bank from lia-
bility to pay his subscription.
13.Irregular or imperfect organiza- son, 17 Idaho 743, 107 Pac. 755, re-
tion. —A
subscriber to a certificate of vised Code of Idaho, § 3976.
a banking association formed under the Fraudulent subscription. Bates
17. —
laws of New Jersey can not claim ex- v.Lewis, 3 O. St. 459. See ante, "Bona
emption from liability to pay for his Fides of Subscription," § 39 (3a).
stock, as against creditors of the com- The fact that a note sued on
pany, on the grounds that his associ- was given for bank stock, subscribed,
ates never chose a board of directors, without any intention to pay it,
or obtained deposits, but only issued merely for the purpose of pretending
circulating notes, and accepted bills to the public that the stock was
of exchange. Dayton v. Borst, 30 N. greater than it really was, or for the
Y. Super. Ct. 115. purpose of preventing the predomi-
14. Irregularities in subscrip_tion. — nance of certain stockholders, is no
Finnell v. Sandford (Ky.), 17 B. Mon. defense to the action of the trustee of
748; Farmers', etc.. Bank v. Jenks the bank. Bates v. Lewis, 3 O. St.
(Mass.), 7 Mete. 593. 459.
15. In an action by a receiver of a Sale not repudiated till after insol-
bank on a note given for the price ot —
vency of bank. Defendants, having
shares of stock in the bank, which did purchased stock from a bank, and taken
not become due until after the bank's no steps to repudiate the same for
insolvency and the vesting of the cred- fraud until after the bank had gone
itors' rights, defendant can not set up into the hands of a receiver, were Ha-
as a defense ,a secret agreement with ble for the price, though no certificates
the president of the bank that he were issued to them, and they did not
should have the option of surrender- appear as stockholders, and took no
ing the stock when, the note matured, part in the affairs of the bank. Rob-
and having the note returned. At- ertson v. Owensboro Savings Bank &
water v. Stromberg, 75 Minn. 377, 77 Trust Co.'s Receiver, 149 S. W. 1144.
N. W. 963. 18. Misrepresentation as to articles
Stock held by bank as collateral
16. —
contained in charter. Where defend-
—
for purchase price. Meholin v. Carl- ant subscribed to a proposed bank.
§ 39 (7ce) CAPITAL, STOCK AND DIVIDENDS. 95
§ 39 (7ce) Agreements Relieving against Liability. Any agree- —

ment or arrangement among the stockholders^^ or directors^*' whereby they
attempt to relieve themselves of their liability to the creditors of the bank
for unpaid balances of their subscriptions, is void, but does not render the
subscription void. A release by the board of directors of a bank of its
stockholders from a portion of their subscriptions,^! or acceptance of less
;ind executed his notes therefor, the fact scribers amounted to one-half the nom-
that the bank's charter, subsequently inal sum, the directors voted that no
obtained, did not contain a number of further calls should be made. The
the articles set out in the subscription company became insolvent. Held, that
list signed by defendant did not con- the vote of the directors that there
stitute a defense to an action on the should be no further calls was void as
notes. Petrie v. Coulter, 10 Okl. 257, to the receiver appointed in insolvency.
61 Pac. 1058. Sagory v. Dubois (N. Y.), 3 Sandf. Ch.
19. Agreementsrelieving against 466.
liability. —Thestockholders of a bank- A banking company was organized
under the general banking law of New
ing corporation, whose charter, veri-
fied certificate, and advertisements York of 1838. The articles provided
proclaim its capital stock to be that the stock should be divided into
$50,000, and whose verified statements shares of $100 each; and that, if any
recite that only $10,000 has been paid shareholder should omit to pay any in-
in upon such stock, can not, without stallment on his shares, pursuant to any
changing its charter, verified certifi- call of the directors, his shares, and all
cates, advertisements, or verified previous payments, should be for-
statements, relieve themselves of their feited. The
associates signed a paper,
liability to the creditors of such cor- by which they
subscribed for and
poration by any agreement among agreed to take the number of shares
themselves, whether the creditors against their respective names, and to
were such before or after such agree- fulfill all the engagements contained
ment. Putnam v. Hutchison, 4 Kan. in the articles. The association made
App. 373, 45 Pac. 931. several calls for assessments, and
20. Agreement among directors. — made dividends on the stock paid in,
Palmer v. Lawrence, 5 N. Y. Super. and applied the s?me to meet some of
the calls, the last of which dividends
Ct. 161
was contrary to the law. After the
An agreement among the original calls amounted to about one-half the
subscribers to the capital stock of a nominal amount of the shares, the di-
bank that they would not be person- rectors voted that no further calls
ally liable on their subscriptions is should ever be made, and discontinued
void, but it does render the subscrip- the company. The company became
tions themselves void, or affect the insolvent, and on application of a cred-
personal liability of the subscribers. itor a receiver was appointed. The
Palmer v. Lawrence, 5 N. Y. Super. Ct.
_
receiver filed a bill to compel a stock-

161. holder, who had subscribed for 25
Evidence that the original subscrib- shares, to pay the unpaid balance of
ers to a bank were assured that, if they his share. Held, that the stockholder
were unable to pay or secure the was liable to pay the v/hole amount of
shares subscribed, other persons could, his subscription not previously paid.
doubtless, be found who would relieve Sagory v. Dubois (N- Y.), 3 Sandf. Ch.
them from their subscriptions, is not 466.
proof of an agreement among the sub-
scribers that they were not to be per-
21. Release by
directors. Right of —
one who
a director when the board
is
sonally responsible, or that their sub- of directors of a bank improperly re-
scriptions should be binding only at leased its stockholders from a portion
their election. Palmer v. Lawrence, of their subscriptions, and who after-
5 N. Y. Super. Ct. 161. wards becomes a creditor of the bank,
Vote of directors that no further to have the transaction undone for
calls —
be made. A banking company his benefit in a proceeding by him
was organized under the general bank- against a stockholder. See Walton v.
ing law. After the calls on the sub- Hake, 9 Mo. App. 596, memorandum.
96 BANKS AND BANKING. § 39 (7cj)
than par value of the certificates in pursuance of an agreement with the

subscriber,^^ is void as against creditors of the bank.
§ 39 (7cf) Payment, Release or Discharge. —Payment of a call

for contributions from stockholders does not discharge them from liability
for further call on their stock.^s
39 (7cg) Redemption of Share of Bank's Bills.—The fact that

§
holders of unpaid stock may have severally redeemed their share of the
bills of the bank does not release them from liability for the amount due
on their stock subscriptions. 2*
39 (7ch) Reduction of Capital Stock. An arrangement made in

§ —
good faith among the stockholders of a banking corporation whose sub-
scription to its capital stock had never been made public, entered into be-
fore the corporation had incurred debts, whereby, instead of issuing stock
to the amount of the original subscription, each subscriber is given full
paid-up stock to the amount that he had actually paid on his subscription,
is valid as against creditors and they can not enforce the original sub-
;
scription, except as to the deficiency between the amount of paid-up stock

so issued, and the minimum allowed by the charter for the transaction of
business. ^^
§ 39 (7ci) Part of Shares Assessed. —Where part of the shares of

stock in a bank are assessed at the same amount that they would have been
if all the other shares had been assessed, it is no objection to the liability
of the holders of such shares that the remainder were not assessed. ^"^
§ 39 (7cj) Estoppel of Director Who Became Creditor. Estop- —

pel of one who was a director when the board of directors of a bank im-
properly releasedits stockholders from a portion of their subscriptions,
and who afterwards becomes a creditor of the bank, to assert that he gave
22. Acceptance of less than par right to call for contributions from its
value.—Where a bank assesses certifi- stockholders, create a contract be-
cates of stock on less than par value, tween the state and the stockholders,
in pursuance of a contract between it by which the latter, on paying the con-
and the buyer that he shall not be re- tribution, are discharged from liabil-
quired to pay more, and accepts such jty for further calls on their stock,
stockholder's proportion of fictitious Citizens' Bank v. Gay, 47 La. Ann. 551,
profits in discharge of his liability to yi go. 148
pay money for the stock, creditors of „. "ivr-'-t, „. r>,,„_,,p.v,, -p.^ p.,
the bank, on its insolvency, have a "^
ô. 9 112, \Z'
t,,\,,^ ^ Lo c '
1 Woods 463. See post. Re-

cause of action for the difference be-
tween the amount paid and the par
value, which never existed in the cor-
poration, as a fraud on them against
fj'p'X
^ ^'
^
25. Reduction
....
of capital stock.— Hill
'
^-
the estate of such stockholder. Ga- '^- Silvey, 81 Ga. 500, 8 S. E. 808, 3 L.
ger V. Paul, 111 Wis. 638, 87 N. W. 875. R- '^- '-SO-
23. Payment of call. Act No. 100 of Part of shares assessed. In re

26. —
1847, relating to the Citizens' Bank, Reciprocity Bank, 22 N. Y. 9, revers-
does not, by giving the bank the ing 29 Barb. 369, 17 How. Prac. 323.
§ 39 (7e) CAPITAL, STOCK AND DIVIDENDS. 97
the bank credit on the faith that the stock thus retired was still unpaid;
is a defense to a proceeding by him against a stockholder.^'^
§ 39 (7ck) Collusion between Bank and Judgment Creditors. —

When a judgment creditor of a bank has exhausted his remedy at law, and
seeks in equity to enforce payrtient of stock subscriptions, the stockholders
can not go behind the judgment rendered against the bank, and question
the original cause of action, unless they can show collusion between the
creditor and the bank for the purpose of defrauding them.^^
§ 39 (7cl) Purchase of Shares by Bank. —

Where bank stock, upon
which there are unpaid installments, is redeemed or purchased by the bank,
or received by it from debtors in payment of their debts, it becomes the
property of the bank, to which the remaining stockholders have no imme-
diate claim, and therefore they can not be held liable for the unpaid install-
ments, in an action against them by creditors of the bank.^^
§ 39 (7cm) Elegal Transaction of Business., — See ante, "Bank

Having No Legal Existence," § 39 (7'ca).
§ 39 (7d) Ascertainment of Balances Due and Adjustment of

Liabilities. — —
Payment in Bank Notes. In adjusting the equities be-
tween the stockholders of a bank, those who paid their stock in notes of
the bank, will be allowed only what they paid for the notes.3<>
—
Note Collected by Stockholder. In adjusting the liabilities of stock-
holders of a bank, a note of a third person, given by a stockholder in pay-
ment of his stock, and afterwards collected by him, will be treated as the
property of the bank, and the stockholder charged with the proceeds, and
interest from the date of collection.î
Interest. —
Actual payments upon stock will bear interest. ^^
—
Redemption of Bills of Bank. See ante, "Redemption of Share of
Bank's Bills," § 39 (7cg).
§ 39 (7e) Operation of Assignment for Benefit of Creditors. —

The liability of stockhdders for unpaid balances on stock subscriptions,
passes under a general assignment of the bank's property, assets, etc.^*
27. Estoppel of director who became 31. Note collected by stockholder.

creditor. — Walton v. Hake, 9 Mo. App. Moses v. Ocoee Bank, 69 Tenn. (1
596, memorandum. Lea) 398.
Collusion between bank and
28. 32. Interest.— In adjusting the liabil-
judgment creditor.— Marsh v. Bur- 'ties of subscribers to stock in a bank-
roughs, Fed. Cas. No. 9,113, 1 Woods, ing corporation, actual payments on
453 stock will bear interest from the date
^"^'"^^ ""
Purchase of shares by bank.-
29. ^^ Îj^L'V"^ ^°,a?
•
-lo /^ atC Ocoee Bank, 69 Tenn.'"fi'^'r
(1 Lea) 398.
Robmson
T> 1 -o
v. Bank, 18 Ga. 65.
I
33 p^^^^^^ ^^^^^ :^^^^^^{ ^^îg^_

30. Payment in bank notes.— Marr v. ment.-Terry v. Anderson, 95 U. S.
Bank, 44 Tenn. (4 Coldw.) 471; Moses ggg 636, 24 L. Ed. 365.
V. Ocoee Bank, 69 Tenn. (1 Lea) 398. Compared to statutory individual lia-
1 B & B—
98 BANKS AND BANKING. § 39 (7fa)
An assignment by a bank of its effects to which the creditors are not par-
tiesor consenting can not deprive them of the right to sue stockholders
and directors for breach of duty.^*
§ 39 (7f) Enforcement— § 39 (7fa) Levy of Assessment and

—
Sale of Stock. Collection of Unpaid Subscriptions to Pay Debts
of Bank. —
See post, "Nature and Extent," § 57; "Actions and Proceed-
ings to Enforce," § 58. Effect of adjudication of insolvency as to enforce-
ment of stock assessment, see post, "Insolvency and Its Effect in Gen-
eral," § 73.
Power to Assess. —Where an amount of stock in a banking corpora-
tion exists subscribed and unpaid, the corporation may call for payment.*^
Necessity —Condition Precedent to Suit. —During the solvency of a
bank, the stockholders' subscription liability can only be enforced by assess-
ment made in conformity with the by-laws of the corporation.^^
The directors of a bank adjudged to be insolvent have power with-
out authority of the court first obtained to assess shareholders for unpaid
capital stock for the purpose of liquidating the bank's indebtedness and
making final settlement of its affairs, certainly where the bank commis-
sioners acquiesce.*''
bility. —
The liability of the stockhold- subscribed a mere call on the old un-
ers upon their unpaid subscriptions is paid stock. Moses v. Ocoee Bank, 69
that of debtors to the bank. Ogilvie Tenn. (1 Lea) 398.
V. Knox, Ins. Co., 22 How. 380, 16 h. Statutory prohibition upon calling
Ed. 349. Consequently the balances in installments on stock held by state.
passed to the assignees under the as- —See ante, "State," § 39 (7ba).
signment, which was "of all the prop- Covell V. Fowler, 144 Fed. 535.
36.
erty, estate, credits, and assets of the" Prior to the levy of an assessment,
bank. The liability of a stockholder a stockholder of a bank can not be
for his subscription is entirely differ- pursued by suit to enforce his sub-
ent from that imposed by the charter scription liability. Covell v. Fowler,
"for the ultimate redemption of the 144 Fed. 535.
bills'' issued by the bank. The sub- 37. Power of directors. It was so—
scription inures to the benefit of all held under the California Banking
creditors, while the individual liability Act of 1895 (St. 1895, p. 175), provid-
under the charter operates only in ing that, if a bank is adjudged insol-
favor of billholders. Terry v. Ander- vent, the court shall enjoin it from
son, 95 U. S. 628, 636, 24 L. Ed. 365. transacting any further business, "and
That balance is a debt to the bank, shall order the [bank] commissioners
and enures to the benefit of all its to surrender to the corporation the
creditors, while the individual liability property thereof in their possession
for the redemption of its bills operates for the purpose of liquidation," giving
only in favor of the holders of them. to the court power to remove directors
Terry v. Anderson, 95 U. S. 628, 24 L,. for cause and to appoint others, and
Ed. 365. declaring that "subject to this right of
34. Schley v. Dixon, 24 Ga. 273, 71 removal and appointment the direct-
Am. Dec. 121. ors or trustees * * * shall be per-
35. Assessments or what constitutes mitted to continue the management
—
a call. Where an amount of stock in * * * during the process of liquida-
a banking corporation exists sub- tion, under the direction of the bank
scribed and unpaid, and books are commissioners." Union Sav. Bank v.
opened for the subscription of other Dunlap, 135 Cal. 628, 67 Pac. 1084.
stock for which a stock note is exe- The directors of an insolvent bank
cuted, the court can not by construc- may, as against the objections of the
tion declare the stock purporting to be stockholders, issue a call for the un-
§ 39 (7fb) CAPITAL, STOCK AND DIVIDENDS. 99
Sale of Stock. — Sale of the stock of a shareholder who fails to pay an

installment of his subscriptions is one of the remedies usually provided
for the enforcement of payment of subscriptions to the stock of a bank.
Such must be in conformity to the requirements of the
sales to be valid
charter of the bank or the statute authorizing such sales. A sale wnere
the conditions precedent to the power to levy the assessment had not been
complied with is void, and the subscriber or a transferee of such stock may
maintain an action to compel the bank to recognize it.^*
§ 39 (7fb) Nature and Form of Action. Personal Action. — —

bank may bring an action against one who refuses to pay his subscription
to stock, though made before the bank is in operation. ^^ The right to bring
a personal action is not affected by the existence of cumulative redress
against a stockholder who fails to pay an installment, by way of forfeiture
of his shares or sale under a mortgage to secure payment of the subscrip-
tion.*
Bill in Equity.— See post, "Jurisdiction," § 39 (7fc) ; "Parties Plain-

tiff," § 39 (7ffa).
Garnishment. —The indebtedness of a dehnquent stockholder of a bank
for stock not paid in is subject to be garnished, at least, by the judgment
creditors of such bank.*i
paid portion of the capital stock, of irregularity in the assessment, un-

though the bank commissioners cre- less the sum for which the stock is
ated by St. 1895, p. 175, c. 167, had di- sold be first tendered, or within Code
rected the levy of an assessment by Civ. Proc, § 341, subd. 3, providing
the directors under Civ. Code, § 332, that an action must be commenced
authorizing assessments by directors within six months to recover stock
of a corporation for paying debts, etc., sold for a delinquent assessment, as
the statute of 1895 merely giving the provided in Civ. Code, § 347. Herbert
bank commissioners the power to Kraft Co. Bank v. Bank, 133 Cal. 64,
direct a speedy settlement of the af- 65 Pac. 143.
fairs of the bank, but not interfering 39. Personal action. Stanton — v.
with the right of the directors to con- Wilson (N. Y.), 3 Hill 153.
vert the assets of the bank into cash; 40. Forfeiture of share. The arti-—
and hence^ if the bank commissioners cles of a banking company provided
acquiesce in the method adopted, no that, if any shareholder omitted to pay
one can complain. People's Home any installment, his share should be
Sav. Bank v. Rauer, 3 Cal. App. 445, 84 forfeited. Held, that the provision for
Pac. 329. a forfeiture was a cumulative remedy,
38. Where a bank levied assessments and did not affect the direct liability
on certain shares, and not on others, created by the subscription of the
the shares being sold at public auction stock. Sagory v. Dubois (N. Y.), 3
for delinquency, and one-fourth of its Sandf. Ch. 466.
capital stock had not been subscribed, The remedy of the Citizens' Bank of
which is a condition precedent to the Louisiana against stockholders who
power to levy assessments by Civ. have given mortgages to secure pay-
Code, § 331, such assessments were ment of their subscriptions of stock is
void,and an action by a party holding not confined to the security or to
such stock as security, to compel the seizure and sale of the stock, but may
bank to recognize it as a stockholder, be enforced against the stockholders
is not barred by, or included within, personally. Citizens' Bank v. Gay, 47
§ providing that no action must
347, La. Ann. 551, 17 So. 148.
be sustained to recover stock sold for 41. Garnishment. — King v. Elliott
delinquent assessments on the ground (Miss.), 5 Smedes & M. 428.
100 BANKS AND BANKING. § 39 (7ffa)
§ 39 (7fc) Jurisdiction. —Equit^y. —On the insolvency of a bank,

the right of the receiver to maintain suit against the individual stockhold-
ers to enforce their liability on unpaid subscriptions does not constitute
such a plain, adequate remedy at law as to defeat a suit in equity against
the stockholders for the collection of the corporate assets for the benefit
of the creditors.*^
A repeal of the statute under which the suit was brought does not
defeat the action.^^
§ 39 (7fd) Limitations and Time to Sue.—The statute of limita-

tions will not commence to run until a call has- been made for the unpaid
stock.**
§ 39 (7fe) Appearance and Process. —A stockholder of bank stock

may enter a voluntary appearance in an action to enforce his liability for
an unpaid stock subscription, but an appearance in an action to determine
the fact of insolvency of a bank and for a receivership is premature and
ineffectual* 5
Process. — Service of process before the accrual of a cause of action
against a holder of bank stock for an unpaid balance of his stock subscrip-
tion is premature.*®
§ 39 (7ff) Parties— § 39 (7ffa) Parties Plaintiff.— Creditors.

— Equity may invest a judgment creditor with power to sue to compel pay-
ment of an unpaid stock subscription.*^ Sed, quasre, can a creditor of a
42. Jurisdiction. — Dill v. Ebey, 27 'ion accrues against stockholders, and

applies to the liability of stockholders
Okl 584 Pac 973
112
corporations imposed by
43. Repeal of statute.-Where the f, ''^"î"^,
receiver of the effects of a bank, who § ^\ ^ voluntary appearance of
was appointed on motion of the bank
^X'^f,
stockholder of abank, m
an action
f
t° determine the msolvency of the
commissioners, pursuant to St. 1838,
c. 14, brings an action in the name of
^^"^^ ^"'^, ""^^ appomtment of a
^f such accrual, is pre-
receiver, before
the bank against a stockholder to re-
cover the amount of a note for stock '"^^ and ineffectual Hazlett v.
«f
subscribed for, such stockholder can
not defeat the action by showing the
W°°'^'i?,^„^'
Jf \^-
s^^°"^^— f Vl
êb. "Îf
5?°"^*;, 1875, art
^-
.i®' m
repeal of said statute after suit. Farm- ^\\' § ^< Providing that cases of
claims against corporations the exact
ers', etc., Bank v. Jenks (Mass.), 7
Mete 592 amount justly due shall be first as-
.',
Limitations
44.
-^ J
and^.
time ^to sue—
^. certained, and after the corporate
property shall have been exhausted
Marr Bank, 72 Tenn. (4 Lea) 578;
v. the original subscribers shall be in-
?^°^^",J 9''°" ^^" ^^ ^^""- ^\ dividually liable to the extent of their
Lea) 398. See post, Appearance and a'
unpaid subscription, prescribes a time
Process, § 39 (.7te).
^l^gn ^ z-i.\i%^ of action will accrue
45. Appearance and process. — against stockholders and applies to
Const. Neb., art. 11,_ § 4, providing the liability of stockholders in bank-
that in cases of claims against cor- ing corporations imposed by § 7, so
porations the amount due shall be as- that service of process on stockhold-
certained, and after the corporate ers of a bank before such accrual
property has been exhausted the sub- would be premature. Hazlett v.
scribers shall be liable to the extent Woodhead, 27 R. I. 506, 63 Atl. 952.
of their unpaid stock subscriptions,
prescribes a time when a cause of ac-
47. —
Creditors. Gilmore v. Bank, 8
O. 62.
§ 39 (7fh) CAPITAL, STOCK AND DIVIDENDS. V :. * 101
dissolved bank, who has not recovered a judgment and exhausted his rem-
edies at law, proceed in equity to subject unpaid balances on stock sub-
scriptions, to the payment of his demand.**
§ 39 (7ffb) Parties Defendant.—All Stockholders,— A judgment

creditor need not make all the stockholders of the bank parties to his bill to
subject unpaid balances on stock subscriptions to the payment of his de-
mand.*^ Where the stockholders of a bank are liable, by the terms of the
charter, for the redemption of the bills of the bank in proportion to the
number of shares held by each, an action can not be maintained in equity
against an individual stockholder to recover any debt he may owe the bank
for unpaid subscriptions to stock. The action, it seems, should be against
all the stockholders.50
Trustee or Cestui Que Trust. —Where a person holds stock in a bank-
ing association as trustee, he is a proper party defendant, to the exclusion
of his beneficiary, in an action brought by a depositor against the stock-
holders to recover the balance due him at the time of the suspension of
the bank.8i
§ 39 (7fg) Pleading. —
The complaint in an action by the receiver to
recover unpaid subscriptions must state sufficient facts to authorize a court
of equity to assume jurisdiction. ^^
§ 39 (7fh) Set- Off. — In a suit to collect a bank stock note, the ordi-
nary rules of set-off apply and are not affected by statutory provisions for
special proceedings to enforce such notes. ^^
48. Enforcement in equity.

— "If he 51. Trustee or cestui que trust. —
can, however, it is upon the ground Wadsworth v. Hocking, CI 111. App.
that the assets of the corporation 156.
constitute a trust fund which will be 52. —
Pleading. Complaint in equity-
administered by a court of equity in where a receiver joined subscribers to
the absence of a trustee; the principle the capital stock of a bank as defend-
being that equity will not permit a ants to recover unpaid subscriptions,
trust to fail for want of a trustee." which alleges that the judge who ap-
Terry v. Anderson, 95 U. S. 628, 636, pointed the receiver on application of
24 L,. Ed. 365. creditors supported by a showing that
49. All stockholders.^ It was not — the bank was insolvent and without
the complainant's duty to marshal the assets entered an order directing the
assets of the bank, or to adjust the receiver to retain counsel and sue de-
equities between the corporators. In fendants as subscribers on their un-
all that he had no interest. The de- paid subscriptions, or for the stock
fendants may have had such an in- issued to them for the benefit of all
terest, and, if so, was
quite in their
it the creditors, and that the suit is filed
power to secure
protection.
its They under such order, warrants the court
might have moved for a receiver, or to treat such suit as brought by the
they might have filed a cross bill, creditors of the insolvent bank, over
obtained a discovery of the other which equity has jurisdiction, and in
stockholders, brought them in, and. which all the subscribers may be
enforced contribution from all who joined as defendants. Dill v. Ebey,
had not paid their stock subscriptions. 27 Okl. 584, 112 Pac. 973.
Their equitable right to contribution 53. —
Set off. In an action on a note
is not lost. Hatch v. Dana, 101 U. S. under the Act of 1845 (43 Ohio Laws,
205, 25 L. Ed. 885. 308), authorizing the trustee of the
50. Terry v. Martin, 10 S. C. 263. Mechanics' & Traders' Bank of Cin-
§ 39 (7fi) Evidence. —Declaration of Bank Officer as to Owner-

ship of Stock. —In fixing the ownership of stock, it is not competent to
give in evidence the declarations of the officers and agents of the bank, for
that purpose. Third persons are not bound by their sayings. s*
§ 39 (7fj) Findings and Judgment. —A

finding of nonpayment
of a balance on a note given in payment of a subscription to the stock of
a bank is justified by proof of a resolution of the stockholders whereby
such balance was attempted to be paid out of the holder's share of the ac-
cumulated profits. ^^
Satisfaction—Medium of Payment. —See ante, "Medium," § 39 (5a).
§ 40. Transfer of Stock— § 40 (1) Assignability.—Effect on lia-

bility for debts and acts of bank, see post, "Effect of Transfer of Stock,"
§ 48. Stock subject to lien, see post, "Lien of Bank on Stock or Dividends,"
§ 42. Liability of pledgee for assessment, see post, "Rights and Liabilities
as to Bank," § 43.
Every bank stockholder, unless prohibited by statute or the charter of
the bank, or by-laws legally enacted, has the right tosell, assign and transfer
his stock freely and without and charter provisions limiting

limitation,^®
this right are intended for the protection of the bank itself and of pur-
chasers without notice, and do not affect the rights of the parties to a trans-
fer in breach thereof as between themselves. ^^ When application is made
cinnati to sue on notes, etc., given to hands of its members has been held
said bank and against delinquent void as being in restraint of trade.'"
stockholders, defendant can not set Morgan v. Struthers, 131 U. S. 346, 33
off against the claim the amount paid L. Ed. 132, 9 S. Ct. 726.
by him since the action was com- Tennessee. Bank — stock is trans-
menced, upon execution on a judg- ferable. Nashville Bank v. Ragsdale,
ment rendered against him and others 7 Tenn. (Peck) 296.
as partners in said bank. Bates v. "The stockholder has an entire and
Lewis, 3 O. St. 459. perfect ownership over his own stock,
54. Declarations of bank officer as and may sell and transfer it to whom-
to ownership of stock. — Robinson v. soever he pleases, and from which the
Lane, 19 Ga. 337. bank has no power to restrain him."
55. Finding of nonpayment. —Where, Brightwell v. Mallory, 18 Tenn. (10
in an action against the representa- Yerg.) 196; McLaughlin v. Chadwell,
lives of a deceased stockholder in an 54 Tenn. (7 Heisk.) 389; Union Bank
insolvent bank, who gave a stock note v. State, 17 Tenn. (9 Yerg.) 490.
when he took his first share of stock, 57. Effect of charter regulations. —
there is evidence that deceased paid Leyson v. Davis, 170 U. S. 36, 43 L.
but sixty per cent on the first share Ed. 939, 18 S. Ct. 500, and affirmed in
of stock and none on the second, and Farmers' Nat. Bank v. Robinson, 176
it is shown that it was attempted to U. S. 681, 44 L. Ed. 637, SO S. Ct. 1037,
pay the balance due on the first share and see Moores v. Citizens' Nat.
out of accumulated profits, a finding Bank, 111 U. S. 156, 38 L. Ed. 385,
of payment of only the sixty per cent 4 S. Ct. 345. In Black v. Zacharie &
is justified, though it does not appear Co., 3 How. 483, 513, 11 L. Ed. 690,
what became of the stock note. it was held that such a regulation re-
Gager v. Paul, 111 Wis. 638, 87 N. W. lates to the transfer of the legal title,
and not to any equitable interest in
875.
56. Freedom of transfer. "So well — the stock .subordinate to that title,
established is this right that a by-law In the case of Union Bank v. Laird
of a bank putting restrictions upon (U. S.), 3 Wheat. 390, 4 L. Ed. 269,
the transferability of stock in the the court took notice of the distinc-
§ 40 (2c) CAPITAL, STOCK AND DIVIDENDS. 103
for the transfer of stock in a bank in confprmity with its by-laws by one
prima facie have the same transferred, the bank has no control
entitled to
or discretion as to the transfer, or right to prevent it on their transfer
bookj^s where it has no claim on the stock at the time it is assigned^^ unless
it is insolvent or its capital impaired.® °
§ 40 (2) Persons Who May Acquire or Sell— § 40 (2a) In Gen-

eral.— See ante, "Assignability," § 40 (1).
§ 40 (2b) Directors of Bank. —The directors of a bank are not es-

topped from purchasing with their own money shares of stock owned by
other stockholders at as low price as the owners are willing to dispose of them,
.the fact that the price was too low being a matter for the vendors of the
stock to complain of, and the directors are then entitled to sell the stock to
another corporation, of which they are directors, at as high a price as pos-
sible.® ^
§ 40 (2c) Bank Itself. — In the absence of a law or charter provision

prohibiting banks from acquiring title to their own stock a bank has power
to purchase and again sell its own stock,® ^ but an insolvent bank has no
tion between the legal and equitable banking, if a bank has no claim on
title incases of bank stock, where the stock at the time it is assigned, it
charter of the bank had provided a can not refuse to transfer the stock
mode of transfer, and that as between on the ground that the assignment
vendor and vendee the transfer, not was based on an illegal consideration.
in conformity to such provision, is Helm V. Swiggett, 12 Ind. 194.
good to pass the equitable title and Stock in name of guardian. Hence, —
divest the vendor of all interest in the where stock belonging to an infant
stock. was sold and assigned by his guardian,
58. Bank v. Craig, 33 Va. (6 Leigh) and transferred by the bank to the
399; Madison Bank v. Price, 79 Kan.
purchaser, in accordance with its
rules, it is not liable therefor, al-
289, 100 Pac. 380.
though the sale by the guardian was
Bank directors can not prevent the
in fraud of his ward's rights, and with
alienation of stock with the real es-
intent to appropriate the proceeds to
tate securing it, by refusing the pur-
his own use. Bank v. Craig, 33 Va.
chaser the rights of a '.stockholder.
(6 Leigh) 399.
Byrne v. Union Bank (La.), 9 Rob. 59. Helm v. Swiggett, 12 Ind. 194;
433.
Madison Bank v. Price, 79 Kan. 289,
A bank's duty to transfer stock on 100 Pac. 280; Foster v. Broas, 120
its books pursuant to a transfer by Mich. 1, 79 N. W. 696, 77 Am. St.
the registered holder is ministerial,
Rep. 565.
and it has no discretion in the mat-
60. Under Laws1897, p. 98, c. 947
ter. Madison Bank v. Price, 79 Kan. (Gen. St. 11a), it is the duty
1901, c.
289, 100 Pac. 280.
of a bank in the state to transfer
"The bank can impose upon one stock on its books pursuant to the
man no restriction than on
greater transfer by the registered holder, un-
another, nor, by the exert''^" ^f !>n less said holder is entitled to it on
arbitrary will, extend, for a particular a matured debt, or unless the bank
occasion, those rules, whose validity is insolvent or its capital impaired.
and use consist in their generality, as Madison Bank v. Price, 79 Kan. 289,
laws of the corporation." Bank v. 100 Pac. 280.
Craig, 33 Va. (6 Leigh) 399. 61. —
Directors. In re Liquidation,
Assignment based on illegal con- 118 La. 664, 43 So. 270.
—
sideration. Under 1 Rev. St., p. 152, 62. Bank itself.— Fitzpatrick v. Mc-
regulating the business of general Gregor, 133 Ga. 332, 65 S. E. 859.
104 BANKS AND BANKING. § 40 (3aa)
power to purchase its own shares of stock.^* In England and in some of

the states of this country an express grant of authority is necessary to
enable a bank to purchase shares of its own stock, either for the purpose
of reissuing or retiring them.®*
§ 40 (2d) Bank PurcKasing Stock in Other Bank.— A bank

which purchases stock as a broker but takes it in his own name, which ap-
pears upon the books of the corporation, assumes the liability of a stock-
holder as between itself and the corporation.*^
§ 40 (3) Validity, Manner and Sufiicieflcy— § 40 (3a) Fraud

or Misrepresentation —§ 40 (3aa) Effect. —Fraud or false repre-
sentation invalidates a transfer of bank stock as against the party de-
frauded.*®
As Affecting Assignees. —The assignees and successors of stockhold-
63. Insolvent bank. — Fitzpatrick v. have such contract rescinded, and to

McGregor, 133 Ga. 332, 65 S. E. 859. recover back the money paid, on the
A bill by a bank and its receiver and ground of false representations and
creditors, charging that defendant concealments of the cashier, as to the
stockholders sold their stock to the value of the stock and the condition
bank at par, knowing that the capital of the bank at the time of the pur-
stock of the bank at that time was chase. Held, that plaintiff was not
impaired, and that by surrendering estopped from setting up his actual
their stock the bank was seriously ignorance of the condition of the bank
embarrassed and afterwards becamei at the time of the sale. Lefever v.
insolvent; that one of defendants was Lefever, 30 N. Y. 27.
a director, and knew of the conditions, Evidence that the president of a
and that the bank would be rendered bank was informed by his son and by
insolvent by buying the stock; and the deputy comptroller of the cur-
praying that the sale be set aside and rency, officially, that the bank was
that defendants be held liable for the embarrassed, and its capital impaired,
purchase price of the stock surren- proves the falsity of statements, after-
dered by them^was properly dis- wards made by him in order to sell
missed. BessemerSav. Bank v. his stock, that the bank was doing a
Learned (Miss.), 47 So. 119. good business and had a large sur-
64. England and some of the states.
plus. Truman v. Lombard, 10 App.
— Fitzpatrick v. McGregor, 133 Ga.
Div. 430, 42 N. Y. S. 262.
Sale held not fraudulent. Where —
332, 65 S. E. 859; German Sav. Bank
G. sold to L. so many shares of stock
V. Wulfekuhler, 19 Kan. 60. See, also,
in the First National Bank when is-
Sutherland v. Olcott, 95 N. Y. 93;
sued under a provision that the cashier
Morgan v. Lewis, 46 O. St. 1, 17 N.
of the bank was to retain the certifi-
E. 558; Cartwright v. Dickinson, 88
cates as security for G.; it was held,
Tenn. (4 Pickle) 476, 12 S. W. 1030,
that there was no fraud practiced
7 L. R. A. 706, 17 Am. St. Rep. 910.
upon L. in the failure to actually de-
65. Bank purchasing stock of an- tach the certificate of stock from the
other bank. — McKim v. Glenn, 66 Md. stub book, and give him manual pos-
479, 8 Atl. 130. session of it. Tt was agreed between
66. Fraud
or false representations. him and G. that the stock should be
— director in a bank, who
Plaintiff, a placed in the hands of the cashier to
had been such from its organization, hold as collateral on the note. The
who usually attended the meetings, cashier left the certificate of stock in
and was actually present and took the book as a matter of convenience
part in the proceedings of the board to himself and for its preservation.
of directors when the last dividend It was under his dominion and con-
was declared, having purchased from trol all the time until the failure of
the cashier of the institution twenty the bank. Long v. Gilbert (Tenn.),
shares of the capital stock, sued to 59 S. W. 414.
§ 40 (3b) CAPITAI,, STOCK AND DIVIDENDS. 105
ersand directors of a bank, are not bound by the fraud of their assignors
and predecessors, if they become assignees and successors without fraud.^^
Bona Fides —
Where defendant had no reason to be-
of Transferrer.
bank was using the bank's money in purchasing
lieve that the officer of a
defendant's stock, and it was sold in the usual course of trade, the sale
was valid, and the money paid became defendant's property.®*
§ 40 (Sab) Rescission. —
Conditional Sale. Where a contract for —
the sale ofbank stock is subject to a parol condition that an examination
by the buyer on his return from a journey shall show the bank to be pros-
perous, as represented by the seller, and the buyer, on his return, finds
the bank insolvent, he may rescind his purchase without showing that the
bank was insolvent when the contract was made.®^
§ 40 (3b) Authority from Holder or Power of Attorney. Ne- —

cessity —
and Duty of Bank. Banks stand upon the footing of trustees
in relation to their stockholders for the protection of their interests. Be-
ing custodians of the primary evidence of title to the stock, they are held
to the exercise of reasonable care and diligence in its preservation. Their
safety, therefore, requires them, before permitting a transfer, to be satis-
fied of the authority of the person to make it. Hence they are entitled to
require the production of satisfactory evidence of such authority, and
though, generally, the possession of the legal title is sufficient evidence
thereof, it is not always so, since the real equitable ownership may be in
some other than the holder of the legal right.''" An unauthorized transfer,
therefore, may work a serious wrong to the equitable owner; and if the
bank allow it to be made with notice of the want of authority or if put
upon inquiry, without proper investigation into the authority, it becomes a
party to the wrong.'' ^ This principal is applicable to transfers by trustees,
such as administrators, executors''^ and guardians.''*
67. As affecting assignees.— Schley thority beyond his letters, and has no
V. Dixon, 34 Ga. 273, 71 Am. Dec. 121. right to require any further evidence
68. Bona fides of transferrer.— Corn of his authority. If, however, the cir-
V. Skdlern, 75 Ark. 148, 87 _S. W. 143. cumstances attending the proposed
69. Rescission of conditional sale. transfer show that it is not in the or-
—Truman v. Lombard, 10 App. Div. dinary course of administration, it
430, 43 N. Y._ S. 363. becomes the duty of the transfer of-
70. Authority from holder or power figgrs, without permitting it, to inquire
of attorney.— Peck v. Bank, 16 R. I. into the authority of the executor to
710, 19 Atl. 369, 7 L. R. A. 826. make it. Peck v. Bank, 16 R. I. 710,
71. Peck V. Bank, 16 R. I. 710, 19 19 Atl. 369, 7 L. R. A. 826. And see
Atl. 369, 7 L. R. A. 826. Lowry v. Bank, 3 Am. L. J., N. S., 111.
72. Transfer by executor.— When a Where a testator's bank stock is
proposed transfer of bank stock by
an executor is apparently in the or- 73. Guardian. — Bank stock, stand-
dinary course of administration, for ing in name of A., guardian, may be
the purpose of raising money to pay sold and transferred by the guardian,
the testator's debts or legacies given and the officers of the bank have no
by the will; the bank may safely per- right to control or prevent him from
mit a transfer of the stock by the ex- transferring it on their transfer book,
ecutor without looking for his au- Bank v. Craig, 33 Va. (6 Leigh) 399.
106 BANKS AND BANKING. 40 (3ca)
Bank MustSatisfy Itself as to Genuineness. A bank before making —

a transfer of stock must satisfy itself of the genuineness of the power
its
of attorney^* or the certificate, or scrip/^ and is liable in case either is

forged or otherwise void and justifiable in refusing a transfer.
Blank Indorsement by Holder. — Â blank indorsement by the holder
of a certificate of bank stock, with his seal and subscription of a witness,
is a valid power of attorney to transfer the stock.'^®
Attestation of the signature of the holder by the cashier or other

witness may be required by the by-laws of a bank in order to render a
transfer of its stock valid.''^
No
authority from an original subscriber, who holds as trustee
for future subscribers, for the transfer to the purchaser is necessary, as
he can not refuse to transfer.'^*
§ 40 (3c) Form and Sufficiency —

§ 40 (3ca) In General. As —
between the parties the property in shares of bank stock passes by mere
sought to be transferred by the ex- sequent attaching creditor, who sold

ecutrix, nine years after the testator's them on execution. Plymouth Bank
death, and six years after the period V. Bank (Mass.), 10 Pick. 454.
limited by law for the settlement of 75. Bank v. Craig, 33 Va. (6 Leigh)
estates has elapsed, not to another 399.
person to raise money for the estate, 76. Blank indorsement. — Commer-
but to herself individually, for the Wend.
cial Bank v. Kortright, 23 348,
purpose of securing a note on which 34 Am. Dec. 317.
she is indorser for a third person, the
circumstances are sufiScient to put 77. Attestation of signature. —
the bank on inquiry as to her au- provision in the by-laws of a bank
thority. Peck V. Bank, 16 R. I. 710, that its "shares shall be transferable
19 Atl. 369, 7 L. R. A. 826. by indorsement in writing by the
74. Must satisfy itself as to genuine- holder in presence of the cashier or
ness. —A bank may refuse to recog- two other witnesses" requires that the
cashier or two other witnesses shall,
nize a power of attorney for trans-
fer of the stock of one of its stock- in writing, attest the signature of the
holders if not satisfied of its entire holder in order to render the transfer
genuineness, and may require the per- valid between the parties. Dane v.
sonal attendance of the party to de- Young, 61 Me. 160.
termine such matters of fact as may 78. Trustee for purchasers. —To fa-
give rise to dispute. Chew v. Bank, cilitate the reorganization of a state
14 Md. 299. bank as a national bank, it was agreed
Where a bank permits a transfer of that certain stockholders should sub-
its stock to be made under a power scribe for all the stock, which was
of attorney, it takes the risk of its afterwards to be apportioned among
validity. It is liable in case of a those stockholders of the state bank
forged power, or of one executed by who desired to take it. Subsequently
a feme covert or an infant. Chew v. one of the subscribers of the state
Bank, 14 Md. 299; Pollock v. National bank subscribed for shares, and cer-
Bank, 7 N. Y. 274, 57 Am. Dec. 520. tificates were issued to him. Held
Where the owner of shares assigned that, as the original subscriber for the
them to two persons, and gave a shares transferred to the purchaser
power of attorney to one of them to held the stock as a trustee, it was not
transfer them on the books of the necessary to show, in an action
bank, the power was held to be valid, against the receiver of the bank, any
whether the power authorized the authority from such original sub-
transfer to be made to both assignees, scriber for the transfer to the pur-
or to the attorney alone; and the chaser. Somerset Nat., etc., Receiver
bank was held not to be liable for re- V. Adams, 24 Ky. L. Rep. 3083, 72 S.
fusing to transfer the shares to a sub- W. 1125.

§ 40 (3cb) CAPITAL, STOCK AND DIVIDENDS. 107
delivery of the certificates^^ A statutemaking promissory notes negotiable

by indorsement is not applicable to the sale and transfer of certificates of
bank stock. *"
§ 40 (3cb) Certificate Containing Blank Form of Assignment.

—The delivery of a bank stock certificate, with an assignment in blank
with a power of attorney indorsed passes the entire title, both legal and
equitable,*! notwithstanding that by the terms of the charter or by-laws

of the corporation the stock is declared to be transferable only on its books.
<9. Manner and sufficiency De- — belonging to his wife, and placed the
livery. —As between the stockholder pocketbook in a box where he and
and the pledgee, the property in the his wife kept their papers; and that
shares of stock, undoubtedly, passed after the husband's death the promis-
to. the latter without the formality of sory notes were not to be found. In
a transfer on the books of the bank. re Hertzler's Estate, 22 Pa. Super.
As collateral security for the payment Ct. 592.
of their notes, discounted and held by 80. Weyer v. Second Nat. Bank, 57
the Cecil National Bank, and with the Ind. 198, so holding at 1 Rev. Stat.
power to sell for the purpose of pay- 1876, p. 635, § 1.
ment, the title passed by the delivery 81. Certificate containing blank
of the certificate, with the accompany- —
form of assignment. Union Bank v.
ing power of attorney. Johnston v. United States Exch. Bank, 143 App.
Laflin, 103 U. S. 800, 26 L. Ed. 532; Div. 128, 127 N. Y. S. 661. See ante,
Cecil Nat. Bank v. Watsontown Bank, "Authority from Holder or Power of
105 U. S. 217, 26 L. Ed. 1039. Attorney," § 40 (3b).
A bank stockholder overdrew his Where a certificate of stock con-
account on the promise of the cashier tains on the back thereof a blank
to buy his stock, and afterwards, hav- form of assignment and power of at-
ing transferred the stock to him in- torney to transfer the stock on the
dividually, he presented his pass book books of the company, such certificate
showing the overdraft to the cashier, makes the stockholder the agent of
and asked him if he had given him the bank and of all whom it represents
credit for the amount. The cashier to sell, to pledge and pass title to the
replied that he had not, but would, certificate. Lee v. Citizens' Nat.
and instructed the teller to place the Bank, 2 Cin. Rep. 298, 13 O. Dec. 913.
credit in his pass book, which was Where a bank stock certificate con-
done, but no entry was made in the tains a form of assignment and power
bank's books showing the transaction, of attorney, an indorsement of such
and the cashier never paid the bank, form in blank by the holder of the
and the lemained on the books
seller certificate sufficient, and the pur-
is
charged with the overdraft. The chaser who desires such stock trans-
stock was found by the receiver in an ferred upon the books of the corpora-
envelope indorsed with the seller's tion may write above the assignor's
name. Held, that the sale was com- signature the proper form of indorse-
plete, and the seller was not bound ment. Franklin Bank v. Commercial
to see that the cashier actually paid Bank, 5O. Dec. 339.
the price to the bank. Foster v. The holder of a certificate of bank
Broas, 120 Mich. 1, 77 Am. St. Rep. stock indorsed it in blank, and deliv-
565, 79 N. W. 696. ered it as collateral security. The
A wife, who is the administratrix of pledgee then transferred it to plaintifif,
her husband, can not be surcharged who filled up the blank transfer, by
with the value of bank stock, where inserting his own name as assignee,
she shows that she had a separate es- and the name of another as attorney
tate; that her husband borrowed to make the transfer, the certificate
money from her on notes; that he in- reciting that it was transferable on the
dorsed the bank stock over to her, with- books by the stockholder, or his at-
out having it transferred on the books torney, on surrender thereof. Held,
of the bank, but stating to a disin- that the assignment was valid. Com-
terested witness that it represented the mercial Bank v. Kortright, 22 Wend.
amount of his debt to his wife: that he 348, 34 Am. Dec. 317.
then placed the stock in a pocketbook Assignment under seal. —Where a
108 BANKS AND BANKING. § 40 (3ccbbb)
§ (3cc) Compliance with Formalities and Rules § 40

40 —
—
(3cca) In General. Where the charter of a bank, or its legally enacted
by-laws, provide for certain formalities to be ôbserved in the transfer of
stock, the legal title can not be otherwise acquired than by conformity
thereto, but the equitable title may be otherwise transferred.*^
§ 40 (3ccb) Rigbt to Establish and Enforce— § 40(3ccba) In

General. —
Where the act of incorporation of a bank authorizes the officers
to establish rules conformably to which stock transfers are to be made,
they may establish reasonable rules respecting the transfer of stock of the
bank, 83 but all unreasonable attempts to restrain the right to transfer such
shares are void, as against public policy.**
§ 40 (3ccbb) Particular Rules and Formalities § 40 (3ccbba) —

—
Consent of Directors. A by-law which makes the sale and transfer of
shares of bank stock subject to the consent of the directors, or refuses to
permit the same unless the directors are satisfied, is unreasonable and
void.*5
§ 40 (Sccbbb) Production and Cancellation of Old Certificates.

—When bank stock is transferred, the old certificates should be taken up
and cancelled by the bank and new ones issued. Where the bank can not
certificate of bank stock contains a the act of incorporation, of which he

blank form of assignment and power is bound to take notice. Union Bank
of attorney printed on its back, the V. Laird (U. S.), 3 Wheat. 390, 4 L.
stockholder's signature to the blank Ed. 369. See Brent v. Bank (U. S.),
assignment and power of attorney, 10 Pet. 596, 9 L. Ed. 547.
though under seal, is valid. Lee v. 83. Right to establish and enforce.
Citizens' Nat. Bank, 3 Cin. Rep. 398, —Bank v. Craig, 33 Va. (6 Leigh)
13 O. Dec. 913. 399; Union Bank v. Laird (U. S.), 3
82. Compliance with formalities and Wheat. 390, 4 L. Ed. 369.
rules. —
Cecil Nat. Bank v. Watson- 84. McNulta v. Corn Belt Bank,
town Bank, ]05 U. S. 317, 36 L. Ed. 164 111. 427, 45 N. E. 954, 50 Am. St.
1039; Union Bank v. Laird (U. S.), 3
Rep. 303.
Wheat. 390, 4 L. Ed. 369;' Brent v.
Bank (U. S.), 10 Pet. 596, 9 L. Ed. 85. Consent of directors. —
Mc-
547; Union Bank v. United States Nulta V. Corn Belt Bank, 164 111. 437,
Exch. Bank, 143 App. Div. 138, 137 45 N. E. 954, 56 Am. St. Rep. 303.
N. Y. S. 661. A by-law of a bank which provides
Where by the act of incorporation that all stock sold or transferred shall
of a bank the sharesany individual
of be with the express condition that it
stockholder are transferable only on will be voted in favor of all proposi-
the books of the bank, according to tions submitted by the board of di-
the rules (conformable to law) estab- rectors to increase the capital stock
lished by the president and directors; of the bank, until its capital stock
and all debts due and payable to the reaches $300,000, and that such pro-
bank, by a stockholder, must be satis- visions shall become a part of every
fied, before the transfer shall be contract for the transfer of any stock
made, unless the president and direct- of the bank, and shall become bind-
ors should direct to the contrary, no ing on the transferee by the accept-
person could acquire a legal title to ance of the stock, is void because it
any shares, except under a regular attempts to limit the right to sell or
transfer, according to the rules of the transfer the corporate stock, by im-
bank; and if any person takes an posing unreasonable- conditions. Mc-
equitable assignment, it must be sub- Nulta V. Corn Belt Bank, 164 111. 437,
ject to the rights of the bank, undei 56 Am. St. Rep. 303, 45 N. E. 954.
§ 40 (3ccbbc) CAPITAL, STOCK AND DIVIDENDS. 109
transfer shares of stock without the return of the certificate, its nonpro-
duction is notice to the bank that someone may have acquired rights to it
by transfer or pledge.*®
§ 40 (3ccbbc) Entry on Bank's Books. —Where neither the char-

ter nor the by-laws of a banking company make its stock transferable only
on its books, a provision to that effect in its certificates of stock can not
limit the unconditional right of transfer.*^
Construction and Operation. —The fact that the shares were trans-
ferable on the bank's books does not limit the right of transfer,** but pre-
scribes themanner and place of transfer. *9
—
Notice of Assignment. Where the charter of the bank provides that
no assignment of stock shall be valid, as against it, unless a formal trans-
fer of the same be made on- its books, it is the right of the bank to treat a
stockholder as the true owner of stock issued to him, and to deal with him
accordingly, until it receives notice that the stockholder has assigned his
stock to a third person; aliter, after notice is brought home to the bank,
even though there has been no attempt on his part to secure a formal trans-
fer of the stock upon its books. ^'^ The notice to the bank of a sale by the
stockholder need not specify the name of the purchaser. ^^^
86. Notice of assignment. Where — vide that transfers of stock might be

the articles of association and the by- made on the books of the bank by the
laws of a bank provide that certifi- shareholder, or his attorney, duly au-
cates of stock therein shall be trans- thorized, the bank is bound to allow
ferable only on the books of the cor- such transfer and issue a new cer-
poration by a return of such tificate on application of a transferee,
certificates, if a stockholder attempts who has a power of attorney from
to transfer his certificate to the bank the former holder. Purchase v. New
without returning the same, his failure York Exch. Bank, 36 N. Y. Super. Ct.
to return such certificate is notice to 164.
the bank that he may have parted In supplementary proceedings by a
with it to someone of the nature of judgment creditor, a bank, in which
whose rights the bank is bound to in- the debtor owned stock, was enjoined
quire before taking any action in the from transferring it. A receiver was
premises. Lee v. Citizens' Nat. Bank, appointed, and authorized to sell the
3 Cin. Rep. 298, 13 O. Dec. 913. stock. Pending the proceedings, one
87. Entry of transfer on bank's holding a written assignment of the
—
book. Williams v. Mechanics' Bank, stock and power of attorney from the
debtor gave notice thereof to the
Fed. Cas. No. 17,737, 5 Blatchf. 59.
88. Construction and operation. — bank. i?he certificate of stock recited
The fact that the "shares were trans- that the stock was transferable on
ferable on the bank's books did not the books on delivery of the certifi-
limit the right of transfer; the trans- cate. Held, that the bank could not
ferrer not being indebted to the bank, transfer the stock on the books to
so as to justify its refusal, under 3 the purchaser from the receiver. Pur-
How. Ann. St., § 3208a6, to enter the chase V. New York Exch. Bank, 36
transfer. Foster v. Broas, 120 Mich. N. Y. Super. Ct. 164.
1, 79 N. W. 696, 77 Am. St. Rep. 565.
Notice of assignment. People's
90. —
89. .A. certificate reciting the owner- Bank Exchange Bank, 116 Ga. 830,
v.
ship of bank shares "which are trans- 43 S. E. 269, 94 Am. St. Rep. 144;
ferable at the bank in person or by Conant, etc., Co. v. Reed, 1 O. St.
attorney" means transferable only at 398.
the bank under cognizance of its of- Notice of assignment to the cashier
ficers.Williams v. Mechanics' Bank, is notice to the bank. Conant, etc.,
Fed. Cas. No. 17,727, 5 Blatchf. 59. Co. V. Reed, 1 O. St. 298.
Where the articles of association of 91. Name of purchaser. — Lane v.
a bank and the certificate of stock pro- Morris, 8 Ga. 468.

no BANKS AND BANKING. 40 (3ccbbc)
Necessity and Effect of Failure to Enter. —The entry of the trans-

action on the books of the bank, where stock is sold, is required, not for
the translation of the title, but for the protection of the parties and others
dealing with the bank, and to enable it to know who are its stockholders,
entitled to vote at their meetings and receive dividends when declared. It
is necessary to protect the seller against subsequent liability as a stock-

holder,82 to protect the purchaser against proceeding of the seller's cred-
and against subsequent purchaser who take transfers of the stock
itors,^^
without notice of any prior equitable assignment.** Where a transfer of

bank stock is required to be entered upon the books of the corporation, an
assignment made without such entry does not constitute the assignee a
shareholder, and he can not act as such;*^ but as between the immediate
parties to the transaction, the assignment is effective. It invests the as-
signee with an equitable title and will be recognized and enforced, at least
in equity, as against all parties not showing a superior right.*®
Transfer Officer, Authority and Duty. A person showing a prima —
facie legal right to claim a transfer of shares of bank stock to himself may
demand it from any principal officer left in general charge and superintend-
ence of the bank,* during the regular hours appointed by the bank for the
transaction of banking business.*'' The cashier, unless the charter or by-
laws of the bank forbid it, may properly make or superintend the transfer
92. Necessity, purpose and effect 95. Effect of failure to enter. —

—
of failure to enter. Johnston v. Laf-
lin, 3 03 U. S. 800, 804, 36 L. Ed. 532;
Nicollet Nat. Bank v. City 'Bank, 38
Minn. 85, 35 N. V/. 577, 8 Am. St. Rep.
Bank v. Craig, 33 Va. (6 Leigh) 399. 643.
"Purchasers and creditors, in
absence of other knowledge, are only
the 96. Equitable assignment. Nicollet —
Nat. Bank v. City Bank, 38 Minn. 85,
bound to look to the books of regis- 35 N. W. 577, 8 Am. St. Rep. 643, cit-
try of the bank. But as between the ing Baldwin v. Canfield, 26 Minn. 43,
parties to a sale, it is enough that the 1 N. W. 261; Black v. Zacharie & Co.,
certificate is delivered with authority 3 How. 483, 513, 11 L. Ed. 690; Broad-
to the purchaser, or any one he may way Bank v. McElrath, 13 N. J. Eq.
name, to transfer it on the books of R. and Dickinson v. Central Nat.
34;
the company, and the price is paid. Bank, 129 Mass. 279; Cushman v.
If a subsequent transfer of the cer- Thayer Mfg., etc., Co., 76 N. Y. 365;
tificate be refused by the bank, it can Scott V. Pequonnock Nat. Bank, 15
be compelled at the instance of either Fed. 494.
of them." Johnston v. Laflin, 103 U.
Although the transfer on the books
S. 800, 26 L. Ed. 533; First Nat. Bank
of the bank may be necessary to pass
V. Lanier (U. S.), 11 Wall. 369, 20 L-
Ed. 172; Webster v. Upton, 91 U. S.
a legaltitle, an equitable title may be
conveyed otherwise. Conant, etc., Co.
65, 23 L. Ed. 384.
V. Reed,1 O. St. 298.
93. Johnson v. Laflin, 103 U. S. 800,
26 L. Ed. 532. A
transferee of bank stock may have
Where shares are transferable only a perfect title thereto as respects the
at the bank, the bank is not liable to transferrer, though no transfer has
a purchaser who never applied for a been made on the books, and the
transfer, where it permits their at- charter provides that no transfer shall
tachment as the property of the per- be valid unless registered. Commer-
son in whose name they stand on the cial Bank v. Kortright, 23 Wend. 348,
bank books. Williams v. Mechanics' 34 Am. Dec. 317.
Bank, Fed. Cas. No. 17,737, 5 97. —
Transfer officer. Case v. Citi-
Blatchf. 59. zens' Bank, 100 U. S. 446, 25 L. Ed.
94. Scott V. Pequonnock Nat. Bank, "695.
15 Fed. 494.
§ 40 (3ccbbc) CAPITAL, stock and dividends. Ill
of shares of the capital stock.^s In the absence of fraud and collusion, a

transfer of stock directed and managed by the president and cashier who
made use of the usual forms and ceremonies is binding on the bank.^"
Neglect of Proper Officer to Enter Transfer. —While it is the duty
of the stockholder, desiring to assign any of his shares, to have an entry
thereof made in the books of the bank, if he attempts to do so in good
faith, and exercises reasonable care, and directs the entry thereof to be
made by the proper person, he can not be held liable for the neglect of the
officers of the bank to obey his direction.
Form and Sufficiency of Entry.^ — All that is necessary, when the trans-
fer is required by law to be made upon the books of the corporation, is
that the fact should be appropriately recorded in some suitable register or

stock list, or otherwise formally entered upon
its books. For this purpose
the account in a stock ledger, showing the names of the stockholders, the
number and amount of the shares belonging to each, and the sources of
their title, whether by original subscription and payment or by derivation
from others, is quite suitable, and fully meets the requirements of the law.^
The transfer is consummated when the certificate is delivered to the
purchaser with the blank power of attorney indorsed, and the money is
received from him. As between them, the title to the shares then passes
whether that be deemed a legal or equitable one matters not; the right to
the shares then vested in the purchaser, and is not affected by the knowl-
edge of the attorney in fact, whose name is subsequently filled in to make

the transfer, of circumstances which, if known to the transferrer, would
invalidate the trans fer.^
98. Cashier as transfer officer. — shares in otiier corporate bodies. Tiie

Case V. Citizens' Bank, 100 U. S. 446, power of attorney indorsed on the
25 L. Ed. 695. certificate is usually written or printed,
"Where the by-laws of a bank re- with a space in blank for the name of
quire that the transfer of the shares the attorney to be inserted, for the
of the capital stock shall be entered in accommodation of the purchaser. The
the books of the bank, the entry is subsequent filling up of the blank by
usually made by the cashier, and the him with another name, instead of his
evidence introduced by the plaintiff own, as it may suit his convenience,
tended to show that the practice of does not so connect the vendor with
the defendant bank was in accordance the party named as to charge him
with the general usage." Case v. with the latter's knowledge and thus
Citizens' Bank, 100 U. S. 446, 25 L. affect the previous transaction. A
Ed. 695. different doctrine would put a speedy
99. Hodges v. Planters' Bank end to the signing of powers of at-
(Md.), 7 Gill & J. 306. torney in blank." Johnston v. Laflin,
1. Neglect of proper officer to enter 103 U. S. 800, 26 L. Ed. 532.
transfer. —
Hunt v. Seeger, 91 Minn. "The name with which the blank
264, 98 W. 91.
N. may be subsequently filled up by the
2. Form and sufficiency
of entry. — purchaser is not, in practice, regarded
Cecil Nat. Bank v. Watsontovvn Bank, as affecting the previous sale in any
105 U. S. 217, 26 L. Ed. 1039. respect, but as a matter which con-
3. When consummated. —Johnston v. cerns only the purchaser. It would
be a source of disturbance in business
Laflin, 103 U. S. Ed.
800, 26 L.
533.
"The transferability of shares in the if any other result were attached by
national banks is not governed by dif- the law to the proceeding." Johnston
ferent rules from those which are or- v. Laflin, 103 U. S. 800, 26 L. Ed. 532.
dinarily applied to the transfer of "The validity of the sale of stock
§ 40 (3ccc) Waiver of Compliance with By-Laws. The bank —

may waive a compliance with its by-laws respecting the manner of a trans-
fer of stock.*
§ 40 (3cd) Issue of New Stock Certificate. —

The transfer of stock
on the books of the bank passes title, though no certificate is issued to the
transferee.^
§ 40 (3d) Pledge or Collateral Security. —If a holder of bank stock

for valuable consideration, sell, pledge, or otherwise dispose of any shares
of stock belonging to him, to another, and deliver to him the certificate for
such shares, with power of attorney authorizing the transfer of the same
can not be made to depend upon the sponsibility as a stockholder, or to

accident of the immediate purchaser, work a fraud upon other stockholders
or of the party to whom he may trans- or creditors of the bank. Johnston v.
fer the certificate, in filling up the Laflin, 103 U. S. 800, 26 L. Ed. 532.
blank in the power of attorney with 4. Waiver of compliance with by-
the name of a person, to make the —
laws. Where, on a transfer of cer-
formal transfer, who is acquainted tain bank stock, the bank canceled
with the secret interests of others in the old certificate, and issued a new
the shares purchased. The validity of certificate to defendant, paid her ac-
a sale and its completeness must be cruing dividends on the stock, and
determined by the relation which the thereafter recognized her as trans-
contracting parties at the time openly feree without either of them comply-
bear to each other." Johnston v. ing with certain by-laws requiring
Laflin, 103 U. S. 800, 26 L. Ed. 533. submission of the name of a trans-
Application of rule. —
Where a feree to the board of directors, and
stockholder in a national bank, in approval by them, and that such trans-
good faith and without intent to evade feree shall sign the by-laws, etc., the
his legal liability as a stockholder, bank waived a compliance with such
sold his stock to a broker and de- by-laws. Peoples' Home Sav. Bank
livered the certificate with blank V. Rickard, 139 Cal. 285, 73 Pac. 858.
power of attorney to transfer same to 5. Certificate of stock not issued. —
purchaser, who was unknown to him, Agricultural Bank v. Wilson, 24 Me.
and the broker was acting for the 273.
president of the bank who represented In an action by a bank on a promis-
that he was purchasing for himself or sory note taken in payment of stock,
an undisclosed party and gave his in- defendant set up want of considera-
dividual check in payment, but who tion. The stock had been transferred
was really purchasing for the bank, to defendant on the books, but no cer-
and had the certificate transferred to tificate had been issued, and the di-
his name as trustee and applied the rectors had exercised control of the
funds of the bank in payment there- stock, receiving the dividends thereon,
for, without notice to the original and paying the taxes. Held, that the
stockholder or the broker of these legal title to the shares, as evidenced
facts, it was held that the attorney by the books, being in defendants,
who made the transfer by the direc- their title was not changed by the
tion of the president, filling in his mere fact that they left such shares
name as attorney, who was a book- in the control of the directors. Agri-
keeper in the bank, was the agent of cultural Bank v. Burr, 24 Me. 256.
the bank, and his knowledge was not A stockholder having transferred
imputable to the original stockholder. his stock, the charging his account
Such stockholder's liability was termi- therewith by the bank on the stock
nated by this sale and transfer. John- ledger, and opening of an account
ston V. Laflin, 103 U. S. 800, 26 L. Ed. with the transferee, and crediting him
532. with the stock, is a sufficient transfer
Of course the whole case here to vest the complete legal title in the
would be changed if the sale had not latter, and entitle him to a certificate.
been made in good faith, but was National Bank v. Watsontown Bank,
made merely to evade his just re- 105 U. S. 317, 26 L. Ed. 1039.
§ 40 (3d) CAPITAL, STOCK AND DIVIDENDS. 113
on the books of the corporation, the title of the former shall vest in the
latter, so far as may be necessary to effect the sale, pledge, or other dis-
posal of the said share, not only as between the parties themselves, but also
as against the creditors of, and subsequent purchasers from, the former.
Such pledge can not be interfered with or contested by creditors of the
pledgor to the detriment of the pledgee,® and is subject only to the statutory
lien of the bank for any debt due it from the stockholder.'^ A delivery of
stock as collateral security for a debt due the transferee by the stockholder,
accompanied by a power of attorney to sell, vests in the former title to the
stock, subject only to the lien of the bank for debts due it by the stock-
holder.
Pledgee Not Owner. —A pledgee of bank stock is not a stockholder in
the sense of being a member of the corporation.^ The person in whose
name shares of stock stand on the books of the corporation is deemed the
6. Pledge or collateral security. — Transfer subject to bank's lien

8.
pledgee of bank stock has a lien upon for debts due bank. —
Charter of bank
such stock which may be enforced. incorporated in 1870 provided that
McConville v. Means, 10 O. Dec. 452, "the bank shall have a lien prior to
21 W. L. B. 193. all others upon any stock held by a
Astatute incorporating a bank and stockholder for any debt of said
prohibiting a transfer of stock for a stockholder to said bank." The stock
certain period does not prevent the certificates contained no notice of this
original subscriber from selling it as lien, but declared that they were
collateral security, so as to give the "transferable only on the books of
purchaser or transferee an equitable the bank, in person, or by attorney, on
titlethereto, and to the dividends de- the surrender of the certificate." A
clared thereon during such period, stockholder, indebted to the bank,
which title may, after the expiration borrowed money from a third person,
of the time, be converted into a legal and gave him the certificate as col-
one. Nesmith v. Washington Bank lateral, with power of attorney to
(Mass.), 6 Pick. 334. transfer the stock. He became bank-
A
stockholder of one bank, by writ- rupt, and then lender applied to the
ten assignment, transfers his stock to bank to transfer the stock. Bank re-
another bank as collateral security fused so to do, until paid its debt.
for his indebtedness or liability, of Held, the act of 1870, acts, 1869-70,
any or every kind, present or future; p. 488, incorporating this bank,
giving such bank the right at any surperseded the general law as to
time of collection, to determine to chartered companies, providing for
which debt or liability it will apply the transfer of stock, and gave the
the same. Such right of application bank the prior lien for any debt due
of the collection on, or proceeds of it from stockholder, on his stock,
the sale of, such pledge or collateral, which lien was not waived by leaving
exercised in good faith, can not be the certificates outstanding. In this
interfered with or contested by the case the lien of the bank upon the
creditors of the debtor to the detri- stock, was, under its charter, para-
,
ment of the pledgee. Donnally v. mount to that of the lender, and the
Hearndon, 41 W. Va. 519, 33 S. E. bank had the right to be first satisfied
646. before transferring the stock to the
7. An assignment of stock trans- lender. If lender chose to hold the
ferable only on the books without stock, he held subiect to the bank's
such transfer, for the purpose of col- lien. Bohmer v. City Bank, 77 Va.
lateral security, is effectual as against 445.
the bank, asserting a lien for a debt Pledgee not owner. McConville
9. —
of the stockholder. Nicollet Xat. V. Means, 10 O. Dec. 453, 31 Wkly. L.
Bank j/. Citv Bank, 38 jMinn. 85, 35 N. Bull. 193; Donnally v. Hearndon, 41
W. 577, 8 Am. St. Rep. 643. W. Va. 519, 33 S. E. 646.
1 B & B—
owner thereof, so far as the corporation is concerned.^"

Notice to Officer of Bank. In order to bind the bank whose stock —
is thus pledged as collateral, notice should be given its president, cashier
or other officer at its place of business, and in the usual course of business. ^^
The stock should be transferred where the pledgee has a right to
have it transferred, in which case the pledgee has a right to demand that
such transfer be made.^^
§ 40 (3e) Gifts. —The delivery of a certificate of bank stock, un-

endorsed, by the donor to the donee, with intent to transfer title by way
of a gift, an equitable assignment, although no legal title
is effectual as
passes for want of an endorsement and transfer on the books of the com-
pany. A delivery which vests an equitable title only in the donee is all
that is required to constitute a valid gift.^^
§ 40 (3f) Usurious Transfers. —A sale of bank stock at whatever

price is not usurious, unless the object be to borrow money at more than
lawful interest, and not to purchase stock, and the price of stock be grad-
uated as a device to effect that object; or there be a combination between
the seller of the stock on credit, and a person to whom the buyer sells it
for cash; which cases the transaction becomes usurious.^*

in either of A
sale of bank stock at an exorbitant price, coupled with a loan of money, is
usurious. 1^
§ 40 (4) Operation and Effect— § 40 (4a) In General.—The

transfer, when consummated, destroys the relation of membership between
10. Donnally v. Hearndon, 41 W. deposit box containing certificates of

Va. 519, 23 S. E. 646. bank stock unindorsed by the donor
11. Notice to officer of bank. '^ sufficient to constitute a transfer to
Donnally v. Hearndon, 41 W. Va. 519, the donee of the equitable title to the
23 S. E. 646. Stock represented by those certm-
i„ rp „r.„ 4.„ „i.j„ _ iiru
Pledgec-Where
cates. Thomas v. Lewis, S9 Va. 1, 15
the pledgor off K 7 Z stock executes an
bank g ^ p; ^ g ^j^ Holland,
.., 1
irrevocable power of attorney, au-

gg y ^g' 39 g ^ '
^ ^ ^
^^^ g ^
gg gg
thonzing a transfer of such shares on ,4r, -r. u
ofr
, .
.^here a completed gift bank
.
1
the books of the bank issuing the

Stock from a husband to his wife has
same, the ^\Â„^^
0.,^= tY,,. pledgee v,oo right %^
the ^,„\^^
has tv,- to A^
de- ,
clearlv established her title
mand that such transfer be made. ,h^" ,„"
thereto t'^nY
will „„f
not k. ol^^f^^ h„ by III
-r\ M
•. t T) Ti/r u
Dayton Nat. Bank v. Merchants Nat. AT i1 J. 1
ô„t:„„ „f +i,„
be attected
=>*„.-], ;„ ^
the
D mention ot the stock in a =,.,kôV,,-,o.,+
subsequent
Bank, nf 1 i~\ Ci cMso
37 O. St. 208.
T> i
But see T? Frank-1
hn Bank v. Commercial Bank, o O.

^j^ ^^ ^^^^ ^j ^^^^^ ^ husband, ^
^^ ^îch she was not privy, and un-
. , . „ .
der which she does not claim, nor by
This right IS not affected by the the fact that the stock continued to
fact that at the time of such refusal stand in his name, and that he col-
an assignee m bankruptcy had been lected the dividends thereon. First
appointed for the pledgor. Dayton Xat. Bank v. Holland, 99 Va. 495, 39
Nat, Bank v. Merchants' Xat. Bank, s. E. 126, 55 L. R. A. 155. 8fi Am. St.
37 O. St. 208. Rep. 898.
13. Gifts. First Nat. — Bank -0. Hoi- 14. Usurious transactions. Green- —
land, 99 Va. 495, 39 S. E. 126, 55 L. how Harris, 20 Va. (6 Munf.) 473.
v.
R. A. 155, 86 Am. St. Rep. 898; 15. Bank v. Stribling, 34 Va. (7
Thomas v. Lewis, 89 Va. 1, 15 S. E. Leigh) 26; Stribbling v. Bank, 26 Va.
389. (5 Rand.) 132, cited in Bank v. Mc-
The delivery of the keys to a safety Veigh, 70 Va. (29 Graft.) 546. '
§ 40 (4cba) CAPITAL, stock and dividends. 115
the corporation and the old stockholder, with all its incidents, and creates
an original relation with the new member, free from all antecedent obliga-
tions. This legal relation and proprietary interest, on which it is based,
are quite independent of the certificate of ownership, which is mere evi-
dence of title. ^®
§ 40 (4b) Rights and Liabilities of Transferrer.—Liability for

Amount of Subscription. —The assignment of stocks by the owner does
not discharge him from liability. Upon the subscription it becomes corporate
property, impressed with a trust in favor of the bank's creditors. It is in
effect an agreement by the subscriber to pay into the bank the amount sub-
scribed by him.i'^ The statute may also provide that the subscriber shall
be liable notwithstanding the assignment,^* in which case the assignees of
unpaid stock are first liable, and if the amount can not be collected from
them, then their assignors, who were original subscribers, are liable.^®
Liability after Resale to Bank. —
Where a stockholder in a bank pur-
chased of the bank a large amount of its stock to increase his votes for
directors, which he voted and immediately thereafter the purchase money
was returned, and the stock again taken by the bank, equity will not com-
pel the purchaser to refund the money and take back the stock in a sub-
sequent suit by a stockholder, where the evidence showed no actual loss
to the bank in the transaction.^"
§ 40 (4c) Rights and Liabilities of Transferee— § 40 (4ca)

Title,
In General. —A transfer which
does not comply with the formalities law-
fully required by the bank authorities conveys an equitable title. ^^
§ 40 (4cb) Liability for Unpaid Balances and Assessments

§ —
40 (4cba) In Absence of Contract. At common law a transferee
16. Operation and effect.— Cecil assume to take away the power to
Nat. Bank v. Watsontown Bank, 105 assign stock, but simply to regulate
U. S. 317, 26 L. Ed. 1039. itg transfer; imposes no new obliga-
17. Liability for amount of sub- tjons or restrictions, but prescribes
scription.— Marr v. Bank, 72 Tenn. (4 tlie conditions upon which the original
Lea) 578. stockholders might assign their stock.
18. By the general banking act of Marr v. Bank, 72 Tenn. (4 Lea) 578.
1859-60, the original subscriber is lia-
^g^ j^^^^ ^_ ^^^^ ^2 ^^^^ ^4 Lea)
ble for the amount of his subscrip-
^^^^^ ^_ q^^^^ ^^^y gg ^^^^_
tion until the same is paid up, whether /. \p„\ 390
he retains or assigns the stock, and ' . '
this applies to subscribers for stock in ^ Ô; Liability after resale to bank.—
a bank chartered before the passage Taylor v. Miami Exporting Co., 6 O.
^'^^
of the act, although the charter con-
tained no such provision. Marr v. 21. Title and liability of transferee.
Bank, 72 Tenn. (4 Lea) 578. —Johnson v. Laflin, 103 U. S. 800, 26
The Act of 1859-60, providing that L. Ed. 533; Cecil Nat. Bank v. Wat-
the original subscriber shall be liable sontown Bank, 105 U. S. 217, 26 L.
for the amount of his subscription un- Ed. 1039; First Nat. Bank v. Holland,
til paid, notwithstanding the assign- 99 Va. 495, 39 S. E. 126, 55 L. R. A.
ment or transfer thereof, is not un- 155, 86 Am. St. Rep. 898; Thomas v.
constitutional, because impairing the Lewis, 89 Va. 1, 15 S. E. 389. See
obligation of a contract. It does not ante, "Form and Suflficiency," § 40 (3c).
116 BANKS AND BANKING. § 40 (4cbb)
of bank stock was not liable for unpaid balances due from the original sub-
scribers,^^ or assessments,^^ but the charter or a statute may create a lien
for stockholders' indebtedness which binds the stock in the hands of an
assignee. 2*
§ 40 (4cbb) Assumption by Purchaser. —

Where a transferee of
bank stock from an original subscriber assumes the latter's liability on his
subscription as consideration for the transfer, and the bank accepts him as
its debtor, releasing the original subscriber, the transaction is valid, and
the bank may enforce the transferee's liability.^^
22. Liability for unpaid balances and tiffin a suit against defendant. Lesas-
assessments. —A stockholder trans- sier V. Kennedy, 36 La. Ann. 539.
ferred, for an old debt, shares of bank 24. Under charters and statutes. —
stock, on which no payment had been The provisions of a banking law that
made, although the transferee sup- the transferee of the shares of stock
posed the shares to have been paid of a bank should succeed to all the
up. Afterwards the original holder rights and liabilities of the original
paid 40 per cent upon the shares as stockholder, and requiring a semi-
calls were made, and the transferee annual statement to be made specify-
received dividends. The bank became ing the amount of the capital paid in,
insolvent, and a receiver was ap- or secured to be paid, are inconsistent
pointed, who sued the transferee to" with the construction that, under the
recover the balance of the subscrip- provision that the certificate of the as-
tion. Held, that the action could not sociates shall state the amount of the
be maintained. Wintringham v. Rosen- capital stock of such association, the
thal (N. Y.), 25 Hun 580. requirement is implied that the capi-
The Citizens' Bank of Louisiana is tal must all be actually paid in before
not liable for the unpaid balance of a the certificate is filed and the bank
stock subscription because it pur- become legally incorporated. Pal-
chased the stock, and property mort- mer V. Lawrence, 5 N. Y. Super. Ct.
gaged to secure the subscription, on 161.
enforcement of the lien. Succession Under a law requiring the capital of
of Thomson, 46 La. Ann. 1074, 15 So. a banking association to be paid in,
379. or secured to be paid, when it is or-
An attachment of the shares in a ganized, it is secured to be paid, within
bank by the bank, after notice of their the meaning of the law, by force of
assignment, is ineffectual to defeat the subscriptions of the associates.
the prior right of the assignee. Nicol- Palmer v. Lawrence, 5 N. Y. Super.
let Nat. Bank v. City Bank, 38 Minn. Ct. 161.
85, 35 N. W. 577, 8 Am. St. Rep. 643.
If a bank's charter provides that,
23. After failure of the London
unless a stockholder discharges his
correspondents of a national bank,
debt- to the bank, his stock can not be
plaintiff sold to defendant forty shares
transferred, the purchaser of stock
of the stock, at $50 per share, signing
from one indebted to the bank takes
the transfer on the proper book of
only an equitable assignment subject
the bank, leaving a blank for the name
to the rights of the bank under its
of the transferee. A few days after-
charter. Farmers' Bank v. Iglehart
wards, and on the next day after the
(Md.), 6 Gill 50.
bank had suspended payment, defend-
ant sold the shares to A., at $11 per 25. Assumption by purchaser. —
Pal-
share, and, at A.'s request, transferred mer V. Lawrence, 5 N. Y. Super. Ct.
them on the book to A.'s negro porter, 161.
v/ho was irresponsible, defendant's A transferee of bank stock who, in
name appearing only in the margin in consideration therefor, assumed the
pencil. The bank passed into liquida- liability of the original subscriber on
tion; and its receiver, disregarding the his subscription, can not, in order to
apparent transfer, sued plaintiff for defeat recovery by the bank, set up
70 per cent on the shares as contribu- the want of a legal existence in the
tion, thereby recovering $3,579, which bank, or the invalidity of the shares.
he was compelled to pay. Held, that Palmer v. Lawrence, 5 N. Y. Super. Ct.
this could not be recovered by plain- 161.
§ 40 (5a) CAPITAI,, STOCK AND DIVIDENDS. 117
Stock Mortgage. —Act April 2, 1832 (incorporating the Union Bank

of Louisiana), § 29, declaring that, on application by a stockholder to
transfer his stock and be discharged, the new stockholder shall furnish a
mortgage to the satisfaction of a majority of the directors, applies only
where a stockholder, having sold his stock, retaining the immovable mort-
gage to secure it, seeks to have his property released from the mortgage,
on the purchaser offering other property of sufficient value to be mortgaged
in lieu of it.^®
§ 40 (5) Refusal of Bank to Allow Transfer— § 40 (5a) Right

to —
and Liabilitjy for Wrongful Refusal. See post, "Right to Refuse
Transfer," § 42 (2de). A
bank is liable in damages for refusing to trans-
fer upon its books shares of its stock on the demand of the person entitled
to such shares, and complying with the transfer regulations,^^ and that the
bank may have previously transferred to another, without requiring such
compliance and proof of right, is no excuse for refusing transfer to such
bona fide transferee for value, though the bank had no notice of the latter
transfer.28 But the existence of a lien in favor of the bank upon the stock
is a complete defense.^^ The refusal of the transfer officer to allow the
26. Stock mortgage. — Byrne v. interested to know, that whoever in

Union Bank (La.), 9 Rob. 433. good faith buys the stock, and pro-
27. Bank liable for refusal of trans- duces to the corporation the certifi-
fer to person entitled. —
Case v. Citi- cates, regularly with power
assigned,
zens' Bank, 100 U. S. 446, 35 L. Ed. to transfer, is entitled to have the
695; First Nat. Bank v. Lanier (U. stock transferred to him. And the
S.), 11 Wall. 369, 20 L. Ed. 172. notification goes further, for it as-
A bank improperly refusing to sures the holder that the corporation
make a transfer of stock on its books will not transfer the stock to any one
because of an alleged lien is liable to not in possession of the certificates."
the transferee for conversion of the First Nat. Bank v. Lanier, 11 Wall.
stock. Nicollet Nat. Bank v. City 369, 378, 20 L. Ed. 172.
Bank, 38 Minn. 85, 35 N. W. 577, 8 29. Lien as defense. —
A suit at law
Am. St. Rep. 643; Kortwright v. Buf- can not be sustained for refusing to
falo '(Commercial Bank, (N. Y.), 20 permit such transfer, where, by a
Wend. 91; Bank v. McNeil (Ky.), 10 clause of the charter, it is provided;
Bush 54. "but all debts actually due and pay-
28. A bank whose certificates of able to the bank (days of grace for
stock declare the stockholder entitled payment being past), by a stock-
to so many shares of stock, which can holder requesting a transfer, must be
be transferred on the books of the satisfied, before such transfer shall be
corporation, in person or by attorney, made, unless the president and di-
when the certificates are surrendered, rectors shall direct to the contrary."
but not otherwise, and which suffers a Where owner owed the debts now
the
stockholder to transfer his stock to claimed by the bank, on the notes due
anybody on the books of the bank, and protested before his death, this
without producing and surrendering would be a complete answer to a suit
the certificates thereof, is liable to a at law by his executors, for not per-
bona fide transferee for value, of the mitting a transfer; and the same ob-
same stock, who produces the cer- jection would be fatal to a suit in
tificates with properly executed power their name, for the use of the United
of attorney to transfer; and this is so States to enforce a lien claimed by
although no notice have been given to them. The defense is a legal one; the
the bank of the latter transfer. First case provided for by the charter and
Nat. Bank v. Lanier (U. S.), 11 Wall. by law had happened; the bank had
369, 20 L. Ed. 172. a perfect right to hold on to the stock;
"This is a notification to all persons and a rule of the bank imposing such
118 BANKS AND BANKING. § 40 (5ba)
transfer is the refusal of the bankj^" and the bank may ratify the wrongful
refusal of one of its officers to allow the transfer.î
Measure of Damages. —Where a bank unjustifiably refuses to make
the proper entry of a transfer of stock on its books, the value of the stock
affords the measure of the recovery.^^
§ 40 (5b) Compelling Transfer and Action for Damages § 40 —

(5ba) Jurisdiction and Form of Action. In some jurisdictions, it is —
held that a bill in equity will lie to compel a bank to open its transfer
books and permit a transfer of stock thereon, as the remedy at law is not
clear and perfect, and it is not a case for compensation in damages ;^^ but
a restriction on the transfer of stock, stituted the bank, it appearing that

is conformable to law. Brent v. Bank he merely obeyed their instructions
(U. S.), 10 Pet. 596, 9 L. Ed. 547; not to transfer any stock whose
Union Bank v. Laird (U. S.), 2 owner had discounted notes in the
Wheat. 390, 4 L. Ed. 269. bank unpaid." Case v. Citizens' Bank,
Abank whose charter provided 100 U. S. 446, 25 L. Ed. 695.
that stock held by any person in- 31. Ratification of wrongful refusal.
debted to the bank should not be — Where the president, while at the
transferable while such indebtedness bank, refused to permit a transfer of
existed was not liable in damages for stock to be made on the books on
refusing to permit the transfer on its demand therefor by a transferee, and
books of stock held by an indorser the bank .thereafter defends a suit by
on a note held by the bank. Mc- the transferee for damages, it will be
Dowell V. Bank, 2 Del. Ch. 1. held to have ratified the refusal, which
30. Representation by cashier. — A., must be treated as its own. Commer-
in order to secure the payment of
his cial Bank v. Kortright (N. Y.), 22
note to B., pledged. to the latter cer- Wend. 348, 34 Am. Dec. 317.
tain shares of the capital stock of a 32. Measure of damages. Nicollet —
national bank in Louisiana, with au- Nat. Bank v. City Bank, 38 Minn. 85,
thority to sell them in default of such 35 N. W. 577, 8 Am. St. Rep. 643;
payment. Default having been made, Kortwright v. Buffalo Commercial
B. sold them, and in March, 1873, ap- Bank (N. Y.), 20 Wend. 91; S. C, 22
plied to the cashier of the bank to Wend. 348, 34 Am. Dec. 317; Bank v.
have them transferred on books.
its McNeil, 10 Bush (Ky.), 54.
That officerrefused to allow the A bank which has wrongfully re-
transfer, on the ground that A. was fused to transfer stock on its books
indebted to the bank. Before the on demand of the transferee thereof
transfer could be enforced, the bank is liable to the latter for the highest
failed, and C. was appointed a re- value of the stock since the refusal.
ceiver, against whom B., Feb. 24, 1876, Commercial Bank v. Kortright (N. Y.),
brought this action to recover dam- 32 Wend. 348, 34 Am. Dec. 317.
ages for the loss sustained by him. GeneralBanking Law (Laws 1838,
It does not appear that the bank ever p. 349), § 19, declares that the shares
adopted any by-law providing for a shall be transferable on the books of
lien on the shares of a stockholder the association in such manner as may
indebted to it, or that A.'s debt to it be agreed upon in the articles of as-
had been contracted before his stock sociation. Held, that a purchaser and
was pledged to B. Held, that the assignee of stock which the bank re-
cashier having been intrusted by the fuses to transfer on its books, as pro-
directors of the bank with the trans- vided by its articles of association,
fers of stock, his refusal to permit the can recover its value in an action
transfer was the refusal of the bank. against the bank. Bank v. Manufac-
Case V. Citizens' Bank, 100 U. S. 446, turers', Bank, 20 N. Y. 501.
etc.,
35 L. Ed. 695. 33. Equity jurisdiction. Mechan- —
"Instruction from the directors ics' Bank v. Seton (U. S.), 1 Pet. 299,
were obligatory upon the cashier, who 7 L. Ed. 152.
in point of fact assumed no responsi- Wherea bank wrongfully refuses to
bility. He acted by order of the di- transfer stock on its books, the trans-
rectors, who for that purpose con- feree has no adequate remedy at law
§ 40 (5bd) CAPITAI,, STOCK AND DIVIDENDS. 119
in others it is held that the purchaser's remedy for the wrongful refusal
to enter the transfer is an action on the case or assumpsit in the form of
a special action on the case for the value of the stock.^^

Mandamus will not lie to compel the officers of a bank to transfer
stock from a vendor to a purchaser, except under a judicial sale; in that
case the bank official becomes a public officer pro hac vice.^'
§ 40 (5bb) Limitations. —The claim for damages resulting from the

refusal of the bank to transfer the stock is neither an offense nor a quasi
offense within the meaning of a statute prescribing a limitation for an
action for damages arising thereout.^" Such claim for damages accrues
on the refusal of the bank to make the transfer.^^
§ 40 (5bc) Process. —Where, in a suit to compel a bank to transfer

certain stock to plaintiff on its books, the president of the bank was a de-
fendant,, and the bill at issue as to him, it was sufficient, for the execution
of the compulsory process under a decree in favor of plaintiff, that the
process be directed to him.^s
§ 40 (5bd) Parties. — Cashier. —In a suit against a bank to compel

it to transfer certain stock to plaintiff on its books, or in case that can not
be done to recover damage,^^ the cashier of the bank was not a necessary
party.
The stockholders are not ordinarily parties to suits to compel a bank
to transfer certain stock.*"
and may sue in equity to compel it. remedy a special action

is on the
Madison Bank v. Price, 79 Kan. 289, case, recover the value
to of the
100 Fed. 280. stock refused to be transferred. Ship-
34. Action on the case. —Presby- ley v. Mechanics' Bank (N. Y.), 10
terian Congregation v. Carlisle Bank, Johns. 484.
5 Pa. 345. 36. Limitations. Case v. —
Citizens'
Where a bank refuses to deliver a Bank, 100 U. S. 446, 25 L. Ed. 695.
certificate of ownership to a pur- 37. On refusal of the request of
chaser of shares of its capital stock, pledgee, who has the right to demand
the purchaser's remedy is by an ac- a transfer of the stock on the
tion on the case for damages. Hussey books of the bank, to have the stock
V. Manufacturers', etc., Bank (Mass.) so transferred, the right to prosecute
10 Pick. 415. an action for the value of the stock
Assumpsit in the form of a special accrues to the pledgee. Dayton Nat.
action on the case will lie against a Bank v. Merchants' Nat. Bank, 37 O.
bank for improperly refusing to make St. 308.
a transfer of shares of capital stock, 38. Process. — Johnson v. Hume, 138
in the name of the party injured by Ala. 564, 36 So. 421.
the refusal. Case v. Citizens' Bank, 39. Cashier. Johnson
Ala. 564, 36 So. 431.
— v. Hume, 138
100 U. S. 446, 25 L. Ed. 695.
35. Mandamus. — Bank v. Harrison, 40. Stockholders. —Where the plain-
66 Ga. 696. tifif brought compel a bank to
suit to
Mandamus will not lie at the in- execute transfer of stock and to re-
stance of an assignee to the president, instate him as a stockholder, and in
directors, and company of a bank, to case that could not be done, to re-
compel them to permit the transfer cover damages for the conversion cf
on the books of the bank of certain his stock, it was held that the stock-
shares of stock standing in the name holders are not ordinarily parties to
of the insolvent; but the proper such suits as this, and exceptions to
120 BANKS AND BANKING. § 40 (5bg)
A mere trustee in whose name bank stock stands is not a neces-

sary party to a bill by the equitable owner to compel the bank to permit
a transfer of such stock to him.*^
§ 40 (5be) Evidence. —
Burden of Proof and Presumption. In —
an action of assumpsit against a bank for refusing to transfer to plaintiff
certain shares of stock, for which he holds the certificate assigned in l)lank
by the owner, he must prove his ownership of the certificate. ^lere pos-
session is not sufficient.* 2
§ 40 (5bf) Variance. —The usual rule as to what constitutes and the

effect of a variance between the allegations and proof apply to actions
against banks for refusal to transfer certain shares of stock.*^
§ 40 (5bg) Judgment. —
In an action by a devisee of bank stock
against the bank to compel the transfer to her as directed by a judgment
of the court, the court will have full power to adjudge in what way and
manner and form the certificate should be issued by the bank.*-*
Judgment in favor of a pledgee is not for recovery of damages or
for a conversion, but for the sale of the stock and payment of his debt and
of the proceeds.*" Judgment having been rendered for damages, the court
the petition in intervention of the books of the bank, brought suit for
stockholders should have been sus- the value of such stock against the
tained, in the absence of allegation bank, which, after notice that the
that the defense would not be prop- pledgor had been adjudicated a bank-
erly conducted by the defendant. rupt, had refused to permit such
Gresham v. Island City Sav. Bank, 2 transfer to be made. The assignee in
Tex. Civ. App. 52, 21 S. W. 556. bankriiptcy of the pledgor, having
41. Trustee holding stock. Me- — been made a party by consent, filed
chanics' Bank v. Seton (U. S.), 1 Pet. an answer and cross petition praying
299, 7 L. Ed. 152. for an account of the amount due the
42.Burden of proof of ownership. — pledgee and a sale of the stock, which
Dunn V. Commercial Bank (X. Y.), 11 prayer was granted. It was held that
Barb. 580. is v.'as error for the court to render
43. —
Variance. Where a wife as- a further judgment that, in the event
signed her bank stock to her husband, the proceeds of the sale were suffi-
who sold it to another, and the latter cient to satisfy the pledgee's claim,
sued the bank to compel a transfer of the bank should pay the deficiency,
the stock on the books to him, and not exceeding the difference between
the bill alleged various facts tending the proceeds of the sale and the value
to show a reduction of the stock to of the stock at the time of such re-
the possession of the husband, the fusal. Dayton Xat. Bank v. Mer-
mere fact that plaintiff failed to show chants' Xat. Bank, 37 O. St. 208.
certain of the acts relied on as show- "In such posture of the case, the
ing a reduction to possession did not proper decree was, as this is, that the
constitute a fatal variance between the amount for which the stock is held
allegations and the proof. Johnson v. as collateral security should be ascer-
Hume, 138 Ala. 564, 36 So. 421. tained; that the Dayton National
44. —
Judgment. Citizens' Nat. Bank Bank should pay upon such indebted-
V. Boswell's Adm'r, 12 Ky. L. Rep. ness the amount of dividends recei'-ed
(abstract") 468. by it on the stock, with interest, less
45. Judgment for pledgee. — the amount of taxes it has paid on such
pledgee of shares of the capital stock shares: that the stock should be sold
of a national bank, having an irrevo- at a public sale; and that the proceeds
cable power of attorney for the trans- of the sale should be applied in satis-
fer of such shares to him on the faction of the balance due the pledgee.
§ 40/a (2) CAPITAL, STOCK AND DIVIDENDS. 121
below had power to order the receiver of the bank to pay the claim, or
certify it to the comptroller.^"'
§ 40 (6) Restraining Transfer of Stock. —

The party who would
arrest a transfer ofbank stock or charge the holder with a trust must as-
sert his remedy in the courts, by asking a restraining order.*'' The trans-
fer of bank stock on bank's books may be arrested by a restraining order
or injunction, made by a court of competent jurisdiction, at the instance
of a party interested.*^
§ 40^. Liability of Stock for Debts of Stockholders— § 401 (1)

In General. —A judgment creditor of a stockholder in a bank is entitled
to subject his stock to the satisfaction of his judgment,*^ and the court
will compel the bank to make the necessary transfer of the stock on its
books.
40^ (2) Attachment, Execution, Judicial and Tax Sales.

§ —
Bank stock may be sold under attachment,^" execution,^! or judicial de-
cree, ^^ and for taxes. ^^
and costs and expenses, and, if a sur- 50. Attachment, execution, and judi-
plus remained, that it should be paid cial sales. —
Where bank stock has been
to the assignee. But the decree should wrongfully attached and sold under ex-
not direct, as this does, that if the ecution, the fact that the stock was
stock sells for less than its value at sold without appraisement at a time
the time the request for transfer was when was not considered necessary,
it
refused, and the proceeds of the sale though subsequently adjudged to be
are insufficient to satisfy the sum due so, does not subject the bank to lia-
the pledgee, and costs and expenses, bility to the owner for having per-
then the Dayton National Bank shall mitted a transfer to the judicial pur-
pay the pledgee the deficiency, not ex- chaser, the bank being guilty of no
ceeding the difference between the neglect, and justified in believing that
amount realized from such sale and the public officer discharged his duty.
the sum the stock was worth at the Chapman v. New Orleans, etc., Bank-
time of such refusal. In such equi- ing Co., 4 La. Ann. 153.
table action, the pledgee can only look Where bank stock which has been
to the stock and dividends for the sat- wrongfully attached, and sold under
isfaction of its claims. The proposi- execution, is afterwards, on a devolu-
tion that it may go further in such active appeal, decreed to belong to an
tion, and recover damages, in any intervener, he can not recover against
amount, as for a conversion, is sup- the bank for having refused a transfer
ported by no just principle." Dayton to him, and permitted it to the judicial
Nat. Bank v. Merchants' Nat. Bank, 37 purchaser. Chapman v. New Orleans,
O. St. 308. etc.. Banking Co., 4 La. Ann. 153.
4G. Case v. Citizens' Bank, 100 U. S.
446, 25 L. Ed. 695.
51. —
Ohio. Bank stock can not be
levied on and sold under execution.
47. Arresting transfer of stock.^ Lee V. Citizens' Nat. Bank, 3 Cin. Rep.
Bank v. Craig, 33 Va. (6 Leigh) 399. 298, 13 O. Dec. 913.
Notice to stop transfer of stock. — A sale of bank stock under an exe-
If one desires to arrest the transfer of cution in favor of a pledgee thereof
stock, he must go to the transfer clerk against the pledgor is void, unless the
and not to the bookkeeper. Bank v. levy and sale were assented to by the
Craig, 33 Va. (6 Leigh) 399. pledgor. Lee v. Citizens' Bank, 5 O.
48. Bank v. Craig, 33 Va. (6 Leigh) Dec. 21.
399. 52. A purchaser, at a sheriff's sale,
49. stock for debts of
Liability of of bank stock, can compel a transfer
stockholder. — Brightwell
v. Mallory,
IS Tenn. (10 Yerg.) 196. 53. Sale for taxes. —Where bank
122 BANKS AND BANKING. § 41 (la)
§ 41. Profits and Dividends. —Dividends on deposits in savings bank,

see post, "Interest and Dividends on Deposits," § 303. Criminal responsi-
bility for declaration of dividends, see post, "Criminal Responsibility,"
§ 60. Transfer of stock, see ante, "Transfer of Stock," § 40.
§ 41 (1) Power and Discretion of Directors § 41 (la) In —

—
General. The board of directors may from time to time declare divi-
dends of so much of the net profits as they may deem it prudent to divide,^*
but they are not compelled to declare any dividends.^^ The declaration
of dividends rests in the discretion of the directors or other governing
body of the corporation, and such discretion will not, in the absence of
fraud, be controlled by the courts. ^^
of the shares on the books of the bank to reach the stock of the debtor
bank, although the seised debtor may- in the bank, alleging the existence of
owe the bank at the time an amount the judgment and execution, the
above the amount of the stock pur- debtor make no contest, but allow the
chased, evidenced by his notes held by billto be taken for confessed against
the bank, notwithstanding a clause in him, the bank, having no interest in
the by-laws of the bank, adopted by the question, has no right to resist the
the board of directors, subsequently to decree or call in question the validity
the issuing of the stock, that "no of the judgment, even, it seems, if the
transfer of stock shall be made when judgment produced is void. Bright-
the party is indebted to the bank as well V. Mallory, IS Tenn. (10 Yerg.)
principal, indorser, or security on any 196.
obligation that is due, as long as it re- 54. Power and discretion of direct-
mains unpaid." Such a by-law is not
binding on the judgment creditors of
ors. — Donnally v. Hearndon, 41 W.
Va. 519, 33 S. E. 646.
the stockholders. ' Bryon v. Carter, 33 Idaho Rev. Codes, § 3732, governing
La. Ann. 98. the distribution of dividends by corpo-
A judgment creditor of the stock- rations, does not apply to banking cor-
holder is, entitled to subject the stock oorations. McTamany v. Day (Idaho),
to the satisfaction of his judgment by 128 Pac. 563.
bill, under 1832, 11, 1 and 2 (Code, § 55. Where the charter of a bank au-
4383, et seq.),*^. although the stock- thorized dividends to be declared, of
holder may be indebted to the bank to so much of the interest and profits as
the amount of such stock. Brightwell should be deemed expedient by the di-
V. Mallory, 18 Tenn. (10 Yerg.) 196. rectors, the directors are not com-
If, upon bill filed by a judgment pelled to declare any dividend if they
creditor against the stockholder and a reasonably deem it inexpedient to do
shares are seized and sold by a col-
so. Ely V. Sprague (N. Y.), Clarke
Ch. 351.
lector of taxes, in the manner provided
by Act 1846, c. 195, on a warrant from
The accumulated earnings or surplus
funds of a bank constitute a part of
assessors having jurisdiction of the
its assets, and belong to the corpora-
subject-matter, and prima facie a law-
tion and not to the stockholders, until
ful authority to issue such warrant,
and there is nothing on the face of the they have been declared and set apart
proceedings to indicate any want of as dividends. Bryan v. Sturgis Nat.
jurisdiction, or any error or defect
Bank, 40 Tex. Civ. App. 307, 90 S. W.
704, affirmed in 101 Tex. 630, no op.
therein, the cashier of the bank is au-
thorized (if not required) to issue a Theprofits that the stockholders
new certificate of such shares to the.
may receive are incidental, but are not
purchaser, who will thereupon become the primary object in passing the
entitled to accruing dividends, whether charter. Williams v. Union Bank, 31
the tax for the payment of which the Tenn. (3 Humph.) 339.
shares are sold be rightly assessed or 56. BryanSturgis Nat. Bank, 40
v.
not. Smith v. Northampton Bank, 58 Tex. Civ. App. 307, 90 S. W. 704, af-
Mass. (4 Cush.) 1. firmed in 101 Tex. 630, no op.
§ 41 (lb) Insolvent Banks. The assets — of a bank are held by it in

trust for the payment of its indebtedness and for the distribution among
the stockholders of the surplus only, if any, remaining. ^^ There can be
no voluntary withdrawal of any portion of the assets of a bank where the
effect of such withdrawal will be to impair the capital stock, or endanger
the security of its creditors. ^^ Thus where dividends are paid a stock-
holder in an insolvent bank in disobedience of the banking law, the lia-
bility to repay is owed to the corporation and enforceable by it.^^ Though
such liability is owed to the corporation, a creditor thereof may proceed
in equity to compel restoration on the corporation's failure to do so.*"*
If the board of directors has declared and paid illegal dividends, the
amount paid, if recovered, would be a part of the assets of the bank.^"^
§ 41 (Ic) Tax Dividends. —The directors of a bank may declare a

tax dividend.^ 1
§ 41 (2) Accumulation of Surplus Fund. —

A bank has a right to
accumulate a surplus before declaring dividends on its stock.*'^ The ac-
cumulation of a surplus fund before payment of dividends may be required
by statute, which may prescribe the amount to be set apart each time a
dividend is declared,^^ ^^d may also provide a method of computing the
surplus profits®* and assets of the bank.''^
57. Insolvent bank. —

McCann v. First 63. Rev. 1899, § 1293, providing
St.
Nat. Bank, 131 Ind. 95, 30 N. E. 893. that the of directors of any
board
58. McCann v. First Nat. Bank, 131 bank, when it shall declare a dividend,
Ind. 95, 30 N. E. 893. shall first set apart to the surplus fund
59. Gager v. Paul, 111 Wis. 638, 87 ten per cent of the net profits for the
N. W. 875. period covered by the dividend till
60. Gager v. Paul, 111 Wis. 638, 87 N. they shall amount to twenty per cent
W. 875. of its capital stock, is mandatory, and
60a. McTamany v. Day (Idaho), 138 a dividend declared in disregard thereof
Pac. 563. is void. Lapslev 'V. Merchants' Bank,
61. Tax dividend. —
Where the direct- 105 Mo. App. 98, 78 S. W. 1095; Ed-
ors of a bank adopted a resolution wards V. Merchants' Bank (Kan.), 78
"that the bank shall pay the taxes on S. W. 1133.
the bank stock, commencing with the 64. Where notes indorsed by K., and
taxes of 1895," and at the time the discounted by a bank in 1888 for his
value of the stock of a majority of the benefit, were, within one year prior to
directors was set ofif by debts, the res- June 38, 1893, surrendered to one H.,
olution should be regarded as one for who paid them with the proceeds of
the declaration of a tax dividend pay- other notes indorsed by him and dis-
able equally to all stockholders. Red- counted by said bank, the new notes
head V. Iowa Nat. Bank, 127 Iowa 573, were a part of the bank's resources on
103 N. W. 796. June 38, 1892, and were not debts ow-
62. Accumulation of surplus fund. — ing to the bank, which had remained
Reynolds v. Bank, 6 App. Div. 63, 39
N. Y. S. 623; Reynolds v. Bank, 158 65. Notes given to a bank by its di-
N. Y. 740, 53 N. E. 1131. rectors under an agreement reciting
The primary purpose of a bank sur- that the purpose of the notes was to
plus is the accumulation of a sum remove any doubts as to the solvency
against which bad debts may be of the bank, and to make it unques-
charged, so that at all Limes the capital tionably solvent, constitute an asset
may be kept unimpaired. Pullen v. of the bank from the time of delivery.
Corporation Commission, 15 N. C. 548, Dykman v. Keeney, 16 App. Div. 131,
68 S. E. 155. 45 N. Y. S. 137.
§ 41 (3) Payment of Dividends— § 41 (3a) Duty to Pay.— A

dividend which has been declared can not be retained by the directors to
constitute a 'surplus fund.®^
§ 41 (3b) To Whom —
Payable. Where a person holds a full and
perfect equitable title to which the bank has notice, he is entitled
stock, of
in equity to the dividends thereafter accruing upon it.*''
A state which is a stockholder in a state bank has a right to receive
and dispose of its share of the profits on its stock in the bank, unless the
right has been expressly or by necessary implication relinquished by some
provision of the charter or law creating the bank.*'*
"due without prosecution" for more the interest which may from time to
than one year, within Laws 1893, c. time accrue upon the deposits of pub-
696 (Banking Law) § 26, which pro- lic money by the treasurer of the state,
vides that such debts shall be classed shall be, and they are hereby, appro-
as losses, and deducted from the ac- priated to the use of public schools."
tual profits, for the purpose of ascer- Held, that this section did not, by
taining the surplus profits. Judgment necessary implication, create a trust in
(1896) 42 N. Y. S. 488, 10 App. Div. favor of the bank, and authorize it to
610, affirmed. Dykman v. Keeney, ICO retain the bonus and dividends until
N. Y. 677, 54 N. E. 1090. the state bonds were paid. State 'v.
A bank, which held several notes in- Union Bank, 17 Tenn. (9 Yerg.) 119.
dorsed by and discounted for one K., The governor subscribed for one-
discounted for one H. notes aggregat- half the capital stock of the Central
ing the amount of the K. notes, made Turnpike Company, and issued state
by the same persons, and indorsed by bonds bearmg interest in payment of
H., but without the indorsement of K. the subscription, in accordance with
H. then gave his check to the bank for Act 1838, c. 107. That act established
the amount of the K. notes, and took a bank, and declared that its capital
them up, and the account of K. was should be $5,000,000, and that the faith
marked on the books of the bank as and credit of the state should- be
paid. Held, that the K. notes were pledged for its support, to supply any
paid, and therefore were not to be de- deficiency in the fund specifically
ducted from the resources of the bank pledged for its establishment, and to
as losses (Laws 1893, c. 696, § 36), be- give indemnity for all losses arising
cause they had remained "due without from such deficiency; and, further, that
prosecution" for more than one yeai. the bank should pay the interest on
Dykman >. Keeney, 16 App. Div. 131, bonds issued to internal improvement
45 N. Y. S. 137. companies, after the payment of
66. Payment. — Seeley v. New York specific sums to common schools and
academies; and, in the event there
Nat. Exch. Bank (N. Y.), 4 Abb. N. C.
61, 8 Daly 400, affirmed in 78 N. Y. 608. should be a deficiency in the dividends
67. To whom payable. — Conant, etc.,
of the bank, and in the dividends of
the internal improvement companies,
Co. V. Reed, 1 O. St. 398.
to pay such interest, then the indi-
68. —
State a stockholder. State v. vidual stockholders should be liable to
Union Bank, 17 Tenn. (9 Yerg.) 119. pay such interest. Held, that a fur-
The act incorporating the Union ther declaration of the act that, if the
Bank reserved to the state the right dividends of the bank and the con-
to subscribe for a certain amount of tingent fund should be insufficient to
its stock. Stock to the amount of pay the interest on the bonds, the de-
$500,000 was accordingly taken in the ficiency should be made up out of any
name of the state. By the seventh sec- uninvested dividends from works of
tion of the charter, it is provided "that internal improvement, did not amount
the profits which may arise from the to a positive pledge to apply the divi-
stock owned by the state, after the dends on works of internal improve-
bonds of the state shall have been paid, ment to the payment of interest on
and also the bonus agreed to be paid state bonds; hence the law requiring
by the bank to the state for the privi- those dividends to be paid into the
leges conferred by the charter, and also state treasury, instead of the bank, vio-
§ 41 (3c) Medium. —A dividend of the cash profits of a bank pay-

able according to the resolution of its directors "in New York state cur-
rency" is payable in par funds; and the bank can not pay such dividends
in uncurrent country bank notes at a discount in New York, though the
banks on which such notes were drawn were solvent when the dividends
was payable.^®
§ 41 (3d) Application to Debt of Stockholders. If any stock- —

holder be indebted to the corporation, his dividend, or so much thereof as
may be necessary, may be applied to the payment of the debt, if the same
be then due and payable.'' ** Dividends accruing after a transfer of bank
stock, as provided by the certificates, are not subject to set-off on account
of indebtedness of the assignor incurred after the transfer.''
§ —
41 (3e) Interest. A charter which entitles any creditor to inter-
est, on any obligation of the bank, from the time it refuses payment, does
not apply to claims for dividends. It was intended to provide for the
public dealing with the bank, and not for the stockholders inter se.'^^
§ 41 (4) Actions to Recover or to Enjoin Misapplication. —In an

action to enjoin the rhisapplication of dividends or to recover dividends
or a share of the surplus from banks, the usual rules as to adequate rem-
edy at law,'^^ as to parties,'^* pleading, issues, defenses, proof, variance,^'
lated no contract with the stockhold- tion indorsee takes the note and mort-
ers. State V. Central Turnpike Co., gage of the maker of the original note,
29 Tenn. (10 Humph.) 388. to secure such indorsee, and thereafter
69. —
Medium. Ehle v. Chittenang transfers the note and mortgage to the
Bank, 24 N. Y. 548. bank which discounted the original
70. Application to debts of stock- note, either as collateral security for
holder. — Donnally v. Hearndon, 41 W. such note or under an agreement for
Va. 519, 33 S. E. 646. the cancellation thereof, and there-
71. The owner of stock in the de- after the maker of the original note
fendant bank assigned and delivered becomes the agent to wind up the af-
the certificate to plaintiff as collateral fairs of the bank, and threatens to
security for a loan. After assignment cancel the mortgage and to apply the
to plaintiff the assignor became in- accommodation indorsee's dividends,
debted to defendant, and the dividends as a stockholder, upon his indebtedness
on the stock, which had never been as indorsee, equity can not either en-
transferred on the books of the de- join the release of the mortgage or
fendant, as provided by the certificate, the application of the money, the in-
were claimed by the defendant. Held, dorsee having his adequate remedies
that the rights of the plaintiff became at law in each case. Moore v. Lima
fixed and vested before the assignor Nat. Bank, 8 O. C. C. 287, 4 O. C. D.
became indebted to the defendant, and 529.
the distributive share of the dividends 74. Parties. —
-In an action by an al-
paid by defendant in liquidation be- leged stockholder for a part of the
longed to plaintiff, and were not sub- surplus of Bank C, which had con-
ject to any set-ofT on account of the solidated with Bank B, it was held,
indebtedness of the assignor to the de- that all stockholders must be parties
fendant. Union Bank v. IJnited States in order to justify a decree. Long v.
Exch. Bank, 143 App. Div. 128, 127 N. Gilbert (Tenn.), 59 S. W. 414.
Y. S. 661. 75. Issues and proof. —
In an action
72. Interest. — Bank v. Fowler (La.), by a stockholder in a bank for a divi-
10 Rob. 196. dend on his stock, where the petition
73. Injunction against misapplication alleges that the board of directors had
of dividends. —
Where an accommoda- competent authority to declare a divi-
126 BANKS AND BANKING. § 42 (Iba)
and stay of execution^® are applied, for instances of which see the notes.
Lien of Bank on Stock and Dividends— § 42 (1) Crea-

§ 42.
tion, and Existence —
§ 42 (la) At Common Law.Ât common law
a bank had no lien on its stock to secure a stockholder's indebtedness to it.'^^
§ 42 (lb) Under Charter or Statute— § 42 (Iba) In General.

—Banks other than national may have a lien upon the shares of their stock
in the hands of the stockholders, for indebtedness due the bank, where
such lien is given by general law, or by the charter, or legally enacted
by-laws.'^ 8
dend, an answer containing a general U. S. 317, 36 L. Ed. 1039; Brent v.

denial, and alleging that the dividend Bank (U. S.), 10 Pet. 596, 9 L. Ed.
was illegally declared, is sufficient to 547; Mechanics' Bank v. Seton (U. S.),
allow the defense that ten per cent of 1 Pet. 299, 7 L. Ed. 153; Franklin Bank
the net profits of the bank had not V. Commercial Bank, 5 O. Dec. 339.
been set off for the surplus fund be- See, also, Conant, etc., Co. v. Reed, 1
fore declaring the dividend as required O. St. 398.
by the statute. Lapsley v. Merchants' Validity of statutes conferring lien.
Bank, 105 Mo. App. 98, 78 S. W. 1095; — Statutory provisions giving banks a
Edwards v. Merchants' Bank (Kan.), lien upon their stock for debts due
78 S. W. 1133. them by their stockholders have uni-
Variance. —
In an action by the trus- formly been held valid. Franklin
tees of a dissolved banking corpora- Bank v. Commercial Bank, 5 O. Dec.
tion against a stockholder to recover 339. See also, Conant, etc., Co. v.
a dividend that should have been ap- Reed, 1 O. St. 298.
plied to a creditor's demand, where the Lien created by charter or special
petition fails to allege that defendant act.— Leggett v. Bank, 24 N. Y. 383;
was a trustee, and affirmatively shows Cecil Nat. Bank v. Watsontown Bank,
he sustained no such relation, his lia- 105 U. S. 217, 26 L. Ed. 1039; Brent v.
bility can not be predicated on his Bank (U. S.), 10 Pet. 596, 9 L. Ed.
breach of duty as a trustee. Daugherty 547.
V. Poundstone, 120 Mo. App. 300, 96 Such a provision, restraining trans-
S. W. 738. fer while stockholder is indebted to
76. —
Stay of execution. A motion to the bank, is intended to give the bank
stay execution on a judgment against additional security for debts due it
a bank for the amount of dividends from stockholders. Mechanics' Bank
due on stock can not be granted on V. Seton (U. S.), 1 Pet. 399, 7 L. Ed.
the mere suggestion of other stock- 152.
holders. State V. Bank, 45 Mo. 528. Every stockholder of a bank, who
77. Creation and existence. Union — makes or indorses a note, to procure
Bank v. United States Exch. Bank, a loan from the bank, is bound to know
143 App. Div. 138, 137 N. Y. 661; Staf- the terms of the charter; his signature
ford V. Produce Exch. Banking Co., to the note is an inchoate pledge of
16 O. C. C. 50, 8 O. C. D. 483; Frank- his stock for security, if so provided
lin Bank v. Commercial Bank, 5 O. in the charter; his stock gives credit
Dec. 339; Lee zi. Citizens' Bank, 3 Cin. to his name, and the bank grants the
Rep. 398, 13 O. Dec. 913; Bullard v. loan on its faith. Brent v. Bank (U.
Bank, 18 Wall. 589; Bank v. Lanier, S.), 10 Pet. 596, 9 L. Ed. 547.
11 Wall. 369, 20 L. Ed. 173. — —
Same Instances. Under the char-
A bank has no lien on stock for ter of a bank providing that the stock
debts due it by the stockholders. Dana shall be transferred according to the
V. Brown (Ky.), 1 J. J. Marsh. 304. rules of the corporation, and that all
A private unincorporated banking debts due the corporation by a stock-
association has no lien on the shares holder must be first satisfied, an as-
of its members for debts due by the signee of a stockholder takes the
latter to the association. Neale v. Jan- stock subject to any lien the bank
ney. Fed. Cas. No. 10,069, 3 Cranch C. may have under its charter. Reese v.
C. 188. Bank, 14 Md. 371, 74 Am. Dec. 536.
78. Lien of banks generally. Cecil — Where the articles of association of
Nat. Bank v. Watsontown Bank, 105 a bank provide that no shares shall be
§ 42 (Ibc) CAPITAL, STOCK AND DIVIDENDS. 127
§ 42 (Ibb) Eetroactive Effect of Statutes. —General statutes giv-

ing corporations organized thereunder a lien of the stock of its share-
holder, do not apply to banks chartered by or under previous statutes or
special acts J ^
§ 42 (Ibc) Reservation by a B^y-Law. Where no lien on stock —

is expressly given by a general law or the charter of a bank, the bank has
an implied right to reserve such a lien, the lien may be reserved by a
transferable on which any call for in- seded the general law as to chartered
stallment of capital or any interest on companies, providing for the transfer
such installment shall remain unpaid, of stock, and gave the bank the prior
or "in" which any shareholder is in- lien for any debt due it from a stock-
debted to the bank, unless the direc- holder on his stock. Cash for all
tors thereto, no shareholder
consent loans or discounts to him. Bohmer
who has to respond to a call,
failed V. City Bank, 77 Va. 445. See also,
or who is indebted to the bank as Petersburg Sav., etc., Co. v. Lumsden,
drawer or indorser, or as security for 75 Va. 327.
any sum due the bank, can transfer Failure to organize within time pro-
his stock without permission, and the —
vided in charter. Failure of a bank
bank has a lien on the stock. Judg- to organize within two years after it
ment 80 N. Y. S. 901, 81 App. Div. 367, is chartered, which failure Code, § 688,
affirmed. Lyman v. State Bank, 179 provides shall forfeit the charter, can
N. Y. 577, 72 N. E. 1145. not be urged against the validity of
A bank was incorporated under a lien by the bank on shares ©f a
Laws 1838, c. 260, which provides (§ 19) stockholder given by the charter, but
that its shares of stock shall be trans- can only be raised by the state in
ferable on the books in such manner a direct proceeding. Boyd v. Redd,
as may be agreed on in the articles 120 N. C. 335, 58 Am. St. Rep. 792, 37
of association. The articles of asso- S. E. 35.
ciation providing for the transfer of 79. Retroactive effect
of statutes. —
shares declared that they should be Though Act Oct. 21, 1891, § 1, declares
deemed pledged and held in security that all banking companies hereafter
by the bank for the payment of the chartered in this state shall have the
owner's debt to it. Held, that the powers hereinafter specified, the word
bank, on making a loan to a share- "hereafter" should not be construed
holder, acquired a vested right in his as rendering the fourth section, as
shares. Mohawk Nat. Bank v. Schenec- amended December 30, 1893, whereby
tady Bank, 78 Hun 90, 28 N. Y. S. liens are created in favor of banking
1100, 60 N. Y. St. Rep. 510. companies for debts due to them by
Where the charter of a bank makes stockholders on stock held by the lat-
the stock transferable only on the ter, operative as to stock already issued
books of the bank, in such manner by a banking company chartered
as the directors shall prescribe, and under the provisions of the first act,
provides that "no stockholder in- prior to its amendment. Southern
debted to the bank for any debt, or Banking, etc., Co. v. Fidelity Banking,
demand due and payable, shall trans- etc., Co., 105 Ga. 487, 33 S. E. 639.
fer until such debt is paid, or collateral - Abanking corporation chartered by
security is given for the payment, to the state of North Carolina by special
the satisfaction of the directors, and act purchased a note given by one of
said bank shall have the first lien in its stockholders to a third party, and
law, on all stock owned by its debtors," secured by a pledge of his stock as
the bank is invested with a lien on collateral. Subsequently the corpora-
the stock of a debtor, to secure the tion purchased the stock from pledgor
payment of any sum for which he is at an agreed valuation. Held, that
liable to the bank. Downer v. Zanes- Pub. Laws N. C. 1903, p. 469, c. 275,
ville Bank (O.), Wright 477; Conant, giving corporations organized there-
etc., Co. V. Reed, 1 O. St. 398; Frank- under a lien upon their stock for the
lin Bank v. Commercial Bank, 5 O. indebtedness of a stockholder, did not
Dec. 339. apply to such corporation, and that
Acts 1869-70, p. 488, incorporating it had no lien on the proceeds of the
the City Bank of Richmond, super- pledged stock in excess of that re-
128 BANKS AND BANKING. § 42 (Ibd)
by-law. s" Where the board of directors of a bank is authorized to pre-

scribe the mode of transacting, managing and conducting the affairs and
business of the bank, the bank has an implied right to reserve a lien on
its stock owned by its debtors.* ^
Compliance with Charter Requirements. —The requirements of the
charter respecting the enactment of such by-law and notice thereof in the
must be complied with.*^
certificates of stock
—
between Corporators. A by-law which asserts a lien on
Validity
the stock of members of a banking corporation for debts due the bank, is
as between the corporators themselves, valid and binding.*^
Validity against Creditors, Assignors and Pledgors of Holders.
—See post, "Assignee and Purchasers," § 42 (2db) "Pledgee," § 47 (8d)
;
"Creditors and Purchasers at Judicial Sales."
§ 42 (Ibd) Contract or Stipulation in Certificate. lien to se- —A

cure the indebtedness of its shareholders may be reserved by contract be-
tween a bank and its stockholders.** A banking corporation may, by an
express stipulation in the certificate of stock by it issued, reserve a valid
lien upon the stock to secure the debts of the holder to it.*^ And where
quired to pay the secured note for the certificate of stock only contained
other indebtedness on which the stock- a notice that it was transferable at
holder was bound as indorser. In re the office of the company in person or
Mills Co. (D. C), 162 Fed. 42. by attorney, and the transferee had
80. Reservation by a by-law. —
Belle- no knowledge of such by-law. Bank
vue Bank v. Higbee, 4 O. C. C. 222, 2 V. Pinson, 58 Miss. 431, 38 Am. Rep.
O. C. D. 512, affirmed in 28 Wkly. L. 330.
Bull. 336; Stafford v. Produce Exch. 83. Validity between corporators. —
Banking Co., 16 O. C. C. 50, 8 O. C. D. Tuttle V. Walton, 1 Ga. 43.
483; Brent v. Bank CU. S.), 10 Pet. 84. Reservation by contract or stipu-
596, 9 L. Ed. 547. —
lation in certificate. Stafford v. Pro-
81. Stafford v. Produce Exch. Bank- duce Exch. Banking Co., 61 O. St. 160,
ing Co., 61 O. St. 160, 55 N. E. 162, 55 N. E. 163, 76 Am. St. Rep. 371, af-
76 Am. St. Rep. 371, aifirm.ing 16 O. C. firming 16 O. C. C. 50, 8 O. CD.
483.
C. 50, 8 O. C. D. 483; Bellevue v. Hig- 85. Stipulation in stock certificate. —
bee, 4 O. C. C. 222, 2 O. C. D. 513, af- Stafford v. Produce Exch. Banking
firmed in 28 Wkly. L. Bull. 336. Co., 61 O. St. 160, 76 Am. St. Rep. 371,
A bank in Ohio, chartered and 55 N. E. 162.
known as a savings and loan associa- A provision in certificates of stock
tion, has power to create a lien in its of a bank that the stock shall not be
own favor upon its stock at the time transferred without the consent of. the
it issues the same. Stafford v. Pro- directors by any stockholder who shall
duce Exch. Banking Co., 16 O. C. C. be indebted to the bank is not injurious
50, 8 O. C. D. 483. to the corporation, and hence a stock-
82. Compliance with charter reholder can not sue on behalf of him-
—
quirements. A by-law authorized by self and the other stockholders to com-
a bank charter that "the stock of the pel the bank to strike that provision
company shall be assignable only, on from the certificates. Judgment (1896)
the books of the company, and no 39 N. Y. S. 623, 6 App. Div. 63, af-
transfer of stock shall be made by any firmed. Reynolds v. Bank, 158 N. Y.
stockholder who shall be indebted to 740, 53 N. E. 1131.
the company; and certificates of stock —
Ohio. The notice "not transferable
shall contain upon them notice of this by any stockholder liable to this com-
—
provision" will not render an assign- pany as principal debtor or otherwise,
ment of stock by a stockholder as col- without consent of the board of direct-
lateral security liable to the debt due ors," printed on the back of a certifi-
the bank by the stockholder, where cate of bank stock, is sufficient notice
§ 42 (Id) CAPITAI,, STOCK AND DIVIDENDS. 129
such stipulation is unauthorized, it may be ratified by the shareholder.^^

e
§ 42 (Ic) Stock on Its Face Transferable. —Where a corporation

issues a certificate of its stock, stating on its face that it is transferable,
it has no lien thereon for debts due the bank.^''
§ 42 (Id) Stock Held in Trust.— Where the stock is held in trust,

to the knowledge of the bank through its directors, there can be no lien
unless given by the clear and positive provisions of the charter.** The
"holder" against whom such lien is given, is not necessarily restricted to
the nominal, but may be, and as a rule, is the beneficial holder.*^
of the lien. Stafford v. Produce Exch. chanics' Bank of Alexandria (section

Banking Co., 16 O. C. C. 50, 8 O. C. 3), after providing for the opening of
D. 483, affirmed in 61 O. St. 160, 55 the subscription books, and pointing
N. E. 162. out the manner in which the excess
86. —
Ratification. The unauthorized shall be reduced in case the subscrip-
act of the directors of a bank in in- tion for shares shall exceed the num-
serting in the certificates of stock a ber of shares allowed, provides that
clause that it shall not be transferred "all the subscriptions and shares ob-
without the consent of the directors, tained in consequence thereof shall be
by any stockholder who shall be in- deemed and held to be for the sole and
debted to the bank, is ratified by a exclusive use of the persons * * * sub-
stockholder who, at various times dur- scribing." Section 21 provides that
ing several years, purchased stock, shares shall not be transferable while
and received such certificates without the holder thereof is indebted to the
objection. Judgment 39 N. Y. S. 633, bank. Held, that the third section ap-
6 App. Div. 62, affirmed. Reynolds v. plies only to the first subscription to
Bank, 158 N. Y. 740, 53 N. E. 1131. stock, and was intended to prevent
87. Stock on its face transferable. — one person from subscribing for stock
Fitzhugh V. Bank (Ky.), 3 T. R. Mon. in the name of another for his own
126, 16 Am. Dec. 90. benefit; and that, therefore, where
Stock held in trust.— Mechanics'
88. stock is held in trust, the fact of the
Bank v. Seton (U. S.), 1 Pet. 299, 7 L. trust being known to the bank, it will
Ed. 152. have no lien on the stock for his debt.
Notice to the board of a bank, when Mechanics' Bank v. Seton (U. S.), 1
stock was transferred to a person, that Pet. 299, 7 E. Ed. 152, distinguishing
he held it as trustee only, was notice Union Bank v. Laird, 2 Wheat. 390, 4
to the bank; and no subsequent change L. Ed. 269, as being a case where the
of directors could require a new notice debtor was the real as well as nominal
of this fact. So that, if the bank has owner of the shares.
sustained any injury, by reason of a It is not a correct construction of
subsequent board not knowing that the 3d and 31st sections of the act of
such person held the stock in trust, it congress, incorporating the Mechanics'
would result from the negligence of Bank of Alexandria, that the stock of
its own agents, and could not be visited the bank shall be deemed to belong
upon the complainants. Mechanics' to the persons in whose names it
Bank v. Seton (U. S.), 1 Pet. 399, 7 stands upon the books of the bank,
E. Ed. 153. and that the bank is not bound to
If the bank was chargeable with recognize the interests of any cestui
the knowledge that a holder of stock que trust, and may refuse to permit
was a mere trustee, it could acquire the stock to be transferred, whilst the
no title from him, discharged of the nominal holder is indebted to the bank.
trust; and if necessary, might itself Mechanics' Bank v. Seton (U. S.), 1
be compelled to execute the trust. Nor Pet. 399, 7 L. Ed. 153.
has the bank any title to such stock, The third section applies to the first
under a transfer made by its cashier subscription for the stock, and was
by virtue of a power of attorney intended to prevent one person sub-
given by the trustee. Mechanics' scribing for stock in the name of
Bank v. Seton (U. S.), 1 Pet. 299, 7 another, for his own benefit. Mechan-
L. Ed. 153. ics' Bank v. Seton (U. S.), 1 Pet. 399,
89. The act incorporating the Me- 7 L. Ed. 152.
1 B & B—
13Q BANKS AND BANKING. § 42 (Ig)
42 (le) Shares Pledged to the Bank.—Where a bank has a gen-

§
upon the shares of its stockholders for debts due the bank, the
eral lien
bank has such general lien on shares pledged to it to secure the payment
of a particular debt or note.ô aliter where the bank has no general lien.*'
Certificate for Amount of Canceled Stock. — See post, "Assignees
and Purchasers," § 42 (2db).
§ 42 (If) Bank Prohibited from Dealing in Its Own Stock.—

A by-law inconsistent with a statute prohibiting a bank from dealing in
its own stock is void.*^ A bank's lien given by a statute or its charter is
not inconsistent with or defeated by a prohibition against dealing in its
own stock,^* unless such prohibition is by general statute enacted after the
adoption of a by-law creating such lien.^*
§ 42 (Ig) Death of Stockholder.—The death of a stockholder

neither creates^^ nor divests^* a lien upon his stock for his indebtedness
to the bank.
90. Shares pledged to the bank.-Ît 93. Lien not defeated by prohibition
was held where the shares were
so against dealing in own stock. Where —
pledge with other securities. In re a statute or charter giving a bank a
Peebles, Fed. Cas., No. 10,903, 3 lien or the right to reserve a lien on
Hughes 394. its stock owned by its debtors, a pro-
91. Where a private banking associa- vision prohibiting the bank from deal-
tion, having no general lien on the ing in its own stock or taking, such
shares of its members, receives from stock as security for a loan is not in-
one of the latter his stock to secure consistent with the provision respect-
a particular liability, the bank has no ing the lien. Stafford v. Produce Exch.
lien on the stock for other claims. Banking Co., 16 O. C. C. 50, 8 O. C.
Neale v. Janney, 2 Cranch, C. C. 188, D. 483, affirmed in 61 O. St. 160, 55
Fed. Cas. No. 10,069. N. E. 162; Conant, etc., Co. v. Reed, 1
92. Bank prohibited from dealing in O. St. 298.
its own stock. —
A testatrix held five 94. The Act of 1881 (Laws 1881, c.
shares of stock in the defendant bank, 77), prohibiting banks organized under
incorporated under the laws of the the laws of the state from making
state, which her executor assigned to loans or discounts on the security of
plaintiffs, who applied to defendant to the shares of their capital stock, is
issue to them a certificate for the effectual to prevent a bank from hav-
shares which had stood in the name of ing a lien on the shares of a stock-
the testatrix. The defendant refused holder for a debt thus created after
to do so, claiming a lien on the stock that enactment, though a by-law be-
by reason of a debt of testatrix arising fore adopted had provided for such a
from a loan made to a certain person lien. Nicollet Nat. Bank v. City Bank,
with testatrix as surety, which loan 38 Minn. 85, 35 N. W. 577, 8 Am. St.
the principal debtor had not paid, and Rep. 643.
the insolvency of the estate of testa- 95. Where bank has no general lien.
trix. The bank had adopted a, by-law — A stockholder of a bank which was
that no transfer of stock should be not a bank of issue, and whose charter
made while the holder was indebted did not provide for its having a lien
to the bank, to the prejudice of the upon stock for debts due from stock-
lien held by the bank to secure the holders, died owing the bank. Held,
debt.' Section 581, Ky. St. (Russell's that the stock passed to the adminis-
St. § 2170), provides that no bank shall trator of deceased, free from any lien
take as security for any loan or disin favor of the bank. Merchants'
count a lien upon any part of its Bank V. Shouse (Pa.), 14 Wkly. Notes
capital stock. Held, that the by-law Cas. 133.
was inconsistent with the statute and 96. Tn re Henry's Estate (Pa.), 33
invalid. Corydon Deposit Bank v. Pittsb. Teg. J. 241, 16 Pittsb. Leg. J.,
McClure, 141 Ky. 481, 133 S. W. 201. N. S., 241.
§ 42 (2c) CAPITAI,^ STOCK. AND DIVIDENDS. 131
§ 42 (2) Nature, Operation and Effect— § 42 (2a) In General.

—The lien of a bank on the stock of its debtor to secure his debt is a lien
created by law,^'^ on personal property,** and is only entitled to a prefer-
ence similar to that allowed partnership over individual creditors.**
§ 42 (2b) As Extending to Dividends. —The bank's lien extends

to dividends as well as to shares, though only shares of stock be specifically
named. 1 The bank's lien does not extend to dividends declared after the
bank has received notice of an assignment of the stock.
§ 42 (2c) Debts Secured. —

General Indebtedness. The bank's lien —
on the shares of its stock is to secure the general indebtedness of a stock-
holder,^ as principal debtor* and contingent liabilities,^ as drawer,^ indorser,^
Nature, operation and effect. It

97. — thereon, so as to hold the dividends
was so heldas to a charter lien. German in satisfaction of a loan made to the
Security Bank v. Jefferson (Ky.), 10 original subscriber after it had knowl-
Bush 326. edge of the assignment of the stock.
Since the law makes bank stock
98. Nesmith v. Washington Bank (Mass.),
personal property, and it is to be dealt 6 Pick. 324.
with as personal property, any lien 3. —
General indebtedness. In re Mor-
upon it must accomplish the same ob- rison, Fed. Cas. No. 9,839; Citizens'
jects and the same purposes that a State Bank v. Kalamazoo County
lien upon personal property accom- Bank, 111 Mich. 313, 69 N. W. 663.
plishes. Stafford V. Produce Exch. Act March 21, 1814, § 7, providing
Banking Co., 16 O. C. C. 50, 8 O. C. D. that a stockholder indebted to a bank
483. shall not transfer his stock or re-
99. German Security Bank v. Jeffer- ceive a dividend until his debt has
son (Ky.), 10 Bush 326. been discharged, does not apply solely
1. Lien on dividends. —
Bank v. Bank, to debts contracted on account of
original stock subscriptions, but ap-
5 O. Dec. 339.
plies to all debts of stockholder to the
A bank has the right to hold a cash bank. Rogers v. Huntington Bank
dividend on stock as pledged for the
indebtedness of the stockholder to (Pa.), 12 Serg. R. 77.&
the bank. Hagar v. Union Nat. Bank, 4. Unpaid notes. —
The Bank of Po-
63 Me. 509. tomac has a lien upon its stock in
The Bank of Washington has no the hands of a stockholder whose
specific lien upon the dividends of its notes are lying over, unpaid. Burford
stockholder, in consequence of its V. Crandell, Fed. Cas. No. 2,150, 3
right to prevent a transfer of the stock, Cranch, C. C. 86.
until his debt to the bank should be —
Indorsed note. A bank has a lien
paid. Brent v. Bank, Fed. Cas. No. on its stock for indebtedness of the
1,834, 2 Cranch C. C. 517. stockholder on a note executed by him
A
bank's right to apply the dividends to the bank, notwithstanding that
accruing upon the shares of a stock- there is an indorser on the note. In
holder against indebtedness of a re Morrison, Fed. Cas. No. 9.839.
stockholder to the bank, for the divi- 5. Leggett V. Bank, 24 N. Y. 383.
dend is a simple debt, owing from the 6. Lyman v. State Bank, 179 N. Y.
corporation to the stockholder. First 577, 72 N. E. 1145.
Nat. Bank v. De Morse (Civ. App.), 26
S. W. 417, citing Continental Nat.
7. Indorser. —
Where a bank's charter
prohibited a transfer of its shares by
Bank v. Weems, 69 Tex. 489, 6 S. W. a stockholder indebted to the bank
803. until his liability was paid, such pro-
2. Though a by-law of a bank sub- vision creates a valid lien on the stock
jected to a lien the stock of any mem- of a shareholder under a contingent
ber who owed the bank anything, liability to it as indorser, as against
where a stockholder assigned his stock an assignee of the stock with notice,
so as to give the assignee an equitable who gave the bank no notice of his
interest therein, the bank has no lien claim until the indorser's liability has
132 BANKS AND BANKING. § 42 (2c)
surety,^ or otherwise, or if due and unpaid,^ and in some cases to become

due at a future time.^** The statute may require the note, etc., to be pro-
tested before the Hen attaches.^!
Stock Debts and Notes. — Stock debts or stock notes are secured by
the bank's lien.^^
Overdrafts. —Balances due for overdrafts are secured by the bank's
lien.13
Partnership or Firm Debts. —The lien of a bank on a stock certificate
for a debt of the registered holder extends to the holder's liability to the
bank on a debt of a copartnership of which he is or has been a member. i*
become fixed. Leggett v. Bank, 24 N. 11. v. Bank (U. S.), 10 Pet.

Brent
Y. S83. 596, 9 L. Ed. 547.
Though a debt due a bank was a
note on which the debtor was an in-
12. Stock debts and notes. The —
stock held by the stockholders of the
dorser merely, and his liability did not R,eal-Estate Bank is a security for
become absolute in his lifetime, the in- their stock debt, and may be sold to
dorsement of the note gave the bank satisfy such debt. Duncan v. Biscoe^
an inchoate right to his stock, under 7 Ark. 175.
the provisions of its charter giving a Abank, under a by-law prohibiting
lien on its stock held by the debtor, a transfer of stock by one indebted
though the pledge of it to the bank, thereto, has a lien on stock to secure
did not become absolute until the stock notes of a stockholder. In re
debt became payable. Brent v. Bank, Morrison, Fed. Cas. No. 9,839.
(U. S.), 10 Pet. 596, 9 L. Ed. 547.
Within the charter giving to a bank
13. Overdrafts. —
Under a charter of
a bank providing that the stock shall
a lien on the shares of any stockholder
be liable for all debts due the corpo-
"who may be indebted to it," a stock- ration by a stockholder, the lien at-
holder is indebted to the bank, though taches for balances due the bank for
only an indorser of the note on which overdrafts, but not on notes on which
the bank has not proceeded against the
the stockholder may be a maker or
maker. Bank v. Bonnie, 102 Ky. 343, indorser which are not due at the time
19 Ky. L. Rep. 1372, 43 S. W. 407.
the transfer is made. Reese v. Bank,
8. Citizens' State Bank v. Kalama- 14 Md. 271, 74 Am. Dec. 536.
zoo County Bank, 111 Mich. 313, 69
14. A purchaser of registered bank
N. W. 663.
stock can not compel a transfer of the
9. National Bank -v. Watsontown stock on the books of the bank, where
Bank, 105 U. S. 217, 221, 26 L. Ed. the former owners are members of a
1039. firm which is indebted to the bank, as
10. A
provision in the articles of 3 How. Ann. St., § 3208a8, provides
association of a bank that no share that no transfer of stock shall be valid
should be transferred unless the holder against a bank so long as the regis-
should pay all debts due the bank by tered holder thereof is indebted to
him includes those payable at a future the bank. Citizens' State Bank v.
time. Leggett v. Bank, 24 N. Y. 283, Kalamazoo County Bank, 111 Mich.
affirming 25 Barb. 326. 313, 69 N. V/. 663.
—
Ohio. Downer v. Zanesville Bank The debt of a firm to a bank organ-
(O.), Wright 477. ized under 49 Laws, p. 41 (1 Swan &
Under Act March 21, 1914, art. 11, C. St. p. 168), is a d^bt of a member
§ 7, providing that no stockholder in- of the firm, who is a stockholder of
debted to a bank can transfer his stock the bank, within § 11, giving such a
or receive a dividend until the debt is bank a lien on the stock of its debtors.
discharged, the bank may refuse to Franklin Bank v. Commercial Bank, 5
permit a stockholder who is the maker O. Dec. 339.
of a note discounted to the bank to Under Act March 25, 1820, art. 11,
transfer his stock if he and the in- providing that no stockholder indebted
dorser are insolvent, though the note to the bank shall be authorized to
is not due when the transfer is re- make a transfer until the debt be dis-
quested. Grant v. Mechanics' Bank charged, the bank has a lien on the
(Pa.), 15 Serg. & R. 140. individual stock of a shareholder, for
§ 42 (2da) •CAPITAL, STOCK AND DIVIDENDS. 133
Debts Purchased by Bank. —The lien given by a bank charter on the

shares of its stockholders to secure any indebtedness by them to the bank
extends only to indebtedness directly incurred to the bank, not to indebted-
ness to third persons acquired by it.^^
Where colegatees own the bequeathed shares in severalty the

shares of one are not liable for the debts of the other.^®
Indebtedness of Equitable Assignee. The indebtedness of a mere —
equitable assignee is not covered by the bank's lien on its stock.^'^
—
Debts of Second Assignee. Where a party takes an assignment of
bank stock with notice of a prior assignment to another person, and has
such stock transferred to him on the books of the bank, the bank, also havr
ing notice of the prior assignment, can not assert a lien against the stock
for debts due from the second assignee.^*

—
Stockholders § 42 (2da) General Rule as to Notice of Lien. All —
persons dealing with the stockholders of a bank which has a charter lien
upon its stock to secure the shareholder's indebtedness to it, must take
the debts of his firm. Mechanics' will, permitted a transfer of the shares
Bank v. Earp (Pa.), 4 Rawle 384. of the other three, who were then in-
The Act of March 25, 1820, provides debted to it, but refused to allow a
that stockholders of a bank indebted transfer of the remaining shares of
to it for a debt actually due and un- the minor son on his arriving at ma-
paid shall not be authorized to make jority, on the ground that two of the
a transfer until such debt be discharged other legatees were indebted to it.
or security given, etc. Held, that a Held, that the shares were not owned
bank has a right to refuse a transfer by the legatees in common, but in sev-
of the stock of a member of a firm eralty, and that the Act of 1834, author-
by reason of a debt due to it from the izing banks to refuse to transfer its
partnership, as his separate property stock so long as the stockholder was
was liable for the debts of the firm. indebted to it,^ did not authorize the
Mechanics' Bank v. Earp (Pa.), 4 defendant bank to refuse to transfer
Rawle 384. the stock of the younger legatee not
Death of partner. —Under Act May indebted to it because of the indebted-
13, 1876, relating to the incorporation ness of the others. Presbyterian Con-
of banks, a bank has a lien upon the gregation V. Carlisle Bank, 5 Pa. 345.
stock of a deceased shareholder for
the amount of unpaid notes held by it,
17. Indebtedness —
of assignee. The
owner of a certificate of bank stock,
and made by a firm of which said transferable only on the books of the
shareholder was a member, and matur- bank, in person or by attorney, on
ing after his death. In re Henry's surrender of the certificate, made an
Estate, 33 Pittsb. Leg. J. 341, 16 Pittsb. assignment thereof, accompanied by a
Leg. J., N. S., 341. power of attorney to a person named.
15. The not extended to notes
lien is The assignee then transferred the
of a shareholder to a third person, same, and his assignee called upon the
taken by the bank as collateral from attorney to transfer it on the books,
such person, merely by the fact that which the bank refused to allow,
the stockholder was then president of claiming a lien thereon for the debt
the bank. Boyd v. Redd, 120 N. C. of the intermediate assignee. Held,
335, 27 S. E. 35, 58 Am. St. Rep. 792. that the intermediate assignee was not
16. Debt of colegatee. —A testator a s,tockholder, and therefore the bank
had no lien. Helm v. Swiggett, 13
bequeathed 40 shares of bank stock to
be divided equally between his four Ind. 194.
sons. During the minority of one of 18.Debts of second assignee. — Creed
the sons, the bank, with notice of the V. Lancaster Bank, 1 O. St. 1.
134 BANKS AND BANKING. § 42 (2dbb)
notice of and are bound by such provision of the charter. i*
§ 42 (2db) Assignees and Purchasers —§ 42 (2dba) In Gen-

eral. —A bank's lien on its stock for the indebtedness of a shareholder
can not be divested by a subsequent assignment thereof by such share-
holder, ô The title acquired by the delivery of the stock is subject to the
lien of the bank.î The transferee of bank stock is not entitled to priority
as a bona fide purchaser over a statutory lien existing in favor of the
bank.22
§ 42 (2dbb) Indebtedness Incurred before Notice of Transfer.

—The lien of the bank upon its stock is superior to the claim of one to
whom such stock has been equitably assigned by the stockholder, as to all
indebtedness of such stockholder to the bank incurred before the bank

received notice of such assignment,^* although such indebtedness was
19. Priorities and rights against per- purchaser, under 3 How. St., § 3208a8,
sons dealing with stockholders. Boh- — providing that no transfer of stock
mer v. Bank, 77 Va. 445. shall be valid against a bank, nor
20. Assignees and purchasers. Mo- — shall any transfer be made upon its
hawk Nat. Bank v. Schenectady Bank, books, so long as the registered holder
78 Hun 90, 28 N. Y. S. 1100, 60 N. Y. shall be liable to the bank for a debt
St. Rep. 510; Bellevue Bank v. Higbee, which is due and unpaid. Citizens'
4 O. C. C. 232, 2 O. C. D. 512; Reese State Bank v. Kalamazoo County
V. Bank, 14 Md. 271, 74 Am. Dec. 536. Bank, 111 Mich. 313, 69 N._W. 663.
A bank was incorporated under Donee or assignee without con-
Laws 1838, c. 260, which provides —
sideration. Where the by-laws of a
(§ 19) that its shares of stock shall bank authorize its directors to with-
be transferable on the books in such hold dividends from a stockholder
manner as may be agreed on in the who is indebted to the bank until his
articles of association. The articles indebtedness is paid, and the directors
of association providing for the trans- have ordered the dividends of a stock-
fer of shares declared that they should holder to be withheld, a mere donee
be deemed pledged and held in se- of such dividends, to whom they were
curity by the bank for the payment assigned without consideration by
of the owner's debt to it. Held, that such stockholder, can not recover
the bank, on making a loan to a share- them from the bank until such in-
holder, acquired a vested right in his debtedness is paid, since such assignee
shares, which could not be devested had no better claim to such dividends
by a subsequent assignment thereof against the bank than did his assignor,
by the shareholder. Mohawk Nat. although such by-law be adopted after
Bank v. Schenectady Bank, 78 Hun the issue of the stock and unknown to
90, 28 N. Y. 1100, 60 N. Y. St. Rep. 510, the stockholder. Bellevue Bank v.
affirmed in 151 N. Y. 665, 46 N. E. Higbee, 4 O. C. C. 222, 2 O. C. D. 512.
1149. 22. Transferee not bona fide pur-
21. Oakland County Sav. Bank v. chaser.— Oakland County Sav. Banki/.
State Bank, 113 Mich. 384, 71 N. W. State Bank, 113 Mich. 284, 71 N. W. 453,
453, 67 Am. St. Rep. 463; Mohawk Nat. 67 Am. St. Rep. 463.
Bank v. Schenectady Bank, 78 Hun. 23. Indebtedness incurred before
90, 28 N. Y. S. 1100, 60 N. Y. St. —
transfer. Union Bank v. Laird (U. S.),
Rep. 510; Cecil Nat. Bank v. Watson- 2 Wheat. 390, 4 L. Ed. 269. See, also.
town Bank, 105 U. S. 217, 26 L. Ed. National Bank v. Watsontown Bank,
1039, a case of a charter lien. 105 U. S. 217, 36 L. Ed. 1039; Peoples'
The lien of a bank on a stock certifi- Bank v. Exchange Bank, 116 Ga. 820,
cate issued by it for a debt of the reg- 43 S. W. 269, 94 Am. St. Rep. 144; Leg-
istered holder which is due and un- gett V. Bank, 24 N. Y. 283; Franklin
paid at the time of a demand by a Bank v. Commercial Bank, 5 O. Dec.
purchaser of such certificate for a' 339; Stafford v. Produce Exch. Bank-
transfer thereof on the books of the ing Co., 61 O. St. 160, 55 N. E. 162, 76
bank, is superior to the right of the Am. St. Rep. 371, affirming 16 O. C.
§ 42 (2dbd) CAPITAL, stock and dividends. 135
incurred after the assignment.^*
§ 42 (2dbc) Debts Contracted after Notice of Assignment. —

Debts contracted by the assignor after notice to the bank of an equitable
assignment of his stock are not, as against the assignee, liens upon such
stock.^s
What Constitutes Notice. —Knowledge of an agent of a bank of an

assignment of shares of its stock officially acquired is to be deemed knowl-
edge of the bank.2« Notice to the cashier of a bank of an assignment of
stock is notice to the bank,^''^ but the knowledge of the president when
dealing with stock owned by him individually, is not notice to the bank.^*
§ 42 (2dbd) Loan to Stockholder Larger than Authorized. —

While a bank which has violated its charter by allowing a stockholder to
borrow a sum of money larger than that which it was authorized to loan
him, can not, as against an assignee of such stockholder, assert a lien for
a greater amount than that provided for in its charter ;29 yet it is not the
right of the assignee, if unwilling to himself pay the amount necessary to
discharge the lien, to demand a transfer of the stock on the books of his
bank until his assignor has fully paid all of his indebtedness to the bank
which was contracted prior to the date it received notice that he had as-
signed his stock.30 ju an accounting to determine whether such indebted-
ness has been fully paid off, the sole inquiry should be whether or not the
bank has applied payments made by the assignor as he directed, or, in the
absence of any direction on his part, in the manner prescribed by law.^'
The assignee has no right to insist that payments shall be applied other-
C. 50, 8 O. C. D. 483; Bellevue Bank 269, 94 Am. St. Rep. 144; Conant, etc.,
V. Higbee, 4 O. C. C. 332, 2 O. C. D. Co. v. Reed, 1 O. St. 398.
512; Lee v. Citizens' Nat. Bank, 5 O. 26. What constitutes notice. — Frank-
Dec. 21; S. C, 2 Cin. Rep. 298, 13 O. lin Bank v. Commercial Bank, 5 O.
Dec. 913. Dec. 339.
A bank organized under 49 Laws, p. 27. Cashier. —^Conant, etc., Co. v.
41 (1 Swan & C. St. p. 168), has a lien Reed, O. '
1 St. 298.
on the stock of its stockholder to se- 28. The knowledge of the president
cure his indebtedness to it incurred of a bank in assigning shares of stock
before notice of the assignment of the owned by him individually is not
stock by him, as section 11 gives such knowledge to the bank, so as to de-
bank "a lien upon all stock of its prive it of a lien thereon, under 49
debtors." Franklin Bank v. Commer- Laws, p. 41 (1 Swan & C. St. p. 168),
cial 5 O. Dec. 339.
Bank, for an indebtedness of the president
24. A
bank's lien on its stock reserved to the bank incurred subsequent to
by a stipulation in the stock certifi- such assignment. Franklin Bank v.
cates may be asserted against a trans- Commercial Bank, 5 O. Dec. Rep. 339.
feree who receives the stock before, 29. Loan to stockholder larger than
but does not present it for transfer on authorized. People's — Bank v. Ex-
the stock book of the company until change Bank, 116 Ga. 820, 43 S. E. 269,
after, the original holder becomes in- 94 Am. St. Rep. 144.
debted to the corporation. Stafford v. 30, People's Bank v. Exchange
Produce Exch. Banking Co., 61 O. St. Bank, 116 Ga. 820, 43 S. E. 269, 94 Am.
160, 76 Am. St. Rep. 371, 55 N. E. 162. St. Rep. 144.
25. Debts contracted after notice of 31. People's Bank v. Exchange
assignment.— People's Bank v. Ex- Bank, 116 Ga. 820, 43 S. E. 269, 94 Am.
change Bank, 116 Ga. 820, 43 S. E. St. Rep. 144.
136 BANKS AND BA-NKING. § 42 (2dc)
wise than as the assignor directed, or that a credit voluntarily given to him
by the bank to which he was not entitled shall go to the extinguishment
of a debt arising before it received notice that he had assigned his stock,
rather than to the discharge of an indebtedness thereafter contracted by
him.32
§ 42 (2dbe) Certificate for Repayment of Cancelled Stock.—

I'he bank's lien does not apply to a certificate for the repayment of the
amount of certain cancelled stock, after an assignment of such certificate,
although no notice of the transfer had been given.^^
§ 42 (2dc) Pledgees. —A pledgee of bank 'stock as collateral secu-

rity, is chargeable with notice of and takes subject to the bank's lien,^* for
an assessment,^^ for an indebtedness existing when the pledge was made,^®
32. People's Bank v. Exchange Bank, lender, and if the lender chose to hold
116 Ga. 830, 43 S. E. 269, 94 Am. St. the stock, he held subject to the bank's
Rep. 144. lien. Bohmer v. City Bank, 7 Va. 445.
33. Certificate for repayment of can- Lien for levy to make good impair-
celled stock. —A
bank issued a certifi- —
ment of capital stock. Under Ky. St.,
cate for the repayment to a stock- § 586 (Russell's St., § 3175, authorizing
holder of the amount of certain stock the secretary of state to require a
canceled, which certificate was trans- bank whose capital stock is impaired
ferred by the holder for value. After- to make good the impairment by an
wards the bank made a loan to the assessment on the stockholders, and
stockholder, on the supposition that he § 580 (§ 3169), authorizing the direc-
still held the certificate." Held, that tors, on the failure of a stockholder
the bank had no lien on the certificate to pay any installment on the stock
as against the assignee, though no when requested, to sell sufficient stock
notice of the transfer had been given to pay the amount due, or to collect
it. Callanan v. Edwards, 33 N. Y. 483. the amount due by action, or to forfeit
34. Pledgee. —
A bank charter pro- the amount paid and sell or cancel the
vided that "the bank shall have a lien stock, a bank making an assessment
prior to all others upon any stock held to make good an impairment of capital
by a stockholder for any debt of said stock may assert a lien on the stock to
stockholder to said bank." Held, that secure the payment of the assessment,
a party to whom a stockholder pledged and the lien may be enforced against
his stock was affected with notice of a pledgee of the stock receiving it
this provision of the charter. Bohmer without notice of the condition of the
V. City Bank, 77 Va. 445. bank and advancing money under the
The charter of the bank provided belief that he is fully protected by the
that the bank should have a lien prior stock. Corbin Banking Co. v. Mitchell,
to all others on any stock held by a 141 Ky. 172, 132 S. W. 436.
stockholder for any debt of the stock- 35. Directors levying assessment
holder to the bank. The stock certifi-
cates contained no notice of the lien,
where capital stock impaired. Where —
the secretary of state, as authorized
but declared that they were transfer- by Ky. St. § 586 (Russell's St., § 2175),
able only on the books of the bank ordered a bank whose capital stock
on the surrender of the certificate. A was impaired to have the impairment
stockholder indebted to the bank bor- made good by assessment on the
rowed money from a third person, and stockholders, the board of directors
gave him the certificate as collateral, levying an assessment could adopt a
with power to transfer the stock. The by-law giving the bank a lien on
stockholder became bankrupt, and the shares of stock on the non-payment of
lender applied to the bank to trans- the assessment and enforce it against
fer the stock. Held, that the lien of a pledgee of stock; the action of the
the bank on the stock was paramount
to that of the lender, and the bank 36. Corbin Banking Co. v. Mitchell,
had the right to be first satisfied be- 141 Ky. 173, 133 S. W. 426; Curtice v.
fore transferring the stock to the Crawford County Bank, 110 Fed. 830.
§ 42 (2dd) CAPITAL^ STOCK AND DIVIDENDS. 137
or incurred subsequent to the pledge but before the bank had notice of it;^^
but the lien of a pledgee of bank stock as collateral security, acquired be-
fore the stockholder becomes indebted to the bank, will prevail over a
lien given the bank to secure its debt, where the bank before or at the time
its debt was contracted had notice of the pledge, and the burden of proving
notice is upon the pledgee.^*
§ 42 (2dd) Creditors and Purchasers at Execution or Sheriff's

Sale. —
The bank's lien is superior to that of a judgment creditor who has
levied upon the judgment debtor's stock,^^ or to the right of a purchaser
board being reasonable and fair to all the bank, and then pledged her stock
stockholders and all not stockholders, for her husband's debt to another
but in possession of stock. Corbin bank. The latter bank gave the first
Banking Co. v. Mitchell, 141 Ky. 172, bank notice of the pledge. The first
133 S. W. 436. bank claimed a lien on the stock to
37. Stafford v. Produce Exch. Bank- secure the note by virtue of a by-law
ing Co., 16 O. C. C. 50, 8 O. C. D. and an agreement with the stock-
483, affirmed in 61 O. St. 160, 55 N. E. holder. The second bank had no
163, 76 Am. St. Rep. 371; Curtice v. knowledge of either agreement or by-
Crawford County Bank, 56 C. C. A. law. Held, that the first bank could
174, 118 Fed. 390. not assert a prior lien. Just v. State
38. Bank having notice of pledge. — Savings Bank, 133 Mich. 600, 94 N. W.
Curtice v. Crawford County Bank, 110 200.
Fed. 830; Curtice v. Crawford County 39. Judgment, execution and attach-
Bank, 56 C. C. A. 174, 118 Fed. 390; ment liens. —
The lien of a bank on its
People's Bank v. Exchange Bank, 116 stock for a debt of the stockholder,
Va. 820, 43 S. E. 269, 94 Am. St. Rep. under Sand. & H. Dig., § 1342, declar-
144. ing that a corporation shall at all times
It was so held as to a stockholder have a lien on the stock of its mem-
in a bank who pledged his stock as bers for debts due it by them, is not
collateral security to a third person displaced by the lien of an execution
by a written assignment and delivery, levied thereon, though § 1356 declares
notwithstanding a statute requiring that the provisions for enforcement of
transfers to be made on the books of the corporation's lien shall not affect
the bank. Curtice v. Crawford County any other lien or right acquired by vir-
Bank, 110 Fed. 830. tue of a levy of attachment or execu-
A bank charter provided that the tion on the stock, since § 1356 applies
shares of capital stock should be per- only to the enforcement of the lien,
sonal estate, and transferable, but and does not affect its priority. Spring-
that the corporation should hold a lien field Wagon Co. V. Bank, 68 Ark. 234,
on the shares of any stockholder "who 57 S. W. 257.
may be indebted to it," and the stock The by
a bank on its
lien acquired
should not be transferred until such stock, under Sand. &
H. Dig., § 1343,
debt was paid. A
stockholder was in- declaring that a corporation shall at
debted to the bank, but afterwards all times have a lien on the stock of
made note to another creditor, and
a its members for debts due, is superior
pledged the stock as collateral se- to that acquired by a subsequent judg-
curity. The debtor became insolvent, ment creditor by virtue of the levy of
and, to give a third creditor the ad- an execution, and a judgment creditor
vantage of its charter lien, the bank buying bank stock at its execution sale,
gratuitously advised such creditor to with notice' of the bank's claim of a
have the notes held by him discounted lien thereon for an indebtedness
by the bank, knowing of the prior greater than the stock's value, can not
hypothecation of the stock. Held that, compel a transfer thereof. Springfield
as against the notes discounted by the Wagon Co. v. Bank, 68 Ark. 234, 57
bank after the hypothecation of the S. W. 357.
stock, the pledgee had a prior lien on Under Act 1814, art. 11, which pro-
the stock. Bank v. Bonnie, 102 Ky. vides that no stockholder indebted to
343, 19 Ky. L. Rep. 1372, 43 S. W. 407. the bank shall make a transfer or re-
A bank stockholder gave her note to ceive a dividend until such debt is dis-
138 BANKS AND BANKING. § 42 (2de)
at an execution or sheriff's sale.*"
§ 42 (2de) Right to Refuse Transfer.—At Common Law.—At

common law a banking corporation has no lien on its stock to secure indebt-
edness of a stockholder to the company, and could not refuse to transfer
stock owned by its debtor to a purchaser from him.*i
Where Lien Exists. —A bank which has under a statute or by reason
of its charter or legally enacted by-law, a lien upon the stock of a share-
holder to secure an indebtedness from him to it, may refuse a transfer of
his stock to an assignee,*^ or to a pledgee of the stock as collateral se-
curity,*^ until it has been paid.
Prohibition of Transfer by Statute. —A transfer of bank stock on
charged, or security to the satisfaction the common-law rule obtains, by

of the directors given for the same, a which a corporation has no lien on
bank has, as against a judgment credits stock, and the bank could not re-
itor who has levied upon stock, a lien fuse to transfer stock owned by its
for a note made by the stockholder debtor to a purchaser from him. Union
before the levy, but maturing after- Bank v. United States Exch. Bank,
wards. Sewall V. Lancaster Bank 143 App. Div. 128, 127 N. Y. S. 661.
(Pa.), 17 Serg. & R. 285. 42. Where lien exists. Tete v. —
—
Reservation by law. Whether a by- Farmers', etc., Bank
(Pa.), 4 Brewst.
law of a bank, declaring the stock of 308; Bohmer v. City Bank, 77 Va. 445.
each stockholder to be pledged for A bank may refuse to transfer stock
any sum which he shall owe to the of one indebted to it until his debt is
bank, can, under any circumstances, paid. Downer v. Zanesville Bank
create a lien on the shares against (O.), Wright 477.
creditors of the stockholder quaere. — 43. —
Pledgee. Bank v. Pin son, 58
Nesmith v. Washington Bank (Mass.), Miss. 421, 38 Am. Rep. 330.
6 Pick. 324. See Sargent v. Franklin Where no demand has been made
Ins. Co. (Mass.), 8 Pick. 90, 19 Am. on a bank for a transfer of stock till
Dec. 306; Plymouth Bank v. Bank the stockholder's indebtedness to the
(Mass.), 10 Pick. 454. bank has matured, the bank may re-
40. A purchaser under execution at fuse to transfer on its books the cer-
a sheriff's sale, of stock or shares of tificate of stock, which had thereto-
a corporator of a bank with notice of forebeen pledged to a third person,
a lien of the bank upon such stock, and for the stockholder's unpaid in-
under a by-law of the bank, for the debtedness may claim a superior lien,
indebtedness of such corporator to the under 3 How. Ann. St., § 3208a8, which
bank (the lien created by such indebt- provides, among other things, that
edness under the by-law, being prior "no transfer of stock shall be valid
in point of time, to the lien acquired against a bank so long as the regis-
under the judgment), purchased only tered holder thereof shall be liable as
such title as was in the corporator, to the bank for any debt due and un-
and no other; and therefore was not paid. Michigan Trust Co. v. Michi-
entitled to a transfer of the stock so gan, 111 Mich. 306, 69 N. W. 645.
purchased, under the Act of 1822, The charter of a bank provided that
without first discharging the lien the shares of stock should be trans-
created by the corporator's indebted- ferable only on the books, but that
ness under the by-law. Tuttle v. Wal- all debts due and payable to the bank
ton, 1 Ga. 43. by the stockholder would first have to
41. Right to refuse transfer at com- be paid, unless the president and di-
mon —
law. Stock Corporation Law rectors should otherwise direct. Held,
(Consol. Laws, c. 59), § 51, permits a that one taking an assignment of
corporation to refuse to transfer stock stock as collateral security did so sub-
on its books until the stockholder's ject to an indebtedness due the bank
debt to the company is paid, provided by the stockholder, which would have
the certificate shows on its face that to be liquidated before the bank could
the company has that right. Held be compelled to transfer the stock.
that, where a certificate of bank stock Union Bank v. Laird (U. S.), 2 Wheat.
did not contain the required statement, 390, 4 L. Ed. 269.
§ 42 (2de) CAPITAL^ STOCK AND DIVIDENDS. 139
the bank's books where the shareholder is indebted to the bank, may be
prohibited by a general statute which may make exceptions to such pro-
hibition.**
Charter Prohibition. —The charter may contain the prohibition re-
specting the transfer of the stock of a shareholder who is indebted to the
bank,* 5 or it may authorize the bank to adopt by-laws in respect thereto,
etc., but any by-law inconsistent with the charter or general statute is
void.*«
Unpaid Calls on Stock. —A general statute or the charter of the bank
may prohibit the transfer of an interest in bank stock before payment of
the first installment,*^ or until the whole amount has been paid.** Where
stock has been paid for so far as calls have been made, the bank can not
refuse a transfer.*^
44. Prohibition by statute. — Sess. upon the shares to secure the payment
Laws 1897, p. 118, c. 47. § 53, forbid a of debts due from the share owner to
transfer of shares of stock on books the bank. Bank v. Manufacturers', etc..
of a bank without consent of the board Bank, 20 N. Y. 501.
of directors, when the registered 47. Payment of installment. —Under
holder is indebted to the bank on un- Rev. St. 1838, pp. 107, 108, subjecting
paid obligations, and a transfer under subscribers in the state bank to a for-
such circumstances may be refused by feiture of all rights acquired by the
the bank, though the party demanding subscription on failure to pay the first
the transfer acquired the shares from installment due for stock, no right in
the registered holder at a time when the stock can be transferred before
he was not indebted to the bank. payment of the installment. Coleman
Faulkner v. Bank, 77 Kan. 385, 94 Pac. V. Spencer (Ind.), 5 Blackf. 197.
153. Where, under the statute, no interest
—
Persons benefited. The Act of April in bank stocks could be transferred
16, 1850, which prohibits the transfer when the first installment had not
of bank stock or the receipt of divi- been paid, and the statute provided
dends thereon by any stockholder that no transfer could be made except
who may at the time be indebted to on the books, an assignee of the stock
the bank, though intended mainly for took no interest therein, where the
the security of the bank, operates also transfer was not made on the books,
incidentally in favor of the indorsers though he had himself paid the first
of such debtors. Klopp v. Lebanon installment. Coleman v. Spencer
Bank, 46 Pa. 88. (Ind.), 5 Blackf. 197.
45. Charter provision. Leggett v. — 48. Where the charter
provides that no part of her capital
of a bank
Bank, 24 N. Y. 283, affirming 25 Barb.
336. stock shall be sold or transferred, ex-
46. Corydon Deposit Bank v. Mc- cept in certain cases, until the whole
Clure, 141' Ky. 481, 133 S. W. 201; Mo- amount has been paid in, a contract
hawk Nat. Bank v. Schenectady Bank, for the transfer of shares, not falling
78 Hun 90, 28 N. Y. S. 1100, 60 N. Y. within the exceptions made, and to be
St. Rep. 510, affirmed in 151 N. Y. 665, carried into execution when but fifty
46 N. E. 1149. per cent is paid in, is illegal and void.
A stockholder borrowing money Merrill v. Call, 15 Me. 428.
from his bank is charged with notice 49. —
All calls paid. In a by-law of
of a by-law prohibiting transfers of a bank, "No transfer of stock shall be
stock by debtors to the bank. Tete v. allowed or valid so long as the holder
Farmers', etc.. Bank (Pa.), 4 Brewst. is in arrears to the bank, or in any
308. form indebted to it," the word "ar-
The general banking law provides rears" refers to unpaid calls, and the
that holders of bank shares may trans- words "in any form indebted," to in-
fer them unconditionally, unless other- debtedness outside of the stock sub-
wise agreed by the articles of associ- scription; and the bank can not refuse
ation. Held, that the bank directors to make a transfer to a transferee
could not by a by-law create a lien from a stockholder on the ground that
Part of Stock Sufficient to Satisfy Debt. —The bank may refuse to

transfer part of the stock though the remainder is more than sufficient to
satisfy the debt of the shareholder. ô

When Right Becomes Absolute. —The right of a bank to prevent a
transfer of stock by one indebted to it becomes absolute as soon as any
debt becomes due and payable, and the legal title to the stock remains in
the bank for its own security until payment, and for the benefit of the
sureties of a debtor, if there are any, afterwards. ^^
§ 42 (3) Discharge, Estoppel, Forfeiture, Release or Waiver

— § 42 (3a) Waiver or Discharge— § 42^ (3aa) Authority.—A
bank's lien on its stock may be waived by the bank or a duly-authorized
officer, such as the cashier,^^ where he is not prohibited by law,^^ or by
only certain percentage of the stock in other matters of ordinary business,

has been paid in, where it has been within the general scope of his official
paid for so far as calls have been made. duty, he is their appropriate repre-
Kahn Bank, 70 Mo. 262.
v. sentative.'' Cecil Nat. Bank v. Wat-
Part of stock sufficient to satisfy
50. sontown Bank, 105 U. S. 217, 26 L. Ed.
—
debt. Under a bank charter providing 1039, citing Case v. Citizens' Bank, 100
that all debts due the bank by a stock- U. S. 446, 25 L. Ed. 695.
holder must be paid before a transfer ^Bank stock which had been pledged
shall be made on the books, the bank as collateral by owner, with A. with
may refuse to transfer a part of the power of sale on default in debt se-
stock, though what remains is more cured, was. sent by A. to the cashier of
than sufficient to satisfy the debt of the' bank with instructions to sell and
the stockholder. Pierson v. Bank, Fed. power of attorney to transfer same.
Cas. No. 11,155, 3 Cranch, C. C. 363. The cashier received the certificate,
51. When right becomes absolute. — telling A. there was no need to for-
Klopp V. Lebanon Bank, 46 Pa. 88. ward him a new one as he intended
when a maker of a note which was to sell, to which A. assented, and made
held by the bank assigned his stock the proper entries in the stock book
in the bank on the last day of grace showing the transfer to A. When the
upon his note, and on the following cashier of the bank received from A.
day the assignment was presented to the certificate, with the authority for
the bank, that a transfer of the stock its transfer to him duly executed by
might be made upon its books, it was owner and, in pursuance of the request
held that the bank had a right to refuse to make the transfer, charged it in the
to transfer, the note being unpaid. account against the former owner, and
Klopp V. Lebanon Bank, 46 Pa. 88. gave to A. the corresponding credit,
52. Waiver. —A
complete transfer the latter became a stockholder in the
of the title to the stock upon the books bank, invested with the legal title to
of the bank, it is not doubted, would the stock, and with all the rights, pow-
have the effect to vest it in the trans- ers, and privileges belonging to that
feree, free from any claim or lien of character. Nothing more remained to
the bank. The consent of the bank, be done to make the conveyance of ti-
made necessary to such transfer, is the tle complete and absolute, and, so far
waiver of its right, as its refusal would as the bank was concerned, it was ir-
be the assertion of it. Cecil Mat. revocable. It had consented to the
Bank v. Watsontown Bank, 105 U. S. transfer, and the transfer had been
317, 26 L. Ed. 1039. made. Cecil Nat. Bank v. Watson-
"The clause which denies to the town Bank, 105 U. S. 217, 26 L. Ed.
stockholder the privilege of making 1039.
a transfer of his stock, while a debtor, On
the supposition that not the legal
until his debt is discharged or secured but only an equity, based on an
title,
to the satisfaction of the directors, does executory contract for a transfer,
not forbid the bank to waive its
rights, or prevent cashier from acting 53. Oakland County Sav. Bank v.
for the directors, by virtue of an ex- State Bank, 113 Mich. 284, 71 N. W.
press or implied authority. In thi?, as 453, 67 Am. St. Rep. 463.
§ 42 (3ab) CAPITAL, STOCK AND DIVIDENDS. 141
the directors.5*
§ 42 (Sab) What Constitutes. —The terms of the certificate re-

specting a transfer may operate a waiver of the bank's lien.^^
Transferring the stock on its books is a waiver of the bank's lien.5«
A
bank's effecting a sale of the stock for a pledgee, who took the
same as collateral security, is a waiver of its lien on such stock. s'^
Taking Collateral or Additional Security. Taking collateral secu- —
rity for the debts of a stockholder discharges or releases the bank's lien in
some jurisdictions.58 In others it does not.^® But it is not waived where
passed to A., by virtue of the transac- Md. Am. Dec. 536.

271, 74
tion with the cashier of the bank, his 56. Transferring the stock on the
right to the relief prayed for is not —
books. A bank may waive the lien it
less clear. Aside from the recognition has under its charter on stock for pay-
of the title, as complete, by accepting ment of debts due it by the stock-
and acting upon the power of attorney holder by transferring the stock on its
to sell and transfer it as his stock, and books. National Bank v. Watsontown
the sale was made to purchasers under Bank, 105 U. S. 217, 26 L. Ed. 1039.
it, whose title is not denied, and yet Where A., owning shares in a bank,
can not be better than that of their transfers them to B., and the bank is-
vendor, which is disputed, the subse- sues a new certificate to B., the terms
quent conduct of the bank raises an of the certificate making the shares
equity against it, which is superior to "transferable after the holder pays all
its legal right to insist upon a lien on his liabilities to said bank," this is a
account of this debt. Cecil Nat. Bank waiver of the lien of the bank upon
z'. Watsontown Bank, 105 U. S. 217, 26 such shares, for payments due from A.
L. Ed. 1039. Hill V. Pine River Bank, 45 N. H. 300.
—A
54. Directors. lien having in view By the provisions of the "act to in-
the safety of the bank and the public, corporate the State Bank of Ohio and
is not to be relinquished unless by the other banking companies" (43 O. L.
special action of the directors' dispens- 24), a bank holds a lien on the shares
ing with it, or receiving other satis- of its stockholder for the amount of
factory security, collateral to the ob- its indebtedness to it, which can not
ligation evidencing the debt. Downer be defeated by a transfer made with-
v. Zanesville Bank (O.), Wright 477; out the consent of a majority of the
Conant, etc., Co. v. Reed, 1 O. St. 298; directors, nor will such consent au-
Franklin Bank i'. Commercial Bank, 5 thorize a transfer if the debt is over-
O. Dec. 339. due and unpaid. Conant, etc., Co. v.
The waiver of the bank's lien can be Reed, 1 O. St. 298.
made only by a majority of the direct- 57.Bank's effecting sale for pledgee-
ors. Franklin Bank v. Commercial — Where a bank, on being informed of
Bank, 5 O. Dec. 339. a transfer of stock by a stockholder,
55. Term of certificate a waiver. — as collateral to secure a debt, makes no
The charter of a bank provided that claim to a lien thereon for a debt due
its shares of stock "shall be transfer- it by the stockholder, but offers to
able on the books of the corporation negotiate a sale of the stock for the
only according to such rules as shall transferee, and does effect a sale of
be established by the president and part thereof, it is estopped to set up its
directors, but all debts actually due lien as against the transferee. Na-
and payable to the corporation by a tional Bank v. Watsontown Bank, 105
stockholder requesting a transfer must U. S. 217, 26 L. Ed. 1039.
be satisfied before such transfer shall 58. Bank's taking collateral security.
be made, unless the president and di- — Collateral security given by a debtor
rectors shall direct to the contrary. of a bank, who
is also a stockholder,
Held, that this lien on the stock is not discharges the charter lien of the bank
waived by the form of a certificate for on the stock. McLean v. Lafayette
stock declaring that the stockholder Bank, Fed. Cas. No. 8,888, 3 McLean
"is entitled" to shares of stock, 587.
"transferable only at said bank, per- 59. When the charter of a bank pro-
sonally or by attorney, on surrender vides that no stockholder indebted to
of this certificate." Reese v. Bank, 14 the bank shall transfer his stock until
the bank, holding a note accepted by one of its stockholders, takes addi-
tional security for the acceptance ' from the indorser thereon, as it has a
perfect right to do.®"
Application of Money Raised on Stock to Bank's Debt. The fact —
that a pledgor of bank stock applied the money he raised by the pledge on
his debts to the bank does not discharge the bank's lien on such stock in
the hands of the pledgee. ^^
—
Option to Bank to Purchase. A by-law providing that shareholders
desiring to sell shall give the bank an option to purchase is not a waiver of
the bank's lien.^^
Tender of Amount Admitted to Be Due. —Under a bank charter re-
quiring all debts due the bank by a stockholder to be paid before a transfer
of the stock on the books can be allowed, where the bank demands more
than is due the stockholder must tender at least what he admits to be due,
in order to be entitled to a transfer.*^
Stockholder Having Deposit Sufficient to Pay the Debt. Under —
an act providing that no stockholder indebted to the bank shall be author-
ized to transfer his stock until the debt be discharged or security given
therefor, the fact that the stockholder has a deposit sufficient to pay the
debt does not release the bank's lien on the stock.®*
Release for a Specified Time. —A bank may release its lien for a
specified time.®^
§ 42 (3b) Estoppel, —Although the bank cashier has no power to
the debt is paid, or collateral security tent of any debt due from such hold-
given, to the satisfaction of the board ers (3 How. Ann. St., § 3208a8) is not
of directors, the mere fact that there waived by the by-law of a bank which
is security for a debt due from a stock- provides that holders of stock desir-
holder does not release the bank's lien. ing to sell shall give the bank an op-
Downer v. Zanesville Bank (O.), tion to purchase; that if it fails to do
Wright 477. so "at the expiration of ten days' time,
the stockholders may sell at pleasure."
60. Union Bank v. Laird (U. S.), 2
Citizens' State Bank v. Kalamazoo
Wheat. 390, 4 L. Ed. 269. See, also.
Mechanics' Bank v. Seton (U. S.), 1
County Bank, 111 Mich. 313, 69 N. W.
663.
Pet. 299, 7 L. Ed. 152.
63. Tender of amount admitted to
61. Application of money raised on
—
stock to bank's debt. A bank organ-
—
be due. Pierson v. Bank, Fed. Cas.
No. 11,15,5, 3 Cranch. C. C. 363.
ized under 49 Laws, p. 41 (1 Swan & 64. Stockholder having deposit suf-
C. St. p. 168), retains its lien, under
section 11, on shares of stock to secure
ficient to pay the debt. Mechanics —
Bank v. (Pa.), 4 Rawle 384.
Earp
debts due from a stockholder to the
bank, though the stock was pledged to
65. Release for a specified time. —
Where a bank releases for a specified
secure a loan to the stockholder, who time its right to its charter lien on
applied the amount of the loan on his stock for debts due it from the stock-
debts to the bank, where the bank had holder, and within that time the stock
nothing to do with the pledging of the is pledged for a debt, the right of the
stock, and had no knowledge thereof. bank, after the expiration of the time
Franklin Bank v. Commercial Bank, 5 to acquire its charter lien, is subordi-
O. Dec. 339. nate to the right of the pledgee until
62. Option to bank to purchase. — the debt is paid, or the pledge is re-
The lienin favor of a bank on the leased. Bank v. McNeil (Ky.), 10
stock of registered holders to the ex- Bush 54.
§ 42 (4a) CAPITAI,, STOCK AND DIVIDENDS. 143
waive expressly the bank's lien on the stock of a shareholder indebted to

the bank, he may, by his declarations that a shareholder is not indebted,
in reply to an inquiry from a prospective purchaser, estop the bank from
subsequently asserting the facts to be otherwise.®®
§ 42 (3c) Forfeiture. —
The fact that a bank has loaned a stock-
holder a sum in excess of that which it was authorized to permit him to
borrow does not operate a forfeiture of a statutory lien on his stock for
any indebtedness by him to the bank.*''
§ 42 (4) Enforcement and Settlement— § 42 (4a) Manner.—

In some jurisdictions the bank's lien may be enforced by sale of the stock
by the bank,®^ while in others the bank has no power to make a sale of the
stock but may forbid a sale by the shareholder.® ^ It may also be enforced
by refusal to transfer.'^" Where a bank holding stock of a deceased stock-
holder for his indebtedness to the bank refuses to sell the stock, the court,
in a suit by an administrator of the stockholder, will order the stock to be
sold, and the proceeds applied to the satisfaction of the debt.'''^
66. —
Estoppel. Oakland County Sav. ter, a lien of the highest dignity upon
Bank State Bank, 113 Mich. 284, 71
v. the stock of a stockholder to an
N. W. 453, 67 Am. St. Rep. 463. amount not exceeding ten per cent of
Where the transferee of bank stock the capital stock of the bank actually
without knowledge of any indebted- paid in, notwithstanding it may have
ness against such stock writes the violated the terms of its charter by
bank in relation thereto, the response loaning to such stockholder a sum
of the cashier that there was none will largely in excess of that which it was
estop the bank from subsequently as- thereby authorized to permit him to
serting the facts to be otherwise, borrow. People's Bank v. Exchange
though under 3 How. Ann. St. § 3208a8, Bank, 116 Ga. 820, 43 S. E. 269, 94 Am.
stock, where the owner is indebted, St. Rep. 144.
can be transferred only with the con-
sent of the directors. Oakland County
68. Sale. —
Owens v. Atlanta Trust,
etc., Co., 119 Ga. 924, 47 S. W. 215.
Sav. Bank v. State Bank, 113 Mich. 284, The incorporating act of a bank de-
71 N. W. 453, 67 Am. St. Rep. 463. clared that all debts due to a bank by
67. —
Forfeiture. Citing Gold-Mining its stockholders should be discharged
Co. V. National Bank, 96 U. S. 640, 24 before a transfer of stock could be
L. Ed. 648; National Bank v. Mat- made. Held, that the act gave to the
thews, 98 U. S. 621, 25 L. Ed. 188; bank a mortgage or pledge of the
O'Hare v. Second Nat. Bank, 77 Pa. 96; stock, which it could enforce by a sale,
Corcoran v. Batchelder, 147 Mass. 541; as the act did not prohibit such a trans-
Smith V. National Bank, 45 Neb. 444; fer by the bank. In re Farmers' Bank
Ferguson v. Oxford Mercantile Co., (Md.), 2 Bland 394.
78 Miss. 65, 27 So. 877. 69. That a bank has a lien upon the
A
bank, the charter of which pro- shares of a stockholder for an indebt-
vides that the total liability to it of edness due from him to the bank does
any person "for borrowed money * * * not entitle them to make a sale of the
shall at no time exceed one-tenth part stock for payment of the debt. Tete
of the capital stock of said bank paid V. Farmers', etc., Bank (Pa.), 4 Brewst.
in," and also that the stock of any
308.
stockholder in such bank "shall be
held bound to the bank for any dues 70. Refusal to transfer. Owens v. —
other indebtedness by said stock- Atlanta Trust, etc., Co., 119 Ga. 924,
or
holder to the bank," and it shall have 47 S. W. 215.
a lien "upon the same superior to all 71. In re Farmers' Bank (Md.), 3
other liens," has, by virtue of its char- Bland 394.
144 BANKS AND BANKING. § 42 (4g)
§ —
42 (4b) Form of Action. ^The bank may enforce its lien on the
stock of a shareholder who is indebted to it by an action to forecloseJ^
§ 42 (4c) Jurisdiction. —A bank's lien on stock may be enforced by

a bill in equity for an accounting/ ^ or in a suit by a purchaser to compel
a transfer.''*
§ 42 (4d) Process. —A bank's lien can not be foreclosed without mak-

ing the indebted shareholder a party by proper process.''^
§ 42 (4e) Limitations. —A bank's lien continues, though all other

remedies for the debt be barred by the statute of limitations.'^®
§ 42 (4f) Pleading. —A bill to enforce a Hen on bank stock for debts

of a stockholder should particularly describe the debt or liability secured
by the lien, and should aver that it was necessary, for the payment of such
debt or satisfaction of such liability, to sell the shares of stock on which
the complainant held the lien, and also a personal demand of payment or
satisfaction before foreclosure proceedings, where these are the facts
which the statute requires to exist before there can be a foreclosure.'^'^
§ 42 (4g) Redemption. —
In an action by a bank to enforce its lien
against the stock of a shareholder for the payment of his debt, the court is
under no obligation, when decreeing a sale thereof, to appoint a day within
which the defendant may redeem.^*
72. Form of action. — See post, "Ju- of a debt due to the bank, such lien
can not be foreclosed by judicial pro-
risdiction," § 42 (4c).
73. S.ec Reese v. Bank, 14 Md. "371, ceedings, unless the debtor is duly
74 Am. bee. 536. served. Owens v. Atlanta Trust, etc.,
A bill for accounting, brought by a Co., 119 Ga. 924, 47 S. E. 215.
bank against the administrator of its Where the stock of defendant in
deceased cashier, contains equity in so plaintiff bank was attached by it for a
far as it seeks, as incidental thereto, debt, and the defendant was not per-
to declare and enforce a lien against sonally served, the only lien fore-
the stock of respondent's intestate un- closed was that created by the attach-
der Code 1907, § 3476, conferring the ment, which was inferior to a title as-
lien without designating or naming serted by one who had purchased the
any court or tribunal in which it shall stock from the debtor, and the lien of
be enforced, but providing for fore- the bank on the stock given by its
closure without suit or action. Wynn charter was not affected by the pro-
V. Tallapoosa County Bank, 168 Ala. ceeding. Owens V. Atlanta Trust, etc.,
469, 53 So. 328. Co., 119 Ga. 924, 47 S. E. 215.
74. In a suit by the purchaser of 76. Limitation. — First Nat. Bank v.
bank stock to compel the transfer of Merchants' Nat. Bank, 5 O. Dec. 150,
the stock on the books of the bank, 7 N. P. 381.
the court has jurisdiction to award Although the legal remedy is barred,
foreclosure of the lien claimed by the the debt remains as an unextinguished
bank for a debt of the registered right, the bank, when called into a
holder which is due and unpaid, though court of equity, may hold to any equi-
such holder is not a party to the suit; table lien, or other means in their
no personal decree being sought. Cit- hands, till it is discharged. Brent v.
izens' State Bank v. Kalamazoo County Bank (U. S.), 10 Pet. 596, 9 L. Ed. 547.
Bank, 111 Mich. 313, 69 N. W. 663. 77. Pleading. —Wynn v. Tallapoosa
75. Where a bank has a lien on the County Bank, 168 Ala. 469, 53 So. 228.
stock of a nonresident in the bank, un- 78. Redemption. Reese— v. Bank, 14
.der its charter and by-laws, because Md. 271, 74 Am. Dec. 536.
§ A2y2 CAPITAL, STOCK AND DIVIDENDS. 145
§ 42^. Voting Power of Stock. —When the directors and legally con-
stituted agents of a banking corporation have, for many years, acquiesced
in a subscription to stock, made by a person in the names of his chil-
dren or others, who have exercised acts of ownership over the stock, and
voted upon it, without objection, as their own, the corporation will not
afterwards be allowed to treat the subscription as if it were a fraudulent
use, by the original subscriber, of mere names, to secure a greater number
of votes than he would be entitled to, under the by-laws, if the stock had
stood in his own nameJ® If one purchase of the bank a large amount of
stock to multiply his votes for a board of directors, vote upon such stock,
and immediately after the board direct that the purchase money of the
stock be returned, and the stock again taken by the bank, equity will not
compel the purchaser to refund the money and take back the stock, where
the proofs show no actual loss attendant upon the transaction.**'
A pledgee of bank stock who receives it as collateral security is not
such a stockholder as to be entitled to vote.*'-
79. Voting power of stock. Creed — 81. Pledgee. — McConville v. Means,

V. Lancaster Bank, 1 O. St. 1. 10 O. Dec. 452, 21 Wkly. L. Bull. 193.
80. Taylor v. Miami Exporting Co.,
6 O. 176.
1 B & B—10
CHAPTER IV.
C. StockhoivOErs.
43J4. Persons Who May Be Stockholders.

§ 43. Rights and Liabilities as to Bank.
§ 43 (1) Right to Inspect Books.
§ 43 (2) Ownership of Capital Stock.
§ 43 (2a) General Rule.
§ 43 (2b) Trust Fund for Benefit of Ci»editors.
§ 43 (2ba) In General.
§ 43 (2bb) Priority of Bank Bills.
§ 43 (2bc) Following Capital Stock as Trust Fund after Dis-
tribution.
§ 43 (2c) to Enable Bank to Resume Business.
Payment
§ 43 (3) Power Bind Corporation.
to
§ 43 (4) Dealings with Bank.
§ 43 (4a) As Principal or Surety on Note.
§ 43 (4b) Sale of Stock to Bank.
§ ayi. Shareholders' Meetings.

§ 45. Suing or Defending on Behalf of Bank.
§ 45 (1) Failure or Refusal of Bank to Sue.
§ 45 (2) Enjoining Illegal Acts and Practices.
§ 45 (3) Recovery for Fraudulent or Illegal Acts or Practices.
§ 45 (4) Quo Warranto and Proceedings in Nature Thereof.
§ 45 (4a) Testing Legality of Incorporation.
§ 45 (4b) Testing Validity of Election of Officers.
§ 46. Liability for Debts and Acts of Bank.
§ 47. Nature and Extent.
I 47 (1) In General.
§ 47 (lyi) Stockholders' Agreements.
§ 47 (2) Charter and Statutory Provisions.
§ 47 (2a) Special Charter Provisions.
§ 47 (2b) Constitutional and Statutory Provisions.
§ 47 (2ba) Constitutionality Generally.
§ 47 (2bb) Applicability and Rules of Construction.
§ 47 (2bc) Retroactive Effect.
(2bd) Exterritorial Operation.
§ 47
(2be) Repeal.
§ 47
§ 47 (3) Contractual.
§ 47 (4) Primary and Secondary Liability.
§ 47 (5) Joint or Several.
§ 47 (6) As Principal or Surety.
§ 47 (7) Banks to Which Applicable.
§ 47 (7a) What Constitutes a Bank.
§ 47 (7b) Specially Chartered Banks.
§ 47 (7bb) Change of Name under General Law.
§ 47 (7c) Banks of Issue Vel Non.
STOCKHOLDERS. 147
§ 47 (7d) Pre-Existing and Future Banks.

§ 47 (7e) Illegally or Irregularly Organized Banks.
§ 47 (7f) Reorganized Banks.
§ 47 (7g) State Banks.
§ 47 (7h) National Banks.
§ 47 (8) Stockholders Who Are Liable.
§ 47 (8a) Stockholders Defined.
§ 47 (8b) Subscribers and Stockholders of Record,
§ 47 (8ba) General Rule.
§ 47 (8bb) Requisites and Sufficiency of Subscription or Ac-
quisition of Shares.
§ 47 (8c) Agent or Broker.
§ 47 (8d) Pledgee.
§ 47 (8e) Representatives and Trustees.
§ 47 (8f) Beneficiaries of Stock Held in Trust.
§ 47 (8g) State.
§ 47 (8h) Corporations and Other Banks.
§ 47 (9) Creditors and Indebtedness Secured
§ 47 (9a) Retroactive Effect of Statutes.
§ 47 (9b) Creditors Entitled to Enforce.
§ 47 (9ba) General Creditors.
§ 47 (9bb) Bill Holder.
§ 47 (9bc) Indorsers.
§ 47 (9c) Indebtedness Secured.
§ 47 (9ca) When Payable.
§ 47 (9cb) Debts Due or Owing from Stockholder.
§ 47 (9cc) Debts Incurred Prior to Purchase of Stock.
§ 47 (9cd) Debts Contracted after Death of Stockholder.
§ 47 (9ce) Ultra Vires Undertakings.
§ 47 (9cea) In General.
§ 47 (9ceb) Establishment of Branch Bank.
§ 47 (9cec) Agreements for Liquidation.
§ 47 (9cf) Particular Obligations.
§ 47 (9cfa) Bank Bills or Notes.
§ 47 (9cfb) Deposits.
§ 47 (9cfc) Judgments against Bank.
§ 47 (9cfd) Fees and Costs of Creditor's Suit.
§ 47 (9cfe) Costs of Receivership.
§ 47 (9cff) Loss Occasioned by Receiver.
§ 47 (9cfg) Agreements for Liquidation of Bank.
§ 47 (10) When Liability Arises and Conditions Precedent.
§ 47 (10a) When Liability Arises.
§ 47 (lOaa) In General.
§ 47 (lOab) Bank Bills and Notes.
§ 47 (lOac) Public Funds.
§ 47 (10b) Demand of Payment and Protest.
§ 47 (10c) Proceedings against Bank and Receivership.
§ 47 (lOca) Necessity and Sufficiency Generally.
§ 47 (lOcb) Filing Claim with Rec( i-'er.
§ 47 (lOcc) Judicial Determination of Insolvency.

§ 47 (lOcd) Judicial Ascertainment of Indebtedness and Ex-
haustion of Assets.
§ 47 (lOcdal In General.
lf4-8 BANKS AND BANKING.
47 (iOcdb) Exhaustion of Assets.

§
(lOcdc) In New York.
§ 47
§ 47 (lOce) Judgment against Bank, Execution and Return.
§ 47 (lOd) Dissolution of Corporation.
§ 47 (lOe) Exhaustion of Other Remedies.
§ 47 (lOf) Order of Court Directing Receiver to Enforce.
§ 47 (11) Facts Relieving from Liability or Defenses.
§ 47. (11a). Illegality or Irregularities in Organization.
(llaa) In General.
§ 47
(llab) Denial of Corporate Existence.
§ 47
§ 47 (lib) Invalidity and Irregularity in Issue of Stock.
§ 47 (lie) Irregularities in Methods of business.
§ 47 (lid) Insolvency of Other Stockholders.
§ 47 (lie) Payment, Satisfaction and Discharge.
§ 47 (Ilea) Payment by Stockholder and Agreements in Re-
spect Thereto.
§ 47 (ileaa) Payment to Other Creditors.
§ 47 Payment before Suit.
(lleaaa)
§ 47 (lleaab) Payment after Suit Commenced.
§ 47 (lleaac) Payment in Other Suits.
8 47 (lleab) Redemption of Bank's Bills and Notes by
Stockholder.
§ 47 (lleac) Providing Funds to Cover
Agreements
Bank's Liabilities.
§ 47 (Head) Dividends Paid from Bank's Assets.
§ 47 (lleb) Prior Recovery or Payment of Judgment.
§ 47 (llec) Confession of Judgment in Favor of Another
Creditor.
§ 47 (Hed) Subsequent Proceedings by Another to Enforce
Same Liability.
§ 47 (llee) Former Judgment against the Bank.
§ 47 (llf) Bill Holders Entitled to Priority as to Suing Creditors.
§ 47 (llg) Release by Bank.
§ 47 General.
(llga) In
(llgb) Resolution of Board of Directors.
§ 47
§ 47 (llh) Assignment of Sufficient Assets for Payment.
§ 47 (Hi) Reorganization of Bank.
§ 47 (llj.) Dissolution, Expiration and Forfeiture of Charter.
§ 47 (Ilk) Discharge in Bankruptcy.

§ 47 (111) Possession of Unreported Assets by Receiver.
§ 47 (11m) Waiver and Estoppel.
§ 47 (12) Measure or Amount of Liability.
§ 47 (12b) Ratable Shares.
§ 47 (12c) Contingencies Which Enlarge Liability.
§ 47 (12d) Facts and Contingencies Reducing Liability.
§ 47 (12da) Payment of Premium for Stock.
§ 47 (12db) Reduction of Capital Stock.
§ 47 (12dc) Application of Collateral Security.
§ 47 (12e) Interest.
§ 48. Efifect of Transfer of Stock.
§ 48 (1) Liability of Original Holder.
, § 48 (la) In General.
STOCKHOLDERS. 149
§ 48 (lb) Requisites and Sufficiency of Transfer.

§ 48 (Iba) Persons Making Transfer.
(Ibaa) Subscribers.
§ 48
§ 48 (Ibab) Pledgees.
§ 48 (Ibb) Persons to Whom
Transfer Made.
§ 48 (Ibc) Time of Transfer.
§ 48 (Ibd) Consideration.
§ 48 (Ibe) Bona Fides of Transferee and Solvency of Bank.
§ 48 (Ibea) In General.
§ 48 (Ibeb) Intent to Avoid Liability.
§ 48 (Ibec) Colorable Transfers.
§ 48 (Ibed) Gifts.
§ 48 (Ibee) Transfer of Pledged or Hypothecated Stock.
§ 48 (Ibf) Entry on Stock Book.
§ 48 (Ibg) Publication of Notice of Transfer.
§ 48 (Ibh) Record in Clerk's Office.
§ 48 (Ic) Nature and Extent of Liability.
§ 48 (lea) In General.
§ 48 (Icb) Existing and Subsequent Creditors
§ 48 (3) Transferee's Liability.
§• 48 (2a) In General.
§ 48 (ab) Requisites and Sufficiency of Transfer.
§ 48 (3ba) Consent of Transferee.
§ of. Bank at Time of Transfer.
48 (2bb) Solvency
§ 48 (2bc) Entry on Bank's Books.
§ 48 (2bd) Pledgee.
§ 48 (2be) Trustees and Representatives.
§ 48 (2c) Nature, Duration and Extent.
§ 48 (2ca) Duration.
§ 48 (2cb) Liability for Antecedent and Subsequent Debts.
§ 48 (2cc) Dividends Fraudulently Received by Transferer.
§ 48 (2cd) Indemnifying Transferer.
§ 48>^. Assessment by State Official to Make Good Impairment of Capital
Stock.
§ 49. Actions and Proceedings to Enforce.
§ 49 (1) Nature and Forms.
§ 49 (la) Legislative Regulations.
§ 49 (laa) In General.
§ 49 (lab) Retroactive Effect of Statutes.
§ 49 (lb) Statutory Remedy Exclusive.
§ 49 (Iba) In General.
§ 49 (Ibb) Ancillary Suit in Other Jurisdiction.
§ 49 (Ic) Forms
of Action.
§ 49 (lea) Creditor's Suit and Receivership.
§ 49 (Icb) Action at Law by Creditor.
§ 49 (Icba) Right to Sue.
§ 49 (Icbb) Enjoining Creditors from Prosecuting Suit.
§ 49 (Ice) Action at Law by Receiver of Bank.
§ 49 (led) Action by Attorney General to Dissolve Bank.
§ 49 (Icda) Right to Enforce Stockholder's Liability.
§ 49 (Icdb) Intervention by Creditors.
§ 49 (Ice) Superintendent of Bank Authorized to Enforce.
§ 49 (Icf) Nonresident Stockholder.
ISO BANKS AND BANKING.
§ 49 (3) Jurisdiction.
§ 49 (2a) Existence of Legal Remedy.
§ 49 (2b) Court in Which Receivership Pending.
§ 49 (2c) Courts of Foreign Jurisdiction.
§ 49 (3d) Loss or Divestiture.
§ 49 (3) Courts and Venue.
§ 49 (4) Set Off and Counterclaim.
§ 49 (4a) Set Oflf.
§ 49 (4b) Counterclaim.
§ 49 (5) Time to Sue and Limitations and Laches.
§ 49 (5a) Time to Sue.
§ 49 (5b) What Statutes Applicable.
§ 49 (5c) In What Actions Available.
§ 49 (5d) When Statute Begins to Run.
§ 49 and Suspension of Statute.
(5e) Period of Limitations
§ 49 Operation and Stay of Proceedings.
(5f)
§ 49 (5g) Laches and Lapse of Time.
§ 49 (5^) Process and Appearance.
§ 49 (6) Parties.
§ 49 (6a) Parties Plaintiff.
§ 49 (6aa) Necessary and Proper Parties.
§ 49 (6aaa) Suit to Enforce Liability for Debts of Bank.
§ 49 (6aaaa) In General.
§ 49 (6aaab) Creditors.
§ 49 (6aaac) Corporation or Bank
§ 49 (6aaad) Receivers.
§ 49 (6aaae) Assignees for Benefit of Creditors.
§ 49 (6aaaf) Trustees.
(6aaag) Superintendent of Banks.
§ 49
(6aaah) Comptroller of Banks.
§ 49
§ 49 (6aaai) Attorney General.
§ "49 (6aaaj) County Treasurer.
§ 49 (6aab) Suit for Public Moneys.
§ 49 (6aac) Suit on Stockholder's Bond.
§ 49 (6ab) Interest.
§ 49 (6ac) Joinder of Parties Plaintiff.
§ 49 (6aca) Receivers and Creditors.
§ 49 (6acb) Creditors and Assignee of Claim against
Bank.
§ 49 (6ad) Bringing in Parties Plaintiff.
§ 49 (6b) Parties Defendant.
§ 49 (6ba) Proper and Necessary Parties.
§ 49 (6baa) Creditor's Suit against Bank.
49 (6bab) Actions against Stockholders by Creditors.
§
§ 49 (6bb) Joinder of Parties.
§ 49 (6bba) Joinder of Stockholders.
§ 49 (6bbaa) Action at Law by Creditors.
§ 49 (ebbaaa) In General.
§ 49 (ebbaab) Stockholders Who Trans-
ferred Stock.
§ 49 (6bbab) Creditors Suits.
§ 49 (ebbaba) In General.
§ 49 (ebbabb) Nonresident Stockholders.
§ 42>4 - STOCKHOIvDERS. 151
§ 49 (6bbac) Actions by Receiver,

§ 49 (6bbb) Joinder of Bank, Its Trustee or Assignee.
§ 49 (6bbba) Actions by Creditors.
§ 49 (6bbbb) Actions by Receivers.
§ 49 (6bc) Bringing in Parties Defendant.
§ 49 (6bd) Death of Party, Revival.
§ 49 (6be) Dismissal and Striking Ofif Parties.
§ 49 (6^) Dismissal of Suit.

§ 49 (7) Pleading.
§ 49 (7a) Complaint, Declaration or Petition.
§ 49 (7aa) Necessary Allegations.
§ 49 (7ab) Sufficiency of Allegations.
§ 49 (7ac) Prayer for Recovery.
§ 49 (7ad) Amendment and Aider by Verdict.
§ 49 (7ae) Affidavit of Amount of Indebtedness.
§ 49 (7b) Cross Bill.
§ 49 (8) Evidence.
§ 49 (8a) Presumptions and Burden and Degree of Proof.
§ 49 (8b) Admissibility.
§ 49 Weight and Sufficiency.
(8c)
§ 49 (9) Trial and Judgment.
§ 49 (9a) Reference and Receiver's Report.
§ 49 (9b) Findings of Fact and Conclusions of Law.
§ 49 (9c) Judgment or Decree.
§ 49 (9ca) Form, Requisites and Validity.
§ 49 (9cb) Amount for Which Rendered.
§ 49 (9cc) Second Assessment.
§ 49 (9cd) Persons Bound and Matters Concluded.
§ 49 (9cda) Judgment in Creditor's Suit against Bank.
§ 49 (9cdaa) Persons Bound.
(9cdaaa) Stockholders.
§ 49
§ 49 (9cdaab) Stockholders Not Served.
§ 49 (9cdaac) Nonresident Stockholders.
§ 49 (9cdab) Matters Concluded.
§ 49 (9cdb) Judgment against a Bank as Stockholder.
§ 49 (9ce) Lien and Priority.
§ 49 (9cf) Payment and Discharge.
§ 49 (9cg) Enforcement.
§ 49 (9cga) Execution.
§ 49 (9cgb) Action on Judgment or Assessment.
§ 49 (19) Liability for Expenses.
STOCKHOLDERS.! C.
§ 42|. Persons Who May Be Stockholders. —Married Women.

The capacity of married women to subscribe for or take by assignment
shares of stock in national banks, is governed by the state laws.^ A mar-
1. Of loan, trust and investment § 249; "Actions and Proceedings to

companies, see post, "Stockholders," Enforce," § 250.
§ 313. Of savings banks, see post, "Corpo-
Of national banks, see post, "Lia- rators and Stockholders," § 293.
bilityof Stockholders for Debts of 2. Capacity governed by state law.
Bank," § 247; "Nature and Extent," —Under § 4194 of the digest of the
§ 248; "Effect of Transfer of Stock," statutes of Arkansas, published in
ried woman is not incapacitated by the laws in force in the district of

Columbia from becoming the owner of bank stock.*
—
State. A state may own, in part or entirely, the stock of a bank.* The
state, by becoming interested with others in a banking corporation, does
not impart to that corporation any of her privileges or prerogatives, so far
as it respects the transactions of the corporation.
—
Stockholders in Other Corporations. No principle of law prevents
the stockholders in an insurance company or other corporations from be-
coming at the same time stockholders in a bank, even where the same stock-
holders own all the stock in the two corporations.*
§ 43. Bights —
and Liabilities as to Bank § 43 (1) Bight to In-
spect Books. — The w-eight of American authority recognizes the com-
mon-law right of the shareholder, for proper purposes and under reason-
able regulations as to place and time, to inspect the books of a banking
corporation of which he is a member.^
—
Enforcement. Stockholders of a bank may force it to submit to an
examination of its afifairs.'^^ But in enforcing this right of inspection, the
courts will exercise a sound discretion and only grant it with proper safe-
1874, ch. 93, p. 756, if it was in force process. Briscoe v. Bank (U. S.), 11
at the time of the transaction, it would Pet. 257, 9 L. Ed. 709.
seem that a married woman might 5. Robinson v. Bank, 18 Ga. 65.
lawfully have either subscribed for or 6. Stockholder in other corpora-
taken an assignment of the shares, tions. — State V. Butler, 86 Tenn. 614,
they being shares of a national bank 8 S. W. 586.
in Arkansas, and the transaction be- 7. Right to inspect books. Guthrie —
ing, therefore, governed by the stat- V. Harkness, 199 U. S. 148, 50 L. Ed.
utes of Arkansas, unless under special 130, 26 S. Ct. 4; Hatch v. City Bank
circumstances, a different rule ought (La.), 1 Rob. 470.
to govern. Bundy v. Cocke, 128 U. S. "It is said to be customary for
185, 32 L. Ed. 396, 9 S. Ct. 242. banking companies in England to in-
3. —
District of Columbia. Keyser v. sert in their constitutions a provision
forbidding the inspection of customers'
Hitz, 133- U. S. 138, 33 L. Ed. 531, 10
S. Ct. 290. accounts by shareholders or creditors.
—
State as stockholder. Briscoe v.
4.
Morgan's Case, L. R. 28 Ch. D. 620;
Cook Corp., § 517, note. The subject
Bank (U. S.), 11 Pet. 257, 9 L. Ed.
appears to be now regulated by stat-
709; Bank v. Planters' Bank (U. S.),
9 Wheat. 904, 6 L. Ed. 244; Bank v.
ute in England. Cook Corp., § 518."
Guthrie v. Harkness, 199 U. S. 148,
Wistar, 3 Pet. 431, 7 L. Ed. 731; Cur-
50 E. Ed. 130, 26 S. Ct. 4.
ran V. Arkansas (U. S.), 15 How. 304,
14 L. Ed. 705. See the title STATE.
A stockholder in a corporation has
a right of access to the proper sources
But by so doing it imparts none of of knowledge to know the af- how
the attributes of sovereignty to the fairs of the corporation are conducted.
institution, and having paid in its If his rights are not restricted in that
share of the capital stock, is treated respect by their charter, or rules and
like every other stockholder and in- by-laws passed in conformity thereto,
curs no public responsibility what- a stockholder in a banking company
soever. Briscoe V. Bank (U. S.), 11 has a right to the inspection of the
Pet. 257, 9 L. Ed. 709; Curran v. Ar- "discount book" of the bank, within
kansas (U. S.), 15 How. 304, 14 L. proper and reasonable hours. Cock-
Ed. 705. burn V. Union Bank, 13 La. Ann. 289.
Its funds and property of every de- 7a. Enforcement. Robertson v. Ow- —
scription are liable for its debts and ensboro Inv. Bank and "Trust Co.
may be reached by legal or equitable (Ky.), 149 S. W. 1144.
§ 43 (2a) STOCKHOLDERS. 153
guards to the rights of all concerned.* And the state courts have jurisdic-
tion to enforce it, even in the case of a national bank."
Mandamus is the proper remedy where the right to inspect books, etc.,
is denied.^" Mandamus will not issue to enforce the right of stockholders
to inspect the books of a bank, unless some just and useful object or pur-
pose is to be effected and this object or purpose must be alleged and
proved. 1^
§ 43 (2) Ownership of Capital Stock— § 43 (2a) General Rule.

—The bank is the property of the individual stockhold-
capital stock of a
ers, any sense the property of the corporation. ^^ Where the
and not in
directors of a bank distributed the balance of the capital stock pro rata
among the subscribers who had paid up their installments, refusing to
8. Discretion of court. —Guthrie would have in cases between in-

V. Harkness, 199 U. S. 148, 50 L. Ed. dividual citizens of the same state.
130, 26 S. Ct. 4. 35 Stat. 433." Guthrie v. Harkness,
''It does not follow that the courts 199 U. S. 148, 50 L. Ed. 130, 36 S.
will compel the inspection of the Ct. 4.
bank's books under all circumstances.
In issuing the writ of mandamus, the
10. Mandamus. — Cockburn v. Union
Bank, 13 Ea. Ann. 289.
court will exercise a sound discre-
11. Hatch V. City Bank (La.), 1
tion and grant the right under proper
Rob. 470.
safeguards to protect the interests of
all concerned. The writ should not Though one having a legal interest
in the corporate books be entitled to
be granted for speculative purposes or
inspect and use them as evidence of
to gratify idle curiosity or to aid a
his rights, yet where a director al-
blackmailer, but it may not be denied
le.ges that, for the interests of the
to the stockholder who seeks the in-
purposes."
bank and the public, he desires to ex-
formation for legitimate
amine the stock ledger, or book coii-
Guthrie v. Harkness, 199 U. S. 148, 50
taining the list of stockholders, and
L. Ed. 130, 26 S. Ct. 4. See the title
also the transfer book; that his appli-
MANDAMUS.
9. Jurisdiction. — If the stockholders cation for that purpose has been re-
fused; and that all access to these and
had the legal right to enforce inspec-
tion of the books of a national bank,
the other books is denied him his —
prayer for a mandamus to assert the
there is no room to question the au-
right will be refused when no just or
thority of the state courts to enforce
useful object is alleged or proved, and
the right by granting the proper re-
it is not shown in what way the in-
lief in a judicial proceeding. Guthrie
terests of the bank or the public are
V. Harkness, 199 U. S. 148, 50 L. Ed.
to be promoted. Hatch v. City Bank
130, 36 S. Ct. 4; Petri v. Commercial
(La.), 1 Rob. 470.
Nat. Bank, 143 U. S. 644, 35 L. Ed.
1144, 13 S. Ct. 325; Continental Nat. 12. Ownership of capital stock. —
Bank v. Buford, 191 U. S. 119, 48 L. Conwell V. Connersville, 15 Ind. 150.
Ed. 119, 24 S. Ct. 54. The profits on sale of bonds. In —
"While the state has no power to 1824 the state became owner of capi-
enact legislation contravening the fed- tal stock in the Bank of Louisiana, for
eral laws for the control of national which it issued bonds, to be nego-
banks, Davis v. Elmira Sav. Bank, 161 tiated by the bank. These bonds were
U. S. 375, 40 L. Ed. 700, 16 S. Ct. 503, sold by the bank at a profit, to re-
congress has provided that for ac- cover which profit this action was
tions against them at law or in equity brought. Held, that it belonged ex-
they shall be deemed citizens of the clusively to the stockholders who
state in which they are located, and were such at the time of the sale, in
that in such cases the circuit and dis- proDortion to the stock held and ac-
trict courts of the United States shall tually paid in by them respectively.
have such jurisdiction only as they State V. Bank. 6 La. 7t5.
154 BANKS AND BANKING. § 43 (2bc)
give a portion to one who was in arrear, the latter has a right of action
against the bank itself.^^
§ 43 (2b) Trust Fund for Benefit of Creditors— § 43 (2ba) In

General. —
The capital stock of a bank is a trust fund for the benefit of
depositors and creditors, and must be preserved unimpaired for the pay-
ments of its debts.^*
§ 43 (2bb) Priority of Bank Bills.— When the capital stock of an

incorporated bank is subscribed and paid in, it constitutes' a trust fund for
the benefit of the stockholders, but when notes are issued and circulated
thereon, another and superior trust arises and the stock must be first ap-
plied to the payment of the notes of the bank.^^
§ 43 (2bc) Following Capital Stock as Trust Fund after Dis-

tribution. —
The capital of a bank being a trust fund for the payment of
its it be withdrawn by a stockholder or other person it is held by
debts, if
him thereafter subject to the trust,i^ although there was no fraud and a
13. Reese v. Bank, 31 Pa. 78, 73 Am. owner or owners of the capital stock."
Dec. 726. State V. Bank, 64 Tejin. (5 Baxt.) 1.
14. Trust fund for creditors. — 15. Priority of bank bills. Schley — z/.
Bishoo's Fund v. Eanrle Bank, 7 Conn. Dixon, 34 Ga. 273, 71 Am. Dec. 121.
476. 16. Following capital after distribu-
While the bank is solvent, and in
tion. — Dabney
v. State Bank (S. C), 3
the full use and enjoyment of all Rich. 124; Marr v. Bank, 44 Tenn.
its
franchises, the entire beneficial in-
(4 Coldw.) 471.
terest in its funds and assets belongs
State sole stockholder. The — fact
that the state is the sole stockholder
to the stockholders. But after the
insolvency of the corporation, al-
does not vary the rule. Dabney v.
though the legal ownership of tiie as- State Bank (S. C), 3 Rich. 124.
sets may continue as before, the bene-
Tennessee. —
When the common
ficial interest of the stockholders school fund was made a part of the
capital of the Bank of Tennessee, it
clearly no longer exists. Marr v.
Bank, 44 Tenn. (4 Coldw.) 471; Schley became assets of the bank to which
V. Dixon, 24 Ga. 273, 71 Am. Dec. 121;
creditors of the bank had a right to
look, and a trust fund applicable to
Corbin Banking Co. v. Mitchell, 141
the payment of its debts. The act,
Ky. 172, 132 S. W. 426; Dabney v.
therefore, of February 16th, 1866, ap-
State Bank, 3 S. C. (3 Rich.) 124.
propriating the assets of the bank as
Tennessee. —The capital stock of a school fund, impaired the obligation
banking corporation, is, by every prin- of the contract between the bank and
ciple of lav\r as vifell as common sense, its creditors and was a nullity, as was
not the absolute property of the in- also the assignment made in pursuance
dividual shareholders. It has uni- of that act, so far as to give prefer-
formly been deemed a pledge or trust ence to the school fund. State v.
fund, for the payment of the debts of Bank, 64 Tenn. (5 Baxt.) 1.
the Ijank. Woodfork v. Union Bank, The State Bank of Tennessee.—
43 Tenn. (3 Coldw.) 488. See, to the Nashville v. Bank, 31 Tenn. (l Swan.)
same effect, Marr v. Bank, 44 Tenn. 269.
(4 Coldw.) 471. Right of charitable corporation to
"The capital stock of a bank cor-
poration is a fund set apart by its
withdraw shares. —
Where a corpora-
tion for charitable purposes subscribes
charter for the payment of its debts, for shares in a bank, it becomes a
which amounts to a contract with stockholder, and part of the corpora-
those wtio shall become its creditors, tion, and consequently, after in-
that the fund shall not be withdrawn solvency of the bank, is incapable of
or appropriated to the use of the withdrawing its shares, or recovering
§ 43 (2bc) STOCKHOLDERS. 155
distribution was authorized by law;i'^ and a creditor may in a court of
equity follow it into the hands of stockholders or other persons receiving

it with notice. 1*
Action at Law. —Where a banking corporation divided its capital stock
among the stockholders, leaving the corporate notes in circulation, an in-
dividual stockholder, who had received his share of the stock so divided, is
not liable in an action at law to a holder of a note of the corporation. i^

When and Conditions Precedent. The right of
Liability Accrues, —
creditors of abank to subject the capital stock in the hands of stockhold-
ers to payment of their claims does not accrue until the bank has refused
payment, and is unable to discharge the debts. ^^
Stockholder as Parties. —Where the capital stock of a bank has been
divided among its stockholders before the expiration of its charter, with-
out reserving a sufficient amount to pay its bank notes, a bill in equity for
the purpose of subjecting such stock, in the hands- of the stockholders, to
the payment of the notes, may be maintained by some of the holders of the
notes against some of the stockholders, it appearing impossible to bring all
parties before the court.^^ Where the shares of capital stock of a bank
the amount as a debt against the bank. the corporation, have, in point of fact,
Bishop's Fund v. Eagle Bank, 7 Conn. no interest in the disposition of the
476. assets of the bank, after its insolvency.
17. Distribution authorized by law In equity, as well as at law, the bene-
—Absence of fraud. — Capital
stock of ficial interest therein belongs to the
a bank, which has been divided among creditors. The capital is the fund they
the stockholders by the directors, is trusted, and to which, with the after-
still liable for the debts of the bank, acquired property or assets of the cor-
though the stockholders were not poration, they can alone look for in-
guilty of fraud, and the division was demnity. Both stand pledged for the
authorized by law. Wood v. Dummer, payment of the corporation debts (16
Fed. Cas. No. 17,944, 3 Mason, 308. Mass. R., 272), and a court of equity
18. After the capital stock of a bank will follow them into the hands of
has been subscribed and paid, it be- stockholders or other persons receiv-
comes a trust fund in the hands of the ing them with notice, for the benefit
president and directors for the benefit of the creditors." Marr v. Bank, 44
of the creditors of the bank, who must Tenn. (4 Coldw.) 471.
be paid before the stock can be with- 19. Action at law. —
Spear v. Grant,
drawn and distributed among the 16 Mass. 9.
stockholders, and, if not so paid, and —
Action of tort. Where the stock-
the bank becomes insolvent, the billholders of an incorporated bank, after
holders, may pursue the trust into the the expiration of their charter, made
hands of the stockholders. Schley v. dividends of their capital stock among
Dixon, 24 Ga. 273, 71 Am. Dec. 121. themselves, so there were no cor-
A bank divided among its stock- porate funds left for the redemption
holders three-fourths of its capital of their outstanding notes or bills;
stock before the expiration of its the possessors of such bills could not
charter, without providing funds suffi- maintain an action of tort against a
cient to pay its outstanding notes. stockholder who had received his pro-
Held that, since the capital stock was portion of such dividends. Vose v.
a trust fund for the payment of the Grant, 15 Mass. 505.
bank's notes, it could be followed into 20. When liability accrues, and con-
the hands of the stockholders. Wood —
ditions precedent. Wood v. Dummer,
V. Dummer, Fed. Cas. No. 17,944, 3 Fed. Cas. No. 17,944, 3 Mason 308.
Mason, 308. 21. Stockholders as parties. Wood—
"The stockholders, having incurred V.Dummer, Fed. Cas. No. 17,944, 3
no personal liability for the debts of Mason 308.
156 BANKS AND BANKING. § 43 (2bc)
were each transferable either to residents or nonresidents, all the stock-

holders need not be made parties to a suit by creditors to subject the cap-
ital stock in the hands of certain stockholders to payment of the creditors'
claims, it not being claimed that those stockholders joined do not represent
effectually the interests adverse to the creditors, or that these not joined
could aid defendants in making a more effectual defense. ^^
Bank a Necessary —
Party. In a suit by creditors of a bank to subject
to payment of their claims the capital stock in the hands of stockholders,
the bank is a necessary party, though a new bank has been organized, pro-
vided that the old one is still in existence.^^
Presumption That Bank Expired by Legislative Limitation. —
Where a new bank was formed in place of an old one, and a bill for cred-
itors, to subject the capital stock to payment of their debts, contains the
acts of the legislature continuing the existence of the old bank for a limited
time, it will be presumed that the old bank expired by the legislative lim-
itation, so as torender it unnecessary to make it a party.^*
—
Pleading. A bill by creditors of a bank, to subject the capital stock
in the hands of stockholders to payment of the creditors' claims, should
allege that the stock is a trust fund, appropriated by law and the charter,
to payment of debts of the bank, and that the surplus only belongs to the
stockholders. 2" Where a new bank has been formed to take the place of
an old one, in a suit by creditors of the latter to subject the capital stock
in the hands of stockholders to payment of the debts, the bill must allege that
the old corporation is defunct in order to dispense with its being made
a party.2^ Where a new bank was organized in place of another and a
suit brought by creditors to subject to payment of their claims the capital
stock in the hands of stockholders was dismissed as to the new bank, the
bill should have been amended, by striking out allegations that the new bank
had received large funds of the old, since, if such were true, the stock
could not be subjected to liability.^^
Decree. —Where a bank, before the expiration of its charter, divided

three-fourths of its capital stock among its stockholders, without providing
funds sufficient to pay its outstanding bank notes, on a bill by the holders
of the notes against a part of the stockholders to compel a payment of the
notes, the decree against each stockholder should be for his contributory
share of the debt in the proportion which the stock held by him bears to
the whole capital stock.^s
22. Wood V. Dummer, Fed. Cas. No. 25. —

Pleading. Wood v. Dummer,
17,944, 3 Mason 308. Fed. Cas. No. 17,944, 3 Mason 308.
23. Bank a necessary party.— Wood 26. Wood v. Dummer, Fed. Cas. No.
V. Dummer, Fed. Cas. No. 17,944, 3 17,944, 3 Mason 308.
Mason 308. 27. Wood v. Dummer, Fed. Cas. No.
24. Presumption that bank expired 17,944, 3 Mason 308.
by legislative limitation. v. —Wood 28. Decree. —Wood v. Dummer,
Dummer, Fed. Cas. No. 17,944, 3 Ma- Fed. Cas. No. 17,944, 3 Mason 308.
son 308.
§ 45 (1) STOCKHOLDERS. 157
§ 43 (2c) Payment to Enable Bank to Resume Business. —

payment made by stockholders to a suspended bank, in order to enable it to
resume, is not a payment in the ordinary course of business, and does not
create a debt from the bank to the stockholders. 2*
§ 43 (3) Power to Bind Corporation. — Stockholders of a bank can

not create a corporate liabiHty without special authority so to do. Confes-
sions, admissions, or knowledge, while not engaged in the precise business
intrusted to them, can not affect the corporation.^"
.
§ 43 (4) Dealings with Bank— § 43 (4a) As Principal or
—
Surety on Note. A stockholder may be legally bound to the bank on a
note as principal or surety.î
§ 43 (4b) Sale of Stock to Bank.— See ante, "Bank Itself," §

40 (2c).
§ 44 Constitutional and Statutory Provisions. — See post, "Consti-

tutional and Statutory Provisions," § 47 (2b).
§ 44|-. Shareholders' Meetings.—Where the articles of association

of a bank required meetings of shareholders to be called by the board of
directors, or by any three shareholders, a resolution at a meeting called by
the president and cashier was not a valid act of the corporation, all the
shareholders not being present.^^
§ 45. Suing or Defending on Behalf of Bank. —Enforcement of

liabilities of officer, see post, "Right of Stockholders to Enforce Liability,"
§ 54 (5).
§ 45 (1) Failure or Refusal of Bank to Sue. Only under peculiar —

circumstances will a bank stockholder be permitted by courts of equity to
bring a suit which the corporation has failed to bring. ^^ Where a banking
corporation is disabled from suing — as, where the managing agents of the
corporation, its officers and directors, are themselves to be the defendants,
or where the corporation wrongfully and willfully refuses to sue —then,
in either case, a court of equity will entertain a suit by a shareholder, sub-
29. Payment to enable bank to re- did sign it as a surety, and not as a
sume business. — Brodrick v. Brown, principal, states no defense. The con-
69 Fed. 497. tract as surety was not void, but was
30. Power to bind corporation.
_
— as binding on defendant as it would

Loomis, etc., Co. v. Eagle Bank, 1 have been had he not been a director.
Disn. 385, 13 O. Dec. 635. Bank v. Triplett (Ky.), 6 J. J. Marsh
31. Principal or surety on note. — 549.
In a suit instituted by the president 32. Shareholder's meetings. Mat- —
and directors of the bank of the com- thews Columbia Nat. Bank, 79 Fed.
v.
monwealth on a promissory note to 558, reversed in Columbia Nat. Bank
the 4)ank, a plea by one of defendants v. Mathews, 85 Fed. 934, 39 C. C. A.
that at the time the note sued on was 491.
executed he was a director of the 33. Failure of bank to sue. —Wallace
bank, and therefore not competent to v. Lincoln Sav. Bank, 89 Tenn. 630, 15
sign said note as a surety, and that he S. W. 448, 34 Am. St. Rep. 625.
stituting him to the collective or corporate right of action.^*

The mere refusal of a banking corporation to bring a suit will not
authorize any stockholder dissatisfied -with such decisipn to conduct a siiit
himself, for necessarily a very 'wide discretion as to suing is reposed in the

directors of the corporation.^^
Recovery for Benefit of Corporation, etc. —Where a court of equity
entertains a suit by a bank stockholder to enforce a corporate right of
action the recovery must be for the benefit of the corporation, all its cred-
itors and shareholders, innocent and guilty, sharing proportionately in the
benefits of the degree.^^
In cases of the refusal of a trustee of an insolvent bank to sue the

rule against a suit by a stockholder is not as stringent as in case of a re-
fusal by the directors, for the reason that the trustee has not so wide a dis-
34. Wallace v. Lincoln Sav. Bank, right to purchase, and plaintiff, a

89 Tenn. 630, 15 S. W. 448, 24 Am. St. stockholder, requested the bank to
Rep. 635. sue to set aside the sale, which the
Where neither the receiver nor the bank refused to do, and two-thirds of
proper bankofficer will sue on de- the stockholders, which were neces-
mand of a stockholder, the latter may sary to elect a new board of directors,
sue for himself and other stockholders. were not disinterested, the plaintiff
Where neither the bank's officers or was entitled to sue on his own behalf;
directors, nor the receiver, nor the he having done all that could be rea-
comptroller, would, on demand, bring sonably required to induce the bank
suit, a stockholder's suit on behalf of to sue, without avail. Morgan v. King,
himself and other stockholders of a 27 Colo. 539, 63 Pac. 416.
national bank to recover judgment in
the bank's favor for the alleged wrong-
35. Mere refusal to sue. —
"Strangers
could never know when a settlement,
ful acts of the managing agents of the
compromise, or adjustment was a
corporation, must be assumed to have
finality if the matter was subject to be
been properly In re Chet-
instituted.
overhauled at the suit of any discon-
wood, 165 U. L. Ed. 782,
S. 443, 41
tented shareholder. So a suit might
citing Whittemore v. Amoskeag Nat.
appear so desperate, or be so expen-
Bank, 134 U. S. 537, 33 L. Ed. 1003, 10
sive, or, for good reason, impolitic,
S. Ct. 593.
that directors might, in the exercise
Restraining collection of illegal tax.
of a sound discretion, deem it unwise
— Where, on demand of a stockholder
to engage in litigation. In such case,
to do so, the directors of a bank re-
if the refusal be in good faith, the
fused to take any steps to prevent the
courts will rarely suffer a shareholder
collection of a tax on the bank under
to overturn such decision by enter-
a certain law, though admitting that
taining his suit for the same cause of
the law was unconstitutional, their ac-
action." Wallace v. Lincoln Sav.
tion is a breach of duty, and not a
Bank, 89 Tenn. 630, 15 S. W. 48, 34
mere error of judgment, so that the Am. St. Rep. 625.
stockholder has a right to bring suit
in equity to restrain the collection of "In the case of the refusal of the
the tax. Dodge v. Woolsey (U. S.), managers of a (banking) corporation,
18 How. 331, 15 L. Ed. 401. an appeal would lie to the general
In a suit by a stockholder of a bank meeting of the shareholders; and if
to restrain the collection of an illegal in such refusal they did not represent
tax on the bank, the directors, who re- the will of a majority, it could be then
fused to take any action, are properly made to appear, and a board elected
joined. Dodge v. Woolsey (U. S.t, who could reverse their action." Wal-
lace V. Lincoln Sav. Bank, 89 Tenn.
18 How. 331, 15 L. Ed. 401.
Suit to set aside sale to directors. — 630, 15 S. W. 448, 24 Am. St. Rep. 625.
Where directors of a bank procured 36. Recovering for benefit of cor-
the sale of mining stock held by the poration. —
Wallace v. Lincoln Sav.
bank to themselves, which, in' view of Bank, 89 Tenn. 630, 15 S. W. 448, 24
their office as directors, they had no Am. St. Rep. 635.
and going bank-

cretion as to suing as existed in the directors of a solvent
ing corporation. no appeal from the refusal of the trustee
Also there is
save to a court of equity, while, in case of a refusal by the directors, an

apgeal to the.s,tpKkbolders' meeting can be had.^'^
§ 45 (2) Enjoining Illegal Acts and Practices. bank stock- —A

holder may maintain a suit against the bank officer to restrain illegal dis-
counting,38 and to restrain the payment of an illegal tax.^^
§ 45 (3) Recovery for Fraudulent or Illegal Acts or Practices,

—A bank stockholder maintain a suit against the directors and other
may
officers of the bank for unfaithfulness in the discharge of their official
duties. Upon allegation of fraudulent practices a stockholder may main-
tain a bill in equity against the bank officials for an accounting and restora-
tion of whatever may have been fraudulently withdrawn from or lost to
the bank;*** or he may sue at law for damages resulting from the illegal
acts of such officials in the discharge of their duties.*^
§ 45 (4) Quo Warranto and Proceedings in Nature Thereof

§ 45 (4a) Testing Legality of Incorporation. —Under a state statute
allowing an information to be filed against any person or corporation
whenever any association or number of persons shall act as a corporation
without being legally incorporated, and providing that such information
may be filed by any person on his own relation, whenever he claims an
interest in the corporation, it is unnecessary that a stockholder in a bank
should first make demand upon the officers to cease to act as a banking
corporation.* 2 An information filed by a stockholder in such case is suffi-
cient without alleging that the bank has property.*^
Refusal of trustee of insolvent

37. rectors, and other stockholders, upon
bank to sue.—Wallace v. Lincoln Sav. allegations of fraudulent practices, de-
Bank, 89 Tenn. 630, 15 S. W. 448, 24 preciating the value of the stock, sus-
Am. Rep. 625.
St. pending banking operations, refusinar
38. The
act incorporating a bank cash payments, and withholding divi""-
provided that ordinary discounts may dends; and in such bill the complainant
be made by the president and four may join individual stockholders with
directors, and that the rate of dis- the corporation, may pray for an ac-
count at which loans shall be made count of stock and funds, and for res-
shall not exceed one-half of 1 per toration of whatever may have been
centum for thirty days. Held, that on fraudulently withdrawn from the corn-
proof of the discounting of paper by mon stock. Taylor v. Miami Export-
the cashier and president without four j^g c^^ 5 q ^gg^ 22 Am. Dec. 785.
directors, and that notes had been ., .„ „4.;„_ i_
„4. •
^ û j-
discounted at rates greater than that J}: f of
".^*=*'°" fla^
against the di-
[ectors a bank for the violation o
allowed by charter, was sufficient
ground for a temporary injunction at ^^ provisions of the banking laws of
fhe of a stockholder to restrain
suit ^« °' °ther unfaithfulness m
Manderson v. Com- ^^ f?-'-^ tê^r official duties,
such practices. ^"/^^T-«
^°""ded on § 06, c. 84 Comp St., may
mercial Bank, 28 Pa. 379.
39. Dodge V. Woolsey (U. S.), 18 ^f,
^"y-
^^^
^"^" ^w"^
''°=ii^,^",/„^^"-
Warner, ^- 33 Vt. 570.
How. 331, 15 L. Ed. 401
40. Recovery for fraudulent acts or ^2. Demand. —Albert v. State, 65
practices. —A
stockholder in an in- 1"°. 413.
corporated bank may sustain a bill in 43. Allegation that bank has prop-
equity against the corporation, the di- erty. — Albert v. State, 65 Ind. 413.
§ 45 (4ta) Testing Validity of Election of Officers.—Though any

stockholder has a right to inquire, by a quo warranto, into the election of
those who assume to administer the corporation, yet, where the wrong
complained of was the result of his own misconduct or neglect, or he has
acquiesced or concurred in it, he will not be listened to. Where, however,
one concurs in an election in ignorance of some fact making it invalid, and
afterwards shows the objection, and that it has come to his knowledge
since the election, he should be heard, consent, induced by error, not being
binding in the eye of the law; These principles are applicable, if not to
municipal, certainly to private, corporations.**
§ 46. Liability for Deb'ts and Acts of Bank. Unpaid Install- —

ments on Shares Purchased by the Bank. See ante, "Purchase of —
Shares by Bank," § 39 (7cl). Stockholders of trust companies, see post,
"Stockholders," § 313.
§ 47. Nature and Extent— § 47 (1) In General.—The individ-

ual liability of holders of bank stock is wholly statutory ,*5 and depends upon
the law of the state creating it. The rule is that the relation of bank and
depositor is and creditor does not create a personal liability
that of debtor
on the part of a stockholder.*^. The liability of stockholders of banking
corporations is imposed for the benefit of creditors, and attaches by virtue
of the statute to the owners of the stock.*'' The liability is upon the stock-
holders and not upon the stock ;*^ it is not the loss of the stock but in ad-
dition thereto.* 8 The liability extends only to the operations ordinarily
incident to the banking business. 5"
44. Testing validity of election of he must allege and prove that the lia-
officers. —Wiltz v. Peters, 4 La. Ann. bilities to pay which the assessment
339. was made accrued while defendant was
45. —
Statutory. Bromlev v. Good- a stockholder. Shuey v. Holmes, 21
win, 95 111. 118; Smathers v. Western Wash. 223, 57 Pac. 818.
Carolina Bank, 155 N. C. 383, 71 S. E. 49. Const. ,1868, art. 12, § 6, making
345; Myers v. Knickerbocker Trust stockholders of a bank liable to the
Co., 139 Fed. Ill, 71 C. C. A. 199, 1 L. amount of their stock for its debts,
R. A., N. S., 1171; Brunswick Terminal does not limit the liability to the loss
Co. V. National, Bank, 3 93 U. S. 386, 48 of the stock, but makes it an addition
L. Ed. 491, 24 S. Ct. 314; Carrol v. thereto. Parker v. Carolina Sav.
Green, 92 U. S. 509, 23 L. Ed. 738. Bank, 53 S. C. 583, 69 Am. St. Rep.
46. Bromley v. Goodwin, 95 111. 118. §88, 31 S.E. 673.
47. Smathers v. Western Carolina 50. Under Const., art. 12, § 11, and
Bank, 155 N. C. 283, 71 S. E. 345. 1 Hill's Code, § 1511, providing that
48. Under Const., art. 12, § 11, pro- each stockholder of any banking cor-
viding that stockholders in banking poration shall be liable for its debts,
corporations shall be liable for all con- to the amount of his stock therein, in
tracts, debts, and engagements "ac- addition to the amount invested in
cruing while they remain such stock- such shares, the liability of stockhold-
holders," to the extent of the par value ers of a corporation organized to do
of their stock, the liability imposed is banking and other business, and which
upon the stockholder, and not upon fails, extends only to the obligations
the stock; and, to entitle the receiver ordinarily incident to the banking
of an insolvent bank to recover an as- business. Kiggins v. Munday, 19
sessment made against a stockholder, Wash. 233, 52 Pac. 855.
§ 47 (2ba) stockhoi^ders. 161
§47 (1^) Stockholders' Agreements. Where a — stockholder of a

state bank advances his own funds to pay the debts of the bank, in pur-
suance of an agreement of the stockholders that each should contribute
in proportion to the number of shares of stock held by him, the advancing
stockholder may maintain an action against the other stockholders for an
accounting and contribution without having first exhausted the assets of
the bank. 61
—
Loan of Bonds to Bank. A loaner of bonds to a bank upon an agree-
ment of the stockholders to return the same can not maintain trover against
the shareholders after the bonds had been sold and his title divested. All
that was left to him was an action on liis agreement. ^^
§ 47 (2) Charter and Statutory Provisions

§ 47 (2a) Special —
Cfharter Provisions. —Where
no general law of the state de-
there is
claring the individual liability of stockholders in banks, whether such lia-

bility^ exists and its extent depends upon the provisions of the charter in
a given case.^^ And, as such provision in the charter is in derogation of

the common law, it must not be extended beyond the words used. 5*
§ 47 (2b) Constitutional and Statutory Provisions § 47 (2ba) —

—
Constitutionality Generally. A statute which attempts to establish a
different liability from the one imposed by the constitution,^^ or to pro-
51. Stockholders' agreements. — or other corporation a liability beyond

Davidson v. Gretna State Bank, 59 the amount of the stock owned, but
Neb. 63, 80 N. W. 256. merely provided a method by which a
52. Loan of
to bonds
bank. De- — stockholder who had transferred his
fendants, shareholders
of a certain stock might relieve himself of an ex-
bank, became jointly and severally li- isting individual liability imposed by
able for the return of United States the charter of the corporation.
bonds to the value of $9,000 belonging Wheatley v. Glover, 135 Ga. 710, 54
to M. which he had loaned to the bank. S. E. 626.
The bank raised money on the bonds Neither was such a liability im-
ty depositing them as collateral posed by the Act of 1892 (Act, 1892, p.
security in another bank. Certain 55), nor by the Act of 1894 (Civil
overdrafts of the bank being unpaid, Code, § 1888). These acts simply pro-
the bank with which they were de- vide a different manner of discharge
posited sold the bonds, and placed the from liability from that prescribed in
proceeds to the credit of the deposit- the Act of 1838. Wheatley v. Glover,
ing bank. Held, that the depositing 125 Ga. 710, 54 S. E. 626.
liank did not authorize the sale of the 54. Wheatley
v. Glover, 125 Ga. 710,
bonds, and hence there was no breach 54 E. 626.
S.
of trust or tortuous conversion by de-
fendants, and the bonds having been
55. —
Constitutionality. Laws 1887, p.
89, § 6, provides that "the sharehold-
sold, and the plaintiff's right thereto ers of each association formed under
divested, he could not maintain an ac- this act shall be individually respon-
tion of trover against the defendants sible equally and ratably, and not one
as shareholders of the bank. Duffield for the other, for all contracts, debts,
V. Miller, 92 Pa. 286. and engagements of such association
53. Special charter provisions. — to the extent of the amount of their
Wheatley v. Glover, 125 Ga. 710, 54 stock therein, at the par value thereof,
S. E. 626. No such law existed in in addition to the amount invested for
Georgia prior to 1893. such shares," is in conflict with Const.,
The Act of 1838 (Code of 1882, art. It, § 6, which provides that every
? 1496) did not have the effect to im- stockholder in a banking corporation
pose upon the stockholders in a bank shall be individually responsible to its
1 B & B— 11
162 BANKS AND BANKING. § 47 (2be)
vide a remedy whereby such liabiHty can be enforced in violation of the

constitution.^^ is void.
§ 47 (2bb) Applicability and Eules of Construction. —Where the

constitutional provision is self -executing the statute must, if possible, be
^'^
construed to make it accord therewith.
Strict Construction. — Statutes imposing on stockholders in banking
corporations, liability for the acts or debts of such corporations, being in
derogation of the common law, should be strictly construed and can not
be extended beyond the words used.^®
Applicability. —
Idaho Rev. Codes, § 2745, defining the liability of stock-
holders for corporate debts, does not apply to banking corporations; their
organization, internal management, and supervision being controlled by
chapter 13, art. 1, beginning at section 2968.88*
§ 47 (2bc) Retroactive Effect. See — post, "Retroactive Effect,"
§ 47 (9a); "Retroactive Effect of Statutes," § 49 (lab).
§ 47 (2bd) Exterritorial Operation. —

Statutes imposing an indi-
vidual liability upon holders of bank stock have no exterritorial operation.'®
§ 47 (2be) Repeal. —The repeal of an act giving a right of action

to enforce a bank stockholder's liability, imposed by a previous act, termi-
creditors over and above the antount sible equally and ratably, and not one
of stock by him held, to an amount for the other, for all contracts, debts,
eqtial to his shares so held. Dupee v. and engagements of the association,
Swigert, 137 111. 494, 31 N. E. 632. since the constitutional provision is
56. Comp. St. 1895, c. 8, § 35, so far self-executing, and the statute must be
as it attempts to authorize actions by construed to make it accord there-
the receiver of an insolvent bank to with. Union Nat. Bank v. Halley, 19
recover unpaid stock subscriptions be- S. D. 474, 104 N. W. 213.
fore the corporate debts have been 58. Strict construction. — Brunswick
j)diciallv ascertained and the corpo- Terminal Co. National Bank, 192
v.
^^te property exhaxisted, is void, under U. S. 386, 48 L. Ed. 491; Carrol v.
Const., art. 11, § 4, making stockhold- Green, 93 U. S. 509, 23 L. Ed. 738.
ers liable to the extent of their unpaid Statutes such as Pub. Laws 1897, p.
subscriptions only after the corporate 473, c. 298, imposing on stockholders
debts have been ascertained and the in banks a double liability, are in dero-
corporate property exhausted. State gation of the common law, and should
V. German Sav. Bank, 50 Neb. 734, 70 be strictly construed. Smathers v.
N. W. 331. Western Carolina Bank, 135 N. C. 410,
Rules of construction. Under
57. — 47 S. E. 893.
Const, art. 18, § 3, providing that the 58a. Applicability. McTamany — v.
stockholders of any banking corpora- Day (Idaho), 128 Pac. 563.
tion shall be individually liable for all 59. Exterritorial operations. Where —
debts thereof to the extent of the an act of the legislature of another
amount of their stock therein at the state, incorporating a bank therein,
par value thereof, in addition to the provides that, without any action
amount invested in such stock, a against a stockholder thereof, his pri-
stockholder of an insolvent South vate property shall be bound by a.
Dakota bank is individually liable to judgment against the bank, and sub-
a creditor of the bank up to the par ject to execution on such judgment,
value of his shares, notwithstanding it imposes no personal liability what-
Civ. Code, § 864, providing that the ever on the stockholder which can be
shareholders of every banking associa- made the ground of an action against
tion organized under the laws of South him in New York. Lowry v. Inman,
Dakota shall be individually respon- 32 N. Y. Super. Ct. 117.
§ 47 (4) STOCKHOLDERS. 163
nates such right of action,"" in the absence of a saving clause, but does
not affect the enforcement of a prior final judgment."^
§ 47 (3) Contractual. —Bank stockholders' individual liability though

statutory is contractual in its nature.*^ It is legal, and not equitable. It
is based upon the contract of subscription, an implied term of that con-

tract being the declaration of the statute that a certain contingent liability
should follow the subscription."^ A statute imposing individual liability
upon holders of bank stock may make it one in tort."*
§ 47 (4) Primary and Secondary Liability. —By the weight of au-

Ijhority the individual liability of bank stockholders is not primary and
total but proportional and secondary. This is the rule in the states of
Arkansas,"^ Georgia,"" New York,"^ and Washington ;"s but it is a primary
liability in Illinois,"^ and South Carolina.^"
60. Repeal.— Act March 18, 1839, ni, 71 C. C. A. 199, 1 L. R. A,, N.

gave a right of action to enforce the S., 1171.
liability imposed by the Act of Jan- Tompkins v. Craig, 93 Fed. 885.
63.
uary 27, 1816, upon the stockholders —
Tort. The liability imposed upon
64.
of banks organized under such act, for stockholders by § 11 of the Act of Jan-
the whole amount of the bills issued uary 27, 1816, and the acts amendatory
by the bank in violation of the act. thereto, relating to unauthorized bank-
Held, that the repeal of the act of ing, passed January 27, 1816, was not
March 18, 1839, terminated such right a liability in contract, but one in tort.
of action. Lawler v. Burt, 7 O. St. Lawler v. Burt, 7 O. St. 340, overruling
340. Lawler v. Walker, 18 O. 151.
Gl. St. 1903, p. 73, c. 65, repealing
the bank commission Act of 1878, as
65. —
Arkansas. Warren v. Nix, 97
Ark. 374, 135 S. W. 896.
amended in 1887 and 1895, without a
saving clause as to pending litigation,
66. Georgia. —
Lane v. Morris, 8 Ga.
468.
did not affect an action to enforce an
assessment on bank corporate stock
67. New York. —A bank stockhold-
er's liability under Banking Law
pursuant to a prior final judgment un- (Consol. Laws, c. 2), § 71, for his
der the act decreeing the corporation bank's debt, is secondary, and not
insolvent, and directing the enforce- primary; standing somewhat as a
ment of stockholders' liability, under surety. Assets Realization Co. v.
Civ. Code, § 331, and § 333, subd. 1, Howard, 70 Misc. Rep. 651, 127 N. Y.
in liquidation. Union Sav. Bank v. 798.
Leiter, 145 Cal. 696, 79 Pac. 441. It was so held under N. Y. Banking
62. —
Contractual. Howarth v. Lom- Law, § 303. Mosler Safe Co. v. Guard-
bard, 175 Mass. 570, 56 N. E. 888, 49 ian Trust Co., 138 N. Y. S. 298.
1,. R. A. 301.
The liability of stockholders to 68. Washington. —Wilson v. Book,-
creditors of a banking association un-
13 Wash. 676, 43 Pac. 939.
der Acts Gen. Assem. Md. 1892, p. 69. Illinois. — Queenan
v. Palmer,
156, c. 109, § 851, declaring that each 117 111. N. E. 613.
619, 7
stockholder shall be liable to de- Under
a charter providing that
positors and creditors for double the "each stockholder shall be liable to
amount of stock at par held by such double the amount of stock held or
stockholder, though statutory, was
•
owned by him," a stockholder assumes
contractual in its nature; each stock- a primary liability to creditors of the
holder voluntarily agreeing to incur bank to an amount double his stock,
the liability at the time he became and not a secondary liability. Fuller
such, which liability was not a cor- V. Ledden, 87 111. 310.
porate asset, but a debt due directly South Carolina. Parker v. Car-
70. —
by the stockholder to creditors of the olina Sav. Bank, 53 S. C. 583, 69 Am.
corporation who became such while St. Rep. 888, 31 S. E. 673; contra,
the stockholder held its stock. Myers Smathers v. Western Carolina Bank,
V. Knickerbocker Trust Co., 139 Fed. 135 N. C. 410, 47 S. E. 893.
§ 47 (5) Joint or Several. —

The liability of the stockholders is not
a joint one, like that of sureties, but it is a several liability of each stock-
holder, depending on the statutory contract arising from the ownership
of the shares J
§ —
47 (6) As Principal or Surety. Although a bank stockholder
stands somewhat as a surety,'^ his individual liability is not that of sure-
71. Joint or several liability. — Car- bank charter contains a provision that,
rol V. Green, 92 U. S. 509, 33 L. Ed. "in case of the failure of the said
738; Godfrey v. Terry, 97 U. S. 171, 24 bank, each stockholder, copartnership,
L. Ed. 944. or body pc^litic, having a share or
Kirby's Dig., § 4420, providing that shares in the said bank at the time of
joint obligations shall be construed as such failure, or who shall have been
to have the same effect as joint and interested therein at any time within
several obligations, and that recovery twelve months previous to such fail-
may be had thereon in like manner, ure, shall be liable and held bound
and § 6010 providing that, when two
individually for any sum not exceed-
or more persons are jointly bound by ing twice the amount of his, her, or
contract, an action thereon may be their share or shares," the liability of
brought against any or all of them at each one of the stockholders, if liable
the plaintiff's option, apply equally to at all, is his several liability. It is a
all cases where there is a joint lia- liability depending upon the statutory
bility created by statute, and hence, contract. It depends on the fact of
under § 1990, providing that county the failure of the bank, and on his
treasurers may deposit funds in their holding shares in the bank when it
custody in incorporated banks for failed, or within twelve months be-
safekeeping, and that said officers and fore its failure. His liability depends
their sureties and the bank and its in every instance on facts peculiar to
stockholdeis shall be liable for all his own case; for, if the failure of the
funds if such bank, upon demand, shall bank and the date of the failure may
fail to pay the person entitled to re- be common to all parties charged, it
ceive the same, a joint liability was still remains that the ownership of
imposed upon a county treasurer and shares, the number of shares, and the
his bondsmen and the bank and its time when they were owned, are facts
stockholders, and, such liability be- to be established against each man
ing several as well as joint, the proper charged, and with which no other de-
party could sue any or all those that fendant has any connection; and in
were liable at his election, especially regard to which, if a prima facie case
as § 1990 fixes a primary liability for is made, each man may have a distinct
the funds deposited upon the bank and defense depending on different testi-
its stockholders and simply continues mony. Godfrey v. Terry, 97 U. S. 171,
the liability of the county treasurer 24 L. Ed. 944.
and his bondsmen therefor. Warren "The liability of the stockholder
V. Nix, 97 Ark. 374, 135 S. W. 896. does not depend on forfeiture of the
New KoJ-^.—The liability under N. Y. charter. It is a right given to the
Banking Law, § 303 is joint and sev- creditor of the bank against its stock-
eral. Moslin Life Co. v. Guardian holders whenever it fails. The duties
Trust Co., 138 N. Y. S. 298. of the bank to the state depend on
Tennessee. The —liability of the other principles, and are within the
stockholder is not a joint one. "The subsequent control of the legislature.
stockholder stands liable for a definite The right of the creditor is beyond its
sum to the company and no more. It control altogether." Godfrey v. Terry,
is a severable, unequal and limited lia- 97 U. S. 171, 24 L. Ed. 944.
bility as to which each member stands 72. Principal or surety. — Assets Re-
liable to the company or corporation alization Co. V. Howard, 70 Misc. Rep.
and through it to creditors. Hence, 651, 127 N. Y. 798.
ifhe pays up his own liability to the The relation which stockholders
company or is discharged therefrom, sustain toward the banking company
it terminates his liability as to stock- is that of sureties. Moultrie v. Smiley,
holder, which can not be revived at the 16 Ga. 389; Thornton v. Lane, 11 Ga.
instance of other stockholders." Marr 459; Robinson v. Lane, 19 Ga. 337;
V. Bank, 73 Tenn. (4 Lea) 578. Lane v. Morris, 8 Ga. 468; Belcher v.
—
Fact of failure. Where a state Willcox, 40 Ga. 391.
§ 47 (7bb) STOCKHOI,DERS. 165
ties, equally bound for the same principal where even a discharge of one
from liability to the common creditor would not release him from liability
to his cosureties, who afterwards paid;^^ but is special and sub modo,''*
as of a partner within the limitations statedJ^
§ 47 (7) Banks to Which Applicable— § 47 (7a) What Con-

stitutes a Bank. —
In determining whether a corporation is a banking
institution, within the meaning of the stockholders' liability laws, the court
will look to the articles of incorporation, its declared objects, the char-
acter of the business transacted, and the construction which the officers
place on its charter powers in the management of its afifairs, if such con-
struction was not unwarranted by the charterJ^ In order to constitute a
corporation a banking institution so that stockholders in such a corpora-
tion shall be individually liable to its creditors for a certain amount, it is
not necessary that the corporation exercise all the functions of banking
corporations^^
§ 47 (7b) Specially Chartered Banks— § 47 (7ba) In General.

-^Specially chartered banks as well as those organized under general law
are within the stockholders' liability laws^^
§ 47 (7bb) Change of Name under General Law. —A bank by

changing its name under a general statute substituted the stockholder's
liability under it for that under the special charter.'''
73. Marr v. Bank, 73 Tenn. (4 bonds, borrow mojiey, receive money

Lea) 578; Schalucky v. Field, 124 111. on deposit, and execute trusts. It re-
617, 16 N. E. 904, 7 Am.
Rep. 399. St. ceived money on deposit, paid it out
74. Means Appeal, 85 Pa. (4 Norris) on checks, and bought and sold com-
75 followed Craig's Appeal, 92 Pa. 396. mercial paper and exchange on other
75. As partners. Under a bank — cities. Held, that it was a bank, so
charter that provides that, on default as to render its stockholders liable for
by the bank in the payment of any its debts, under Const., art. lib, § 7.
debt or liability, the stockholders shall Hamilton Nat. Bank v. American, etc.,
be held individually responsible for Trust Co., 66 Neb. 92 N. W. 189.
67,
an amount equal to the amount of 78. Banks to which applicable. —
stock held by them respectively, the specially chartered bank, as well as
stockholders are, in effect, partners, one organized under the general law of
and are, within the limitation stated, 1838, is within the personal liability
liable as partners, and not as sureties, clause of the constitution of 1846, and
to the creditors of the bank. Schalucky of St. April 6, 1849. In re Reciprocity
V. Field, 124 111. 617, 16 N. E. 904, 7 Bank, 23 N. Y. 9, reversing 29 Barb.
Am. St. Rep. 399. 369, 17 How. Prac. 323.
Under general banking law Change of name under general
(Rev. St.,
the
c. the liability of
71, § 18)
79.
—
law. 'Where a person was the owner
bank stockholders, except in the statu- of stock in a banking corporation or-
tory limitations as to its amount, is ganized under special charter, which
similar to that of copartners. Cole- subsequently changed its name, pur-
man V. 'White, 14 "Wis. 700, 80 Am. suant to the Act of June 16, 1887, such
Dec. 797. person becomes relieved of any spe-
76. What constitutes a bank. — cial stock liability imposed by the
Hamilton Nat. Bank v. American, etc., special charter of the corporation in
Trust Co., 66 Neb. 67, 93 N. 'W. 189. which his stock was originally held,
77. A corporation filed articles pro- inasmuch as the provisions of such
viding that the general nature of its law of 1887 become substituted for
business would be to negotiate loans, such special charter. Boor v. Tolman,
purchase and sell notes, stocks, and 113 111. App. 322.
.166 BANKS AND BANKING. § 47 (7d)
§ 47 (7c) Banks of Issue Vel Non. —Where a state constitution

prescribes the liability of stockholders in banks of issue, the legislature
may extend such liability to other banks,*" or impose other measures of
liability upon them. Thus a general law reducing the liability of stock-
holders from a double to a single liability,*^ or a provision limiting the
liability of stockholders to depositors, is constitutional.^^
§ 47 (7d) Pre-Existing and Future Banks. —A banking law, im-

posing individual liability for debts of a bank upon the stockholders, is
applicable to corporations theretofore organized, as well as to those there-

after to be formed;** where the legislature has reserved the right to
80. Banks of issue vel non. The — tent of their stock, does not apply to
provision of Const, art. 9, § 13, subd. the banking law, which is limited to
3, making stockholders of banks of banks not of issue; and hence the pro-
issue liable in double the amount of vision of the banking law limiting the
stock owned by them for the debts of liability of the stockholders to "de-
the bank, does not restrict the power positors" is not unconstitutional.
of the legislature to impose the same Foster v. Broas, 120 Mich. 1, 79 N. W.
liability on stockholders of banks not 696, 77 Am. St. Rep. 565.
of issue. Allen v. Walsh, 25 Minn. 83. Pre-existing and future banks.
543.
Gen. St. 1866, c. 33, § 31, which pro-
— Hirshfeld v. Bopp, 37 App. Div. 180,
.
50 N. Y. S. 676, reversed, Hirshfeld v.
vides that the stockholders in each Fitzgerald, 157 N. Y. 166, 51 N.- E.
bank, formed pursuant to the pro- 997, 46 L. R. A. 839; In re Reciprocity
visions of that chapter, "shall be in- Bank, 22 N. Y. 9, reversing 29 Barb.
dividually liable in an amount equal 360, 17 How. Prac. 323; Hagmayer v.
to double the amount of stock owned Farley, 23 App. Div. 426, 48 N. Y. S.
by them for all the debts of such 336.
hank," is not, since its amendment by While 52 of the banking law, im-
§
Laws 1869, c. 85, -confined to banks posing upon
the stockholders in-
of issue, but applies to all banks or-
dividual liability for debts of a bank,
ganized under the provisions of that created, in respect to certain classes
chapter. Allen v. Walsh, 25 Minn. 543.
of banks, a liability which did not ex-
—
New York. Barnes v. Arnold, 33 ist before, yet it is not unconstitu-
Misc. Rep. 197, 51 N. Y. S. 1109.
tional, being warranted, as to banks
81. Gen. Laws 1895, c. 145, being a
organized since 1846, by Const. 1846,
general banking law, providing among
and Const. 1894, art. 8, § 1, permitting
other things for the reduction of the
the alteration of general and special
liability of stockholders from a double
acts of incorporation. Hirshfeld v.
to a single liability, is not in violation
Bopp, 27 App. Div. 180, 50 N. Y. S.
of Const., art. 9, § 13, subsec. 3, pro-
676, reversed in Hirshfeld v. Fitz-
viding that the banking law passed
gerald, 157 N. Y. 166, 51 N. E. 997, 46
thereunder should apply only to banks
L. R. A. 839.
issuing bank notes, whose stockhold-
ers should be individually liable in The constitutional provision (art. 8,
double the amount of stock owned by § 7) declaring that all stockholders of
each of them for all the debts of such banking corporations shall, after Jan-
corporation or association, since Act uary 1, 1850, be individually respon-
sible, applies to pre-existent as well
1895 (Gen. Laws 1895, c. 145), § 39,
providing that the powers of existing as to future corporations. In re Re-
banks shall be abridged or modified ciprocity Bank, 29 Barb. 369, 17 How.
to meet the provisions of this act, will Prac. 323, reversed in 23 N. Y. 9; In
re Gibson, 21 N. Y. 9.
be deemed to have rendered banks do-
ing business thereunder no longer If a bank was, at a time when a
banks of issue. Seymour v. Greve, 79 given indebtedness came due, carrying
Minn. 311, 81 N. W. 1059. on its business under Laws 1892, c.
82. Const., art. 15, § 3, making 689, its stockholders would be subject
stockholders every banking asso-
of to the individual liability imposed by
ciation issuing bank notes individually § 53, irrespective of the act under
liable for "all debts," etc., to the ex- which it may have been originally in-
§47 (7d) STOCKHOI^DERS. 167
repeal or amend the charter,^* it supersedes a charter provision for.non-

liabiHty,^^ or operates as an amendment
thereto which the stockholders
are deemed to accept.^® Both the bank and the stockholders are estopped
corporated. Hagmayer v. Farley, 33 that the Act of 1849 was constitu-

App. Div. 436, 48 N. Y. S. 336. tional, and binding on the bank of
Bank organized prior to law of New- which defendants were stockholders,
—
York of 1892. Laws, 1883, c. 409, im- and that they were individually liable
posed upon stockholders of banks no for its debts. Sherman v. Smith (U.
personal, liability for debts of a bank S.), 1 Black 587, 17 L. Ed. 163.
not issuing notes. Banking Law 1893, The articles of association made by
§ 53, imposed a liability on stockhold- the stockholders at the time they or-
ers of banks, whether incorporated be- ganized themselves as a bank, were not
fore or in business after the fiassage a contract with the state, and there
of that act. This latter act repealed was no necessity or propriety in in-
the Act of 1883. Statutory Construc- corporating the law as to individual
tion Law, § 31, declares that the re- - liability therein. Sherman v. Smith
peal of a statute shall not affect any (U. S.), 1 Black 587, 17 L. Ed. 163.
act done or right accruing or acquired The changes made by the constitu-
prior to the time when such repeal tion and subsequent act of the legis-
takes effect. Section 1 provides that lature were not the less constitutional
the statutory construction law shall and valid, as against this bank, be-
apply to every statute, unless its gen- cause the stockholders, in their ar-
eral object, or the context of the lan- ticles of association, had declared that
guage construed, or other provisions they would not be individually bound
of law, indicates that a different mean- for the debts of the concern. Sher-
ing or application was intended from man V. Smith (U. S.), 1 Black 587, 17
that required to be given by this L. Ed. 163.
chapter. Held, that as the banking The saving clause in the constitution
law of 1893 shows an intent to make of the state of Xew York, which pro-
the stockholders of every bank per- vided, that nothing contained in this
sonally liable for its debts, whether constitution shall affect any grants or
they became such before or after that charters to bodies politic or corporate
law took effect, the stockholders of a made by this state, or by persons act-
bank organized prior to the law of ing under its authority, saved the
1892 were not exempt from personal charter of the bank in this case and
liability. Hagmayer v. Alten, 36 Misc. all othersorganized under the gen-
Rep. 59, 73 N. Y. S. 633. eral banking law, as well as all those
84. Such a liability may be im- created by special charters, but it
posed, by a constitutional amendment saved each of them as a whole, as an
and act to carry it into effect, upon entirety; the charters remained after
the stockholders of banks organized the adoption of the constitution the
previously under a general banking same as before, with all their privi-
law which made the assumption of leges and disabilities intact. This has
such liability optional with the banks, no bearing on the present case. Sher-
but reserved to the legislature the man V. Smith (U. S.), 1 Black 587,
right to repeal any provision of it at 17 L. Ed. 163.
any time. Sherman v. Smith (U. S.), 85. Where stockholders incorpo-
1 Black 587, 17 L. Ed. 163. rated under the general banking law
Defendants were stockholders in an had, by their articles of association,
insolvent bank organized under a agreed that they should not be in-
general law of New York providing dividually liable for the debts of the
that stockholders should not be liable corporation, but under the right of
for debts of the bank unless by their repeal reserved in the general law,
own agreement, as provided in its both by the new constitution and by
charter, but reserving to the state the statute, it had been declared that,
right to repeal or change the law. The after a certain date, stockholders in
charter of the bank provided for the such corporation, in case of the is-
nonliability of its stockholders, but by suing of bank notes by them, should
Act 1849, subsequently passed, stock- be personally liable, it was held that
holders of all banks continuing to is- the provisions in the articles could
sue notes within the state after a not exonerate them from liability. In
specified time were made individually re Gibson, 31 N. Y. 9.
liable for the debts of the bank to an 86. The stockholders of a bank cre-
amount equal to their stock. Held, ated under the general banking law
168 BANKS AND BANKING. § 47 (7e)
from denying the acceptance thereof as against the claims of third per-
sons by exercising privileges secured by it.^T unless the statute provides
that it shall apply only to banks chartered subsequent to its enactment.^s
§ 47 (7e) Illegally or Irregularly Organized Banks. — Persons

who carry on a banking business, in the name of a corporation, in viola-
tion of law, are not protected by the corporate privileges from personal
liabiHty for debts contracted -by them in the transaction of such business.*"
subsequent to the action of 1849, zens' Bank v. Wright, 6 O. St. 318;

changing its provision so as to, make Cowles V. Bartell, 2 O. Dec. 424.
a stockholder liable for its contracts, Persons who carry on a banking
are deemed to have voluntarily as- business, in the name of such corpora-
sumed the provision of the amenda- tion, in violation of said § 44 of the Act
tory act. United States Trust Co. v. of March 21, 1851, prohibiting the issue
United States Fire Ins. Co., 18 N. Y. of notes to circulate as money, with-
199, 8 App. Prac. 193. out having previously deposited cer-
Estoppel to deny liability by accept- tain securities with the state, were not
—
ance of charter. Owen v. Purdy, 12 protected by the corporate privileges
from personal liability for debts con-
O. St. 73.
tracted by them in the transaction of
87. The fact that after the amend-
such unlawful business. Such liability
ment of the original charter of a
did not attach to the stockholders of
Banking Co. by Sp. Laws 1889, p. 543,
such corporation as partners, but to
c. 349, its stockholders allowed the
those only who engage in such busi-
corporation to continue in business and
ness, and to those who authorize or
exercise the new powers provided in
sanction it. Medill t'. Collier, 16 O.
the amendment, and to make the con-
St. 599.
tracts therein authorized, was suffi-
88. St. 1836, c. 233, entitled "Further
cient evidence of their acceptance of
to regulate banks and banking," does
the liability imposed on them by § 6,
not render stockholders in a bank, who
making them liable to the amount of had become proprietors of their stock
their stock in addition to the amount
before the passage of that act, per-
invested therein. Flynn v. American,
sonally liable for the debts of the
etc., Trust Co., 104 Me. 141, 69 Atl.
bank. Wheeler v. Frontier Bank, 23
771.
Me. 308.
The Act of 15th February, 1844, re-
lating to the Bank of Wooster (3 Cur-
—
South Carolina. Under Const. 1895,
art. 9, § 16, providing that it shall ap-
wen, 1013), provides that upon the ply only to charters under which or-
assent of each and all of the stock- ganizations have not in good faith
holders, by a written declaration, filed taken place at the adoption of the con-
with the auditor of state, to the indi- stitution, the liability of stockholders
vidual liability mentioned in the second of a bank chartered prior to the adop-
section of the act, the bank shall en- tion of that constitution is not gov-
joy all the rights originally granted, erned thereby. ]Man v. Boykin, 79 S.
free from certain restrictive laws, C. 1, 60 S. E. 17, 128 Am. St. Rep. 830.
which would otherwise apply. Held, 89. Persons carrying on unauthor-
that the act was to be regarded as
an amendment to the charter of the
—
ized banking business. Dickason v.
Grafton Sav. Bank Co., 6 O. C. C, N.
Bank of Wooster, offered to the stock- S., 329, 17-27 O. C. D. 357.
holders for their acceptance in a pre- Though a creditor seeking to en-
scribed mode, and that, although this force the secondary liability of the
mode was not pursued, some of the stockholders of an insolvent bank
stockholders not uniting in the writ- may have brought his action against
ten declaration, yet, if the bank pro- the individuals who actively assumed
ceeded to exercise the privileges se- the exercise of corporate franchises
cured by the amendment, neither it, without lawful authority, he also had
nor such of its stockholders as were the right to bring an action against
consenting thereto, could deny the ac- the stockholders, as such, to enforce
ceptance of such amendment as their subscription and liability, rely-
against the claims of third persons. ing on the doctrine of estoppel. Dicka-
Owen V. Purdy, 12 O. St. 73. son V. Grafton Sav. Bank Co., 6 O. C.
Ohio Free Banking Act.— See Citi- C, N. S., 329, 17-27 O. C. C. 357.
§ 47 (7g) STOCKHOI^DERS. 169
Incorporation for other purposes than banking did not relieve the
stockholders who engage in unauthorized banking from personal liability
for the unauthorized circulation of such corporation. Stockholders, how-
ever, acting within the scope of the charter, and not participating in the
unauthorized were not liable.^"
acts,
Where a bank is not legally created, those who were instrumental
in bringing it into life —
its stockholders and officers are responsible for —
its issues. When such a state of things exist, the pretended corporators
are regarded as partners, or joint stockholders, liable, individually, to ful-
fill what the corporate body would be compelled to do if it had a legal
existence. ^^
Irregularities in organizing a corporation does not necessarily de-
prive the officers and stockholders of the protection of the charter, or sub-
ject them to private liability when sued as unauthorized bankers. Such
organization, to protect them, had to be substantially in accordance with the
charter. 82
Fraud upon the charter of a corporation, and combination to defraud
the public, prevents those participating in it from claiming any protection
under its provisions to escape private responsibility as unauthorized
bankers.^*
§ 47 (7f) Reorganized Banks. — See post, "Requisites and Suffi-

ciency of Subscription or Acquisition of Shares," § 47 (8bb).
§ 47 (7g) State Banks.— See post, "State," § 47 (8g).
90. Incorporation for purpose other billsand notes, but that all such notes,
than —
banking. Kearny v. Buttles, 1 bills, bonds, and other securities,
O. St. 362. should be holden and taken in all
After the repeal of § 23 of the Act courts as absolutely void. Johnson v.
of 1824, to regulate judicial proceed- Bentley, 16 O. 97; Kearny v. Buttles,
ings where banks and bankers are par- 1 O. St. 362.
ties, the stockholders and officers of This act prevented action only on
an unauthorized banking association notes and bills thereafter issued to
were liable, in their individual capacity, circulate as money, and did not pre-
for the bills and notes of such associa- elude an action on a certificate of de-
tion issued and intended to pass as posit issued for money deposited in
money, although issued prior to the the bank, and not intended to circu-
repeal of said § 23. Johnson v. Bent- late as money. Porter v. Porter, 14
ley, 16 O. 97; Kearney v. Buttles, 1 O. 230; Porter v. Kepler, 14 O. 137.
O. St. 363. So much of this act as declared that
The Act of the Ohio legislature of no action should be brought upon such
1834, regulate judicial proceedings
to bills or notes was repealed by the Act
where banks and bankers are parties, of March 33, 1840, to further amend
provided that no action should be the act of 1816. Johnson v. Bentley,
brought upon any notes or bills here- 16 O. 97; Kearny v. Buttles, 1 O. St.
after issued by any bank, banker or 363. See Fulton v. Bates, 1 O. Dec. 59.
bankers, and intended for circulation, 91. Bank not legally created. Alex- —
or upon any note, bill, bond, or other ander v. Brown, 2 Disn. 395, 13 O.
security given and made payable to Dec. 241.
any such bank, banker or bankers, un- 92. Irregularities in organization.^
less such bank, banker or bankers Bartholomew v. Bentley, 1 O. St. 37.
should be incorporated and authorized 93. Fraud on charter. — Bartholomew
by the laws of this state to issue such v. Bentley, 1 O. St. 37.
170 BANKS AND BANKING. § 47 (8bb)
§ 47 (7h) National Banks.— See post, "Liability of Stockholders

for Debts of Bank," § 247.
§ 47 (8) Stockholders Who Are Liable— § 47 (8a) Stockhold-

ers Defined. —
The word "stockholders," applies not only to such persons
as appear by the books of the corporation to be such, but to aiiy equitable
owner of stock, although the stock appears on the books of the corporation
in the name of another.®*
§ 47 (8b) Subscribers and Stockholders of Record— § 47 (8ba)

—
General Rule. Stockholders of record are liable under bank stockhold-
ers' personal liability laws. As a general rule, in all cases between the
creditors of a bank and a person standing on the books of the bank as a
shareholder, such person is estopped from denying that he is a shareholder;
certainly where he held himself out to the creditors of the bank as own-
ing it.®5
§ 47 (8bb) Requisites and Sufficiency of Subscription or Ac-

quisition of Shares. —
Necessity for Formal Transfer. One to whom —
a certificate of stock in a state bank is issued, and who receives dividends
thereon for several years, can not escape the "double liability imposed on
stockholders by the Banking Act, on the ground that he was not an original
subscriber to the stock, and that no formal transfer from such a subscriber
to him appears on the bank books. ^^
Unauthorized Entry of Name on Stock Book. An entry of the —

name of a person in the stock book of a bank as a shareholder, without proof
of knowledge, assent, or confirinatory act on his part, is not sufficient to es-
tablish the relation and charge his estate after his death with a statutory
liability as a stockholder.®'^
Issuance of Certificate to Shareholders. The fact that a share- —
holder of bank has not received a certificate of stock for which he gave a
note, which is unpaid, does not relieve him from individual liability for the
bank's debts. ®s
94. defined.—Joecken
Stockholders therefor standing in his name, and he
V. Cuyahoga Sav. 24 O. C C.
etc., Co., being a director and vice president of
605, construing^ Rev. Stats, of Ohio, the bank, and the certificate having
§ 3259, 2 Bates Anno. Stats., § 3259; been indorsed by him in his own name.
2 Bates Ann. Stat., § 3821-2; Act Jan. O'Connor v. Witherly, 111 Cal. 523,
27, 1816, and acts amendatory thereof; 44 p^Q 337
Porter z; Kepler 14 O. 127; Porter v
Necessity for formal transfer.-
"
O. S7
^° T/'î ?• ^ ^^^f!^ o Bissell v. Heath, 98 Mich. 472, 57 N.
^
'
1^^^'"^ ^-Buttles, 1
1 fc .
^^ J 1^ ^
Eo^P
362; Bartholomew
^t?,' v. Bentley, 1 O. St. j Ju u-
-mt- t>
^j,
a
;^jîji
iaa,i
^^ '^^ Michigan Banking Act ^ i.
1887,
37; Lawler v. Walker, 18 O. 151; John-
""f
son V. Bentley, 16 O. 97; Alexander v. ' '
,, , . ,
Brown, 2 Disn. 395, 13 O. Dec. 241. S''- Unauthorized entry of name on

95. Subscribers and stockholders of
stockbook.— Foote v. Anderson, 133
record.— Man v. Boykin, 79 S. C. 1, Fed 659, 61 C C. A. 5; O Connor v.
60 S. E. 17, 127 Am. St. Rep. 830. Witherby, 111 Cal. 523, 44 Pac. 227.
As against creditors of a bank, one 98. Shareholder to whom no cer-
can not allege that he was not the tificate issued. —
Robertson v. Conway,
owner of stock therein, the certificate 110 C. C. A. 377, 188 Fed. 579.
§ 47 (8bb) STOCKHOLDERS. 171
Conditional Subscription or Signature ^Â subscriber to the stock

of a banking corporation can not defeat his personal liability to creditors
by showing a conditional subscription or signature of the articles of asso-

ciation.^8
Subscription or Purchase Induced by Fraud. That a holder of —
bank stock was induced to become such by the fraud of officers or di-
rectors of the bank does not relieve him from individual responsibility -for
;i
the bank's debts nor does the fact that he has brought suit to rescind his
subscription on the ground of fraud have that effect.^
Stockholder under Illegal Contract. That a holder of bank stock —
became such by an illegal contract does not relieve him from individual
99. Conditional signature or subscrip- of the three members of the firm of

tion.— Rev. St. 1898, § 3024, subsec. 47, R.'s Sons, and that the stock was
provides that stockholders in every listed in the name of R.'s Sons, and
banking corporation organized under that it was the intention of W. R. and
this act shall be individually respon- R. R. to bind the lirm, did not pre-
sible to the amount of their respective vent the enforcement of the individual
shares for indebtedness and lia-
all its liability of W. R. and R. R., since as
bilities of every kind. S., the pro- the statute required the articles to be
moter of a bank, secured the signature signed by stockholders, and as W. R.
of W. R. and R. R. to the articles of and R. R. could not bind the firm, it
incorporation, with the understanding will be presumed they intended to
that they were not to be liable vmless bind themselves, and the record can
the signature of M. R. should be not be varied by parol evidence of an
secured, and his consent that the firm intention to bind the firm. Rehbein v.
of R.'s Sons should take twenty-five Rahr, 109 Wis. 136, 85 N. W. 315.
shares. M. R. refused to sign the ar- -
1. Subscription or purchase induced
ticles, and S., after being informed of —
by fraud. In re Empire City Bank
such refusal, and without the knowl- (N. Y.), 6 Abb. Prac. 385.
edge of W. R. and R. R., filed the Astockholder in a bank, who has
articles of incorporation with their received dividends for years, can not,
signatures, and subsequently tendered after the bank has become insolvent
twenty-five shares to the firm, which and gone into a receiver's hands, re-
were refused. In all the reports of pudiate his double liability to creditors
the bank to the state treasurer W. R. imposed by Banking Act 1887, § 46,
and R. R. were returned as stockhold- on the ground that he was induced to
ers. Held, that W. R. and R. R. be- become a stockholder by the fraud of
came stockholders in the bank, and the officers of the bank. Bissell v.
hence were individually liable under Heath, 98 Mich. 472, 57 N. W. 585.
the statute, since it would be against Where of an
a receiver insolvent
public policy to allow them to im- bank is proceeding to enforce the in-
peach the record as against the inter- dividual liability of stockholders for
vening rights of creditors by showing the benefit of depositors, it is too late
the conditional signature of the ar- for one who has for four years al-
ticles. Rchbein v. Rahr, 109 Wis. 13e, lowed his name to appear as a stock-
85 N. W. 315. holder to avoid liability because his
Rev. St. 1898, § 2024, subsec. 18, pro- subscription was obtained by fraud.
vides that any number of persons may Foster v. Broas, 120 Mich. 1, 79 N. W.
associate and become incorporated, 696, 77 Am. St. Rep. 5C5.
and subsection 19 declares that such 2. Under Ky. St., § 547 (Russell's
persons shall make a certificate stat- St., § 2131), where a defendant retained
ing the names of the shareholders and his stock for two years, and until
the amount subscribed by each, and after the corporation became insolvent
subsection 47 imposes on stockholders without objection, it is not a defense
an individual liability for the debts of that he then brought a suit against the
the corporation to the amount of their corporation to rescind his subscription
shares. Held, that the fact that ar- on the ground of fraud. Robertson v.
ticles of 'incorporation for ? bank Conway, 110 C. C. A. 377, 188 Fed.
were signed by W. R. and R. R., two 579.
liability for the bank's debts.^

Payment for Stock. —The individual liability of holders of bank stock
exists without regar4 to the question whether or not the stock had been
paid for in full to the bank* The fact that a holder gave notes for the
stock which are unpaid does not f&lieve him from such liability.
Purchasers of Stock o-f Insolvent Bank. As against creditors of a —
bank whose rights have become vested by its insolvency, purchasers of
stock issued and transferred to them several months before, can not rescind
the purchase because the issue was invalid where an examination of the
bank's books would have disclosed that it was in fact insolvent when the
stock was issued, and a large part of the corporate indebtedness has been
since incurred."'
Holders of New
Stock Issued upon Increase of Capital Stock. —
Holders of new stock issued under an amendment to the articles of incor-
poration authorizing an increase of capital stock, but which was not prop-
erly filed and published, as to creditors who have become such on the faith
of the issue thereof, are estopped to deny its validity, but as to those who
became creditors prior to such issue of stock, there is no estoppel.''^ As
against those who became creditors prior to an issue of such stock, the
holders of the new stock, who received it from the bank in lieu of claims
which they formerly held as creditors of the bank, are entitled to rescind
and stand as creditors, not stockholders.®
—
Stockholders in Reorganized Bank. Where, after insolvency of a
bank, it was reorganized, and the new bank received all the property and
effects of the old bank, and used them in its business, the stockholders
thereof are subject to the stockholders' statutory liability.''
3. Stockholder under illegal contract. bank. — Olson

v. State Bank, 67 Minn.
—A stockholder in an insolvent bank 267, N. W. 904.
69
can not resist apportionment on the 7. Subscribers for increased stock.
ground that he became such by an — Palmer v. Bank, 73 Minn. 266, 75 N.
illegal contract. In re Empire City W. 380.
Bank (N. Y.), 6 Abb. Prac. 385. By reason of a failure to comply
4. Payment for —Act
April
stock. with certain formalities, creditors who
10, 1873 (P. L. 674), incorporating the had subscribed for new stock in pay-
Miners' Bank of Summit Hill, which ment of their debts became liable as
provides (§ 13) that "the stockholders stockholders only to those who be-
of said bank shall be held individually came creditors subsequent to the at-
responsible * * * for all contracts, tempted increase of stock. With the
debts, and engagements of said bank, exception of this liability, they re-
to the extent of double the amount of mained merely creditors of the bank,
the stock subscribed for or held by Held, that the amounts which the new
them," creates a liability in favor of stockholders, standing as creditors,
creditors against the stockholders in could collect from the old stockhold-
twice the amount of stock held by ers on their double liability, should be
them, respectively, without regard to applied, as far as necessary, in pay-
the question whether or not the stock ment of the creditors to whom such
has been paid for in full to the cor- new stockholders were liable. Palmer
poration. Dreisbach v. Price, 133 Pa. v. Bank, 72 Minn. 266, 75 N. W. 380.
St. 560, 19 Atl. 569. 8. Palmer v. Bank, 72 Minn. 266, 75
5. Robertson v. Conway, 110 C. C. N. W. 380.
A. 377, 188 Fed. 579. 9. Stockholders in reorganized bank.
6. Purchase of stock of insolvent — Willius v. Mann, 91 Minn. 494, 98 N.
§ 47 (8e) STocKHoivDERS. 173
The sole stockholder of a bank and possessor of its assets, if they

equal a claim against it, is bound therefor. i<*
Persons Carrying on Unauthorized Banking Business and Stock-

holders in Illegal or Irregularly Organized Banks. — See ante, "Illegal
or Irregularly Organized Banks," § 47 (7e).
§ 47 (8c) Agent or Broker. —An agent or broker buying for an-

other to whom he delivers the stock is not subject to stockholders' personal
liability.il
§ 47 (8d) Pledgee. —A
pledgee of national bank stock is not a stock-
holder in such a sense as to be liable as a stockholder.i^ And a holder of
state bank stock as collateral is not subject to the stockholder's personal
under the New York banking law;i^ but in Maine persons appear-
liability
ing by the stock books and stock certificates to be the absolute owners of
stock in a banking and trust company are subject to the statutory liability
of stockholders, though they only hold the stock as security for debts due
them by the real owners. i*
§ 47 (Be) Representatives and Trustees. — Holders of state bank

stock in a representative capacity are not subject to stockholder's personal
liability.15 The mere fact that on the stock books and stock certificates of
a banking and trust company the word "trustee" appears after the name
W. 341, rehearing denied in 98 N. W. with instructions to sell for the best

867. price obtainable, and offers it on the
An was reorganized
insolvent bank exchange and it is bid off by another
and name changed, and each stock-
its ^^"^ member, who pays for it
^^P^^l.
holder surrendered a specified num- with his own check, stating that he is
ber of shares for the purpose of aiding buying for another, but not disclosing
in restoring the impaired capital of the l"s principal's name, and then de-
bank. Held, that a stockholder, by "vers the stock to his principal, the
participating in the organization purchasing broker is not at any time
scheme, was estopped to deny its '"^ legal or equitable owner of such
stockholder's liability. Hunt ". stock, nor subject to a stockholder's
Hauser Malting Co., 95 Minn. 206, 103 statutory liability thereon. Joecken
^- Cuyahoga Sav., etc., Co., 34 O. C. C.
N. W. 1033.
On insolvency of a bank, and claim t.i j ^
of certain "alleged stockholders in a 12. Pledgee.— McConville v. Means,
reorganized bank that their liability on 21 Wkly. L. ^Bull. 193, 10 O. Dec. 452.
such stock was that of transferrers See post, Liability of Pledgees,"
only, evidence held to fail to identify § 248 (4).
the stock of the appellants, for whicifi 13. Banking Law, 1893, § 52; Hag-
they did not accept new certificates on mayer v. Alten, 36 Misc. Rep. 59, 73
reorganization of the bank, with the N. Y. S. 623.
shares of stock issued to creditors in 14. Flynn v. American, etc. Trust
in payment of their deposits. Pope v. Co., 104 Me. 141, 69 Atl 771
Germania Bank, 106 Minn. 446, 119 N. Representatives and tnistees.-
^g.
^- ^1- Pub. Laws
N. C. 1893, c. 471, § 1;
10. Sole of bank.—
stockholders Smathers v. Western Carolina Bank,
Robertson v. Conway,
La. Ann. 297. 5 155 n. C. 283, 71 S. E. 345; N. Y.
11. Agent or broker. Where a — Banking Laws, 1893, § 52; Hagmayer
broker and member of the stock ex- v. Alten, 36 Misc. Rep. 59, 72 N. Y.
change holds stock indorsed in blank S. 623.
of the holder does not exempt him from the statutory liability of stock-
holders.^^
§ 47 (8f) Beneficiaries of Stock Held in Trust. —The beneficiaries

of bank stock held in trust by a trustee is subject to the stockholder's stat-
utory liability.^''
§ 47 (8g) State. —The state is not subject to stockholders' statutory

liabiHty.i^
§ 47 (8h) Corporations and Other Banks. corporation pur- —A

chasing bank stock in violation of its charter is not subject to stockholders'
statutory liability.^*
Bank Purchasing Stock in —
Other Banks. A banking corporation au-
thorized to "discount bills, and other securities" has power to buy
notes,
from a stockholder in another bank stock therein, and hence, having done
so, is individually liable thereon as a stockholder.^"
§ 47 (9) Creditors and Indebtedness Secured— § 47 (9a) Re-

—
troactive Effect of Statutes. General laws imposing or changing the
statutory liability of stockholders of banks are not retroactive in effect as
to nature and extent of the liability. Debts contracted prior to the enact-
ment,^^ modification,^^ or repeal^^ of laws imposing stockholder's liability
are not affected thereby.
16. Flynn v. American, etc., Trust banks. —

Latimer v. Citizens' State
Co., 104 Me. 141, 69 Atl. 771. Bank, 102 Iowa 162, 71 N. W. 225.
17. Beneficiaries of stock held
trust.— Pub. Laws, 1893, c. 471, § 1;
in 21. Retroactive effect. — Pub. Laws
1897, p. 473, c. 298, which imposes on
Pub. Laws, 1897, c. 298; Smathers v. bank stockholders an additional per-
Western Carolina Bank, 155 N. C. 283, sonal liability to the extent of the
71 S. E. 345. amount of their stock, and repeals all
18. State a stockholder.—Act Feb. exemptions from personal liability con-
19, 1828, § 7, amending the charter of tained in charters, should be construed
the Consolidated Association of the to effect only a prospective charge in
Planters of Louisiana, which makes charters, and not so as to fix such lia-
the state a stockholder to the amount bility on stockholders for debts con-
of $1,000,000 as a bonus, did not make tracted prior to the enactment of the
it liable for contributions as ordinary- statute, and, when so construed, is not
stockholders were. Consolidated Bank constitutionally objectionable. Smath-
V. State, 5 La. Ann. 44. ers V. Western Carolina Bank, 135 N.
19. Corporation purchasing bank C. 410, 47 S. E. 893.
—
stock. Where a corporation, in viola- Section 55, c. 47, Laws 1897, which
tion of Code of Laws 1902, § 1843, authorizes a receiver of an insolvent
subd. "e," providing that no part of the bank to institute actions for the en-
capital stock of a corporation shall be
used in banking operations or for any 22. The Banking Act of 1895 (Gen.
purpose inconsistent with its charter, Laws 1895, 145), providing for a
c.
purchased shares of stock in a bank, single instead of a double liability on
it is not liable to creditors of the bank, the part of the stockholders of a bank
on its insolvency, on the stock sub- to its creditors, does not reduce the
scribed and paid for by such corpora- liability of stockholders on any obliga-
tion, on which it has collected divi- tion created between the passage of
dends. White V. Commercial, etc., such act and the time when, by its
Bank, 66 S. C. 491, 97 Am. St. Rep. 803, terms, it was to take eflfect. Seymour
45 S. E. 94. V. Greve, 79 Minn. 211, 81 N. W. 1059.
20. Bank purchasing stock in other 23. See ante, "Repeal," § 47 (2be).
§ 47 (9ba) STOCKHOLDBRS. 175
-Debts incurred after the enactment, etc., of a stockholder's liability

law are within such laws.^*
Renewal of Certificates of Deposit. —Where certificates of deposit
are renewed after the passage of such act, the new certificates will be deemed
to be new contracts. ^^
§ 47 (9b) Creditors Entitled to Enforce— § 47 (9ba) General

Creditors. —
The general creditors of a bank have a right to resort to the
statutory liability of stockholders to satisfy their demands. ^^
Creditors who made settlements after the bank was put into liqui-
dation and received from the president in that settlement paper of the
bank, or, as in some cases, the individual notes of the president himself,
endorsed or guaranteed in the name of the bank, are not to be considered
as creditors of the bank entitled to subject the stockholders to individual
liability. The individual liability of the stockholders, as imposed by and ex-
pressed in the statute, is indeed for all the contracts, debts, and engagements
of such association, but that must be restricted in its meaning to such con-
tracts, debts, and engagements as have been duly contracted in the ordinary
course of its business.That business ceased when the bank went into liqui-
^^^
dation.
forcement of the statutory liability of being paid, and in other cases inter-
the stockholders of the bank for equal est), the new certificates will be
distribution among its creditors, and deemed, for the purpose of estimating
which suspends the creditor's right, the stockholders' liability, new and in-
previously given, to proceed for him- dependent contracts. Seymour v. Greve,
self against the stockholder, for one 79 Minn. 211, 81 N. W. 1059.
year, to avifait the action of the re- 26. Creditors entitled to enforce. —
ceiver, can not be allowed to apply Where the holders of notes guaranteed
between those who were creditors and by a banking and trust company reas-
stockholders before the time of its signed them to the company or its re-
taking effect. Woodworth v. Bowles, ceiver, and proved their claims there-
61 Kan. 569, 60 Pac. 331. for against the company, and the
24. Debts incurred after act took receiver collected the notes, but, in-
effect. —
Gen. Laws, c. 37, § 52, pro- stead of paying the proceeds to the
vides that the stockholders of every former holders, turned them into the
banking corporation shall be indi- general fund for creditors with the
vidually responsible for all debts of approval of the court, such holders
such corporation, to the extent of are entitled to be regarded as general
the amount of their stock, at its par creditors with the same right to resort
value, in addition to the amount in- to the statutory liability of stockhold-
vested such shares. Held, that § 52
in ers, notwithstanding that, if such pro-
applies to stockholders of banks organ- ceeds had been paid to them, they
ized before that section took effect, would have been paid in full. Flynn
as to debts incurred after that section V. American, etc.. Trust Co., 104 Me.
took effect. Barnes v. Arnold, 23 Misc. 141, 69 Atl. 771.
Rep. 197, 51 N. Y. S.1109. 27. Creditors settling with bank
25. Renewal of certificates of de- after suspension. —
Richmond v. Irons,
posit. — Where certificates of deposit, 121 U. S. 27, 30 L. Ed. 864, 7 S. Ct. 788.
issued before the passage of the Act Where the bank was in liquidation,
of 1895 (Laws 1895, c. 145), providing and the officers were not authorized
for a single in place of a double lia- to enter into new contracts, the pre-
bility for the stockholders of insolvent sumption is, in every case where the
banks, are renewed after such passage, creditor accepted paper in settlement
the old certificates being surrendered of his claim, that it was received in
and new ones taken in their stead (in payment and operated as a satisfac-
some casps a part of the principal tion. If there was any other agree-
176 BANKS AND BANKING. § 47 (9cb)
§ 47 (9bb) Bill Holder.— See post, "Liability of Stockholders or Of-

ficers," § 211.
§ 47 (9bc) Indorsers. — See post, "Debts Due or Owing from Stock-

holders," § 47 (9cb).
§ 47 (9c) Indebtedness Secured— § 47(9ca) When Payable.—

Under the New York laws stockholders are not liable for any indebtedness
not payable within two years after it was contracted,^* but that law does
not relieve stockholders from claims for deposits. ^^
Drafts drawn by a bank on other banks in payment of borrowed
money becomeliabilities of the drawing bank as soon as they are protested.^"
§ 47 (9cb) Debts Due or Owing from Stockholder. —Debts due

or owing from stockholders to the bank are within the stockholders' stat-
utory liability. 8^
ment by which that paper was received clares that no stockholder shall be
merely as collateral to the original debt personally liable for a corporate debt
and received as security and not in not payable within two years from the
payment, it must -be affirmatively time it is contracted, nor unless the
shown. Richmond v. Irons, 121 U. S. corporation is sued for it within two
27, 30 L. Ed. 864, 7 S. Ct. 788. years after it became due. Held, not
Such settlements can not be set to relieve stockholders of an insolvent
aside, and the creditors, restored to bank from claims for deposits, since
the situation in which they were at the deposits are due, within the statute,
the time of the suspension of the bank. as they are legally enforceable at the
The circumstances of the situation option of the creditor within the
have greatly changed by the lapse of statutory limit, and, conceding that
time. The creditors who entered into they are not due unless demanded, the
these settlements have no ground of commencement of the action against
complaint against the bank as a cor- the stockholders is equivalent to a
poration or as against its stockholders; formal demand. Barnes v. Trevor, 45
they were not misled to their hurt by App. Div. 314, 61 N. Y. S. 85, affirmed.
any fraudulent misrepresentations or Barnes v. Arnold, 169 N. Y. 611, 62 N.
concealments of any matters of fact. E. 1093.
Whatever mistake was made was their Gen. Laws, c. 36, § 55, provides that
own, and it was a mistake consisting "no stockholder shall be personally
merely in a misapprehension of their liable for any debt of the corporation
legal rights. Richmond v. Irons, 121 not payable within two years from
U. S. 27, 30 L. Ed. 864, 7 S. Ct. 788. the time it is contracted." Held, that
28. When payable.^Hagmayer v. deposits in a bank, subject to check,
Alten, 36 Misc. Rep. 59, N. Y. S.
72 become due wrhen the bank suspends
623; Barnes v. Arnold, 23 Misc. Rep. payment, whether the interest is paid
197, 51 N. Y. S. 1109. on balance or not, and bringing suit
An agreement by one bank to liq- against the receiver and the stockhold-
uidate another at most gave the ers constitutes a demand. Barnes v.
liquidating bank right of action against Arnold, 23 Misc. Rep. 197, 51 N. Y. S.
the liquidated bank for any balance 1109.
existing after application of the assets 30. Drafts drawn by bank on other
to the advances, defeating the stock-
holders' personal liability under Bank-
bank. — Barnesv. Arnold, 23 Misc. Rep.
197, 51 N. Y. S. 1109.
ing Law (Consol. Laws, c. 2), § 71, 31. Debts due or owing from stock-
—
-
because the indebtedness was not pay- holders. The charter of a bank pro-
able within two years. Assets Reali- vided that "the stock of each stock-
zation Co. V. Howard, 70 Misc. Rep. holder shall at all times be pledged
651, 127 N. Y. 798. and liable for the payment of any debt
29. The stock corporation law (Laws (other than an original installment)
1890, c. 564, § 58) which applies to due or owing from said stockholder to
stockholders of an insolvent bank, de- the bank, and may be sold, or so many
§ 47 (9cfa) stockhoi,de;es. 177
§ 47 (9cc) Debts Incurred Prior to Purchase of Stock.—That

some before and some
stockholders purchased their stock at different times,
after particular contracts, debts and engagements, on which the corpora-
tion defaulted, were entered into, is not a defense to this liability.^^
§ 47 (9cd) Debts Contracted after Death of Stockholder.—The

estate of a stockholder is liable for debts of the bank contracted after his
death.33
§ 47 (9ce) Ultra Vires Undertakings— § 47 (9cea) In General.

—Banking laws making stockholders liable for a bank's obligations do not
apply to ultra vires undertakings.^*
§ 47 (9ceb) Establishment of Branch Bank. Though the act of a —

state bank in establishing branch banks was ultra vires, the stockholders of
the state bank who shared in the profits of the branch banks with knowledge
of the relation can not escape liability to creditors, who, in good faith, dealt
with the branch banks as a part of the state bank.^s
§ 47 (9cec) Agreements for Liquidation. — See post, "Agreements

for Liquidation of Bank," § 47 (9cfg).
§ 47 (9cf) Particular Obligations— § 47 (9cfa) Bank Bills or

Notes. —The stockholders in a bank are liable for the ultimate redemption
of all the notes or bills issued by that bank.^^
shares thereof as shall be necessary, (Consol. Laws, c. 2), § 71, of N. Y.;

at public auction, for such debt, on de- (Assets Realization Co. v. Howard, 70
fault of payment thereof." Held, that Misc. Rep. 651, 127 N. Y. 798.
this provision was not adopted with 35. Establishment of branch banks.
the view to secure indorsers, though —A state bank established branch
they might unquestionably be entitled banks without capital except as fur-
to relief against any abuse of the nished by the state bank. Notes taken
power which it conferred. Cross v. by the branch banks were made pay-
Phenix Bank, 1 R. I. 39. able to the state bank, and all moneys
32. Debts incurred prior to purchase deposited there were used by the state
of stock. —
It was so held under Sp. bank as its own. From the profits of
Laws 1889, p. 547, c. 349, § 6, in the state bank and the branch banks
amendment of the original charter of dividends were declared. Such course
the American Banking & Trust Com- of business continued for about eight
pany, making stockholders liable for years. Each depositor and borrower
all contracts, debts, and engagements in the branch banks knew the relation
of the corporation to the amount of to the state bank. The stockholders
their stock in addition to the amount of the state bank who shared in the
invested therein. Flynn v. American, profits of the branch banks with knowl-
etc, Trust Co., 104 Me. 141, 69 Atl. edge of the relations were held to be
771. liable to creditors who, in good faith,
33. Debts contracted after death of dealt with the branch banks as a part
stockholder. It — was so held under of the state bank. Kipp v. Miller, 47
Civ. Code of Cal., § 322, where a non- Colo. 598, 108 Pac. 164.
resident stockholder of a California 36. Bank bills or notes. —
Thornton
bank died, and the bank afterwards v. Lane, 11 Ga. 459; Robinson v. Lane,
contracts a debt. Lanigan v. North, 69 19 Ga. 337; Robison v. Beall, 26 Ga.
Ark. 62, 63 S. W. 63; Lanigan v. Gor- 17; Adkins v. Thornton, 19 Ga. 335.
don, 69 Ark. 659, 63 S. W. 1131. See post, "Liability <î Stockholders or
34. Ultra vires undertakings. It — Officers," § 211.
was so held as to Banking Laws
1 B & B—13
178 BANKS AND BANKING. § 47 (9cfd)
§ 47 (9cfb) Deposits. —Deposits are debts of a bank ordinarily pro-

tected by statutes imposing individual liability on the stockholders, but every
deposit of money that might be made in thebank is not embraced by a stat-
ute imposing such liability as to all funds deposited "as savings and in
trust."^'' The time when the deposits viêre actually made is immaterial.^*
The issuance of a certificate of deposit by one bank to another to cover over-
drafts is not a deposit.*^
Amount Unpaid. — The delivery by a bank to a depositor of drafts, in
exchange for checks on his deposit, where such drafts are not paid on pre-
sentation does not constitute a pro tanto payment of such deposit and re-
duction of the amount for which the stockholders are liable.*" In determin-
ing whether deposits made in a bank before the date when a stockholders'
liability law took effect are still unpaid, payments by the bank will be ap-
plied first to the earliest items of indebtedness.*^
§ 47 (9cfc) Judgments against Bank. —A judgment against the

bank is a debt within the stockholder's statutory liability. *2
§ 47 (9cfd) Fees and Costs of Creditor's Suit. —While, as between

the creditors, in an action against an insolvent bank by one of its creditors
on behalf of himself and the other creditors, for distribution of its assets,
the fees for plaintiff's counsel are properly first paid from the fund realized
for creditors, such fees are not to be considered part of the bank's debt,
or to be deducted from its assets, in determining the amount of the bank's
debts remaining for which its stockholders are liable.*^
37. The provision of Act Feb. 21, Foster, 118 Mich. 268, 76 N. W. 499,
1861, chartering the Marine Company 4 Detroit Leg. N. 499, 42 L. R. A. 404.
of Chicago, that the stockholders 40. Amount unpaid.— A depositor
shall, as to all funds deposited "as sav- paid his bank checks on his deposit for
ings, and in trust with said corpora- drafts on Chicago. His bank book
tion," while they are stockholders, be ^^g then balanced, showing the amount
individually liable to the extent of their of his deposit after deducting the
stock, held not to embrace every de- checks. Two days later the bank failed,
posit of money that might be made m a^d, the drafts not being paid, and re-
the bank. Bromley v. Goodwin, 95 turned to the depositor, he subse-
111. 118^ quently surrendered them to the bank,
38. Foster z/. Row, 120 Mich. 1, 79 and it credited their amount of his
N. W 696. See ante, When payable, account in his pass book. Held, in an
§ 47 (9ca). action to enforce a stockholders' lia-
39. A
bank gave its certificate of de- bility, that the delivery of the drafts
posit to another bank, and in considera- did not constitute payment pro tanto
tion therefor was allowed to draw on ^f his deposit, and that the depositor's
the payee bank for the same amount. claim at the time of the failure was
It drew m
excess of this sum, and gave the amount of the original deposit,
another certificate of deposit for the Dingley v. McDonald, 134 Cal. 90, 56
excess. Held, that the certificates were pac. 790.
not entitled to a dividend of moneys ai -o a 00 »«•• ut>
^^
collected by the receiver of the former ,of
^^^' ".i m" v^- %^- iTa. '
bank from its stockholders, the trans- ^t ^- ^ ^

action resulting in their issuance not Judgments against bank.—
4.2.
,
Lowry
being a deposit, within 3 How. Ann. '^-Parsons. 52 Ga. 356; Thornton v.
making bank stockhold- Lane, 11 Ga. 459.
St.,
I 3308e5,
ers liable to depositors to the amount 43. Fees and costs. Buist v. Wil- —
of their stock. State Sav. Bank v. liams, 81 S. C. 495, 63 S. E. 859.
§ 47 (lOaa) stockholders. 179
§ 47 (9cfe) Costs of Receivership. —The expenses of a receivership

including the fees of the receiver's attorney are considered part of the bank's
debt, in determining the debts for which its stockholders are liable.** Cred-
itors are entitled to recover receiver's fees, in addition to their debts and
statutory costs and disbursements, not exceeding the amount of the stock-
holders' statutory liability.* ^
§ 47 (9cff) Loss Occasioned by Receiver. Where, in proceedings —

against a defaulting banking and trust company for sequestration and ad-
ministration of its assets, loss of assets results from misconduct of the re-
ceiver, the loss must be borne by the stockholders, and not the creditors.*^
47 (9cfg) Agreements for Liquidation of Bank. A law making

§ —
etc., to the amount of their stock,
stockholders liable for a bank's contract,
does not make them liable on an agreement for liquidation of the bank.
And a stockholder sought to be held liable on such contract is not estopped,
by accepting payment of his deposits in the bank under it, to show that it
was ultra vires.*''
47 (10) When Liability Arises and Conditions Precedent

§
§ 47 (10a) When Liability Arises— § 47 (lOaa) In General.—The
time when the liability of a stockholder of an insolvent bank for the debt of
the bank arises or becomes fixed depends upon the language of the statute
creating such liability. This liability may be fixed when default in pay-
ment is made,*s when specie payment is suspended,*^ when the bank
suspends business,"** or it may be incident to a compulsory assignment
44. Costs of receivership. Buist — v. ments by the bank constitutes a failure

Williams, 81 S. C. 495, 62 S. E. 859. within the meaning of such provision,
45. Harper v. Carroll, 66 Minn. 487, and the liability of a stockholder in
69 N. W. 610, 1069. such a case is that of simple contract,
46. Loss occasioned by receiver. — and not a statutory liability. Terry v.
Flynn v. American, etc.. Trust Co., 104 Calnan, 13 S. C. 230.
jMe. 141, 69 Atl. 771. 50. Suspension of business.— When
47. Agreement for liquidation of an involuntary suspension of a banking
bank.— It was so held under Banking corporation is caused by the bank
Laws, of N. Y. (Consol. Laws, c. 2), commissioner taking possession of the
§ 71; Assets Realization Co. z/. Howard, bank, such corporation has suspended
70 Misc. Rep. 651, 127 N. Y. 798. business, within the meaning of Gen.
48. When liability arises —Default in St. 1889, § 1200, which provides that a
payment. —Warren v. Nix, 97 Ark. 374, corporation shall be deemed to be dis-
135 S. W. 896. solved for the purpose of enabling the
49.Suspension of specie payment. — creditors of such corporation to prose-
A suspension and failure to pay specie cute suits against the stockholders
on demand to bill holders, generally, thereof to enforce their individual lia-
is sufficient to enable the bill holder bility, if it is shown that such cor-
to sue. He need not prove a special poration has suspended business for
demand in his case. Lane v. Morris, more than one year. Crocker v. Ball,
8 Ga. 468. 10 Kan. App. 364, 59 Pac. 691.
Where a bank charter provides "that A bank suspends business, within
in case of the failure of said bank, the meaning of Gen. St. Kan. 1889,
each stockholder shall be liable and pars. 1200, 1204, providing for an
held bound, individually, for any sum action against the stockholders of a
not exceeding twice the amount of corporation where it shall have sus-
his share," suspension of specie pay- pended business for more than one
only.^1 In some jurisdictions this liability only arises when the ratable
share of the deficiency has been ascertained and liquidated,** and in others
where the assets of the bank have been exhausted. ^^
Notes Issued before Capital Paid in. — If the charter require a cer-
tain amount of the capital stock to be paid in before notes can be issued,
but the directors nevertheless proceed to issue notes, if the bank fail or
become insolvent, the creditors of the bank may proceed at once against the
stockholders and directors.**
§ 47 (lOab) Bank Bills and Notes.— See post, "Liability of Stock-

holders or Officers," § 211.
§ 47 (lOac) Public Funds. —

Under a statute providing that the stock-
holders of a bank shall be liable for the public funds therein deposited, when
the bank make payment upon demand, fixes the time when such
shall fail to
liability arises as the time when default in payment is made, so that the
liability thereunder is against only those who are stockholders at the time
of such default.**
§ 47 (10b) Demand of Payment and Protest. A creditor of an —

insolvent bank need not, before suing a stockholder on his statutory liabil-
ity, demand payment of his claim against the bank.*^
—
Suit as a Demand. A suit by a depositor whose deposit is subject to
check against the receiver constitutes a demand.*^
year,where it suspends payment, al- 53. Means' Appeal, 85 Pa. (4 Norris)

though a receiver is appointed, who 75; Craig's Appeal, 92 Pa. 396.
afterwards pays dividends to creditors. 54. Bank bills. —
Schley v. Dixon, 24
Stebbins v. Scott, 172 Mass. 356, 52 N. Ga. 273, 71 Am. Dec. 121.
E. 535. 55. Public funds. —
Warren v. Nix, 97
51. —
Compulsory assignment. A char- Ark. 374, 135 S. W. 896, so holding
ter provided for forfeiture upon certain under Kirby's Dig., § 1990.
contingencies, in which case the di- 56. Demand upon bank and protest.
rectors should make an assignment. — Parker v. Adams, 38 Misc. Rep. 325,
Section 15 provided that the stockhold- 77 N. Y. S. 861. See ante, "When
ers should be liable to the creditors of Payable," § 47 (9ca).
the bank, the liability to be enforced Certificates of deposit. —Where a
as follows: In case the bank shall vio- bank charter makes its stockholders
late any act so as to forfeit its charter, individually liable on its default, the
and is compelled to make an assign- owner of a certificate of deposit may
ment, the assignees are to make an ap- sue a stockholder without first making
praisement of assets and a list of debts, demand upon the bank, where the bank
and the stockholders shall be liable to fails and closes. Hodgson v. Cheever,
make good any deficiency in such as- 8 Mo. App. 318.
sets, in proportion to the amounts of Presentation of certificates of de-
stock held by them. Held, that the posit payable on return of certificates
individual liability of the stockholders and demand is dispensed with by the
is incident to a compulsory assign- failure of the bank, and the bringing
ment only. Gunkle's Appeal, 48 Pa. of an action against the receiver of
(12 Wright) 13. the bank and its stockholders is suffi-
52. When ratable share of deficiency cient demand. Barnes v. Arnold, 23
ascertained.— Richards v. Gill, 138 App. Misc. Rep. 197, 51 N. Y. S. 1109.
Div. 75, 122 N. Y. Supp. 620. See post, 57. Suit as constituting demand. —
"Creditor's Suit and Receivership," Barnes v. Arnold, 23 Misc. Rep. 197,
§ 49 (lea). 51 N. Y. S. 1109.
§ 47 (lOcc) STOCKHOI^DERS. 181
§ 47 (10c) Proceedings against Bank and Receivership § 47 —

(lOca) Necessity and Sufficiency Generally. Bank stockholders' —
statutory liability can not be enforced by the corporate creditors independ-
ent of any action against the bank.^s But the bank may waive conditions
as to the time which must elapse after demand and refusal before applying
for a distribution of the assets by a receiver. ^^
§ 47 (lOcb) Piling Claim with Receiver. —While claims against an

insolvent bank should be filed with the receiver in the original suit, it is no
defense to an action to enforce a stockholder's personal liability that the
claim sued on was not filed.®"
§ 47 (lOcc) Judicial Determination of Insolvency. — Many of the

statutes require the fact of insolvency to be judicially determined before
the statutory liability ofbank stockholders can be enforced.®^ Stockhold-
ers of a bank are concluded by a judgment in an action in which the bank
was a party, by which a receiver was appointed and the court, having found
that the assets of the bank had all been disposed of and the proceeds paid
out and applied in pursuance of the order of court, that there had been
claims adjudicated against the bank, and that the bank was wholly insolvent
and had no property, authorized the receiver to bring suits against its stock-
holders. ^^
58. Proceedings against bank and re- 16 How.

Prac. 56, 5 Abb. Prac. 415.
ceivership. —Under Const., art. 13, 60.Filing claim with receiver.^
§ 11,providing that stockholders "of Where the court in which the settle-
any banking * * * corporations * * *
ment of the affairs of an insolvent
shall be individually and personally bank was pending permitted a creditor
liable * * * for all contracts, debts or to establish his claim in a separate
engagement of such corporations ac- suit, and, after the claimant's judgment
cruing while they remain stockhold- was reported to the court, it appointed
ers, to the extent of the amount of a special receiver to enforce the stock-
their stock, * * *
in addition to the holders' liability to pay the same, it
amount invested in such shares,'' a was no defense to a suit against a
stockholder's liability is secondary, and stockholder that the claim should have
can not be enforced by the corporate been filed with the receiver in the
creditors, independent of any action original suit. Covell v. Fowler, 144
against the corporation. Wilson v. Fed. 535.
Book, 13 Wash. 676, 43 Pac. 939.
59. Under a statute providing for the
—
determination. Before a
61. Judicial
bill can be maintained against the
enforcement by a creditor of the indi-
stockholders of a bank under the pro-
vidual liability of stockholders of a
visions of Rev. St. 1841, c. 77, it must
bank, by issuing execution, and show-
be judicially determined that there
ing that it can not be satisfied out
has been a loss occasioned in the
of the bank's property, or waiting 10
capital stock, and that the directors
days after demand and refusal, and then
applying for distribution of the assets
are unable to make good the loss.
Hewett V. Adams, 50 Me. 271.
by a receiver, and the apportionment
of the unpaid debts among the stock- By the
express provisions of Rev.
holders, the bank may waive such con- St. c. the court must decide that
47,
ditions; so that where a creditor com- the assets are insufficient to pay the
menced suit, served' an order to show claims against the bank, before the
cause, made it returnable, and obtained receivers can file a bill in equity against
the appointment of a receiver on the the stockholders. Hewett v. Adams,
same day, the bank's counsel appearing 54 Me. 206.
and not objecting, the proceeding is 62. Francis v. Hazlett, 192 Mass. 137,
valid. Ex parte Bowery Bank (N. Y.), 78 N. E. 405, 116 Am. St. Rep. 230.
182 BANKS AND BANKING. § 47 (lOcdb)
§ 47 (lOcd) Judicial Ascertainment of Indebtedness and Ex-

haustion of Assets— § 47 (lOcda) In General.— In a number of the
states the indebtedness proposed to be enforced against bank stockholders
must be judicially ascertained before suit can be maintained against an in-
dividual stockholder.83 This rule applies to a suit in Wyoming by a cred-
itor of a nonresident Utah bank against a stockholder resident in the former
state. 6*
§ 47 (lOcdb) Exhaustion of Assets. — It is necessary that the as-

sets of thebank be extinguished or converted into cash and applied to the
debts of the bank before the stockholder's statutory liability can be en-
forced under the laws of Minnesota,^^ Nebraska,^® and Pennsylvania;"'^
but the receiver need not wait until such assets' are exhausted before en-
forcing the stockholder's statutory liability under the statutes of Iowa,"'*
63. Judicial ascertainment of in- Utah, a creditors' suit was brought,

debtedness and exhaustion of assets. — wherein all the stockholders of the
Farmers' Loan, etc., Co. v. Funk, 49 corporation were made parties, and a
Neb. 353, 68 N. W. 520; Hastings v. special receiver was appointed, but
Barnd, 55 Neb. 93, 75 N. W. 49; Hamil- there had been no accounting, or de-
ton Nat. Bank v. American Loan, etc., termination of the debts and assets of
Co., 66 Neb. 67, 92 N. W. 189. the corporation, and no ascertainment
—
Nebraska. Tiie requirement of of the amount required by the stock-
Const., art. 11, § 4, that before the in- holders, a suit will not lie, in another
dividual liability stockholders can
of state, brought by the identical creditor
be enforced the indebtedness of the suing in Utah, against a stockholder,
corporation must be judicially ascer- to recover for the same liability. Mc-
tained, applies to § 7, fixing the lia- Laughlin V. O'Neill, 7 Wyo. 187, 51
bility of stockholders in a bank for Pac. 343.
the bank's indebtedness. German Nat. 65. Exhaustion of assets. Minnesota. —
Bank v. Farmers,' etc., Bank, 54 Neb. — Willius V. Mann, 91 Minn. 494, 98
593, 74 N. W. 1086; Hastings v. N. W. 341, rehearing denied in 98 N.
Barnd, 55 Neb. 93, 75 N. W. 49; Ham- W. 867.
ilton Nat. Bank v. American Loan, 66. N ehraska.— Const., art. 11, § 4, re-
etc., Co., 66 Neb. 67, 92 N. W. 189. lating miscellaneous corporations,
to
Utah. — Under Comp. Laws Utah, and providing that before the enforce-
§ 3513, providing that shareholders in ment of individual liability of stock-
banks shall be individually responsible holders the assets of the corporation
"ratably, and not one for another," for must be first extinguished, applies to
the debts of the bank to the extent the liability of stockholders of banking
of their stock therein, an accounting corporations or institutions as fixed
in equity must be had to establish the by § 7. Farmers' Loan, etc., Co. v.
aggregate of the deficit which the Funk, 49 Neb. 353, 68 N. W. 530;
statutory liability of the shareholders Hastings v. Barnd, 55 Neb. 93, 75 N.
is to cover, before action can be W. 49; Hamilton Nat. Bank v. Ameri-
brought against the stockholders. Mc- can, etc.. Trust Co., 66 Neb. 67, 92 N.
Laughlin V. O'Neill, 7 Wyo. 187, 51 W. 189.
Pac. 343. Pennsylvania. Before
67. —
resorting
A suit can
64. not be maintained in to the liability of the stockholders,
Wyoming under the statutes of Utah the assets of the bank must be ex-
fixing the of stockholders in
liability hausted. Means' Appeal, 85 Pa. (4
banking corporations, by a creditor of Norris) 75.
such a corporation, against a resident 68. Iowa. —
Acts 18th Gen. Assem. c.
stockholder, before it is judicially de- 208, § 1, makes each stockholder of a
termined what the amount of the defi- banking corporation individually liable
cit is which the statutory liability of to the creditors over and above the
stockholders is required to cover. Mc- stock held by him, to an amount equal
Laughlin V. O'Neill, 7 Wyo. 187, 51 to his shares, and provides that, should
Pac. 243. the bank become insolvent, and its as-
Where, on insolvency of a bank of sets prove insufficient, the stockhold-
§ 47 (lOce) STOCKHOLDERS. 183
Michigan,^^ North Carolina''*' and WisconsinJi
§ 47 (lOcdc) In New —
York. Formerly, under the New -York law,
all the convertible assets in the hands of the receiver must be actually con-
verted, and go into the first dividend before resorting to the personal liabil-
ity of the stockholders, '^^ but, under the present law, where the assets of
an insolvent bank are insufficient to pay its debts, suit may' be commenced
for the enforcement of the stockholders' liability before the amount of the
deficiency has been definitely ascertained by the conversion of the assets
into cashJ^
§ 47 (lOce) Judgment against Bank, Execution and Return. —

Where the stockholders of a bank are secondarily liable for its debts, re-
ers may be compelled to pay such de- account to be taken of the property
ficiency in proportion to the amount and debts due to and from such cor-
of stock held by each, not to exceed poration, and appoint a receiver; but
the extent of the additional liability. if, on the filing of the answer or tak-
Held, that it is not necessary for the ing of the account, it appear that the
receiver to first exhaust all the assets corporation is insolvent, and has no
before enforcing the stockholders' lia- property to satisfy such creditor, the
bility. State V. Union Stock Yards, court may proceed without appointing
etc.. Bank, 10.3 Iowa 549, 70 N. 'W. a receiver to ascertain the respective
753; S. C, 73 N. W. 1076. liabilities of such stockholders, and
69. Michigan. —
The receiver of an in- enforce the same by its judgment as
solvent bank need not wait until the in other cases. Held, that it is not
assets are exhausted before enforcing necessary that the assets of the cor-
the liability of the stockholders. Fos- poration be fully exhausted before the
ter V. Broas, 130 Mich. 1, 79 N. W. 696, creditors proceed to judgment against
77 Am. St. Rep. 565. stockholders, but it is sufficient if the
70. North Carolina. —
The double statu- liability of the stockholders will ulti-
tory liability imposed on stockholders mately have to be exhausted in order
in banks by Pub. Laws 1897, p. 473, c. to fully pay the debts. Booth v. Dear,
398, may be enforced by the receiver 96 Wis. 516, 71 N. W. 816.
whenever it appears that the other as- 72. New York. — In re Reciprocity
sets of the bank will be insufficient, Bank, 33 N. Y. 9, reversing 39 Barb.
and he need not wait until other assets 369, 17 How. Prac. 323.
are completely e;xhausted. Smathers 73. Persons Gardner, 43 App. Div.
v.
V. 'Western Carolina Bank, 135 N. C. 490, 56 _N. Y. S. 832, 59 N. Y. S. 463.
410, 47 S. E. 893. A suit in equity may be maintained
71. Wisconsin. —The liability of a by the creditors of an insolvent bank
stockholder in a bank for the corpo- against the stockholders, to enforce
rate debts, under Rev. St. 1858, c. 71, their statutory liability, without wait-
becomes fixed at the date of the judg- ing until the receiver has converted and
ment by which it is ascertained that applied all the assets, or alleging that
the assets of the bank have been ex- a deficit will remain after all the as-
hausted, and that the deficiency ex- sets are applied to the payment of
ceeds the amount of his stock. Cleve- debts. Barnes v. Arnold, 23 Misc. Rep.
land V. Burnham, 64 Wis. 347, 35 N. 'W. 197, 51 N. Y. S. 1109.
407 A
creditor's action may be main-
Laws 18.52, c. 479, § 47, provides that tained to collect the individual liability
the stockholders of a state banking of stockholders of an insolvent bank,
corporation shall be individually re- under Laws 1892, c. 689, before the
sponsible to the amount of their stock receivers have finally wound up the
for its indebtedness. Rev. St. 1878, §§ bank's afifairs, where it is shown that
3323, 3334, provide that, when a creditor the deficiency will exceed the amount
of a corporation seeks to charge the for which the stockholders are liable.
stockholders on account of any lia- Mahoney v. Bernhardt, 27 Misc. Rep.
by law, he
bility crea1:ed may bring an 339, 58 N. Y. S. 748; Mahoney v.
action therefor, and may at his elec- Bernard, 45 App. Div. 499, 63 N. Y. S.
tion join the corporation; that the 12. affirmed in 169 X. Y. 589, 62 N. E.
I',
court shall, when necessary, cause an 1097.

184 BANKS AND BANKING. § 47 (lOd)
covery of a judgment against the bank and an execution thereon returned

unsatisfied, are conditions precedent to a suit against holders of bank stock
and show that
to enforce their statutory liability/* unless the plaintiff aver
no judgment could have been obtainedJ^ The insolvency of a bank, the
appointment of a receiver, judgment of dissolution and forfeiture, and the
issuance of an injunction restraining its creditors from bringing any action
against it, dispense with the above statutory conditions precedent to bring-
ing suit against the stockholder^^
Where the statutory liability is primary, such return is not neces-
sary in any eventJ''
In Action by Receiver. —A receiver of an insoliênt bank need not pro-
cure executions against himself and a return of nulla bona on all claims
against the bank before commencing actions to enforce stockholders' lia-
bility.^
Suit by Superintendent of Banks. —These conditions precedent do

not apply to a suit by the superintendent of banks to enforce stockholders'
statutory liability .'^^
§ 47 (lOd) Dissolution of Corporation.^ Dissolution of the cor-—

poration is made a condition precedent to the enforcement of bank stock-
holders' statutory liability by the statute of Missouri.*"
74. Judgment against bank, execu- thereto for its debts, a return of exe-
tion —
and return. Lane v. Harris. 16 cution nulla bona is not a condition
precedent to a suit to enforce the lia-
Ga. 317; Barnes v. Arnold, 23, Misc.
Rep. 197, 51 N. Y. S. 1109; Blake v. bility, where the bank is insolvent, since
Hinkle, 18 Tenn. (10 Yerg.) 218. execution would be a useless proceed-
Under Stock Corporation Law, Laws ing. Parker v. Carolina Sav. Bank, 53
1892, p. 1841, c. 688, § 55, providing that S. C. 583, 31 S. E. 673, 69 Am. St.
no action shall be brought against a Rep. 888.
stockholder for a corporate debt until 78.Action by receiver. Brinkworth —
judgment has been obtained against V. Hazlett, 64 Neb. 593, 90 N. W. 537.
the corporation and execution returned 79. by superintendent of banks.
Suit
unsatisfied, and Banking Law, Laws — Stock Corp. Law (Consol. Laws
1892, p. 1913, c. 689, § 163, making 1909, c. 59) § 59, requiring judgments
stockholders personally liable for debts against a corporation and the return
of the corporation, no action can be of an execution unsatisfied as a con-
maintained against a stockholder in a dition precedent to an action to en-
bank on a debt by the bank until judg- force individual liability of stockhold-
ment has been obtained against it. ers,- does not apply to a suit by the
Cause V. Boldt, 49 Misc. Rep. 340, 99 superintendent of banks under Bank-
N. Y. S. 422; S. C, 100 N. Y. S. 1117. ing Law (Consol. Laws 1909, c. 3) § 19,
—
Bank bills and notes. See post, to enforce stockholder's individual lia-
bility to pay debts of the bank prior
"Necessity for Insolvency," § 211 (3b).
to dissolution; there being no authority
75. Blake v. Hinkle, 18 Tenn. (10
in the superintendent to sue for and
Yerg.) 218.
recover judgment on claims of credit-
76. Barnes v. Arnold, 23 Misc. Rep. ors, or authority to issue execution
197, 51 N. Y. S. 1109, so holding under thereon, as contemplated by section 59.
N. Y. Gen. Laws, c. 36, § 55. Cheney v. Scharmann, 145 App. Div.
77. Liability —
primary. Parker v. 456, 129 N. Y. Supp. 993.
Carolina Sav. Bank, 53 S. C. 583, 31
S. E. 673, 69 Am. St. Rep. 888.
Dissolution of corporation. The
80. —
fact that a banking corporation had
Under Act Dec. 24, 1885 (19 St. at ceased to receive deposits," and had
Large, p. 213), § 4, making stockhold- not been able to resume business, and
ers of a bank liable to the amount of did not intend to do so, is not suffi-
five per cent of their stock in addition cient to show that it was dissolved.
§ 47 (llaa) stockholders. 185
§ 47 (lOe) Exhaustion of Other Remedies. —Where the statutory

liabiHty of stockholders is secondary creditors should exhaust their rem-
edies against the bank or persons primarily liable for their debts,^^ and
against culpable officers and sureties before resorting to such stockholders'
where the
liability,^^ aliter shareholders' liability is primary.^^
Construction of Order of Court. —Order of the court that all remedies
must be exhausted against stockholders primarily liable for the debts of an
insolvent bank before its reorganization, before any action to collect an
assessment against stockholders secondarily liable, is not to be construed
as requiring the exhaustion of all remedies against stockholders primarily
liable in favor of whom limitations had run.*^
§ 47 (lOf) Order of Court Directing Receiver to Enforce.— The

liability of stockholders of a banking institution to its creditors is not an
asset of the corporation, collectible by the officers of the corporation, or a
receiver in their stead, but is wholly distinct therefrom, and a receiver can
enforce such liability only at the instance of the creditors, and by direction
of the court after the creditors' claims have been ascertained and the as-
sets exhausted,*^ but in Minnesota the receiver of an insolvent bank need
not obtain an order of court to maintain proceedings to enforce the indi-
vidual liability of stockholders.*''
Construction of Order as to Exhaustion of Othej Remedies. — See
ante, "Exhaustion of Other Remedies," 47 (lOe).
§ 47 (11) Facts Relieving from Liability or Defenses § 47 —

(11a) Illegality or Irregularities in Organization § 47 (llaa) —
In General. — In a proceeding to enforce the secondary liability of the
within Rev. St., § 745, giving creditors amount of a deposit paid by the
of a dissolved corporation the right disbursing officers on unauthorized
to sue the stockholders. Donnelly v. checks, until they have exhausted their
Hodgson, 14 Mo. App. 548. See, also, remedy against the culpable officers
Daugherty v. Poundstone, 120 Mo. and their sureties. Daugherty v.
App. 300, 96 S. W. 728. Poundstone, 120 Mo. App. 300, 96 S.
81. Exhaustion of other remedies. — W. 728. See 6 Cent. Dig. Banks, §§
Where, after insolvency of a bank it 69, 70.
was reorganized, and the new bank re- 83.The liability of stockholders was
ceived all the property and effects of to "make good all losses to depositors
the old bank, and used them in its or others." This created a primary
business, the stockholders thereof are liability against a stockholder, and it
primarily liable for all the debts of was not necessary for the depositors
the old bank, and all remedies against first to exhaust their remedy against
them should be exhausted, before re- the corporation. Queenan v. Palmer,
sorting to stockholders of the old bank 117 III, 619, 7 N. E. 613.
who did not become members of the 84. Construction of order of court. —
new concern, and who are secondarily Pope v. Germania Bank, 106 Minn. 446,
liable only. Willius v. Mann, 91 Minn. 119 N. W. 61.
494. 98 N. W. 341, rehearing denied 85. Order of court directing receiver
98 N, W. 867. to enforce. —
It was so held under Neb.
82. The trustees of a dissolved bank- Const., art, lib, § 7; Hamilton Nat.
ing corporation can not maintain a Bank v. American, etc., Trust Co., 66
suit against a stockholder to recover Neb. 67, 92 N. W. 189.
a dividend^ which should have been 86. It was so held under Minn. Laws,
applied to a judgment obtained against 1895, c, 145, § 30: Ueland v. Haugan,
the trustees by a depositor for the 70 Minn, 349, 73 N. W. 169.
186 BANKS AND BANKING. § 47 (lie)
stockholders of an insolvent bank as may be deemed necessary to pay the

debts incurred by its acting board of directors, mere irregularities in the
organization of the bank can not be set up as a defense.®''
§ 47 (11 ab) Denial of Corporate Existence. —A holder of bank

stock estopped to deny the corporate existence of the bank in an action
is
to enforce his individual liability for the debts of the bank.®*
§ 47 (lib) Invalidity and Irregularity in Issue of Stock. In- —

validity of the issue of shares of stock no defense to an action to en-
is
force the individual liability of holders of bank stock ;*^ and ex. gr. mere
irregularities in the issue of bank stock will not relieve the stockholder
from his individual liability to creditors. *''
§ 47 (lie) Irregularities in Methods of Business. Irregular- —

ities in a bank's method of doing business can not be set up as a defense
to a suit to enforce the secondary liability of its shareholders for its debts.^*
87. Irregularities in organization. — O. C. D. 357. And, see Voorhees v.

Dickason v. Grafton Sav. Bank Co., Bank, 19 O. 463.
6 O. C. C, N. S., 329, 17-27 O. C. D. 357. Where the charter of a bank makes
Signature to resolution changing the stock a fund pledged for the se-
name not properly authenticated. In — curity of depositors, a subscriber who
has paid a portion of his subscrip-
an action against a stockholder in a
reorganized bank on his liability on tion, and acquiesced in the bank's
its subsequent insolvency, an objection carrying on business, is estopped to
that at a meeting of the stockholders withdraw his assent, to the prejudice
for the purpose of organizing, where of other depositors, or deny the cor-
a resolution to change the name of porate existence of the bank. Lehman
the bank was adopted, the signature V. Warner, 61 Ala. 455.
attached to such resolution was not 89. Invalidity of issue. — Palmer v.
properly authenticated, was imrria- Lawrence, 5 N. Y. Super. Ct. 161.
terial. Hunt v. Hauser Malting Co., 90. Irregularities in issue. — Man v.
95 Minn. 206, 103 N. W. 1032. Boykin, 79 S. C. 1, 60 S. E. 17, 128 Am.
Directors not legally elected. In a — St. Rep. 830.
suit to enforce the secondary liability Certificate not filed with security of
of stockholders, of an insolvent bank,
that there was no legally elected board
state. —A bank authorized by law to
increase its capital stock did so, a
of directors because of failure to com- large part of the increased stock was
ply with Rev. St., § 3798, can not be purchased by the original corporators,
set up as a defense. Dickason v. and dividends were paid on it. The
Grafton Sav. Bank Co., 6 O. C. C, N. certificates of stock showed the capital
S., 329, 17-27 O. C. D. 357. of the bank to be the original capital
A subscriber for such stock by the plus the increase, and for about ten
act of subscribing is estopped from years the bank held itself out as hav-
setting up such irregularities as de- ing a capital of that amount. Held,
fenses to an action brought by cred- that the stockholders are estopped to
itors of the corporation for the collec- deny their liability on the ground that
tion of unpaid subscriptions to its no certificate was filed with the secre-
stock. Dickason v. Grafton Sav. Bank tary of state. Man v. Boykin, 79 S.
Co., 6 O. C. C, N. S., 329, 17-27 O. C. C. 1, 60 S. E. 17, 128 Am. St. Rep.
D. 357. 830,
88. Denial of corporate existence. — 91. Irregularities in methods of busi-
Lehman v. Warner, 61 Ala. 455; ness. —
Dickason v. Grafton Sav. Bank
Palmer v. Lawrence, 5 N. Y. Super. Co., 6 O. C. C, N. S., 329, 17-27 O.
Ct., 161; Dickason v. Grafton Sav. C. D. 357. See, also, Voorhees v.
Bank Co., 6 O. C. C, N. S., 329, 17-27 Bank, 19 O. 463.
§ 47 (lleac) stockholders. 187
§ 47 (lid) Insolvency of Other Stockholders. —The solvency or

insolvency of other stockholders does not affect the liability of any partic-
ular holder of bank stock.^^
§ 47 (lie) Payment, Satisfaction and Discharge— § 47 (Ilea)

Payment by Stockholder and Agreements in Respect Thereto
§ 47 (lleaa) Payment to Other Creditors— § 47 (lleaaa) Pay-
—
ment before Suit. The individual liability of a holder of bank stock is
extinguished by payment of the actual amount of liability to another cred-
itor before suit.^^
§ 47 (lleaab) Payment after Suit Commenced. A stockholder —

can not, after any one depositor has commenced suit against him on his
.
liability, defeat said suit by paying other depositors than the plaintii¥, even
though he pay to the full amount of his liability. Such payment, after
notice of suit, is in fraud of the plaintiff's claim, and contrary to the pol-
icy of the act creating the liability, and if allowed would practically defeat
the object of the legislature in imposing the obligation.^*
§ —
47 (lleaac) Payment in Other Suits. Stockholders of an in-
solvent bank who have been compelled to pay in suits by depositors, where
sued in subsequent actions by depositors in which other stockholders are
joined, are entitled to have such prior payments considered in adjusting
their liability as against the other defendants. ^^
§ 47 (lleab) Redemption of Bank's Bills and Notes by Stock-

Qolder. —See post, "Liability of Stockholders or Officers," § 211.
§ 47 (lleac) Agreements Providing Funds to Cover Bank's

Liabilities. —An agreement between an insolvent bank and its stockhold-
Insolvency of other stockholders.

92. plaintifiE an amount equal to the full
— Each stockholder m an insolvent proportion his stock bears to the
banking corporation under Act 1849, c. whole amount due the depositor. Jones
226, makmg him responsible "equally j,. Wiltberger, 42 Ga. 575; Marr v.
and ratably" to the extent of his Bank, 73 Tenn. (4 Lea) 578.
shares of the stock for the debts of p^^^j ^^ payment by stockholder.-
the corporation, IS subject to a liability j„ ^ ^^j^ ^ ^ depositor against a
determined by the statute without stockholder, the production of the
reference to the solvency of any other
^^j ^^^j evidence of deposit, or the
'' cerdficate of the assignee of the bank
M°
N- v^'l'i^c. Am. 1?°
Y. 393, 84 ^l 392; w
Dec oof 7r\ I
Hollister ^^ ^^^ indebtedness, with the oath of
'"..^°} f-ul ?f ^ ^^^'-* the assignee that the stockholder has
'oil
nk iV' .: li, 4v , u surrendered to him such evidence of
93. Payment to other creditors be- ^ ^-^^^ ^^^ ^^^^
; ^^
fore suit instituted.-In a suit agains a
^^^ stockholder, of the owners thereof,
stockholder of a savings bank by a de- j^ evidence to go to the jury to prove
positor on his individual 1 ability for tne payment
^^^ of the same by the stock-
ultimate redemption of the deposi s in j^^^^ Wiltberger, 42
,^^,^^^ ^_ Ga.
proportion to the amount of stock held by ^„,
him in the bank, the stockholder may „' „ , .
defend the suit by showing that, pre- ?4. Payment

after suit commenced.
viously to the commencement of the —Jones v. Wiltberger, 42 Ga. 575.
suit he has discharged his obligation by 95. Payment in other suits. Wood —
paying to other depositors than the v. Wood, 40 111. App. 183.
188 BANKS AND BANKING. § 47 (llcc)
ers, binding them to give their notes to it to the amount of their holdings
of stock, to be collected in case there is a shortage of assets to cover lia-
bilities, and providing that payment thereon should pro tanto discharge the
payor's statutory liability, is not void for want of consideration, since pay-
ments thereunder constitute a trust fund in the hands of the bank, in which
creditors can not participate except by releasing pro tanto their rights
against the stockholders under the statute.^^
§ 47 (Head) Dividends Paid from Bank's Assets. stock- —A

holder of an insolvent state bank is not relieved from his proportionate in-
dividual liability, to the extent of the amount of his stock at the par value
thereof, to a depositor for interest on unpaid balances from the time of
the closing of the bank down to the time of the payment of the last divi-
dend, because of a payment made to the depositor, by various dividends
of the full amount due at the time of its closing, for the deposit and con-
tractual interest thereon.^^
§ 47 (lleb) Prior Recovery or Payment of Judgment. prior —A

recovery by the creditor bringing the suit or by another of the amount of
the statutory liability of a holder of bank stock is a bar to any further
recovery against him.®^
Discharge of Judgment by Payment of Less Sum. —Where judg-
ments have been recovered against a stockholder to the amount of his lia-
bility, and the judgments discharged by the stockholder by the payment of
a sum less than the amount of the judgments, he will be regarded as having
discharged his liability only to the amount which he actually paid.^^
§ 47 (llec) Confession of Judgment in Favor of Another Cred-

itor. —The individual liability of a holder of bank stock is not extinguished
by confession of judgment in amount of his liability in favor of another #
creditor after suit commenced. '^
96. Agreements providing funds to 98. Prior recovery from stockholder,

—
cover bank's liabilities. Thompson v. — Lane v. Harris, 16 Ga. 317.
Gross, 106 Wis. 34, 81 N. W. 1061. 99. Discharge of judgment by pay-
The reorganization of an insolvent ment of less sum.— Kunkelman v.
bank, and the mutual agreement be- Rentchler, 15 App. 271.
111.
tween its stockholders to effect that 1. Confession of judgment in favor
result by increasing its capital stock of another creditor. Where A, a—
and canceling part of its liabilities by stockholder in an insolvent bank, be-
allowing creditors to subscribe for came liable in the sum of $1,200, under
stock in satisfaction of their claims, is a double liability law, to the creditors
a sufficient^ consideration for an of the bank, and was sued for that
agreement binding the stockholders to amount by B, an admitted creditor, and
give their notes to the bank, to be A, a few days thereafter, and before
collected in case there is a deficiency judgment could be had in the ordi-
of assets to cover the remaining lia- nary course, agreed with C that, if
bilities. Thompson v. Gross, 106 Wis. the latter would buy up claims against
34, 81 N. W. 1061. the bank to the amount of his liability,
97. Dividends paid from bank's ashe would confess judgment in his
sets. — Parker v. Adams, 38 Misc. Rep. favor, and C accordingly bought up
325, 77 N. Y. S. 861. claims to that amount at a large dis-
§ 47 (llgb) STOCKHOI,DERS. 189
§ 47 (lied) Subsequent Proceedings by Another to Enforce

Same Liability. —An action by a creditor of a bank against a stockholder
of the corporation, brought under an act permitting such action where any
company formed under the act concerning corporations has dissolved leav*
ing debts unpaid, is not barred by the subsequent filing of a motion by 'a
judgment creditor of the bank to enforce the same stockholder's liability.^
§ 47 (llee) Former Judgment against the Bank. —A proceeding

to enforce the personal liability of stockholders of an insolvent bank for
the balance of its debts after its assets have been exhausted, is not barred
by a previous judgment recovered in an action by a stockholder, directing

its assets to be so applied, and appointing a receiver to carry out the judg-
ment.3
§ 47 (llf) Bill Holders Entitled to Priority as to Suing Cred-

itors. —That bill holders of a bank are entitled to priority of payment is not
a defense to a suit brought by a general creditor to enforce a stockholder's
individual liability.*
§ 47 (llg) Release by Bank— § 47 (llga) In General.—The

individual liability imposed on stockholders by bank laws is an obligation
to the corporation in trust for the security of its creditors; and while un-
paid subscriptions on stock should be first resorted to, before enforcing the
double liability, which is a secondary one, such liability can not, as against
creditors or other stockholders, be released by the corporation, and in case
of its insolvency it may be enforced by the receiver of the corporation for
the benefit of creditors.^
§ 47 (llgb) Resolution of Board of Directors. Directors can —

not set up a secret agreement with the bank that they should not incur any
liability by reason of the issuance of stock to them, but should hold it for
the benefit of the corporation.*'
count from a stockholder in said bank, 4. Bill holders entitled to priority as

and A confessed judgment in his favor to suing creditor. —
Where, in a gen-
for the full amount of the claims, and eral law, under which a bank was or-
paid the same, held, that such judg- ganized, it was provided that the bill
ment and satisfaction could not be holders of the bank should be entitled
pleaded in bar to the suit brought by to a priority of payment, it was held
B. Manville v. Karst, 16 Fed. 644, 5 that that fact alone could not avail
McCrary 142. an individual stockholder, made indi-
2. Subsequent proceeding by another vidually liable for the debts of the
to enforce same liability. — Bittner v. bank, in a suit against him by the
Hardy, 12 Mo. App. 566, an action holder of a draft issued by the bank,
brought under Rev. Stats., § 745. Paine v. Stewart, 33 Conn. 516.
3. Former judgment against bank. 5. Release by bank. Smathers v. —
— It was so held as to a proceeding Western Carolina Bank, 135 N. C. 410,
under N. Y. Laws, 1849, p. 343, where 47 S. E. 893.
a stockholder had recovered a judg- 6. Resolution of board of directors.
ment under 2 Rev. Stats., p. 463, §§ — Barto v. Nix, 15 Wash. 563, 46 Pac.
39-40; Diven v. Duncan (N. Y.), 41 1033.
Barb. 530.
190 BANKS AND BANKING. § 47 (Ilk)
§ 47 (llh) Assignment of Sufficient Assets for Payment. —The

fact thatunder an assignment for the benefit of credifors assets sufficient
to pay the creditors were turned over by the bank to the assignee, chosen
and selected by itself, and over whom it had, by law, coordinate control
with the creditors; does not relieve a stockholder from responsibility un-
der an individual liability clause in the bank's charter^
§ 47 (Hi) Reorganization of Bank.—The reorganization of an in-

solventbank does not discharge the stockholders who did not become
members of the new bank from their statutory liability.*
§ 47 (llj) Dissolution, Expiration and Forfeiture of Charter.^

Where there is no provision in the charter of a bank to the contrary the
individual liability of the stockholders thereof expires with the expiration
of the charter. 8 But where such provision exists, such liability survives
the dissolution of the bank, and is not extinguished by the judicial forfei-
ture of the charter.!**
§ 47 (Ilk) Discharge in Bankruptcy. —The liability of a holder of

bank stock being a fixed, definite sum, is provable before a bankrupt court.
7. Assignment of sufficient assets for poration are extinguished on its dis-

—
payment. Robinson v. Lane, 19 Ga. solution, in the absence of a statute to
337. the contrary, the liability of the stock-
8. Reorganization of bank. —A bank holders in the Planters' & Mechanics'
Bank of Columbus expired with its
became insolvent and made a general
assignment, and subsequently was re- charter. Robison v. Beall, 26 Ga. 17.
organized under Gen. Laws 1897, p. Rev. St. c. 36, § 30, provides that, if
109, c. 89. The capital stock was re- any loss or deficiency of the capital
duced, and the amount thereof sub- stock in any bank shall arise from the
scribed, and the property and assets official mismanagement of the direct-
were turned over to the officers of the ors, the stockholders at the time of
new bank, who issued certificates of such mismanagement shall, in their
deposit to creditors for the amounts individual capacity, be liable to pay the
due them. Certain stockholders in the same. Held, that after the insolvency
old bank did not become stockholders of a bank, and the forfeiture of its
in the new. The bank again became charter, creditors could not maintain
insolvent, and a receiver was ap- an action against stockholders to re-
pointed, who, on an order of the court, cover their claims, as the statute was
assessed all the stockholders in both only intended to protect against a de-
the old and the new bank 100 per cent ficiency in the capital stock and in-
of the amount of their holdings. Held, solvency during the existence of the
that the issuance by the reorganized bank, and not to provide a remedy for
bank of new certificates of deposit to creditors after insolvency and for-
the creditors for the amounts due them feiture. Baker v. Atlas Bank (Mass.),
was not a payment of their claims, so 9 MStc. 182.
as to discharge the stockholders who When stockholders' liability not
10.
did not become members of the new
bank from their statutory liability.
affected by dissolution. Thornton v.—
Lane, 11 Ga. 4.59; Robinson v. Lane, 19
Willius V. Mann, 91 Minn. 494, 98 N. Ga. 337; Hargroves v. Chambers, 30
W. 341. Rehearing denied 98 N. W. Ga. 580, are cases in which it was held
867. that the liability of the stockholder to
9. Dissolution, expiration and for- a bill-holder for the ultimate redemp-
feiture —
of charter. Robison v. Beall, tion of the notes of the bank, is not
26 Ga. 17. extinguished by the dissolution of the
Since all debts incurred by a cor- bank.
and a discharge in bankruptcy will release such stockholders from Ha-

bility.ii
§ 47 (111) Possession of Unreported Assets by Receiver. It is —

no defense in an action by the receiver of an insolvent bank to enforce
stockholders' liability that the receiver vsfas in possession of unreported
assets.12
§ 47 (11m) Waiver and Estoppel. —Formal Waiver by Depos-

itor. —A waiver of stockholder's liability, classed as one of the by-laws of
a banking corporation and printed with them in each depositor's book, and
followed by a formal agreement to be signed, is of no effect unless actually
signed by the depositor. ^^
By State a Co -Corporator. —A
which is a corporator of a bank
state
can not disregard its fund provided for the protec-
obligation, diminish the
tion of the other corporations and then claim a forfeiture by its co-corpora-
tors resulting in part from its wrongful act.i*
§ 47 (12) Measure or Amount of Liability— § 47 (12a) In

General. —
The measure or amount of bank stockholders' individual liabil-
ity is that provided by the statute which creates it^^ jt ;§ often an addi-
tional amount equal to the par value of the stock owned by the share-
holder.18 The statutory liability may be greater than the amount of stock
Discharge in bankruptcy. Marr

11. — —
Ohio. Where the insolvent corpora-
V. Bank, 72 Tenn. (4 Lea) 578. tion is a bank organized under the
12. Possession of unreported assets laws of Ohio, an allegation that a de-
—
by receiver. Brinkworth v. Hazlett, fendant stockholder is not liable for
64 Neb. 592, 90 N. W. 537. anything beyond the subscription price
13. Formal waiver by depositor. — of his stock, does not state a good de-
Wells V. Black, 117 Cal. 157, 48 Pac. fense. Umsteatter v. Newark Sav.
1090, 37 L. R. A. 619, 59 Am. St. Rep. Bank Co., 4 N. P., N. S., 150, 17 O. D.
163. N. P. 30.
14. By state, a co-corporator. —The 16. The subscribers to the stock of
state, by appropriating $200,000 of the
the Citizens' Bank of Louisiana, in
capital stock of the bank established
subscribing, not only subjected their
by Act 1838, c. 107, to the improve- property to mortgage, but incurred
ment of certain rivers, after its sub-
personal responsibility to the amount
scription to the stock of several in-
of the stock. Succession of Thomson,
ternal .improvement companies, di-
46 La. Ann. 1074, 15 So. 379.
minished the fund appropriated by the
act of 1838 to the payment of interest The stockholders of a bank organ-
upon state bonds, and released the in- ized underthe state law, which is
dividual stockholders from all liability not a bank of issue or circulation, are
to contribute to the payment of defi- liable under Const., art. 10, § 3, pro-
cient interest. State v. Central Turn- viding that each stockholder in any
pike Co., 39 Tenn. (10 Humph.) 388. corporation shall be liable to the
15. Measure or amount of liability. — amount of stock held or owned by him
Terry v. Little, 101 U. S. 216, 35 L. Ed. for the debts of the corporation.
864. Northwestern Trust Co. v. Bradbury,
Under Gen. St. 1889, a
par. 1204. 113 Minn. 76, 137 N. W. 386.
stockholder of a banking corporation, The liability of a stockholder is not
which has been dissolved having debts limited to the amount
of capital stock
unpaid, is primarily liable, in an action which he has agreed to pay in, but
against him, in the amount provided extends to an amount equal to the
by statute. Sterne v. Atherton, 7 Kan. stock held by him additional thereto.
App. 20, 51 Pac. 791. United States Trust Co. v. United
owned by the shareholder.^^ Some statutes fix the stockholder's liability

at an amount not greater than double the amount of stock or an amount
equal to their subscriptions.^^
§ 47 (12b) Ratable Shares. —The liability of a stockholder may be

for a ratable share of the deficiency to be ascertained by the following pro-
portion: as the capital stock is to the deficiency, so is each stockholder's
share to his part of the indebtedness. i®
The value of the stock is to be estimated according to -the valuation
placed upon it by the charter.^**
States Fire Ins. Co., 18 N. Y. 199, 8 holders are* liable to creditors, is

Abb. Prac. 192. double the amount of the par value
In New York, the liability of a stock, of their stock without interest. Adams
holder of an insolvent bank for the V. Clark, 36 Colo. 65, 85 Pac. 642.
debts of the bank does not exceed the 19. —
Ratable share. Chatham Bank
amount of his stock. Richards v. V. Brobston, 99 Ga. 801, 27 S. E. 790;
Gill, 138 (App. Div. 75, 132 N. Y. S. Richards v. Gill, 138 App. Div. 75, 122
620. N. Y. S. 620.
17. Const. 1868, art. 12, >§ 6, provides The liability of stockholders being
that the general assembly shall grant no more than a ratable share of the
no banking charter, except on condi- debts of the bank, proportional to the
tion that the stockholders shall be amount of their stock, an auditor of
liable to the amount of their stock an account of the bank's assignee can
for the bank's debts; § 4 provides that not compel an advance contribution
dues from corporations shall be se- from them by disallowing their claims
cured by such individual liability and against said estate. Craig's Appeal, 93
other means as may be prescribed by Pa. 396.
law; and § 5 provides that all laws Circulating bills.—T h e aggregate
passed pursuant to it shall provide for body of stockholders are liable, for all
fixing the personal liability of st_ock- the bills issued by the bank; and the
holders under proper limitations, etc. liability of each stockho-lder is ascer-
Held, that § 6 does not prohibit the tained and fixed by the following pro-
legislature from imposing a greater portion: as the whole capital stock is
liability than the amount of stock, to the entire outstanding circulation,
since the provision is not self-execut- so is each stockholder's share to his
ing. Parker v. Carolina Sav. Bank, 53 part to be redeemed. Robinson v.
S. C. 583, 31 S. E. 673, 69 Am. St. Rep. LiSne, 19 Ga. 337; Adkins v. Thornton,
888. 19 Ga. 325; Branch v. Baker, 53 Ga.
18. Fuller v. Ledden, 87 111. 310; 503.
Smathers Western Carolina Bank,
v. The stockholders of the bank of Co-
135 N. C. 410, 47 S. E. 893; Means' Ap- lumbus are declared by the charter to
peal, 85 Pa. (4 Norris) 75; Craig's Ap- be personally, individually and sever-
peal, 92 Pa. 396. ally bound for the payment of the bills
"His liability is not limited to the of the bank, to the creditors holding
par value of his stock, neither is he bills unpaid, in the proportion that the
bound absolutely for the payment of stock subscribed for by each bears to
the full amount of that. He must pay the whole stock of said bank. Under
a sum which shall bear the same pro- this provision of the charter the stock-
portion to the whole indebtedness that holders are sureties for the payment
his stock bears to the whole capital, of the bills of the bank liable to be
and is not required to pay more." Pol- sued separately, but they are not
lard V. Bailey (U. S.), 20 Wall. 520, partners with the bank, and the law
22 L. Ed. 376. governing in case of partnership is not
Under 1 Mills' Ann. St., § 533, pro- applicable. Belcher v. Willcox, 40 Ga.
viding that stockholders in banks shall 391.
be individually responsible for debts in 20. Valuation of stock. — Lane v.
double the amount of the par value of Morris, 10 Ga. 162; Thornton v. Lane,
the stock owned by them, the maxi- 11 Ga. 459; Hargroves v. Chambers, 30
mum liability to which such stock- Ga. 580.
§ 47 (12e) STOCKHOLDERS. 193
§ 47 (12c) Contingencies Which Enlarge Liability. Failure — to

Keep Banking and Other Accounts Separate. Where stockholders — of
a corporation doing banking and other business become liable for the ob-
ligations incident to banking, the failure to keep the banking and other ac-
counts separate can not enlarge the liability of the stockholders. ^^
§ 47 (12d) Pacts and Contingencies Reducing Liability

§ 47 (12da) Payment of Premium for Stock. A holder of bank —
stock is not entitled to any reduction of his statutory liability because he
paid a premium for the stock. ^2
§ 47 (12db) Reduction of Capital Stock. —An authorized reduction

of the capital stock of a bank will exonerate the stockholders from individ-
ual liability beyond the reduced stock ;23 aliter as to a reduction without the
consent of the legislature. ^^
§ 47 (12dc) Application of Collateral Security. —As affecting a

stockholder's liability on the bank's note, the creditor had no right to apply
collateral securing the note to the bank's general indebtedness.^^
§ 47 (12e) Interest. —Liability

on Debts of Bank. As the habil- —
ity of the shareholder is and engagements of the
for the contracts, debts,
bank, the creditor has against the shareholder the same right to recover
interest which, according to the nature of the contract or debt, would exist
as against the bank itself of course, not in excess of the maximum lia-
;
bility as fixed by the statute. ^^
21. to keep banking and

Failure 25. Application of collateral securing
other accounts
separate. —
Kiggins v. —
bank's debt. It was so held under
Munday, 19 Wash. 233, 53 Pac. 855.. N. Y. Banking Law (Consol. Laws,
a. Payment of premium for stock. c. 2), § 71; Assets Realization Co. v.
— Robertson v. Conway, 110 C. C. A. Howard, 70 Misc. Rep. 651, 127 N. Y.

377, 188 Fed. 579.- 798'.
23. Reduction of stock. An act — 26. Interest. — Where the assets of

authorizing a reduction of stock to a Banking Co. when fully administered,
the amount paid in at a certain period, only suffice for the payment of the
accepted by the stockholders, will ex- principal of the debts of the corpora-
onerate them from liability beyond the tion, the statutory liability of the
reduced stock, as to subsequent cred- stockholders imposed by Sp. Laws
itors; otherwise if not accepted by the 1889, p. 547, c. 349, § 6, in amendment
stoclcholders, or a majority of them. of original charter, may be re-
its
Hepburn v. Commissioners, 4 La. Ann. sorted to for such interest as would
87; Palfrey v. Paulding, 7 La. Ann. 363; have been recoverable from the cor-
Stark V. Burke, 9 La. Ann. 344. poration had it continued solvent
24. Under 1 Rev. St., p. 601, § 2, for- without receivership. Flynn v. Ameri-
bidding any corporation reducing its can, etc., Trust Co., 104 Me. 141, 69
capital stock without the consent of Atl. 771.
the legislature, if stock in a bank is "In the case of book accounts in
held by an individual in trust for such favor of depositors, which was the na-
bank, it is not thereby extinguished, ture of the claims in this case, inter-
but is valid in the hands of the trus- est would begin to accrue as against
tee, and he is liable, as a stockholder, the bank from the date of its suspen-
to be apportioned therefor, in case sion. The act of going into liquida-
the bank becomes insolvent. In re Em- tion dispenses with the necessity of
pire City Bank (N. Y.), 6 Abb. Prac. any demand on the part of the credit-
385. ors, and it follows that interest should
1 B & B— 13
Liability Where Stockholder in Default. —There is no general rule

as to the time from which interest may be exacted on the amounts due from
the stockholders of insolvent banks or whether it can increase their liability
beyond the amount fixed by the law.

In Michigan, the stockholders of a bank, which has been closed by the
banking commissioners, are not in default in the payment of the statutory
liability until the amount of the liability is due, and until that time interest
on the amount of the liability may not be exacted, and interest can only be
computed from the time it was determined by the court that it was necessary
^'^
to enforce the liability.
In Minnesota, the stockholders' double liability is an unliquidated de-
mand; hence, interest should be allowed on the amount of the liability
only from the time of iiling the decision in the trial court. ^*
In Missouri a stockholder becomes liable for interest from the com-

mencement of a suit to enforce his liability to an individual depositor, even
though such interest increases his liability beyond the amount fixed by the
law.29
In New York stockholders were primarily liable for interest from the
commencement of an action against them;^^ but under Laws 1892, c. 689,
imposing a on stockholders of an insolvent bank equal to the par
liability
value of their stock, they are only chargeable with interest on the judgment
fixing the amount of their liability, though interest may enter into the proc-
ess of ascertaining the same, provided they are not made to pay more than
the par value of their stock; and they can not be charged with interest
from the commencement of the action.^^
§ 48. Effect of Transfer of Stock— § 48 (1) Liability of

Original Holder — § 48 (la) In General. — Shareholders of the stock of
be computed upon the amounts then 87. —
Michigan. Wedemeyer v. Hin-
due as against the shareholders to delang, 161 Mich. 600, 126 N. W. 708.
the time of payment." Richmond v. 28. Minnesota. —
Palmer v. Bank, 72
Irons, 121 U. S. 27, 30 L. Ed. 864, 7 S. Minn. 266, 75 N. W. 380.
Ct. 788. 29. Missouri. —
Millisack v. Moore,
When interest begins to run. —Inter- 76 Mo. App. 528.
est on claims of creditors of an in- 30. Gen. Laws, c. 37, § 52, provides
solvent bank begins to run when the that the stockholders of every banking
bank suspends payment. Barnes v. corporation shall be individually re-
Arnold, 23 Misc. Rep. 197, 51 N. Y. S. sponsible for all debts of such corpo-
1109. ration, to the extent of theamount of
Bank —
In an action brought
bills. their stock, at its par value, iti addi-
by a holder against a stockholder,
bill tion to the amount invested in such
under § 11 of the charter incorporat- shares. Held, that interest begins
ing the Planter's and Mechanics' Bank to run on the amount due from the
of Columbus, for the ultimate redemp- stockholders of an insolvent bank at
tion of the bills issued by the bank, the date of the commencement of an
the stockholder was only liable to pay action against them. Barnes v. Ar-
interest on the bills from the time of nold, 23 Misc. Rep. 197, 51 N. Y. S.
demand of payment thereof, made by 1109.
the holder on the stockholder, and
bill 31. Mahoney v. Bernhard, 169 N.
not from the time of demand of pay- Y. 589, 62 N. E. 1097, affirming 45 App.
ment made on the bank. Lane v. Mor- Div. 499, 63 N. Y. 642, which modified
ris, 10 Ga. 162. 27 Misc. Rep. 339, 58 N. Y. S. 748.
§ 48 (Ibb) STOCKHOLDERS. 195
a bank generally have a right to transfer their shares, and thus disconnect
themselves from the corporation and from any responsibility on account of
it,32 but the fact that a transfer of bank stock is made at a time when the
bank is doing business and and is made to a solvent
is able to pay its debt,
person does not necessarily relieve the transferrer from charter or stat-
utory liability. Its effect depends upon the stipulations of the charter or
provisions of the statute in respect thereto.^^
§ 48 (lb) Requisites and Sufficiency of Transfer § 48 (Iba) —

—
Persons Making Transfer § 48 (Ibaa) Subscribers. An original —
subscriber, who transferred his stock, before paying anything thereon, to
which transfer the bank consented, is not liable.^*
§ 48 (Ibab) Pledgees.— See post, "Pledgee," § 48 (2bd).
§ 48 (Ibb) Persons to Whom —

Transfer Made. A transfer of bank
stock to exonerate the shareholder from his individual statutory liability
must be to a transferree who succeeds to such liability .^^
A transfer to the bank of its own stock does not exonerate the trans-
ferrer from the statutory liability.^®
—
Nonresident. The fact that the transfer of bank stock while the bank
was insolvent was to a nonresident does not affect it, there being nothing to
prevent enforcing the liability against the nonresident.^''
Minor Children. — See post, "Intent to Avoid Liability," § 48 (Ibeb).
32. Right to terminate liability by transfer shall succeed to all liabilities

transfer. —
Germania Nat. Bank v. Case, of the fortner shareholder. Laws 1849,
99 U. S. 638, 25 L. Ed. 448. c. 236, p. 340, provides that one who
Where one indebted on a stock note has transferred stock on the books to
to a bank transferred the stock to an- a resident, m
good faith, previous to
other, and the note was delivered up any default m
payment of a debt of
by the cashier of the bank upon the the bank, shall not be liable for such
verbal undertaking of the purchaser to debt. Held, that an original sub-
pay the amount of the subscription, scriber, who transferred, in good faith,
and the bank subsequently ratified the stock, before paying' anything thereon,
transaction, and the purchaser was to which transfer the bank consented,
elected a director, held, that the orig- was not liable. Cowles v. Cromwell
inal stockholder could not be made y^- Y-), 35 Barb. 413.
chargeable as a debtor to the bank 35- .Persons to whom transfer made.
upon a liability incurred by the bank —I" Reciprocity Bank, 22 N. Y. 9.
7
some years thereafter. Mott v. Sem- See, also. Harper v. Carroll, 66 Minn,
mes, 24 Ga. 540. 487, 69 N. W.
610, 1069.
»«• "^raisfer to bank.-Laws 1849,
Under Act 1852, c. 388, § 9, relative ,
exonerating a stockholder
to the individual 1 ability of s ockhold- ^V ^^^^ § 3'
ers, the stockholders are not liable for ° ^ bona fide

J u, i J u it. u °i^>"'ifT« =. .t^
transfer of his stock to a resident of
debts ,.
the company sub-
contracted by
^^^ -^
; ^ g^ ^
to the bank itself, since the transferee
fS" M
^tock. Matthews
ttl = I
v. 11^ 7^^^
Albert, 34 mT
Md. ^„^^ ^^ ^^^ ^^^ succeeds to a per-
„ ^ -r, ,, sonal liability distinct from and in ad-
33. Robison v. Beall, 26 Ga. 17; Mc- dition to that of the bank. In re Re-
Dougald V. Bellamy, 18 Ga. 411. ciprocity Bank, 22 N. Y. 9.
34. Subscriber who has not paid for 37. —
Nonresident. Foster v. Broas,
stock. — Laws 1838, c. 260, declares that 120 Mich. 1, 79 N. W. 696, 77 Am. St.
every one becoming a stockholder by Rep. 565.
196 BANKS AND BANKING. § 48 (Ibc)
§ 48 (Ibc) Time of Transfer.— Time of Transfer Prior to Insol-

vency. —By the laws of many of the states, a transferrer of bank stock
is liable as a stockholder if the insolvency of the bank occur within some
prescribed time after the transfer. This time is six months in Wisconsin;^®
and one year in Maine^^ and Minnesota.*"
In Georgia stockholders who have actually parted with their stock and
transferred it on the books of the bank before suit was brought against
the bank by its creditors are not liable. Those who were stockholders at
the time suit was brought against the bank by its creditors are liable.*^
In Massachusetts, those who were stockholders at the time payment
was refused are liable.*^
In Michigan, the stockholders who are liable are those who were such
when the bank became insolvent, or at the time of suspension of the bank.*^
and Chatham Bank

38.
—Time
vency. Wisconsin. Gager
of transfer prior to insol-
— v. Paul, 111
v.
801, 27 S. E. 790, so far as
Brobston, 99 Ga.
they conflict
Wis. 638, 87 N. W. 875. with the foregoing rulings.
Under Wisconsin Laws, chap. 71, When a charter of a bank provides
Rev. Stat. ]858, the stockholders at that "the individual property of the
the time an action was commenced stockholders at the time of suits shall
were liable. Cleveland v. Burnham, be liable for the ultimate payments of
55 Wis. 598, 13 N. W. 677. debts of the company in proportion to
39. —
Maine. Flynn v. American, etc.. the amount of stock owned by each
Trust Co., 104 Me. 141, 69 Atl. 771. stockholder," a stockholder is not lia-
40. —
Minnesota.' Hunt v. Roosen, 87 ble who has actually parted with his
Minn. 68, 91 N. W. 359; Hunt v. See- stock and has transferred it upon the
ger, 91 Minn. 264, 98 N. W. 91; Harper books of the bank before any suit is
V. Carroll, 66 Minn. 487, 69 N. W. 610, brought against the bank by a creditor.
1069. Wheatley v. Glover, 125 Ga. 710, 54 S.
Reorganization proceedings. Under — E. 626.
Laws 1897, c. 89, § 4, providing that 42. Transfer after payment refused.
stockholders of an insolvent bank who —Massachusetts. —An act incorporat-
sell their stock shall be liable as stock- ing a banking company provided that,
holders for one year, stockholders, if the corporation should refuse or
notwithstanding a sale of their stock, neglect to pay their bills on demand,
are liable for one year beyond the time "their original stockholders, their suc-
fixed for the payment of debts in pro- cessors, assigns, and the members of
ceedings under reorganization of banks the corporation" should, in their pri-
authorized by the statute. Hunt v. vate capacities, be liable to the holder.
Roosen, 87 Minn. 68. 91 N. W. 259. Held, that such only of the original
41. Transfer before suit. Georgia. — stockholders, their successors, etc., as
— The provision in the charter of the were members of the corporation at
Bank of Americus that "the individual the time payment was refused, were
property of the stockholders at the liable. Bond v. Appleton, 8 Mass. 473,
time of suits shall be liable for the ul- 5 Am. Dec. 111.
timate payment of the debts of the 43. Stockholders at insolvency or
company in proportion to the amount suspension, t— Michigan. —
Foster v.
of slock owned by each stockholder" Broas, 120 Mich. 1, 79 N. W. 696, 77
renders liable only the individual Am. St. Rep. 565.
property of those who are stockhold- Under Comp. Laws, § 6135, provid-
ers at the time that suits are brought ing that the stockholders of every
against the company by its creditors. bank shall be individually liable to an
Stockholders who may have transfer- amount equal to the par value of their
red their stock prior to the filing of stock, for the benefit of the depositors,
suits against the company are not in- the owner of stock at the time of the
dividually liable to the creditors of the suspension of a bank is so liable,
bank. Wheatley v. Glover, 125 Ga. though he subsequently transfers his
710, 54 S. E. 636, overruling Brobston stock. May v. McQuillan, 129 Mich.
V. Downing, 95 Ga. 505, 23 S. E. 277, 392, 89 N. W. 45.
§ 48 (Ibeb) stockholders. 197
In Ohio the stockholders interested in the bank at the date of the obliga-
tion or contract are liable without respect to a subsequent transfer. The
liability can not be avoided by a transfer after it attaches.**
§ 48 (Ibd) Consideration. — Colorable Transfers. — See post, "Col-

orable Transfers," § 48 (Ibec).
"Gift."— See post, "Gifts," § 48 (Ibed).
§ 48 (Ibe) Bona Fides of Transferee and Solvency of Bank—

§ —
48 (Ibea) In General. By the weight of authority, the controlling
consideration is the good faith of the stockholder in making the transfer
and in believing the bank to be solvent, for such transfer can not be made
as against creditors after the bank is known to be insolvent.* ^ A few cases
apparently maintain a dissenting view.*^ Insolvency of a bank does not
avoid a transfer of stock, as an attempt to escape individual liability, where
the transferrer is not have known of the insolvency.*^
shown to
In New York, the transfer must be made in good faith and while the
bank is solvent.*^
The mere reduction of the reserve below the standard does not con-
stitute insolvency.*^
§48 (Ibeb) Intent to Avoid Liability. A transfer by a stockholder —

for the mere purpose of avoiding his statutory liability is fraudulent and
void, and he remains still liable. 5° The intent to avoid liability, when coupled
44. Transfer after date of note or a banking corporation liable to the

obligation. — Ohio. — Under Act 1816, amount of his stock in addition to the
providing that, where notes are issued amount invested therein, and declar-
by any unauthorized bank, the holder ing that no person, who has in good
may recover against any person "in- faith transferred his stock "on the
terested in such bank, at the date of books of the corporation when sol-
such note, * * * or who became inter- vent" shall be subject to any personal
ested in such bank at any time between liability, the transfer of bank stock to
that and the commencement of suit," relieve the transferrer from liability for
after the liability attaches it can not the debts of the bank must be made in
be avoided by a transfer of interest in good faith and while it is solvent,
the bank. Kearny v. Buttles, 1 O. St. Persons v. Gardner, 188 N. Y. 571, 80
363. N. E. 1118; S. C, 98 N. Y. S. 807, 113
45. Solvency of bank and bona fides App. Div. 597.
of transfer. — McDonald v. Dewey, 202 49. Earle v. Carson, 188 U. S. 42, 44,
U. S. Ed. 1138, 36 S. Ct.
510, 531, 50 L. 47 L. Ed. 373, 33 S. Ct. 354.
731; Man Boykin, 79 S. C. 1, 60 S.
v. 50. Transfer to avoid
liability void.
E. 17, 138
46.
Am. St. Rep. 830.
See Whitney v. Butler, 118 U.
— Germania Nat. Bank v. Case, 99 U.
S. 638, 35 L. Ed. 448; Rankin v. Fidel-
S. 655, 30 L. Ed. 366, 7 S. Ct. 61, fol- ity Ins., etc., Co., 189 U. 8. 343, 47 L.
lowed by Young v. McKay, 50 Fed. Ed. 23 S. Ct. 553; Ohio Valley
793,
394. Nat. Bank
v. Hulitt, 304 U. S. 162, 167,
47. Foster
Broas, 120 Mich. 1, 79
v. 51 L. Ed. 433; Stuart v. Hayden, 169
N. W. 696, 77 Am. St. Rep. 565. u. S. 1, 43 L. Ed. 639, 18 S. Ct. 374;
48. —
New York. Under Const., art. Peters v. Bain, 133 U. S. 670, 33 L.
8, § 7, making stockholders of banking Ed. 696, 10 S. Ct. 354.
corporations individually responsible If the real owner of the shares
to the amount of their respective shares transfers them to another person, or
for the debts of the corporations, and causes them to be placed on the books
Banking Law, §§ 53, 53 (Laws 1893, p. of the association in the name of an-
1869, c. 689), making a stockholder of other person, with the intent simply
198 BANKS AND BANKING. § 48 (Ibc)
with knowledge or reasonable belief by transferrer that the bank is insol-

vent or failing, will avoid the attempted transfer.î The intent to avoid
to evade the responsibility imposed by statute, in respect of the shares of

§ 5151 on shareholders of national stock transferred, the transaction will
banking associations, such owner may be decreed to be a fraud on the cred-
be treated, for the purposes of that itors, and he will be held to the
section, as a shareholder, and liable same liability to the creditors as be-
as therein prescribed. Pauly v. State fore the transfer. He will be still
Loan, etc., Co., 165 U. S. 606, 619, 41 regarded as a shareholder quoad the
L. Ed. 844, 17 S. Ct. 465; reaffirmed in creditors, although he may be able
Harmon v. National Park Bank, 173 to show that there was a full or a
U. S. 644, 43 L. Ed. 1182, 19 S. Ct. 877. partial consideration for the transfer
It is true that the case of Matteson as between him and the transferee.
V. Dent, 176 U. S. 521, 44 L. Ed. 571, Bowden v. Johnson, 107 U. S. 251, 27
30 S. Ct. 419, did not involve the L. Ed. 386, 3 S. Ct. 346.
question here presented, but, in de- Secret transfer in violation of
livering the opinion, the prior cases —
promise to creditor. Where a gen-
of Germania Nat. Bank v. Case, 99 eral banking law of a state imposed
U. S. 628, 25 L. Ed. 448, and-Bowden upon the stockholders of banks which
V. Johnson, 107 U. S. 251, 27 L. Ed. should be organized under it indi-
386, 2 S. Ct. 246, were cited in support vidual liability to double the amount
of the proposition, treated as elemen- of their stock while they continued
tary, that "where a transfer has been stockholders and one year thereafter,
fraudulently or collusively made to and a creditor of the bank made de-
avoid an obligation to pay assess- mand of a stockholder for the pay-
ments, such transfer will be disre- ment of his debt, the bank being in-
garded, and the real owner be held solvent, and the stockholder requested
liable." McDonald v. Dewey, 203 U. delay, promising not to transfer his
S. 510, 50 L. Ed. 1138, 26 S. Ct. 731. stock, but did secretly and fraudu-
"That the transfer of stock in cor- lently transfer it, it was held, in a
porations, even when in failing cir- suit brought more than one year after
cumstances, should not be unduly such transfer, that it was inoperative
impeded, is essential not only to the as to such creditor. Paine v. Stewart,
prosperity of such corporations and 33 Conn. 516.
the value of their stock, but to the in- 51. Intent a material point. —
Stuart
terest of stockholders who may desire V. Hayden, 169 U. S. 1, 43 L. Ed. 639,
for legitimate reasons to change their 1204, 18 S. Ct. 374; McDonald v.
investments or to raise money for Dewey, 303 U. S. 510, 50 L. Ed.
debts incurred outside the business of 1128, 26 S. Ct. 731; Bowden v. John-
such corporation. Bank v. Lanier, 11 son, 107 U. S. 251, 27 L. Ed. 386, 2 S.
Wall. 369, 377, 20 L. Ed. 173. At the Ct. 246.
same time the frequency with which One who holds national bank shares
such transfers are made for the pur- — the bank being at the time insolvent
pose of evading the double liability — can not escape the individual lia-
imposed by the National Banking bility imposed by the statute by
Act, has given rise to a large amount transferring his stock with intent
of litigation turning upon their le- simply to avoid that liability, knowing
gality. In this connection certain or having reason to believe, at the
propositions have been laid down by time of the transfer on the books of
so many courts and in so many cases the bank. Richmond v. Irons, 121 U.
that they may be regarded as funda- S. 27, 58, 30 L. Ed. 864, 7 S. Ct. 788,
mental principles of law applicable to that it is insolvent or about to fail.
all cases of this character." McDon- Stuart V. Hayden, 169 U. S. 1, 8, 43
ald V. Dewey, 202 U. S. 510, 50 L. Ed. L. Ed. 639, 1304, 18 S. Ct. 274.
1138, 26 S. Ct. 731. "Cases are also to be found in the
Where the transferrer, possessed of books where transfers, made by
information showing that there is shareholders in anticipation of a
good ground to apprehend the failure bank's insolvency, to irresponsible
of the bank, colludes and combines, persons, have been held to be a fraud
with an irresponsible transferee, with on the statute (§ 5139, Rev. Stat., U.
the design of substituting the latter in S.), and inefficacious to relieve the
his place, and of thus leaving no one original holder from liability. Bow-
with any liability to respond for the den V. Johnson, 107 U. S. 251, 27 L.
individual liability imposed by the Ed. 386, 2 S. Ct. 246; Richmond v.
§ 48 (Ibc) STOCKHOLDERS. 199
liability may be gathered from declarations, or facts and circumstances,^^

but mere insolvency of the vendee, while doubtless evidence of fraudulent
Irons, 121 U. S. 37, 30 L. Ed. 864, 7 S. intent with which the shareholder got
Ct. 788; Pauly v. State Loan, etc., Co., rid of his stock was of no conse-
165 U. S. 606, 619, 41 L. Ed. 844, 17 quence; certainly, no case in which the
S. Ct. 465; Matteson v. Dent, 176 U. intent was held to be immaterial, when
S. 531, 44 L. Ed. 571, 20 S. Ct. 419." coupled with knowledge or reason-
Robinson v. Southern Nat. Bank, 180 able belief upon the part of the trans-
U. S. 395, 45 L. Ed. 536, 21 S. Ct. 383. ferrer that the bank was insolvent or
If a registered owner, acting in bad in a failing condition. Stuart v. Hay-
faith, transfers his stock in a failing den, 169 U. S. 1, 7, 43 L. Ed. 639, 1304,
bank to an irresponsible person, for 18 S. Ct. 274. And see McDonald v.
the purpose of escaping liability, or Deweyj 302 U. S. 510, 50 L. Ed. 1138,
if his transfer is colorable only, the 36 S. Ct. 731, and quoting this para-
transaction is void as to creditors. graph at p. 533.
Citing Germania Nat. Bank v. Case, A
stockholder of a national bank,
99 U. S. 638, 35 L. Ed. 448; Bowden who was also an officer thereof, sold
V. Johnson, 107 U. S. 251, 27 L. Ed. some of his stock through one who
386, 2 S. Ct. 346. It was further said acted merely as agent but held it for
to be beyond question that the bene- vendor in his name, at a time when
ficial owner of stock registered in the the bank was insolvent in reality, as
name of an irresponsible person may, was known, or should have been
under some circumstances, be liable known, to the vendor, and the bank
to creditors as the real shareholder. suspended two years afterwards, with
Pauly V. State Loan, etc., Co., 165 U. this stock standing on the books in
S. 606, 41 L. Ed. 844, 17 S. Ct. 465, the name of the irresponsible agent.
reaffirmed in Harmon v. National Park It washeld, in a suit by the receiver
Bank, 173 U. S. 644, 43 L. Ed. 1183, 19 of the bank to enforce against the
S. Ct. 877; Anderson v. Philadelphia transferrer his statutory liability to an
Warehouse Co., Ill U. S. 479, 483, 38 assessment, that he was liable for his
L. Ed. 478, 4 S. Ct. 535. full assessment on such shares. Mc-
It is proper deduction from the Donald V. Dewey, 202 U. S. 510, 50
prior cases, and as such held to be the L. Ed. 1128, 26 S. Ct. 731.
law, that the gist of the liability is the Transfer to minor children. —
fraud implied in selling, with notice transfer of his stock by a stockholder
of the insolvency of the bank and with in a national bank made to his minor
intent to evade the double liability children, when, though perhaps not
imposed upon the stockholder by the supposing the bank to be actually in-
National Banking Act. In short, the solvent, he had reason to suspect its
question of liability is largely de- soundness, and with the intent that,
terminable by the presence or absence if all came out well, the children
of an intent to evade liability. Mc- should have the stock, and, if the
Donald V. Dewey, 303 U. S. 510, 50 bank failed, he would not have to pay,
L. Ed. 1128, 36 S. Ct. 731. can not stand against the creditors of
The contention that if the transfer the bank. Foster v. Lincoln, 24 C. C.
was absolute and to persons who A. 470, 79 Fed. 170.
were at the time solvent and able to 52. Evidence of intent. —
The intent
respond to an assessment upon the with which the act was done may be
shares, the motive with which the proved by the declarations of the party
transfer was made is of no conse- concerned, or by facts and circum-
quence seems to find some support in stances from which the existence of
the general language used in a few the intent may be reasonably inferred.
cases, but it will be found upon ex- Stuart V. Hayden, 169 U. S. 1, 42 L.
amination that those cases were dealt Ed. 639, 1304, 18 S. Ct. 374.
v/ith upon the basis that the facts The sale and transfer of national
therein showed not only an intent bank stock upon the very day when
upon the part of the shareholder to the insolvency of the bank occurred,
escape liability by transferring his must be presumed to have been in
stock, but that the transfer was either contemplation thereof and fraudulent
colorable or to a person who was in law as to creditors, and the stock-
financially irresponsible at the time holder's liability is unaffected thereby.
of such transfer. There is no case Richmond v. Irons, 121 U. S. 27, 58,
in which this court has held that the 30 L. Ed. 864, 7 S. Ct. 788.
200 BANKS AND BANKING. 48 (Ibc)
intent, is not sufficient to avoid a transfer without notice of the bank's in-
solvency .^^ The vendee's insolvency must be known to the vendor.^* But
even if such is the intent, if the transfer is to a person of proven financial
responsibility, it is effectual to terminate liability, though alleging or prov-
ing the negative is not a part* of the creditor's or receiver's case,, and he
may proceed against the transferrer without regard thereto. It is purely
matter of defense and must be proved affirmatively ;'5 at least if vendee
53. Insolvency of bank and knowl- 526, 50 L. Ed. 1128, 36 S. Ct. 731, dis-
—
edge thereof. The fact that the sale tinguishing and approving Pauly v.
was made to an insolvent buyer is State Loan, etc., Co., 165 U. S. 606,
doubtless additional evidence of the 41 L. Ed. 844, 17 S. Ct. 465; Stuart v.
original fraudulent intent, but would Hayden, 169 U. S. 1, 42 L. Ed. 639,
not be in itself sufficient to constitute 1204, 18 S. Ct. 274; Matteson v. Dent,
fraud without notice of the insolvency 176 U. S. 521, 44 L. Ed. 571, 20 S. Ct.
of the bank. The stockholder is not 419; Earle v. Carson, 188 U. S. 43, 47
deprived of his right to sell his stock L. Ed. 373, 33 S. Ct. 254.
by the fact that the sale is made to an Bad faith may be shown by the fact
insolvent person, unless it be made that the bank was known to vendor
with knowledge of the insolvency of to be insolvent; but notvyithstanding
the bank. This was practically the this the transfer would be valid if
ruling in Earle v. Carson, 188 U. S. inade to a person of known financial
42, 47 L. Ed. 373, 23 S. Ct. 254, in responsibility, since the creditors
which it was held that a bona fide could not suffer by the substitution of
sale would not be void, though the one solvent stockholder in place of
vendee were insolvent, if the fact of another. McDonald v. Dewey, 302 U.
such insolvency were at the time un- S. 510, 50 L. Ed. 1128, 36 S. Ct._ 731.
known to the seller. McDonald v. The solvency of the vendee is perti-
Dewey, 202 U. S. 510, 50 L. Ed. 1138, nent in showing that no damage could
26 S. Ct. 731. have resulted to the creditors of the
Although the exercise of the power bank by the transfer. Though not a
to transfer stock in a national bank is necessary part of the plaintifif's case,
controlled by the rules of good faith it may be a complete defense, if it be
applicable to other contracts, the shown that the sale, however fraudu-
qualification just stated gives no sup- lent, was made to a vendee who was
port to the proposition that where a as able to respond to the double lia-
sale of stock in a national bank is bility as was the vendor, but, on the
made in good faith, nevertheless the proposition that the vendors are not
consequences of the sale are avoided responsible because the saleS were
if subsequently it developed that the made to solvent vendees, being defen-
bank was insolvent at the time of the sive in its character, the burden of
transfer, in the sense that its assets proof was upon them. McDonald v.
were then unequal to the discharge of Dewey, 203 U. S. 510, 50 L. Ed. 1138,
its liabilities, when such fact was un- 26 S. Ct. 731.
known to the seller of the stock at The fraud was consummated by the
the time of the sale. Earle v. Carson, bank known to
sale of the stock of a
188 U. S. 42, 49, 47 L. Ed. 373, 23 S. be insolvent, with intent to evade lia-
Ct. 254. See quaere in Stuart v. Hay- bility, and the fraud is not less though
den, 169 U. S. 1, 42 L. Ed. 639, 1204, the transferees happened to be sol-
18 S. Ct. 274. vent, but their solvency may be proved
Vendee's insolvency unknown to
54. to rebut the presumption that injury
—
vendor. Where the person to whom resulted to the creditors from the
the stock was sold in the case in transfers. McDonald v. Dewey, 202
question was in fact insolvent, and U. L. Ed. 1128, 26 S. Ct.
S. 510, 527, 50
hence unable to respond to the double 731. See, however, Stuart v. Hayden,
liability, the sale was not void, if the 169 U. S. 1, 9, 42 L. Ed. 639, 1204, 18
fact of such insolvency of the buyer S. Ct. 274, where it was said: "If the
was unknown to the seller. Earle v. bank be solvent at the time of the
Carson, 188 U. S. 42, 47 L. Ed. 373, 33 transfer, that is, able to meet its ex-
S. Ct. 254. isting contracts, debts and engage-
55. Transfer to responsible person. ments, the motive with which the
— McDonald v. Dewey, 202 U. S. 510, transfer is made is, of course, imma-
§ 48 (Ibc) STOCKHOLDERS. 201
is responsible to an amount sufficient to prevent injury to creditors.^^
terial. But if the bank be insolvent, case was disposed of as one of bad
the receiver may, at least, without su- faith * * * in transferring the shares
ing the transferee and litigating the at a time when he knew the bank to
question of his liability, look to those be insolvent. There is certainly noth-
shareholders who, knowing or having ing in this case to justify the inference
reason to know, at the time, that the that the receiver was bound in making
bank was insolvent, got rid of their out his case to establish the fact that
stock in order to escape the in- the transferee was insolvent, and was
dividual liability to which the statute known to the stockholder to be so
subjected them." when he transferred his stock." Mc-
And "A with such intent
transfer Donald V. Dewey, 203 U. S. 510, 50
and under such
circumstances, is a L. Ed. 1128, 26 S. Ct. 731.
fraud upon the creditors of the bank, Thus the cases are reconcilable, as
and may be treated by the receiver as is apparent from the approval, in Mc-
inoperative between the transferrer Donald V. Dewey, 202 U. S. 510, 50

and himself and the former held liable L. Ed. 1128, 26 S. Ct. 731, of Stuart v.
as a shareholder without reference to Hayden, 169 U. S. 1, 43 L. Ed. 639,
the financial condition of the trans- 1204, 18 S. Ct. 274. The earlier case
feree." Stuart V. Hayden, 169 U. S. simply held that the receiver could
1, 8, 42 L. Ed. 639, 1204, 18 S. Ct. 274.
proceed against the transferrer with-
out regard to the financial respon-
And "The right of creditors of a na-
sibility of transferee, so far as mak-
tional bank to look to the individual ing out his case is concerned, and this
liability of shareholders,to the extent
is expressly approved in McDonald v.
indicated by the statute, for its con-
Dewey. The insolvency of the trans-
tracts, debts and engagements, at-
feree was really not a point in the
taches when the bank becomes in-
case, being merely alleged by defend-
solvent, and the shareholder can not,
ant, and the question whether it would
by transferring his stock, require
have been a defense if proved was not
creditors to surrender this security as
touched. The claim that the receiver
to him, and compel the receiver ana
had to negative the solvency of trans-
creditors to look to the person to
feree, on the ground that the motive
whom his stock has been transferred." would then be immaterial, was refuted,
Stuart V. Hayden, 169 U. S. 1, 43 L.
and this was approved by the later
Ed. 639, 1204, 18 S. Ct. 274.
case. In McDonald v. Dewej', not
It was there held that where the evi- only was the claim made that the
dence shows that a stockholder in a transferee was solvent, but evidence
national bank, with knowledge of the thereof was introduced. The court
insolvency of the bank, or at all events held, following Stuart v. Hayden, that
with such knowledge of facts as rea- the receiver did not have to establish
sonably justified the belief that
' in- insolvency of transferee in order to
solvency existed or was impending, make out his case, but held, as well,
sold and transferred his stock with that such insolvency would be a de-
the intent to escape the individual lia- fense to defendant if established by
bilitywhich the statute imposed upon him (in which case, presumably, the
shareholders of national banks for receiver would be turned over to an-
their contracts, debts and engage- other suit against the transferee for
ments, and the bank having been, in his remedv). McDonald v. Dewey,
fact, insolvent at the time of the trans- 302 U. S. 510, 50 L. Ed. 1128, 36
fer of his stock —
which fact is not Ct. 731.
S.
—
disputed he remained, notwithstand- 56. Degree of responsibility. to —As
ing such transfer, and as between the whether the transferees finan-were
receiver and himself, a shareholder, cially responsible to the amount of
.subject to the individual liability im- the assessment, it is not necessary to
posed by § 5151. Stuart v. Hayden, show that they were persons of re-
169 U. S. 1, 42 L. Ed. 639, 1204, 18 S. sponsibility equal to that of the origi-
Ct. 274. nal stockholder. It is sufficient that
It, commenting on Stuart v. Hay- they were responsible to the amount
den, 169 U. S. 1, 42 L. Ed. 639, 1204, called for by the necessities of the
18 S. Ct. 274, Brown, J., speaking for case —
in other words, in an amount
the majority of the court, said: "No sufficient to indicate that the creditors
stress was laid upon their (the trans- of the bank were not c'aronified by the
ferees'') financial condition, but the change of ownership. McDonald v.
202 BANKS AND BANKING. § 48 (Ibec)
§ 48 (Ibec) Colorable Transfers. —A merely colorable transfer on

the books of the bank, without a real transfer of the ownership as between
the parties being intended, is ineffectual liability,^''' regardless of whether
there was a full or partial consideration for such transfer or not.^^
Dewey, 303 U. S. 510, 50 L. Ed. 1138, the transfer be to escape liability, pro-
26 S. Ct. 731. vided the transfer be out and out, and
This burden of proof is not sustained not merely colorable or collusive, with
where there is no satisfactorj' evi- a secret trust attached. Under such
dence that a decree against any one- circumstances the person making the
of the vendees for the amount of his transfer is released from liability, both
assessment could have been collected as to corporate creditors and the other
by ordinary process of law. McDon- shareholders. Cook on Stockholders,
ald V. Dewey, 303 U. S. 510, 50 D. Ed. § 366; 2 Morawetz on Private Cor-
1138, 36 S. Ct. 731. porations, § 859." McDonald v.
57. —
Colorable transfer. McDonald Dewey, 202 U. S. 510, 50 L. Ed. 1138,
V. Dewey, 303 U. S. 510, 50 E. Ed. 1138, 36 S. Ct. 731.
36 S. Ct. 731; Anderson v. Philadelphia "The law is quite different in this
Warehouse Co., Ill U. S. 479, 483, 28 country. At the same time the origi-
L. Ed. 478, 4 S. Ct. 535; Rankin v. nal stockholder can not be held liable,
Fidelity Ins., etc., Co., 189 U. S. 243, unless the bank were pracrically m-
47 L. Ed. 792, 33 S. Ct. 553; Ohio Val- solvent at the time the transfer was
ley Nat. Bank v. Hulitt, 304 U. S. 163, made, and its condition was known or
51 L. Ed. 423; Germania Nat. Bank v. ought to have been known to the
Case, 99 U. S. 628, 35 L. Ed. 448; stockholder making the transfer. If
Bowden v. Johnson, 107 U. S. 351, 27 the bank were in fact solvent and able
E. Ed. 386, 3 S. Ct. 246; Pauly v. State to pay its debts as they matured
Loan, etc., Co., 165 U. S. 606, 41 L. when the transfer was made, the
Ed.' 844, 17 S. Ct. 465, reaffirmed in creditors having ample security in the
Harmon v. National Park Bank, 172 solvency of the bank, have no special
U. S. 644, 43 L. Ed. 1183, 19 S. Ct. 877. interest in knowing who the stock-
"It was held by this court in Ger- holders are, since their only recourse
mania Nat. Bank v. Case, 99 U. S. to them would be in the remote con-
628, 35 L. Ed. 448, that a transfer on tingency of the insolvency of the
the books of the bank is not in all bank. The transferrer can only be
cases enough to extinguish liability. held liable if the bank be insolvent,
The court, in that case, defined as and such insolvency be known, or
one limit of the right to transfer, that ought to have been known, to him
the transfer must be out and out, or from his relations to the bank, since
one really transferring the ownership the transfer is prima facie valid, and
as between the parties to it. But there shifts to the transferee the burden of
is nothing in the statute excluding, as the responsibility, which can be laid
another limit, that the transfer must upon the original stockholder only in
not be to a person known to be irre- case of bad faith, or evidence of a pur-
sponsible, and collusively made, with pose to evade liability." McDonald z/.
the intent of escaping liability, and Dewey, 203 U. S. 510, 50 L. Ed. 1138,
defeating the rights given by statute 36 S. Ct. 731.
to creditors." Bowden v. Johnson, The real owner of national bank
107 U. S. 251, 27 L. Ed. 386, 2 S. Ct. shares can not avoid liability by list-
346. ing them in the name of another.
The transferee might be liable as a Rankin v. Fidelity Ins., etc., Co., 189
shareholder succeeding to the U. S. 342, 47 L. Ed. 792, 33 S. Ct. 553.
lia-
bilities, because he has voluntarily as- 58. Consideration immaterial. —
"The
sumed that position; but that is no rea- same result follows if the stockholder,
son why transferrer should not, at the knowing, or having good reason to
election of creditors, still be treated know, the insolvency of the bank, col-
as a shareholder, he having, to es- ludes with an irresponsible person
cape liability, perpetrated a fraud on with design to substitute the latter in
the statute. Bowden v. Johnson, 107 his place, and thus escape individual
U. S. 251, 37 L. Ed. 386, 3 S. Ct. 246. liability, and transfers his stock to
"Under the English law a share- such person. It is immaterial in such
holder may transfer his shares to an case that he may be able to show a
irresponsible party for a nominal con- full or partial consideration for the
sideration, though the sole purpose of transfer as between himself and the
§ 48 (Ibf) STOCKHOLDERS. 203
§ 48 (Ibed) Gifts. —A bona fide transfer by gift of bank stock before

insolvency will relieve the transferrer of his statutory liability thereon.^*
§ 48 (Ibee) Transfer of Pledged or Hypothecated Stock. In —

case of pledge of stock and transfer to an irresponsible person at request of
pledgee, the former owners still remained the owners of the stock, though
registered in the name of others, and pledged as collateral security for their
debt. They consented to the transfer, not to escape liability as sharehold-
ers, but to save the pledgee from a liability he was unwilling to assume, and
at the same time to perfect the security required for the credit to be given.®"
§ 48 (Ibf) Entry on Stock Book. —The transfer of bank stock not

regularly entered on the stock books is ineffectual to cut off the individual
liability of the stockholder ;^'^
unless the transferrer has done all that can be
transferee. Bowden v. Johnson, 107 case the stock remained on the books
U. S. 251, 27 L. Ed. 386, 2 S. Ct. 246." in the name of the deceased owner,
McDonald v. Dewey, 202 U. S. 510, 50 continued as a liability of the estate
L. Ed. 1128, 26 S. Ct. 731. and was never transferred under the
59. Gift.— Foster v. Broas, 120 allotment, it follows that the allottees,
Mich. 1, 79 N. W. 696, 77 Am. St. Rep. have no right to complain because the
565. receiver has availed himself of the
60. Pledged stock. —Anderson v. provisions of the state statute. The
Philadelphia Warehouse
Co., Ill U. estate remained liable, and the as-
S. 479, 28 L. Ed. 478, 4 S. Ct. 525. See sessment could be recovered from the
post, "Pledgee," § 48 (2bd). distributees served in the suit to the
61. Transfer on registry books extent that they had received the es-
essential. —
As a general rule, the legal tate. Matteson v. Dent, 176 U. S. 521,
owner of stock of a bank that is, the — 44 L. Ed. 571, 20 S. Ct. 419.
one in whose name stock stands on Where the issue is between the re-
the books of the association remains — ceiver, representing the creditors, and
liable for an assessment so long as the person standing on the register
the stock is allowed to stand in his of the bank as a shareholder, it is
name on the books, and, although the said, generally, that the creditors of
registered owner may have made a a national bank are entitled to know
transfer to another person, unless it who, as shareholders, have pledged
has been accompanied by a transfer their individual liability as security for
on the books of registry of the asso- its debts, engagements, and contracts;
ciation, such registered owner re- that if a person permits his name to
mains liable. Matteson v. Dent, 176 appear and remain in its outstanding-
U. S. 521, 44 L. Ed. 571, 20 S. Ct. 419; certificates of stock, and on its reg-
Upton V. Tribilcock, 91 U. S. 45, 23 ister, as a shareholder, he is estopped,
L. Ed. 203; Sanger v. Upton, 91 U. as between himself and the creditors
S. 56, 23 L. Ed. 220; Webster r. Up- of the bank, to deny that he is a
ton, 91 U. S. 65, 23 L. Ed. 384; Pull- shareholder; and that his individual
man V. Upton, 96 U. S. 328, 24 L. Ed. liability continues until there is a
818; Anderson v. Philadelphia Ware- transfer of the stock on the books of
house Co., Ill U. S. 479, 28 E. Ed. 478, the bank, even where he has in good
4 S. Ct. 525; Richmond v. Irons, 121 faith previously sold it and delivered
U. S. 27, 58, 30 L. Ed. 864, 7 S. Ct. to the buyer the certificate of stock,
788. with a power of attorney in such
Where the stockholder died before form as to enable the transfer to be
insolvency of the bank and his estate made. Whitney v. Butler, 118 U. S.
was distributed under the state law, 655, 30 L. Ed. 266, 7 S. Ct. 61.
but no notice thereof conveyed to the South Carolina. —
Under 1 Code of
bank, or any transfer made on its Laws 1902, § 1894, providing that no
books, and suit was brought by the transfer of stock shall be valid, ex-
receiver under the state statute against cept as between the parties, until the
the distributees to recover an assess- same shall have been regularly entered
ment on the stock, held that as in this on the corporate books, where a trans-
204 BANKS AND BANKING. § 48 (Ibf)
required of him to obtain a transfer on the books, the failure to make it
being due to neglect of the officials of the bank.®^ It is not enough to rely
fer of bank stock is not so regularly a transfer on the books, and ex-
entered the transferrer is liable to the tinguish the liability as stockholder oi
creditors of the bank. Man v. Boykin, the transferrer. Whitney v. Butler,
79 S. C. 1, 60 S. E. 17, 128 Am. St. 118 U. S. 655, 30 L. Ed. 266, 7 S. Ct.
Rep. 830. 61." Matteson v. Dent, 170 U. S. 521,
Where stockholders of a bank, in 44 L. Ed. 571, 20 S. Ct. 419.
good for value received, trans-
faith, —
Arkansas. The failure of the bank
ferred the stock to the cashier, with officers to make the transfer on the
instructions to enter the transfer on books of the bank will not continue
the books of the bank, but the cashier the seller's liability as 3 stockholder.
failed so to do, the attempted trans- Warren v. Nix, 97 Ark. 374, 135 S.
fer wasinsufficient, under Code of W. 896.
Laws 1903, § 1894, providing that no Director instructing cashier to per-
transfer shall be valid, except as be- fect transfer of his stock. —
Where a
tween the parties, until regularly en- director of a bank sold his stock in
tered on the books of the corpora- good faith, and directed the cashier
tion, and the holders of the stock are to do everything connected with the
liable to the creditors of the bank on transfer necessary to periect it in a
its insolvency for the amount of the legal way, and was informed that
stock originally held by them. White there was nothing more to be done,
V. Commercial, etc.. Bank, 66 S. C. he was relieved from liability as a
491, 45 S. E. 94, 97 Am. St. Rep. 803. shareholder, though the transfer was
Registry of transfer to bank after not recorded on the books of the
assignment for benefit of creditors. — bank as expressly required by Kv. St.
A transfer of stock was not registered 1903, §§ 545, 546. Bracken v. Nichol,
on the books of .the bank until after 30 Ky. L. Rep. 864, 99 S. W. 920.
the bank had failed and made an as- Indorsing in blank and delivery of
signment, and it was then registered certificate to president of bank. "In —
as a transfer from the stockholder to Whitney v. Butler, 118 U. S. 655, 30
the bank. Held, that it was error to L. Ed. 306, 7 S. Ct. 61, it was held
hold the assignor liable only as a that where stock had been sold, and
transferrer on the indebtedness exist- the certificates, with power of at-
ing at the time of the transfer. He torney for transfer duly executed in
should have been held liable as a blank, delivered to the president of
stockholder. Harper v. Carroll, 66 the bank, the responsibility of the
Minn. 487, 69 N. W. 610, 1069. original stockholder terminated."
Diligence to obtain transfer.
62. — Briggs V. Spaulding, 141 U. S. 132, 35
Matteson v. Dent, 176 U. S. 521, 44 L. L. Ed. 603, nS. Ct. 924.
Ed. 571, 20 S. Ct. 419; Briggs v. Astockholder in a national bank,
Spaulding, 141 U. S. 132,, 35 L. Ed. having no reason to suspect insol-
662, 11 S. Ct. 924; Whitney v. Butler, vency, placed his certificates in the
118 U. S. 655, 30 L. Ed. 266, 7 S. Ct. hands ol brokers for sale, with power
61; McDonald v. Dewey, 202 U. S. of attorney executed in Mank to make
510, 50 L. Ed. 1128, 26 S. Ct. 731. transfer thereof. The brokers of-
The presumption of liability begot- fered the stock for sale at auction and
ten by the presence of the name on it was bought bv E. ?t the lequest of
the stock register would be rebutted the president of the bank, witn whom
if the jury found the fact to be that a C. had placed an order for stock of
bona iide sale of the stock had been the bank and a special deposit to pay
made and that the transferrer had per- therefor. The stock was paid for to
formed every duty which the law im- the brokers and the certificates and
posed on him in order to secure a power of attorney delivered, the
transfer on the registry of the bank. former owner receiving the proceeds
Earle v. Carson, 188 U. S. 42, 47 E. without knowing who the purchaser
Ed. 373, 23 S. Ct. 254; Matteson v. was. The bank president received and
Dent, 176 U. S. 521, 44 L. Ed. 571, 20 held the certificates waiting until he
S. Ct. 419; Whitney v. Butler, 118 U. should fill C.'s order, intending then
S. 655, 30 L. Ed. 266, 7 S. Ct. 61. to transfer same to him. C. never
"Where a transfer of stock is made took the stock, nor was it transferred
and delivered to officers of a bank, to him, and, the bank having failed,
and such officials fail to make entry the receiver found the certificates in
of it, the acts referred to will operate an envelope purporting to represent a
§ 48 (Ibf) STOCKHOLDERS. 205
on the vendee to have the transfer made. The certificates must be delivered
to the bank with all information necessary to transfer them,^^ ^nd not
merely to an officer acting, not in an official, but in a personal capacity."*
—
Time of Entry on Registry. The transfer of stock in a bank must
be entered on the stock transfer books of the bank more than a year be-
security for a demand loan to the without permission of the directors,

president. It was held, that the former hold stock in the bank,'' the inference
owner had done all that was required from the payment of semiannual divi-
of him to terminate his liability as a dends to S. for the four years being
stockholder and his responsibility that the bank had accepted him as a
ceased upon the delivery of the cer- stockholder. Earle v. Coyle, 38 C. C-
tificates to the bank with the power A. 226, 97 Fed. 410.
of attorney to elTect the transfer, and 63. Essential steps by vendor. —
for that purpose to the knowledge of "Some of the cases hold that the seller
the president. Whitney v. Butler, 118 is liable as a shareholder even where
U. S. 655, 30 L. Ed. 260, 7 S. Ct. 61. the buyer agreed to have the transfer
Had anything occurred that would made on the books of the bank, but
have justified the former owner in fraudulently or negligently failed to
believing, or even in suspecting, that do so. But it will be found, upon care-
the transfer had not been promptly ful examination, that in no one of the
made on the books of the bank, they cases in which these general prin-
would, perhaps, have been wanting in ciples have been announced, as be-
due diligtnce had they not, \,y in- tween creditors and shareholders, does
spection of the bank's stock register, it appear that the precaution was
ascertained whether the proper trans- taken, after the sale of the stock, to
fer had in fact been made. Whitney surrender the certificates therefor to
V. Butler, 118 U. S. 655, 30 L. Ed. 366, the bank itself, accompanied (where
7 S. Ct. 61. such surrender was not by the share-
Delivery to cashier. Where — the holder in person) by a power of at-
stockholders of a solvent banking cor- torney, which would enable its of-
poration in good faith s.old their stock, ficers to make the transfer on the
indorsing the shares in blank, and de- register." Whitney v. Butler, 118 U.
livering them to the bank's cashier, S. 655, 661, 30 L. Ed. 266, 7 S. Ct. 61.
with the understanding that he would "Where the seller delivers the stock
do what was necessary to effectuate certificate and power of attorney to
a transfer on the bank's books, and the buyer, relying upon the promise
the cashier failed so to do, such stock- of the latter to have the necessary
holders were not after two years and transfer made, or where the certificate
on the bank's becoming insolvent li- and power of attorney are delivered
able to its creditors under Kv. St., to the bank without communicating to
§ 547 (Russell's St., § 2131), imposing its officers the name of the buyer, the
a double liability. Weakley v. Mc- seller may well be held liable as a
Clarty (Ky.), 125 S. W. 265. shareholder until, at least, he shall
Sale to cashier who is recognized by have done all that he reasonably can
—
bank as a stockholder. Title of C. to do to effect a transfer on the stock
stock in a bank is devested so as to register." Whitney v. Butler, 118 U.
relieve him of liability for an assess- S. 655, 30_ L. Ed. 266, 7 S. Ct. 61.
ment levied four years thereafter, on 64. Delivery to president as vendee.
the bank becoming insolvent, where —The sale of national bank stock with-
he employed auctioneers to sell it, and out actual transfer on the books, will
put into their hands his stock certifi- not release the individual liability
cate, having indorsed thereon an as- within the rule laid down in Whitney
signment in blank, and a power of at- V. Butler, 118 U. S. 655, 30 L. Ed. 266,
torney in blank to transfer the stock, 7 S. Ct. 61, where there is no proof,
duly executed by him, and they as there was in that case, of the de-
knocked down the stock to S., who livery of the certificates to the bank
was cashier of the bank, and took the and a power of attorney authorizing
certificate to the banking house and its transfer, with a request to do so
delivered it to S., "as cashier" of the made at the time of the transaction.
bank, and requested him to transfer The delivery to the president, not as
the shares to the purchaser thereof; president, but as vendee, is not suffi-
and this, notwithstanding a by-law of cient. Richmond v. Irons, 121 U. S.
the bank that "no officer * * * shall. 27, 58, 30 L. Ed. 864, 7 S. Ct. 788.
206 BANKS AND BANKING. § 48 (Ibg)
fore insolvency, in order to relieve the owner from liability on assessments

ordered in a receiver's suit to liquidate the debts of the bank.'^^
Abandonment of Intention to Transfer. —A member of a banking
may abandon an inchoate transfer
association of his stock and vvraive his
notice of withdrawal and remain an associate and liable as such. Whether
or not he has done so is a question for the jury.^^
§ 48 (Ibg) Publication of Notice of Transfer. —Where notice of a

transfer of bank stock is required ,to be given by publication, as a condi-
tion precedent to exemption of the transferrer from statutory liability, a
transferrer who has not given notice conformably to the statute remains
liable after a transfer of his stock. But stockholders who comply with
such requirement are exempt after the time during which the act expressly
continues a transferrer's liability.®'^ This was formerly the law of Georgia,
but the Acts of 1894, p. 76, Civ. Code, § 1888, dispense with publication of
notice of a transfer.**
65. Time of entry on registry. — 1882, § 1496. Chatham Bank c'. Brob-
Hunt V. Seeger, 91 Minn. 364, 98 N. ston, 99 Ga. 801, 27 S. E. 790; Brobston
W. 91. See ante, "Time of Transfer," V. Downing, 95 Ga. 505, 22 S. E. 377.
§ 48 (Ibc). Where the charter of a bank ren-
66. Abandonment intention
of to ders the stockholders liable after a
—
transfer. Where a member of a vol- transfer of stock, unless sixty days'
untary association conducting a bank- notice of sale is given in one of the
ing business, after notifying the di- public gazettes of the state, and pro-
rectors of his withdrawal as a mem- vided the transfer is made six months
ber, directing them to transfer his before the failure of the corporation,
stock to another person, and deliver- all stockholders who have given no-
ing his shares of stock to the secre- tice in terms of the act are exempt, un-
tary, on the failure of the directors to less the failure occurs within six
transfer his stock as directed, con- months thereafter. All other stock-
tinues to act as a director with knowl- holders are liable for the redemption
edge that his name is printed on of the bills, whether they have trans-
leaflets of the bank as a director, and ferred or not. This liability is not
votes his stock in person or by primary nor total, but secondary and
proxy, it is not error for the trial proportional. Lane v. Morris, 8 Ga.
court, in a suit by a depositor against 468.
such member, after the insolvency of Defendant, owner of all the stock
the association, in which suit he is in a bank, transferred it without con-
charged as partner, to submit to the sideration to third persons who de-
jury the question of whether the desired to obtain the charter and carry
fendant had abandoned his intention on the business, and at the same time
to transfer his shares and waived his the bank transferred all of its prop-
notice of withdrawal and remained erty and assets to defendant. Of this
liable as a partner. Bradford v. Na- transfer of his stock defendant gave
tional Ben. Ass'n, 26 App. D. C. 268. notice by publication, as required by
67. Publication of notice of trans- Code, § 1496. At that time the bank
fer. —Lane v. Morris, 8 Ga. 468; Brob- owed no debts, and the purchasers of
ston V. Downing, 95 Ga. 505, 22 S. E. the stock and charter paid in its capi-
277. See, also, Brunswick Terminal tal. Held, that defendant was not
Co. National Bank, 192 U. S. 386,
V. liable to subsequent creditors who
391, 48 L. Ed. 491, 24 S. Ct. 314; Mc- gave credit to the bank after its reor-
Dougald V. Bellamy, 18 Ga. 411. ganization, and who were not misled
68. —
Georgia. A stockholder in the by defendant. Morgan v. Brower, 77
Brunswick State Bank is liable for his Ga. 627.
pro rata part of the debts of the cor- Under the eleventh section of the
poration created after he transferred charter of the Planters' & Mechanics'
his shares, unless he gave notice of Bank of Columbus, any one who has
the transfer as prescribed in Code been at any time a stockholder therein.
§ 48 (Icb) STOCKHOLDERS. 207
§ 48 (Ibh) Record in Clerk's Office. —Failure of the transferee to

file a certificate of the transfer in the county clerk's office to avoid liability
for the debts of the seller will not continue the liability of the seller as a
stockholder.*^
§ 48 (Ic) Nature and Extent of Liability— § 48 (lea) In Gen-

eral. — —
Secondary. The liability, of one who has transferred his stock
prior to the insolvency, is secondary only to the liability of the succeeding
holders of the same stock, and not to the liability of all subsequent trans-
ferrers of other stock.''"'
Collection of Amount from Others. —A transferrer of stock, upon the

insolvency of the bank, is liable only for his share of the existing indebted-
ness which also existed at the time of the transfer; but he is not released
because this amount has been collected from others reached before him, in
the order of liability adopted by the court.'^^
Dividends Realized from Corporate Assets. A transferrer of stock, —
upon the insolvency of the bank within a year after the transfer, is entitled
to the benefit of any dividend realized from the corporate assets.''^
But One Satisfaction upon Each Share. Where two or more suc- —
cessive owners of the same shares are alike liable, one of them because he
owns the shares now, and another, or others, because of past ownership,
the creditors, though entitled to recover severally against each, as though
the liability were wholly his own, and the other or others were not liable,
can have but one satisfaction, and this being had, it will operate as satis-
faction as to all, save in respect to costs. ^^
§ 48 (Icb) Existing and Subsequent Creditors. — It is only cred-
and who has not transferred his stock stockholder on the subsequent in-
and given sixty days' notice thereof solvency of the bank; the filing of
in some public gazette of the state, such certificate being the duty of the
continues liable to the bill holders; transferee. Warren v. Nix, 97 Ark.
but his rights and obligations as a 374, 135 S. W. 896.
member of the corporation, inside of 70. Nature and extent of liability. —
the charter, cease from the time of Harper v. Carroll, 66 Minn. 487, 69 N.
the transfer of the stock. McDougald W. 610, 1069, construing Gen. Stat.,
o. Bellamy, 18 Ga. 411. 1894, § 3501.
69. Failure to record certificate of Since, under Gen. St. 1894, § 3501,
—
transfer in clerk's office. Under Kir- a stockholder who has transferred his
by's Dig., § 849, providing that a cer- stock within a year before the in-
fificate of the transfer of stock in any solvency is only secondarily liable, ex-
corporation organized under that ecution should not issue against him
chapter must be promptly filed in the until his transferee fails to respond to
county clerk's office, in order to avoid execution. Harper v. Carroll, 66
liability for the debts of the seller, Minn. 487, N. W. 610, 1069.
69
where a stockholder in a bank in good 71. Collection of amount from oth-
faith sold his stock, and executed and ers. — Harper v. Carroll, 66 Minn. 487,
delivered all the necessary instruments 69 N. W. 610, 1069.
to allow transfer of the stock on the 72. Dividends realized from corpo-
bank's books, and placed the same in rate assets. —
Harper v. Carroll, 66
the hands of the proper bank official, Minn. 487, 69 N. W. 610, 1069.
the mere fact that no certificate of the 73. But one satisfaction upon each
transfer was filed with the county —
share. Chatham Bank v. Brobston,
clerk will not render him liable as a 99 Ga. 801, 27 S. E. 790.
208 BANKS AND BANKING. 48 (2a)
itors existing at the time of the fraudulent transfer who are injured thereby,
and only as to such is the transfer invalid. The transferrer is liable to
assessment to satisfy creditor existing at the time of the transfer, but not
subsequent creditors.'^* The rule of nonliability in favor of subsequent
creditors applies to a transfer of the charter by means of a transfer of all
the stock.''
§ 48 (2) Transferee's Liability— § 48 (2a) In General.— Ordi-

narily a transferee of bank stock is subject to the individual liability pre-
scribed by the statute,^® but in some instances the statutory liability of
74. Existing and subsequent cred- by them, for all debts of the bank,
itors. — Incases in which the courts * * * transfer of their stock,
after "a
have used the general expres- the individual liability of a stock-

sion that in the event of a fraudu- holder who transferred his shares in
lent transfer of stock the stockholder good faith is limited to such debts as
remains liable to the creditors of the were incurred prior to the transfer.
bank, they were not called upon to Harper v. Carroll, 62 Minn. 152, 64 N.
discriminate between existing and W. 145.
subsequent creditors, since as a rule Wisconsin. Under —Rev. St. 1898,
the insolvency of the bank followed § 2034, subsec. 16, providing that any
soon after the transfer, and counsel person holding stock in any bank who
did not call attention to the distinc- shall sell or assign his stock shall be
tion. McDonald v. Dewey, 302 U. S. held for six months after such sale
510, 50 L. Ed. 1128, 26 S. Ct. 731. personally liable to the amount of
"In the event of insolvency it is such stock for all debts of such/ bank
only existing creditors who can claim existing at the time of such sale or as-
to have been damnified by a fraudu- signment, the liability is limited to
lent transfer of shares. As to them those who are creditors at the time of
such transfer is voidable. Subsequent the transfer. Gager v. Paul, 111 Wis.
creditors are apprised by the published 638, 87 N. W. 875.
list of the names of the shareholders, 75. Transfer of charter. Where —
to whom transfers have been made, one owned all the shares in a
and of the persons to whom they may bank which owed ho debts, and
have recourse for the double liability." he was proceeding to wind up its
McDonald -v. Dewey, 202 U. S. 510, 50 business, when certain others solicited
L. Ed. 1128, 26 S. Ct. 731. a transfer of the charter to them in
Georgia. —A
was indebted, by stock order that they might do a banking
note, to the M. & M. Bank of Colum- business, and under advice of counsel
bus. By contract with B, the stock as to how it could be done without
was transferred from A
to B, and A's liability on his part, he transferred all
note delivered up to him by the cashier the stock to such other persons with-
of the bank, upon the verbal under- out any consideration therefor, and
taking of B, to pay the amount of the bank transferred to him all of the
the subscription to the bank. The assets and property belonging to it,
bank subsequently ratified this trans- he giving notice of the transfer of the
action, B having been elected a di- stock under § 1496 of the Code, and
rector upon the faith of this stock. thereupon the new owners of the
Held, that A
could not be made stock paid in more than the amount of
chargeable as a debtor to the bank, the property before the transfer and
upon a liability incurred by the bank proceeded to do a banking business,
some years thereafter; and if respon- subsequent creditors of the bank, who
sible at all, it could only be in equity, became such after the notice of the
for fraudulently abstracting the as- transfer of the stock was published,
sets of the corporation. Mott v. ?nd who did not know of or rely on
Semmes, 24 Ga. 540. the conduct of the original stock-
Minnesota. Under — Gen. St. 1894, holder, had no right of action against
§ 2501, providing that "stockholders of him, he having acted in good faith
banks of deposit and discount shall be throughout the transaction. Morgan
individually liable, in an amount equal z'. Brower, 77 Ga. 627.
to double the amount of stock owned 76. Transferee's liability. —Bowden
§ 48 (2bc) STOCKHOLDERS. 209
stockholders is imposed on subscribing stockholders and does not extend

to stockholders by way of succession^''
§ 48 (2b) Requisites and Sufficiency of Transfer— § 48 (2ba)

—
Consent of Transferee. The mere transfer of the stocks on the books
of the bank, to the name of the transferee, does not impose upon him the
individual liability attached by law to the position of shareholder in a bank
or banking association. If the transfers were, in fact, without his knowl-
edge and consent, and he was not informed of what was so done —nothing
more appearing —he
would not be held to have assumed or incurred lia-
bility for the debts, contracts and engagements of the bank. But if, after
the transfers, he joined in the application to convert the savings bank into
a national bank, or in any other mode approved, ratified or acquiesced in
such transfers, or accepted any of the benefits arising from the ownership
of the stock thus put in his name on the books of the bank, he was liable
to be treated as a shareholder, with such responsibility as the law imposes
upon the shareholder of national banks.'^^
§ 48 (2bb) Solvency of Bank at Time of Transfer.—That the

transfer of stock is made after the failure of the bank does not render the
transfer void, but the transferee becomes a stockholder and as such is liable
upon his stock.'^s
§ 48 (2bc) Entry on Bank's Books. It is not necessary that the —

stock be actually transferred to the purchaser on the books of the bank.*"
V. Johnson, 107 U. S. 251, 27 L. Ed. j,. Hitz, 133 U. S. 138, 149, 33 L. Ed.
386, 2 S. Ct. 246. 531^ 10 S. Ct. 290.
party makes an actual purchase
If a
^j^^^^ ^^^ ^^^^^^ ^^ ^ ^^^^
of shares from an individual or the
bank (even if the latter had no au-
transferred by Ato B without con-
gjderation, and without the knowledge °
thority to buy or sell its own stock),
^^ ^^^^^^^ ^^ ^ B i^ ^^^ ^^^
and voluntarily allows his name to go
,, ,
i 1
I,
-^
on the books as a stockholder, 1,

he is 1 u • m
•
„„„j.„„„i„j.,- J „( ,.r,„ „!,„_*
contemplation ot the charter, „j and
'^ Reciprocity
^^^ ^„, ^^ ^^^^ U^^l^ ^^ ^^^ ^
^^^
^j ^^^J^ ^^. ^^^^^^.^-.^g ;„ the trans-
V t oo m"v-' q
'^^^J^'
77. Arprovision
u
a charter
in^ ^ A
granted
fer, after the fact is brought to his
'
the u
Hoticc, cfor û c
benefit ofc some other
î.
1 A i -.ono
r-r- / n- n J
?=T/ss°.tnoô-,?-,'/- ^^
^^r person, and to the injury of the
1895 §§ 1903-1911), to promoters of °f
a
^.editors of the corporation. Robin-
Dank, to the effect that each stock- t „„„ ^„
^„„ V. l-,ane, 19 Oa. 337.
,, .,„ S„r-
. ,j 1. u J- -J 1- ui r son
_„ ™
11 II •
holder shall be individually liable for l r •,

the. debts of the company to the ^9. Transfer after failure.— Robison
amount of his unpaid subscription, ^- Be^ll, 26 Ga. 17.
and for an additional amount equal 80 Entry on books of bank. The —

to the subscription, is, in view of the purchaser of bank stock deposited it
policy adopted by such act, of provid- as collateral with the bank for a loan,
ing to what extent owners of stock in with which the stock was purchased;
such institution may be held liable, to but, on repayment of the loan, the
be understood as imposing individual bank having suspended, he refused to
liabilityon the stockholders subscrib- take the stock. Held, that he was
ing to the capital stock, and not on the owner of it, and individually liable,
shareholders who by way of succes- notwithstanding the stock had never
sion become owners of stock. Reld been transferred to him on the books
;;. De Jarnette, 123 Ga. 787, 51 S. E. of the bank. Foster v. Broas, 120
770. Mich. 1, 79 N. W. 696, 77 Am. St. Rep.
78. Consent of transferee. — Keyset 565.
1 B & B— 14
210 BANKS AND BANKING. § 48 (2bd)
§ 48 (2bd) Pledgee. —As a general rule the holders of bank stock

as collateral security or by way of hypothecation are liable as if they were
absolute owners; this is the rule in Georgia,^! Massachusetts,*^ Minnesota,*^
and New York,** but the statutes of California, ^^ and Colorado*^ provide
that the holder of bank stock as collateral security is exempted from lia-
bility to creditors when it appears on face of the bank's books that he holds
only as a pledgee, and under the statutes of Michigan*^ a pledgee of bank
81. —
Pledgee. Georgia. Where the— creditors thereof a book containing a
charter of a bank imposes on all its list of all stockholders and the num-
stockholders personal liability to its ber of sljares held by each; that the
creditors, one who holds the legal title entries in such book shall be con-
to stock as collateral security for clusive evidence as to the number of
debts due him becomes liable as shares held. Section 322 provides that
though he had purchased the stock. the term "stockholder" shall apply to
Chatham Bank v. Brobston, 99 Ga. 801, persons appearing to be such on the
27 S. E. 790. books of the corporation, and every
82. —
Massachusetts. Crease %i. Bab- equitable owner of stock, etc., but that
cock, 51 Mass. (10 Mete.) 525. stock held as collateral security does
83. Minnesota. —A
pledgee of stock, not make the holder a stockholder,
by registering it on the books of except in cases above mentioned, so
the bank as transferred to him abso- as to charge him with the debts and
lutely, voluntarily makes himself a liabilities of the corporation. Held
stockholder, and is liable as such upon that, while the holder of bank stock
the subsequent insolvency of the bank. as collateral security is exempted
Harper v. Carroll, 66 Minn. 487, 69 N. from liability to creditors, such ex-
W. 610, 1069. emption can only be availed of where
Gen. St. 1894, § 2501, making the it appears on the face of the corpora-
stockholder of a bank individually li- tion's books that he holds the stock
able in an amount equal to double the only as pledgee. Hurlburt v. Arthur,
amount of stock standing on the books 140 Cal. 103, 73 Pac. 734, 93 Am. St.
of the corporation in his name, for all Rep. 17.
the debts of such bank, during the 86. Colorado. — 1 Mills' Ann. St.,
time he so holds said stock, and for § 495, provides that no person holding
one year after any transfer or sale by stock in any corporation as collateral
him of such stock, applies to one who security shall be personally subject to
holds the stock merely as collateral any liability as a stockholder of such
security. State v. Bank, 70 Minn. 398, corporation, but the person pledging
73 N. W. 153, 68 Am. St. Rep. 538. the stock shall be considered as hold-
84. —
New York. Under the Act of ing the same. Held, that where cer-
1849, persons to whom stock has been tain stock of an insolvent bank stood
transferred by way of hypothecation in the name of another bank as owner,
for debts, and in whose name it stands and there was nothing on the stock-
at the time of default, are stockhold- books to show that the stock was held
ers, and as such are liable to an equal as collateral security or otherwise
additional amount for the outstand- than as the absolute owner, the bank
ing debts of the bank. In re Empire holding such stock could not escape
City Bank, 18 N. Y. 199, 8 Abb. Prac. double liability imposed by 1 Mills'
193, reversing 6 Abb. Prac, 385. Ann. St., § 533, on the ground that it
The person liable as a stockholder held the stock as collateral security.
is the one in whose name the stock Adams v. Clark, 36 Colo. 65, 85 Pac.
stands on the books of the bank, al- 642.
though in fact it belona;ed to another 87. Michigan.— 'B. owning stock of
person, who had transferred it to the I. Bank, deposited defendant it with
person charged by way of hypotheca- bank as collateral. On the request of
tion. In re Empire City Bank, 18 N. an oiScer of defendant bank, a new
Y. 199, 8 Abb. Prac. 192, reversing certificate of stock was issued by the
(1858) 6 Abb. Prac. 385. I. Bank to defendant for the purpose
85. California. —
Civ. Code, § 321, of transferring the stock to the latter,
provides that every banking corpora- to be held by it as such collateral.
tion shall keep in a place accessible to The certificate was issued with this
the stockholders, depositors, and understanding, but it was issued to de-
§ 48 (2be) STOCKHOLDERS. 211
stock is not liable to the creditors of the bank although the certificate was
issued to him as absolute owner. After the stock is transferred back to the
owner, the pledgee is not liable for debts subsequently contracted.*^
§ 48 (2be) Trustees and Representatives. —Transferees who hold

bank stock in trust as executor or administrator are liable in their repre-
sentative capacity as for other debts of their decedents; and under some
statutes they are liable as absolute owners.*^
fendant as absolute owner. Defend- transfer immediately thereafter," etc.

ant always held such stock as security, Held, that one who for a short time
and not otherwise. Held, that defend- held stock of such bank as collateral
ant bank was not liable upon an as- security during which time it stood in
sessment as a stockholder, under 3 his name, and was then transferred
How. Ann. St., § 3308e5, providing that back to the owner, was not liable for
persons holding stock as collateral debts of the bank subsequently con-
security shall not be personally liable tracted, without any reference to his
to the depositors as stockholders. holding of the stock, although no no-
May V. Genesee County Sav. Bank, tice of the retransfer of the stock was
120 Mich. 330, 79 N. W. 630. published, but that the statute was
88. Debts contracted after retrans- intended only to enable stockholders
fer to pledgor. —A
transfer of bank who had become liable for existing
stock on the books of the bank in debts to terminate such liability by
favor of a pledgee which held it as giving the prescribed notice, and did
collateral security does not render not apply to a case where the stock-
such pledgee liable as a stockholder holder was never in fact liable under
for the bank's indebtedness created the terms of the charter, because he
after the stock has been retransferred did not hold the stock at the time the
on the books of the pledgor upon pay- debt was created. Brunswick Termi-
ment of the loan, notwithstanding the nal Co. V. National Bank, 112 Fed. 813,
pledgee's failure to give notice of the affirmed 193 U. S. 386, 48 L. Ed. 491,
retransfer, which, under Code Ga. 24 S. Ct. 314.
1883, § requisite to
1496, is exempt National bank a pledgee of state
from an existing individual liability as bank stock.^Where a national bank,
a stockholder under a corporate char- a pledgee of stock of a state bank, ac-
ter, where the stockholder's individual quired the stock as pledgee, August
liability under the charter of the bank 25, 1890, and the note to which it was
in question is limited to the par value collateral having been paid, retrans-
of his stock, "at the time the debt was ferred it October 30, 1890, the retrans-
created." Decree (C. C. 1901) 112 F. fer being regularly entered on the
813, affirmed. Brunswick Terminal books of the bank, and after this in-
Co. V. National Bank, 193 U. S. 386, debtedness to complainants arose, the
48 L. Ed. 491, 34 S. Ct. 314. national bank was not liable to such
The charter of a state bank in Geor- subsequent creditor, there being no
gia provided that, in addition to the element of estoppel involved. Bruns-
liability of the bank, the stockholders wick Terminal Co. v. National Bank,
should be individually liable as sure- 193 U. S. 386, 48 L. Ed. 491, 24 S. Ct.
ties to its creditors "to the extent of 314.
the amount of their stock therein, at 89. Trustees and representatives. —
the par value thereof, respectively, at Rights and liabilities of transferees of
the time the debt was created." A stock in general, see ante, "Transfer
statute of the state (Code 1883, § 1496) of Stock," § 40.
provided that "when a stockholder in Under Rev. St., c. 36, § 31, provid-
any bank or other corporation is ining that the holders of stock in any
dividually liable under its charter and bank at the time when its charter
shall transfer his stock he shall be ex- shall expire shall be liable for the
empt from such liability unless -lie debts of the bank, those who hold
receives a written notice from a stock as collateral security, and those
creditor within six months after such who hold it in trust, whether the trust
transfer of his intention to hold him does or does not appear on the books
liable, provided he shall give notice of the bank, are liable as if they were
once a month, for six months, of such the absolute owners; and administra-
212 BANKS AND BANKING. § 48 (2cc)
§ 48 (2c) Nature, Duration and Extent —§ 48 (2ca) Duration.

—Where a transferee of bank stock is subject to the individual liability
prescribed by the statute, this liability attaches to him until, without fraud
as against the creditors of the bank, for whose protection the liability was
imposed, he relieves himself from it.^"
§ 48 (2cb) Liability for Antecedent and Subsequent Debts. —As

a general rule a transferee of bank stock is individually liable for his pro
rata part of the debts of said corporation created before he acquired his
stock by transfer, as well as for a like part of those created during his
ownership,^! but the terms of the charter or articles of association may be
such as to relieve such transferee from liability for antecedent deposits.*^
§ 48 (2cc) Dividends Fraudulently Received by Transferrer. —

The transferee of bank stock can not be held liable to account to creditors
of a bank for unlawful dividends received by the original holder of the
stock.^3
tors of deceased stockholders are li- Bank. Chatham Bank v. Brobston, 99

able in their representative capacity as Ga. 801, 27 S. E. 790.
for other debts of their intestator. Under Rev. St. 1858, c. 71, which
Crease v. Babcock, 51 Mass. (10 provides that stockholders of a bank
Mete.) 525. shall be individually responsible to
Under Laws 1892, c. 689, §§ 52, 53, the amounts of their respective shares
making a person in whose name bank of stock for all liabilities of the bank,
stock stands at the time of the bank's that the shares shall be transferable,
insolvency liable as a stockholder for and that every person becoming a
its debts, an executor is liable where shareholder by such transfer shall, in
bank stock was in intestate's name proportion to his shares, succeed to all
when the bank became insolvent, the rights and be subject to all the lia-
though the executor had transferred bilities of prior shareholders, it is not
the shares to himself as trustee, pur- the shareholders at the time a debt
suant to the surrogate's decree, be- accrued, but the shareholders at the
fore the failure of the bank, where time an action is commenced thereon,
such transfer was not made on the who are individually responsible.
books of the bank. Mahoney v. Bern- Cleveland v. Burnham, 55 Wis. 598.
hardt, 27 Misc. Rep. 339, 58 N. Y. S. 13 N. W. 677.
748; Mahoney v. Bernhard, 45 App. Div. Pledgee.— See ante, "Pledgee," § 48
499, 63 N. y. S. 642, affirmed in 169 N. (2bd).
Y. 589, 62 N. E. 1097. 92. Antecedent deposits. The fact —
In a proceeding under Laws 1849, that partnership articles of a banking
p. 343, to enforce the personal liability firm allowed members thereof to sell
of stockholders of an insolvent bank their stock, after offering it to the
for the payment of its debts after its bank at a stated price, and require the
assets are exhausted, executors may transfer to be made on the bank's
be properly charged as holders of books, and provide that all stockhold-
slock appearing on the bank's books to ers are individually bound to make
have been originally held by their good to all depositors the amount of
testator, and subsequently transferred their deposits, does not render a pur-
to them. Diven v. Duncan (N. Y.), 41 chaser of stock liable for antecedent
Barb. 520. deposits. Christy v. Sill, 131 Pa. 492,
90. —
Duration of liability. Bowden 19 Atl. 295, 297.
V. Johnson, 107 U. S. 251, 261, 27 L. 93. Dividends fraudulently received
Ed. 386, 2 S. Ct. 246. —
by transferrer. Under Rev. St. c. 94, §
Pledgee.— See ante, "Pledgee," § 48 22, providing that every person be-
(2bd). coming a shareholder in a banking cor-
91. and sub-
Liability for antecedent poration, by transfer of shares, "shall,
sequent debts. —
was so held under
It in proportion to his shares, succeed to
the charter of the Brunswick State all the rights, and be subject to all the
§ 48y2 STOCKHOLDERS. 213
§ 48 (2cd) Indemnifying Transferrer. —A transferrer of bank stock

may recover from the transferee the amount the transferrer has been held
liable for to creditors of the bank because the transfer was not regularly
entered on the books of the bank in compliance with the statute.^*
§ 48^. Assessment by State Official to Make Good Impair-

ment of Capital Stock. —
The statute of Indiana authorizes the auditor of
the state,®° and those of Kentucky^^ authorize the secretary of state when the
capital of a state bank becomes impaired, to levy an assessment in any
amount deemed necessary, not exceeding the par value of the stock, upon
the shareholder to make good the deficiency; and the court will not inter-
fere with his determination unless it is clearly shown that he has abused
the discretion vested in him.'*'' A stockholder of a bank takes and holds
his stock with the understanding that the capital stock must not be per-
mitted to be impaired, and, when it is, an assessment may be made on the
stockholders to restore the stock. The statute is a part of the contract be-
tween the bank and its stockholders, and any person to whom stock is sold
and transferred by a stockholder takes it subject to the statutory burdens.'''^
—
Enforcement. Under a state banking act which provides that, when
the capital of a state bank becomes impaired, the state auditor shall levy
an assessment upon the shareholders to make good the deficiency, and if
any shareholder fails to pay such assessment, shall cause his stock to be
sold to the highest bidder, the proceeds of a sale do not belong to the bank,
but, after deducting the amount of the assessment and the cost of such sale,
must be paid to the shareholder. ^^
prior shareholders,'' when

liabilities, of legally bound to pay an assessment
a shareholder in an insolvent banking levied to make good an impairment of
corporation, who has received unlaw- the capital of the bank, may surrender
ful dividends, transfers his stock to the stock, and thus relieve himself
another party, the transferee can not from liability. Corbin Banking Co. v.
be held liable to account to the credit- Mitchell, 141 Ky. 172, 132 S. 426. W.
ors of the bank for the amount thus 99. Enforcement. Chicago — Title,
fraudulently received and appropri- etc., Co. v. State Bank, 30 C. C. A. 443,
ated by the original holder of the 86 Fed. 863.
stock. Hurlbut v. Tayler, 62 Wis. 607, Under the of Indiana
statute (4
22 N. W. 855. Burns' Supp. 1897, 13) which pro-
§
—
,
94. Indemnifying transferrer. Man vides that when the state auditor de-
V. Boykin, 79 S. C. 1, 60 S. E. 17, 128 termines that the stock of a state bank
Am. St. Rep. 830; 1 S. C. Code of has become reduced, by impairment or
Laws, 1902, § 1894. otherwise, below the amount re-
95. Indiana. — Section 13
Ind. Bank quired by law, an assessment shall be
Act as amended March 9, 1893. Chicago levied on the stockholders, who shall
Title, etc., Co. v. State Bank, 30 C. C. be liable to an amount equal to the
A. 443, 86 Fed. 863. par value of their stock, and that on
96. Kentucky under Ky. St., § 586 default in payment of such assessment
(Russell Stat., § 2175), Corbin Banking for 60 days the stock shall be sold by
Co. V. Mitchell, 141 Ky. 172, 132 S. W. the directors, the proceeds of such
426. a sale, less the costs thereof, are the
97. Corbin Banking Co. v. Mitchell, property of the stockholders, who may
141 Ky. 172, 132 S. W. 426. recover the same in an action at law
98. Corbin Banking Co. v. Mitchell, as for money had and received; and
141 Ky. 172, 132 S. W. 426. the only requisite of a complaint in
Apledgee of bank stock, not being such an action, to establish a presump-
214 BANKS AND BANKING. § 49 (lab)
§ 49. —
Actions and Proceedings to Enforce § 49 ( 1 ) Nature
and Forms. —Compromise of doubtful claims by receiver, see post, "Col-
lection and Protection of Assets," § 77 (4). Conditions precedent, see
ante, "When Liability Arises and Conditions Precedent," § 47 (10). En-
forcement in action against consolidated corporation, see post, "Consoli-
dation," § 67.
49 (la) Legislative Regulations § 49 (laa) In General.

§ — —
The manner of enforcing the statutory liability of holders of bank stock is
a subject of remedial legislation, unless the remedy enters into and forms
part of the obligation which the statute creates.
§ 49 (lab) Retroactive Effect of Statutes. Laws respecting the —

remedy by which the individual liability of holders of bank stock is to be
enforced operate retroactively,^ but do not apply to actions already pend-
ing.3
tive right of- recovery, is that it shall by a creditor, and in that event such
show ownership of the stock in plain- proceeding may be taken by any cred-
tiff; any lien of the bank or liability of itor, is retroactive; and receivers of an
the stockholder for unpaid stock, or insolvent bank, appointed prior to the
otherwise, being matter of defense, or above statute, may maintain proceed-
to be asserted in a suit in equity. ings to enforce the liability of stock-
Chicago Title, etc., Co. v. State Bank, holders of such corporation. Persons
57 C. C. A. 398, 131 Fed. 58. V. Gardner, 36 Misc. Rep. 663, 43 App.
1. Remedial legislation. —Terry v. Div. 490, 56 N. Y. S. 833, affirmed 59
Anderson, 95 U. 34 L. Ed. 365;
S. 628, N. Y. S. 463.
Pollard V. Bailey (U. S.), 30 Wall. 530, 3. Pending suits. —
Laws 1897, c. 441,
amending Laws 1893, c. 689, § 52, pro-
23 L. Ed. 376; Fourth Nat. Bank v.
Francklyn, 120 U. S. 747, 30 L. Ed. 835, vides that, on the dissolution of a
7 S. Ct. 757. bank and the appointment of a receiver,
As to the distinction between the ad- actions or proceedings to enforce lia-
ministration of the effects of an in- bility of stockholders "shall be taken
solvent Ohio banking corporation and and prosecuted only in the name and
of those of a national banking associa- behalf of such receiver," unless the
tion, see King v. Armstrong, 50 O. St. latter shall refuse to take action.
223, 34 N. E. 163. Held, not to apply to actions actually
2. Retroactive effect.— Laws 1897, pending on its passage* though operat-
c. 441, amending Banking Law, § 52 ing retrospectively where actions have
(Laws c. 689), by providing that
1893, not already been commenced. Ma-
actions enforce the liability of
to honey V. Bernhard, 169 N. Y. 589, 63 N.
stockholders of insolvent banks shall E. 1097, affirming 45 App. Div. 499, 63
be brought in the name of a receiver, N. Y. S. 643, which modified Mahonev
where the bank has been dissolved, and V. Bernhardt, 27 Misc. Rep. 339, 58 N.
a receiver appointed, applies to banks Y. S. 748.

in liquidation at the time of its adop- Laws 1897, c. 441, providing that all
tion. Persons v. Gardner, 26 Misc.
•
proceedings to enforce the individual
Rep. 663, 56 N. Y. S. 822, 42 App. Div. liability of stockholders for the debts
490, affirmed 59 N. Y. S. 463, 42 App. of a bank "shall be" prosecuted only
Div. 490. in the name of the receivers, where
Laws 1897, c. 441, amending § 52, c. receivers willing to prosecute such
689, Laws 1892, relating to banking proceedings have been appointed, does
corporations, and fixing liability of not abate an action commenced by a
stockholders, providing that if such a creditor under Laws 1892, c. 689, § 53,
corporation shall be dissolved, and a against stockholders of an insolvent
permanent receiver appointed, all pro- bank, before the passage of the chap-
ceedings to enforce the liability of ter, though receivers have been ap-
stockholders shall be taken in the pointed, and only a part of the stock-
name of such receiver, unless he shall holders were served with summons be-
refuse to act on proper request made fore such passage, in view of Laws
§ 49 (Ibb) STOCKHOLDERS. 215
§49 (lb) Statutory Remedy Exclusive— § 49 (Iba) In Gen-

eral. —
Where the statute creating the liability of bank stockholders pro-
vides the remedy, this is exclusive of all others, and when such remedy is in
equity, a common-law action is excluded.*
§ 49 (Ibb) Ancillary Suit in Other Jurisdiction. —Where the stat-

utory remedy is exclusive, an ancillary suit in another state is barred.^
Method of Enforcing Left to Court. —An individual liabihty of bank
1893, c. 677, § 31, providing that the all the necessary parties, and adjust
repeal of a statute shall not affect an all their rights, was, in a case of in-
act done orior thereto. Mahoney v. solvency, contemplated. Pollard v.
Bernhardt," 37 Misc. Rep. 339, 58 N. Y. Bailey (U. S.), 20 Wall. 530, 33 L. Ed.
S. 748; Mahoney v. Bernhard, 45 App. 376.
Div. 499, 63 N. Y. S. 643, affirmed 169 As this proportion can only be as-
N. Y. 589, 63 N. E. 1097. certained upon an account of debts and
Neither does it apply to defendants stock and a pro rata distribution of
not served in an action pending on the the indebtedness among the several
date of its passage, as there is but one stockholders, the provision, therefore,
action, which is against the entire body for a proportionate liability is equiv-
of stockholders, and it is "taken," in alent to a provision for an appropri-
the sense of the amendment, when the ate form of equitable action to enforce
summons served on one of them.
is
it. Pollard v. Bailey (U. S.), 30 Wall.
Mahoney Bernhard, 169 N. Y. 589, 63 530, 32 L. Ed. 376.
v.
N. E. 1097, affirming 45 App. Div. 499, —
Nebraska. The liability of a stock-
63 N. Y. S. 643, which modified Ma- holder in a banking corporation im-
honey V. Bernhardt, 37 Misc. Rep. 339, posed by Const., Neb. 1875, art. lib,
58 N. Y. S. 748. § 7, declaring that every stockholder
of a banking corporation shall be in-
4. When equity jurisdiction exclu-
dividually responsible to its creditors
sive.— Pollard V. Bailey (U. S.), 30
above the amount of stock to an
Wall. 530, 33 L. Ed. 376; Fourth Nat. amount equal to his stock, is enforce-
Bank v. Francklyn, 130 U. S. 747, 30 able only in equity. Hazlett v. Wood-
L. Ed. 835, 7 S. Ct. 757. head, 27 R. I. 506, 63 Atl. 952.
Where the charter of a bank pro- 5. Gen. St. Minn., § 2501, declares that
vided for a proportionate liability on
a stockholder in a bank shall be indi-
the part of' the stockholders in case of
vidually liable in an amount double the
insolvency, and also for a pro rata dis-
amount of stock held by him for all
tribution of the fund so provided for the debts of the bank, and §§ 5905-5907,
among the several creditors, accord- 5911, authorize the enforcement of
ing to their respective priorities, and such liability of bank stockholders by
plainly indicated that such liability
one suit in equity in any district court
should be enforced by a proceeding in of the state, to which all of the cred-
a court of chancery, such remedy is and
itors stockholders of the bank
exclusive. Pollard v. Bailey (U. S.), oyer whom the court can obtain juris-
30 Wall. 530, 23 L. Ed. 376; Fourth
Nat. Bank v. Francklyn, 130 U. S. 747,
diction shall be made parties, etc. A
suit was brought in Minnesota, and,
30 L. Ed. 825, 7 S. Ct. 757. after the liabilities of all the stock-
In such case creditors should pro- holders over whom jurisdiction could
ceed in equity, where the "proportion be obtained had been determined, there
can be ascertained upon an account remained a balance of $80,000 due the
taken of debts and stock, and a pro creditors, and an ancillary suit was
rata distribution of the debts among brought in Wisconsin against defend-
the several stockholders." Pollard v. ant, who was not a party to the orig-
Bailey (U. S.), 20 Wall. 530, 23 L. Ed. inal action, to enforce her statutory
376; Terry v. Tubman, 93 U. S. 156, 33 liability as a stockholder in the bank.
L. Ed. 537; Hatch v. Dana, 101 U. S. Held, that the statutory remedy was
305, 313, 35 L. Ed. 885. exclusive, and hence the original ac-
Especially is this so when other parts tion in Minnesota was a bar to the sub-
of the charter indicate plainly that the sequent action in this state. Finney v.
exercise of the powers of a court of Guv, 106 Wis. 256, 82 N. W. 595, 49
chancery which could bring before it L. R. A. 486.
216 BANKS AND BANKING. § 49 (lea)
stockholders created by statute without a remedy being prescribed may be

enforced by an appropriate common-law action. ^ The stockholders are
bound by such proceedings; and it is immaterial that they were absent oi
nonresident.^
§ 49 (Ic) Forms of Action— § 49 (lea) Creditor's Suit and

Receivership. —The ordinary method of enforcing the liability of the
shareholders of a bank for its debts, on its insolvency, is by means of a
creditor's suit against the bank and a receivership to which all the stock-
holders are made parties. The liability constitutes a trust fund which may
be collected and administered by means of a suit in equity in the nature of
a creditor's bill.^ In such an action a receiver is appointed, the affairs of
the corporation administered, the amount of its assets and liabilities deter-
mined, the deficiency ascertained, and an assessment to meet this deficiency

made ratable upon all stockholders.^ Such an action must be prosecuted for
the benefit or on behalf of all the creditors of the corporation, and against
all the stockholders within the jurisdiction of the court. It may be brought
by one or more of the creditors or by the receiver when there is a recovery,
but must be for the benefit of all the creditors whether named as party to
the suit or not.i" A suit by and on behalf of one out of many creditors
6. Method left to court. Pollard v. — Stockholders' liability for debts un-

Bailey (U. S.), 20 Wall. 520, 22 L. der Banking Law, § 303, being joint
Ed. 376; Fourth Nat. Bank v. Franck- and several, was enforceable by a cred-
lyn, ISO U. S. 747, 30 L. Ed. 825, 7 S. itor's suit at law or in equity against
Ct. 757. all or any number of stockholders.
Where a statute imposing liability Mosler Safe Co. v. Guardian Trust
on the stockholders of a banking cor- Co., 138 N. Y. S. 298.
poration does not prescribe a method Liability of stockholders, under
of enforcing it; courts, in as much as Banking Law, § 303, being secondary,
such a right should be enforcible, will it is proper for a creditor to sue in eq-
look to the statute to ascertain its ex- uity for corporate accounting, to de-
tent, and decide upon a manner of en- termine the amount of liability. Mos-
forcing it. Howarth v. Lombard, 175 ler Safe Co. V. Guardian Trust Co.
Mass. 570, 56 N. E. 888, 49 L. R. A. 301. (App. Div.), 138 N. Y. S. 298.
7. Ann. St. & Codes Wash., §
Hill's 9. Howarth v. Lombard, 175 Mass.
1511,imposed a double liability on the 570, 56 N. E. 888, 49 L. R. A. 301.
stockholders of banking corporations, 10. Colorado. —
The proper procedure
but left the method
of enforcing it to to enforce the liability of stockhold-
the courts, who
decided that it could ers in an insolvent bank for debts of
only be enforced by a duly-appointed the corporation imposed by 1 Mills'
receiver after he had applied all other Ann. St., § 553, is by suit in equity by
available assets. Held, that subscrib- a creditor or creditors for the benefit
ers must be assumed to have under- of all the creditors and against all the
stood the statute as construed, and to stockholders. Adams v. Clark, 36
have agreed that on insolvency of the Colo. 65, 85 Pac. 642.
corporation a receiver might be ap- Under Code, § 1882, creating "double
pointed, and the amount of liability liability" against bank stockholders, an
determined, and they are bound by assessment in a receivership proceed-
such proceedings; and it is immaterial ing is the proper method to enforce the
that they were absent or nonresident. liability. Elson v. Wright, 134 Iowa
Howarth v. Lombard, 175 Mass. 570, 634, 112 N. W. 105.
56 N. E. 888, 49 L. R. A. 301. —
Kevtuchy. The double liability of
8. Mosler Safe Co. v. Guardian Trust stockholders of a bank created by Ky.
Co., 138 N. Y. Supp. 298. See, also, St.. § 547 (Russell's St., § 2131)," con-
cases cited in the two following notes, stitutes a trust fund which may be col-
9, 10. lected and administered by means of
§ 49 (lea) STOCKHOLDERS. 217
a suit in equity in the nature of a cred- stockholders' personal liability under

itors' bill brought for the equal bene- the New York Stock Corporation Law
fit of all creditors. Conway v. Owens- must be brought on behalf of the par-
boro Sav., etc., Trust Co., 185 Fed. 950. ties named and all other creditors.
The double liability of stockholders In re Ziegler, 98 App. Div. 117, 90 N.
of an insolvent bank created by Ky. Y. S. 681.
St. 1903, § 547, may be enforced in a North Carolina. The — usual and
suit in equity by one creditor for the better practice to enforce the double
benefit of all, or by separate suits liability imposed on stockholders in
against each stockholder by a receiver. banks by Pub. Laws 1897, p. 473, c.
Conway v. Owensboro Sav., etc., Trust 398, where a creditors' bill has been
Co., 165 Fed. 833. previously brought and a receiver ap-
Since a suit against stockholders of pointed, is to seek such relief in the
an insolvent bank to enforce the double creditors' bill, instead of instituting a
liability imposed by Ky. St., § 547 separate and subsequent action by the
(Russell's St., § 3131), must be prose- receiver; and in such creditors' bill
cuted for the equal benefit of all cred- the court, on the report of the receiver,
itors entitled to share in the trust fund may ascertain the amount for which
to be so collected, the entire matter each stockholder should be held liable,
should be determined in one com- and assess him accordingly, and issue
prehensive suit to which all creditors a notice to each stockholder to show
may become complainants and in cause why the assessment should not
which all who owe or hold any of such be enforced. Smathers v. Western
trust fund may be made defendants Carolina Bank, 135 N. C. 410, 47 S. E.
either to the original bill or to a re- 893.
ceiver's petition. Conway v. Owens- An action by a creditor against a
boro Sav., etc., Trust Co., 185 Fed. 950. stockholder, to enforce the latter's in-
Under Ky. St., § 547 (Russell's St., dividual liability, should be brought in
§ 3131), which makes stockholders in behalf of plaintiff and all other credit-
banks and trust companies liable for ors who will come in. Von Glahn v.
an amount equal to the par value of Harris, 73 N. C. 333.
their stock "equally and ratably and —
Ohio. Dickason v. Grafton Sav.
not one for the other for all contracts Bank Co., 37 O. C. C. 357.
and liabilities of such corporations," Pennsylvania. —
Where stockholders
the amounts recovered on account of of a bank are liable for its debts, then
such double liability from the stock- liability can not be enforced except by
holders of an insolvent bank or trust a judicial decree first obtained. Means'
company constitutes a trust fund to Appeal, 85 Pa. (4 Norris) 75, followed
be ratably distributed among the cred- in Craig's Appeal, 93 Pa. 396.
itors, and such liability is properly en- —
Rhode Island. Hazlett v. Wood-
forced by a suit in equity brought in head, 37 R. I. 506, 63 Atl. 953.
behalf of all creditors against all stock- Actions against stockholders for the
holders, who also have a common in- debts of a bank involve complex con-
terest in the ascertainment of the tributions among the stockholders,
amount of stock, assets, and indebted- and are the proper subject of equity
ness of the corporation, in which suit jurisdiction. Atwood v. Rhode Island
such questions can be determined and Agricultural Bank, 1 R. I. 376.
the fund collected and administered. —
South Carolina. Parker v. Carolina
Alsdp V. Conway, 110 C. C. A. 366, 188 Sav. Bank, 58 S. C. 583, 31 S. E. 673, 69
Fed. 568. Am. St. Rep. 888.
—
Massachusetts. Howarth v. Lom- —
Wisconsin. Under the general bank-
bard, 175 Mass. 570, 56 N. E. 888, 49 L. ing law (Rev. St. c. 71, § 18), fixing
R. A. 301. the liability of bank stockholders, the
—
Nebraska. Pickering v. Hastings, 56 remedy against them is by suit in
Neb. 301, 76 N. W. 587. equity in which all the creditors should
The double liability of a stockholder join, or one or more of them should
of a banking corporation or institu- sue for the benefit of all. Coleman v.
tion, as fixed by Const., art. 11, § 7, White, 14 Wis. 700, 80 Am. Dec. 797.
can be enforced by one creditor of the A judgment creditor of a bank
corporation or institution only for the (whether he has or has not docketed
benefit of all the creditors, or by the his judgment, and issued execution
receiver of the corporation or institu- against the real estate of the bank)
tion when there is a receiver. Farm- may maintain an action (under Rev.
ers' Loan, etc., Co, v. Funk, 49 Neb. St. c. 148) in behalf of himself and all
353, 68 N. W. 530. other creditors who may choose to be-
—
Neia York. Actions to enforce bank come parties thereto, against the bank
218 BANKS AND BANKING. § 49 (Icba)
against certain selected stockholders will not lie/i but a demurrer on this
ground to a complaint by a judgment creditor will not be sustained when it
does not appear that there were any other creditors. ^^ In actions of this
character, each and every creditor, whether he is named as a party in the
action or does not come into the suit, is entitled to the benefits of the decree
entered therein, and is authorized to prove his claim, bear the burden and
share in the distribution. ^^
§ 49 (Icb) Action at Law by Creditor— § 49 (Icba) Right to

Sue. —Undoubtedly,
under the provisions of some charters and statutes,
suits may be maintained by one creditor against one or more of the stock-
holders.^* An action at law in form ex contractu^s ^g an action of debt,!"
jointly with the stockholders, to reach derived from such an action where
and appropriate its and enforce
assets, she' applied to prove her claim before
the liability of the stockholders. Mer- final distribution of the proceeds there-
chants' Bank v. Chandler, 19 Wis. 434. of, on proving a satisfactory excuse
United States courts. Pollard v. — for failure to prove her claim before
Bailey (U. S.), 20 Wall. 520, 22 L. Ed. the referee within the prescribed pe-
376. riod. In re Ziegler, 98 App. Div. 117,
Where a bank charter provided that 90 N. Y. S. 681.
on the failure of the bank "each stock- 14. —
Action at law. Terry v. Little,
holder shall be liable and held bound 101 U. S. 216, 25 L. Ed. 864.
for any sum not exceeding twice the Where stockholders of a bank are
amount of his shares," a suit in equity made, by its charter, individually lia-
by or for all creditors is the appropri- ble to depositors, the remedy must be
ate mode of enforcing the liability in- pursued at law, not in equity; and an
curred on such failure. Terry v. Little, action may be had against a single
101 U. S. 216, 25 L. Ed. 864. stockholder. Meisser v. Thompson, 9
The proceedings to determine how 111. App. 368.
large the assessment of the stockhold- In the absence of a statute requir-
ers should be, should be in equity, and ing creditors of a banking corporation
all of the stockholders should be par- to bring their suit in equity to enforce
ties. Tompkins v. Craig, 93 Fed. 885. the individual liability of shareholders
11. Hastings v. Barnd, 55 Neb. 93, on the insolvency of the bank, a cred-
75 N. W. 49. itor of an insolvent South Dakota
12. Where the charter of a bank bank may proceed against one or more
makes each stockholder liable to twice of the stockholders to recover the
the amount of his shares for its debts, amount of his indebtedness in an ac-
and a judgment creditor sues at law a tion at law. Union Nat. Bank v. Hal-
single shareholder, who owns nearly all ley, 19 S. D. 474, 104 N. W. 213.
the shares, and the defendant files a Suit on judgment against insolvent
demurrer on the ground that the stock- —
bank. Under Const., art. 18, § 3, mak-
holder's liability can not be enforced ing stockholders of banking corpora-
by a single creditor to the injury of tions organized under the laws of
others, and it does not appear from South Dakota individually liable for
the complaint that there are any other all contracts, debts, and engagements
creditors besides the complainant, the of the bank to the extent of the par
demurrer will be overruled. Marsh v. value of their stock, in addition to the
Charleston, Fed. Cas. No. 9,113, 1 amount invested in such stock, a cred-
Hughes, 288. itor may sue a stockholder on a judg-
13. In re Ziegler, 98 App. Div. 117, ment recovered against an insolvent
90 N. Y. 681. Union Nat. Bank
banking association.
An action against stockholders of a V. Halley, 19 S. D. 474, 104 N. W. 213.
bank, as authorized by stock corpora- 15. —
Actions at law. Porter v. Kepler,
tion law, to enforce a liability for the 14 O. 127.
payment of debts, is for the benefit of 16. Action of debt. — By
the law of
every creditor, though not named as Georgia, declared by its highest
as
a party, and though they do not join tribunal, an action of debt will lie
therein; and hence a nonparticipatirtg against a stockholder for debts of the
creditor was entitled to the benefits corporation where the amount of a
§ 49 (Icda) STOCKHOLDERS. 219
or an action on the case^^ will lie ; but a provision that execution on a judg-
ment against a bank may issue against the stockholders' property does not
authorize a personal action against a stockholder. ^^
§ 49 (Icbb) Enjoining Creditors from Prosecuting Suit. —Where

creditors have the right to enforce the liability of stockholders in a bank
for its debts, the bank receiver can not enjoin such suit, although it is his
duty to enforce such liability. Where the liability of stockholders in a bank
is individual and several to the creditors of the bank, the bank receiver can
not enjoin suit at law by individual creditors against individual stock-
holders. ^^
§ 49 (Ice) Action at Law by Receiver of Bank. —An action by a

receiver to enforce a statutory liability of all the stockholders of an insol-
vent bank is cognizable in a court of law.^"
§ 49 (led) Action by Attorney General to Dissolve Bank —

49 (Icda) Right to Enforce Stockholder's Liability. Under — the
bank's outstanding indebtedness and V. Inman, 46 N. Y. 119, affirming 37

the number of shares held by a stock- How. Prac. 153, 6 Abb. Prac, N. S.,
holder are known and can be stated, 394; S. C, 33 N. Y. Super. Ct. 117.
the extent of his liability in such cases 19. Laws 1897, c. 47, § 55, providing
being fixed, and the amount with that receiver of a defunct bank
the
which he should be charged being a shall bring suit against the stockhold-
mere matter of computation. A sim- ers to recover the amount due on
ilar action at law will therefore be sus- their stockholders' liability in case the
tained in the circuit court of the assets are insufficient to pay the bank
United States. Mills v. Scott, 99 U. creditors, and that a creditor shall not
S. 25, 35 ly. Ed. 394.
bring an action to enforce such stock-
holders' liability unless it appears to
17. Action on the case. —
Since the
the court that the receiver has failed
liability of stockholders arises from
to do so, does not take away from the
their acceptance of the act creating the
creditors the right to enforce the
corporation, and their implied prom-
stockholders' liability, but merely im-
ises to fulfill its requirements, the
poses a condition thereon; and there-
proper remedy is an action upon the fore a receiver could not maintain in-
case. Carrol v. Green, 93 U. S. 509, 23 jiinction against a creditor to prevent
L. Ed. 73S. him from prosecuting a suit to enforce
An action on the case lies against such liability. Sims v. Brown, 10 Kan.
stockholders, in South Carolina, to re- App. 361, 63 Pac. 713.
cover the debts of the bank. Carrol v. The charter of a savings bank de-
Green, 93 U. S. 509, 23 L. Ed. 738. clared that all the stockholders should
18. Charter of the Northwestern be severally and individually liable to
Bank of Georgia, § 18, provides that the depositors to the amount of stock
the individual property of each stock- held by them respectively. The bank
holder shall be liable for the redemp- failed, and a receiver was appointed.
tion of the bills of the bank, and that Suits at law were brought by individ-
any judgment obtained against the ual depositors against individual stock-
bank by any creditor shall not only holders to enforce the liability created
bind the property of the bank, but shall by the charter. The receiver sought
also bind the individual property of in equity to enjoin these suits, and to
each stockholder to the amount of enforce as such receiver the liability
his stock, without any necessity of of the stockholders for the benefit of
bringing suit against the stockholder, all concerned. Held, that the deposit-
and that execution may issue on such ors could not be deprived of their right
judgment against the stockholder's to sue at law. Wincock v. Turpin, 96
property. Held, that a personal ac- 111. 135.
tion by a creditor of the bank against Action by receiver. Moore
20. — v.
a stockholder is not authorized. Lowry Ripley, 106 Ga. 556, 33 S. E. 647.
220 BANKS AND BANKING. § 49 (Icf)
Code of Procedure of New York, § 1785, subd. 4, where an action

Civil
to dissolve a bank is brought by the attorney general and a permanent re-
ceiver appointed, and the attorney general refuses after notice to sue the
stockholders to enforce their liability for the bank's debts, the creditor may
sue.î
§ 49 (Icdb) Intervention by Creditors. Creditors may intervene in —

an action by the attorney general to forfeit the charter of a bank and en-
force the individual liability of its stockholders. 22
§ 49 (Ice) Superintendent of Bank Authorized to Enforce.— A

banking law, authorizing the superintendent of Ijanks to sue to enforce the
liability of stockholders necessary to pay debts after taking possession of
the affairs of the corporation, does not make the enforcement of such lia-
bility mandatory on the superintendent, nor does it deprive the creditor of

his right to enforce such liability on behalf of himself and other creditors
of the corporation. 23
§ 49 (Icf) Nonresident Stockholder. —While, in a proper case, the

liability of a nonresident stockholder of an insolvent bank would be deter-
mined by the construction placed on the statute creating such liability by the
courts of the domicile of the corporation, the remedy or method of enforc-
ing such liability against him must conform to the procedure of the forum
whose aid is invoked. 2*
21. Right of creditor to enforce. — ants to enforce their double liability.

The people, under Code Civ. Proc, Held, that the action was fully author-
§ 1785, subd. 4, brought an action to ized by Gen. St. 1894, §§ 5900-5902, and
dissolve a banking corporation, and creditors might, during the pendency
the permanent receiver appointed re- of such action, enforce such liability
fused to sue stockholders on their stat- against the stockholders under § 5905,
utory liability to make up a deficiency or proceed as in the case at bar. State
of assets over existing liabilities, as V. Merchants' Bank, 67 Minn. 506, 70 N.
authorized by Laws 1893, c. on

689, § 53, W. 803.
the ground that the action was barred 23.It was so held under the New
by limitations. Held, that there York Banking Law, as amended by
was no authorit}' under the Code for Laws of 1908, c. 143, § 3, Consol. Laws
an order, on the petition of a creditor 1909, c. 2, § 19. Cheney v. Scharmann,
of the corporation, to compel the at- 145 App. Div. 456, 129 N. Y. 993.
torney general to bring the stockhold-
ers into the action to dissolve the bank
24. Nonresident stockholder. — Covell
V. Fowler, 144 Fed. 535.
and determine their liability. People Laws Colo. 1885, p. 264, § 1, provides
V. Commercial Bank, 37 Misc. Rep. 16, that shareholders in banks shall be in-
74 N. Y. S. 806. dividually responsible for its debts, in
22. Intervention in action to forfeit double the amount of the par value of
—
charter. The attorney general sued stock owned by them respectively.
to forfeit the charter of a bank organ- Held, that notwithstanding the courts
ized under state laws, for failure to re- of that state had determined that the
duce an indebtedness of the president obligation thereby created was second-
of the bank to the statutory limits, as ary, yet when suit was brought there-
required by Gen. St. 1894, §§ 2525, 2628. on in California against a resident
Thereafter, before judgment, a cred- stockholder of an insolvent Colorado
itor, with the consent of the attorney bank the lex fori would prevail with
general, and with leave of court, inter- reference to the form of action essen-
vened in the action, filed a complaint, tial to enforce such liability, which
and brought in stockholders as defend- would be considered as an original
§ 49 (2b) STOCKHOLDERS. 221
§ 49 (2) Jurisdiction— § 49 (2a) Existence of Legal Remedy.

—Every creditor has an interest in the liabihty of every stockholder ; and
hence equity has jurisdiction of a suit for an accounting of the assets, and
to enforce the Hability, in the absence of a statute pointing out a different
course, though a legal remedy also exists, since a resort to the legal remedy
would entail a multiplicity of suits. ^^
§ 49 (2b) Court in Which Receivership Pending. —In General. —

After a bank has become insolvent and its property has been placed in the
hands of a receiver for liquidation, the court in which the receivership pro-
ceedings are pending has power to levy assessments against stockholders to
enforce their subscription liability. ^^
Stockholders Residing in Other County or Parish. —All the stock-

holders, though residing in different parishes, may be sued for contributions
before the court liquidating the bank.^^
statutory liability. Miller v. Lane with the rights of creditors, and em-
(Cal.), 116 Pac. 58. powered as their representatives to en-
Laws Colo. 1885, p. 264, providing force the liability of stockholders, but
no method for enforcing the double simply establishing a local method of
liability imposed in an action outside procedure, without force beyond the ju-
the state, the course of procedure must risdiction of the state, and no part of
be regulated by the law of the state the contract entered into by the share-
where it is sought to make the remedy holders in subscribing for their stock,
available, under the rule that remedies furnishes no remedy to creditors of a
are regulated by the lex fori, and no Colorado bank to enforce the double
law existing in Maine whereby, in ac- liability of a nonresident 'stockholder
tions at law, one or more persons may in Maine. Miller v. Spaulding, 107 Me.
sue for the benefit of themselves and 364, 78 Atl. 358.
-others interested in a question of com- 25. Existence of legal remedy. It —
mon or general interest, an action in was so held under Act Dec. 34, 1885
Maine by three creditors of a Colorado (19 St. at Large, p. 312), § 4, making
bank to enforce double liability im- stockholders of a bank liable to the
posed by the Colorado statute upon amount of five per cent of their stock
stockholders can not be maintained. in addition thereto for its debts.
Miller v. Spaulding, 107 Me. 264, 78 Parker zi. Carolina Sav. Bank, 53 S. C.
Atl. 358. 583, 31 S. E. 673, 69 Am. St. Rep. 888.
Laws Colo. 1885, p. 364, imposes 26. Court in which receivership

upon stockholders in banking corpora- —
pending. Covell v. Fowler, 144 Fed.
tions a liability to creditors in double 535.
the amount of the value of the stock Under 3 How. Ann. St., § 3308e5,
held by them respectively, but no spe- making bank stockholders individually
cial remedy is provided for enforce- liable to the amount of their stock for
ment of the liability. Held, that Civ. the benefit of depositors, and § 3308f4,
Code Colo., § 13, providing that when directing the court, on being satisfied
a question is one of a general interest of the bank's insolvency, to appoint a
to many persons, or when the parties receiver, who shall take possession of
are numerous and it is impracticable the books and enforce all liability of
to bring them all before the court, one the stockholders, the court has juris-
or more may sue the defendant for the diction to determine ex parte the ne-
benefit of all, and the court may order cessity for enforcing the individual lia-
the action to be so prosecuted or de- bility and to ascertain the amount nec-
fended, obviously enacted without any essary to meet the deficit. Foster v.
special reference to the method of en- Broas, 120 Mich. 1, 79 N. W. 696, 77
forcing the liability of stockholders Am. Rep. 565.
St.
for the debts of insolvent corporations, 27. Stockholders residing in other
making no provision for appointment —
county or parish. Stark v. Burke, etc.,
of an assignee or receiver to be vested Co., 5 La. Ann. 740.
§ 49 (2c) Courts of Foreign Jurisdiction. —Action by Creditors.

—By the weight of authority, the individual liability of holders of bank stock
is enforceable by creditors of the bank in the courts of another state, where
it is a primary liability and not a penalty,^* where it is a substantive right,^*"
or where it is a liability arising on contract f'^ but where such liability is not
contractual but created solely by statute, the cause of action is local and not
enforceable in another state.^^
§ 49 (2d) Loss or Divestiture. —

Mere lapse of time between an in-
terlocutory order in receivership proceedings, in a suit against a bank, de-
termining who were creditors and who were stockholders, and the amount
for which each stockholder was liable, and providing for the enforcement of
the liability, and retaining jurisdiction for that purpose, and the final judg-
ment; is no indication that the court lost jurisdiction.^^
§ 49 (3) Courts and Venue.— Court of County in Which Bank

—
Located. Where a bank has become insolvent, and, under the general
laws, it is sought to make the stockholders liable for its debts, proceedings
must be in the court of common pleas of the county in which the bank is
located. ^3
Real Estate of Nonresident Stockholders. —A court administering the
affairs of an insolvent bank and enforcing the statutory liability of its stock-
holders has jurisdiction over real estate, situate in the state of the forum,
but belonging to nonresident stockholders.^*
28. The liability of an Arkansas amount invested in such stock, the lia-
stockholder of an insolvent California bility of the stockholders is a substan-
bank under Civ. Code Cal., § 332, mak- tive right, and is enforceable against
ing a stockholder in a corporation lia- a resident of the state who is a stock-
ble to each creditor of the corporation holder in such insolvent corporation
tor the portion of the debt which the in the state of Washington. Howarth
stock owned by such stockholder bears v. Lombard, 175 Mass. 570, 56 N. E.
to the whole subscribed capital stock, 888, 49 L. R. A. 301.
may be enforced in Arkansas by a suit- 30. Under the provision of the
at law. Lanigan v. North, 69 Ark. 62, charter of a bank in Illinois making
63 S. W. 62. stockholders liable for the debts ol
Civ. Code Cal., § 323, making a stock- the bank to the amount of their stock,
holder in a corporation liable to each the liability arises on contract, and
creditor of the corporation for the por- therefore it may be enforced in courts
tion of the debt which the stock owned of another state. Hodgson v. Cheever,
by such stockholder bears to the whole 8 Mo. App. 318.
subscribed capital stock of the corpo- 31. The individual liability of a
ration, does not create a penalty, but stockholder of a Kansas banking cor-
renders the stockholder primarily lia- poration, is not enforceable in the
ble on such debt, and authorizes an ac- courts of New Hampshire. Crippen
tion in Arkansas against an Arkansas v. Laighton, 69 N. H. 540, 44 Atl. 538,
stockholder of an insolvent California 46 L. R. A. 467, 76 Am. St. Rep. 192.
bank. Lanigan v. North, 69 Ark. 62, 63 32. Loss or divestiture. Childs v. —
S. W. 62; Childs v. Blethen, 40 Wash. Blethen, 40 Wash. 340, 82 Pac. 405.
340, 82 Pac. 405. 33. Courts and venue. Appeal of —
29. Under
Hill's Ann. St. Codes & Means (4 Norris), 85 Pa. 75.
Wash., 1511, providing that bank
§ 34. Real estate of nonresident stock-
stockholders shall be liable to the holders. —When receivers are ap-
creditors to the amount of the par pointed to take possession of the prop-
value of the stock in addition to the erty of a bank, a lien is created by
§ 49 (4a) STOCKHOI,DEES. 223
§ 49 (4) Set-Oif and Counterclaim— § 49 (4a) Set-Off.—A

stockholder who is also a creditor of an insolvent bank can not set off its
debt to him against his statutory liability for its debts,^^ since his liability
is to the creditors, and for the further reason that such set-off would result
in a preference ;3* but in Maryland^'' a stockholder who is also a creditor is
entitled to set up as an equitable defense the debt of the bank to him against
his own liability.
A stockholder purchasing claims against the bank at a discount is
not entitled to credit at the full face value but can only be allowed his ac-
tual outlay and is still Hable for the difference between the amount and that
of his liability as a stockholder,^* but a stockholder who is an assignee of
statute (Rev. St. 1857, c. 47, § 74), upon of a bank in which he was a stock-
the real estate, situate in this state, of holder, and on the insolvency of the
the stockholders liable for claims bank was required by order of court to
which exist against the bank. There- pay a sum greater than his statutory
fore the court has jurisdiction over liability as a stockholder, he thereby
the real estate of nonresident stock- became a creditor of the bank, and
holders. Wiswell V. Starr, 50 Me. 381. as such was entitled to plead such pay-
35. Set-off.— Barnes v. Arnold, 169 ment as an equitable set-off to an
N. Y. 611, 62 N. E. 1093, affirming 45 action by a creditor of the bank to
App. Div. 314, 61 N. Y. S. 85. enforce his liability as a stockholder.
In proceedings to enforce the per- Strauss V. Denny, 95 Md. 690, 53 Atl.
sonal liability of stockholders of a 571.
bank under Laws 1849, c. 226, relative 38. Purchasing claims at a discount.
to closing up the affairs of an insolvent —Where a charter makes the stock-
bank, a stockholder, who is also a holders liable for the debts of the bank
creditor, can not offset his claim to an amount equal to their stock,
against his liability as a stockholder. they can not, by purchasing claims
In re Empire City Bank (N. Y.), 6 against the bank at a discount, reduce
Abb. Prac. 385. their liability. They can be allowed
As against the liability imposed by no' more than their actual outlay, and
Banking Law, § 303, the stockholders will still be liable to other creditors
are not entitled to offset an indebted- for the difference between that and
ness of the corporation to them. Hos- the amount of their stock. Gauch v.
ier Safe Co. V. Guardian Trust Co. Harrison, 12 111. lApp. 457.
(App. Div.), 138 N. Y. S. 298. Director purchasing claims against
—
Deposit. A stockholder of an in- insolvent bank. After — a chartered
solvent bank can not set off his de- bank has been adjudicated a bankrupt,
posit in the bank against his unpaid a member of its last active board of
stock subscription. Williams v. Trap- directors (the board in existence when
hagen, 38 N. J. Eq. 57 the failure occurred and the act of
36. Under Act Dec. 24, 1885 (19 St. bankruptcy was committed) can not
at Large, p. 212), § 4, making stock- buy up claims against it at a discount,
holders of a bank liable to the amount and himself to credit therefor
entitle
of five per cent of their stock in addi- at face value in settlement with
full
tion thereto for the bank's debts, creditors on his personal liability as
stockholders can not set off claims due a stockholder. At least, this can not
them by the bank against
their statu- be done so as to defeat the suit of a
tory liability, since their liability is to creditor who commenced his actions
the creditors, and for the further before the bought-up claims were
reason that such set-off would result actually applied in extinguishment of
in a preference. Parker v. Carolina the stockholder's personal liability, and
Sav. Bank. 53 S. C. 583, 31 S. E. 673, 69 whilst the stockholder held them, as
Am. St.Rep. 888. transferee, open against the bank, he
37. —
Maryland. Cahill v. Original Big not having surrendered or canceled
Gun, etc., Ass'n, 94 Md. 353, 50 Atl. them until after the action was
1044. brought. Holland v. Heyman & Bro.,
Where defendant indorsed the note 60 Ga. 174.
a judgment rendered in favor of a note holder may have his liability ex-
tinguished pro tanto by said assigned judgment.*^
—
Share of Surplus. Stockholders are not depositors to the amount of
the surplus and may not defend on the ground that they are creditors to
the amount of a proportional share of the surplus.**'
Assessment by Superintendent of Banks. Stockholders, having —
paid an assessment levied by the bank superintendent, under the New York
Banking Law, § 17, to swell assets for liquidation, held entitled to offset
the amount so paid against their liability to creditors, under Banking Law,
§ 303."^
§ 49 (4b) Counterclaim. —In

an action by the receiver of a bank
against a stockholder under a statute imposing a liability upon stockholders
for the debts of the bank, the defendant can not plead as a counterclaim a
claim for damages against the bank for false representations made at the
time he bought his stock, the bank not being a party to the action.*^
§ 49 (5) Time to Sue, and Limitations and Laches —§ 49 (5a)

Time to Sue. —Depositors of an insolvent bank in suits against stock-
holders are not bound to wait for the settlement of given claims for con-
tribution between living stockholders and the estates or heirs of deceased
stockholders. The adjustment of such controversies will be left to suits
having that as the main and primary object.*^
Premature Suit. —When the contingency of a deficiency exists, a suit
to determine the amount is not prematurely brought.*^
39. Assignee of judgment in favor of of banks.— Hosier Safe Co. v. Guard-

note holder.— Marr v. Bank, 73 Tenn. jan Trust Co. (App. Div.), 138 N. Y. S.
(4 Lea) 578. 298.
T
^°-
Laws, ^s^^'fnP°^«fi"«^lV^r«V?i'^'i'.t^nH^-
§§ 6103, 6116, 6135, 6141, authonz- „^
"p Counterclaim-Sheafe
,
^„^ ,
v. Larimer,
ing a bank to declare a dividend after '.
providing for expenses and surplus, *° sue.— Wood v. Wood, 40

t„*\^™^
^"- 1°^-
providing for a reserve, making stock- -^PP-
holders liable to the depositors to the 43. Premature suit. —
Where, in pro-
amount of the stock in addition to the ceedings against the American Bank-
stock, and limiting loans which may ing & Trust Company, the final account
be made by the bank, the stockholders of the receiver showing a full adminis-
of a bank are not depositors to the tration of the assets and no balance
amount of the surplus; for, until a di- in his hands is by decree approved
vision thereof, the surplus is owned and allowed, and the report of the com-
by the shareholders collectively, and missioners on the claims against the
is by them collectively embarked as the corporation previously accepted and
capital of the bank in the banking allowed shows the amount of the lia-
business, and stockholders sued on bilities of the corporation, the fact and
their statutory liability may not defend amount of the deficiency of assets, if
on the ground that they are creditors any, have been judicially ascertained,
of the bank to the amount of a pro- and a suit to enforce the statutory lia-
portional share of the surplus, for the bility of the stockholders imposed by
word "depositors'" in the statute is Sp. Laws 1889, p. 547, c. 349, § 6, in
used 'in its ordinary meaning in the amendment of its original charter
business of banking. Wedemeyer v. begun immediately thereafter, is not
Hindelang, 161 Mich. 600, 136 N. W. premature, and there is no need of a
708. further decree to declare the obvious
40a. Assessment by superintendent mathematical truth. Flynn v. Ameri-
§ 49 (5b) STOCKHOI^DERS. 225
§ 49 (5b) What Statutes Applicable.—The state statute of limita-

tions applicable to an action to recover on a bank stockholder's personal
liability depends upon the phraseology of the statute creating the liability
and that of the general statute of limitations.**

—
In United States Courts. Suits, either at law or in equity, in the
United States circuit court, by creditors to enforce the stockholders' liabil-
ity under a state statute, are governed by the state statute of limitations.*^
can, etc., Trust Co., 104 Me. 141, 69 without specialty, to be brought within
Atl. 771. four years. Held, that as the liability
Anaction to enforce an agreement of the stockholders arose from their
binding stockholders of an insolvent acceptance of the act creating the cor-
bank to give their notes to it, to be col- poration, and their implied promises
lected in case there was a deficiency to fulfill its requirements, the proper
in assets to discharge liabilities exist- remedy was an action upon the case;
ing at the date of the agreement, was and that, as the statute barred such
not prematurely brought where it ap- an action at law, it was also a good
peared from the complaint that there defense in equity. Carrol v. Green,
was such a deficiency when the action 92 U. S. 509, 23 L. Ed. 738.
was commenced, and that an account- The Statute of Georgia of 1869, lim-
ing was necessary to determine the iting the time for enforcing rights ac-
exact amount thereof. Thompson v. crued prior to June 1, 1865, may be
Gross, 106 Wis. 34, 81 N. W. 1061. set up as a valid bar to suits brought
44. Limitation of actions statute— after Jan. 1, 1870, to enforce the in-
dividual liability of the stockholders
applicable.— The statute of limitations
(Act N. H. June 16, 1791), providing of a bank in that state for the ultimate
that unless actions
redemption of its bills which it ceased
"all of debt,
grounded upon any lending or contract and failed to pay before June 1, 1865,
or to recover the unpaid balance due
without specialty, and all actions of
debt for arrearages of rent, are com- on stock subscriptions at the time of
such failure, as it allowed sufficient
menced within six years," etc., does
not apply as a bar to an action of debt time, before the bar attached. Terry
V. Anderson, 95 U. S. 638, 34 L. Ed.
brought upon a statutory provision
365.
that the stockholders of a bank whose
In Terry v. Tubman, 93 U. S. 156,
bills are dishonored shall be personally
33 L. Ed. 537, it was decided that
liable to the holder for the payment
thereof. Bullard v. Bell, Fed. Cas. No.
where the charter of a bank contained
a provision binding the individual
2,121, 1 Mason, 343.
property of its stockholders for the
45.State law governs in United ultimate redemption of its bills in pro-
—
States Courts. Fourth Nat. Bank v. portion to the number of shares held
Francklyn, 120 U. S. 747, 756, 30 L. Ed. by them respectively, the liability of
825, 7 S. Ct. 757, citing Terry v. Tub- the stockholder arose when the bank
man, 92 U. S. 156, 23 L. Ed. 537; Car- refused or ceased to redeem, and was
rol V. Green, 92 U. S. 509, 23 L. Ed. notoriously insolvent; and that when
738; Terry v. Anderson, 95 U. S. 628, such insolvency occurred prior to
24 L. Ed. 365. June 1, 1865, an action against a stock-
The Exchange Bank of Columbia, S. holder not commenced by Jan. 1,
C, failed in February, 1865. In June, 1870, was barred by the statute of lim-
1872, its creditors filed a bill in equity itations of Georgia of March 16, 1869.
to enforce their claims against the That act, as recited in its preamble,
stockholders under a clause of the was passed on account of the confu-
charter, which, "upon the failure of sion that had "grown out of the dis-
the bank," rendered them individually tracted condition of affairs during the
liable for any sum not exceeding late war," and substantially barred
double the value of their respective suits upon all actions which accrued
shares. The defense set up the Statute
_
before the close of the war, if not
of Limitations of 1712, which requires commenced by the first day of January,
actions upon the case, and actions of 1870. Terry v. Anderson, 95 U. S.
debt, grounded upon any contract 638, 633, 24 L. Ed. 365.
1 B & B— 15
§ 49 (5c) In What Actions Available. —A plea of the statute of

limitation is applicable both to a creditor's bill against the stockholders of
an insolvent bank and to proceedings under the receivership to enforce his
personal liability.*®
§ 49 (5d) When Statute Begins to Run. —

The point of time from
which the statute of limitations with respect to actions on bank stockholders'
personal liability begins to run depends upon the language of the statutes
of various states. Thus the statute may begin to run at the time when the
bank failed to pay its depositors or its outstanding circulating notes ;*'^ from
the suspension of specie payment;*^ from the day the bank's doors are
closed;*^ from the time when the corporation was placed in the hands of
an assignee in bankruptcy or insolvency, or of a receiver to wind up its
46. In what actions available. —

The solvent. It did not do so, and was
therefore bankrupt. It refused to do
objection that a creditor's claim against
stockholders of an insolvent bank, so, and therefore it had failed. Godfrey
under the liability imposed by § 53 of V. Terry, 97 U. S. 171, 179, 34 L. Ed.
the banking law, is barred by limita- 944.

tions, is just as available where he is "Since it never did pay or offer to
made a party to an action to enforce pay these obligations, since it was
such liability by another creditor in never after this able to pay these obli-
his own behalf and in behalf of all gations, it was ever afterwards in-
others as it would be if he came in solvent,' and its failure must bear date
only under the interlocutory judgment. of this first and continued refusal
Hagmayer v. Alten, 41 App. Div. 487, and inability to pay." Godfrey v. Terry,
58 N. Y. S. 684. 97 U. S. 171, 34 -L. Ed. 944.
47. Failure to pay depositors or cir- The suspension of specie payments
—
culating notes. Where the charter of took place on the twenty-seventh day
a state bank made its stockholders, at of November, 1860, and the statute
the time of its failure or within a year of limitations of four years of the
prior thereto, liable individually for a state of South Carolina, applicable to
sum not over twice the amount of their such cases, bars the right of recovery
holdings, such failure occurred when by a holder of its notes upon the
the bank failed to pay its depositors statutory individual liability of its
or the outstanding circulating notes, stockholders. This point was adjudged
and the statute then began to run in this court against the present com-
against such liability. Godfrey v. Terry, plainant in Godfrey v. Terry, 97 U. S.
97 U. S. 171, 34 L. Ed. 944. 171, 34 L. Ed. 944; Terry v. McLure,
Where a South Carolina state bank 103 U. S. 443, 36 L. Ed. 403. See, also,
failed, within the meaning of the Carrol v. Green, 93 U. S. 509, 33 L.
clause of its charter, in November, Ed. 738.
1860, it follows that only those who 48.Suspension of specie payment. —
were then shareholders, or who had The statute runs against the right to
been within twelve months before, are enforce, by action, the personal lia-
liable, or could be liable, in this suit, bility of stockholders in a bank from
and as to those who were then stock- the time of -the suspension of specie
holders the statute of limitation is a payments by the bank. Long v. Bank,
perfect bar, and no action can be main- 90 N. C. 405.
tained against them. Godfrey v. Terry,
97 U. S. 171, 34 L. Ed. 944.
—
When doors closed. As against
49.
a stockholder's statutory liability for
Where a bank
failed to pay the de- the bank's debts, in double the amount
posits then held, or the circulating of stock held by him, limitations begin
notes it had then out, according to its to run from the day the bank's doors
legal obligations to do so, it was not are closed. Amer v. Armstrong, 6 Pa.
able to do so, and therefore was in- Co. Ct. Rep. 393.
§ 49 (5e) STOCKHOLDEIRS. 227
affairs ;5o or from the date of suit against the bank.î
§ 49 (5e) Period of Limitations and Suspension of Statute. —The

period of limitations varies with the statutes of the various states ;52 in some
the period is that which bars an action on a specialty,^^ j^ others it is that
appHcable to a simple contract,^* or penalty ;^^ while in Illinois the stock-
holders can not plead the statute unless the action is barred against the
bank.se
50. Assignment for creditors or re- ment is in time where an action to en-
—
ceivership. Taking possession of a force their liability as transferrers was
bank's assets for liquidation did not brought in one year thereafter. Flynn
dissolve the bank, as effecting limita- V. American, etc., Trust Co., 104 Me.
tions on suit to enforce the stockhold- 141, 69 Atl. 771.
ers' personal liability under Banking In New York the suit must be
Law (Consol. Laws, c. 2), § 71. Assets brought within two years after ma-
Realization Co. v. Howard, 70 Misc. turity of the debt. Stock Corporation
Rep. 651, 137 N. Y. S. 798. Laws (Consol. Laws, c. 59), § 59; As-
It is well settled that the statutory sets Realization Co. v. Howard, 70
liability of stockholders of Ohio cor- Misc. Rep. 651, 137 N. Y. S. 798.
porations is complete, so as to set the 53. Where liability in nature or
statute of limitations running in their —
specialty. The statutory liability of a
favor, when the corporate property has stockholder in a bank is in the nature
been placed in the hands of an assignee of a specialty, and is not barred until
in bankruptcy or insolvency, or of a twenty years. Thornton v. Lane, 11
receiver to wind up its affairs. The Ga. 459; Neal Moultrie, 12 Ga. 104;
v.
exact amount of the liability of each Central Bank v. Williams, 17 Ga. 193.
stockholder may
not then be known, 54. Baker v. Atlas Bank (Mass.), 9
and can only be ascertained in the Mete. 183.
progress of the action; yet the court —
Massachusetts. An action by credit-
may retain control of the cause and ors against stockholders of an in-
parties until the amount is definitely solvent bank, to enforce a statutory
fixed, and the ultimate rights of the liability of the stockholders, is barred
parties are adjusted. Younglove v. after six years by Rev. St. c. 120, § 1,
Lime Co., 49 O. St. 663, 33 N. E. 334; which provides that all actions of debt
King V. Armstrong, 50 O. St. 333, 34 founded on any contract not under
N. E. 163. seal, and all actions of assumpsit or
51. Date of suit. —
When the charter upon the case founded on contract, ex-
of a bank declares that the stockhold- press or implied, shall be commenced
ers of a bank shall be individually within six years. Baker v. Atlas Bank
liable, "at the time of suits," for the (Mass.), 9 Mete. 183.
ultimate payment of debts of the bank, A suit in equity, under St. 1860, c.
in a given proportion, no cause of 167, for the confirmation of an assess-
action arises against the stockholders ment, by the receivers of a banking
until there has been a suit by a creditor corporation, upon the stockholders, of
against the bank, and the statute of an amount sufficient to redeem its bills,
limitations does not begin to run in can not be brought more than six years
favor of the stockholders until after after the injunction upon the bank was
the date of such a suit. Wheatley v. made perpetual. Commonwealth v.
Glover, 135 Ga. 710, 54 S. E. 636. Cochituate Bank (Mass.), 3 Allen 42.
52. Stockholders in the American 55. This liability being in the nature
Banking & Trust Company are not of a penalty for issuing the notes in a
subject to suit by the creditors of the form, and with a design to be circu-
corporation to enforce the stockhold- lated as money, a right of action
ers' liability imposed by Sp. Laws thereon would be barred in four years.
1889, p. 547, c. 349, § 6, in amendment Lawler v. Burk, 7 O. St. 340, overruling
of its original charter, until in pro- Lawler v. Walker, 18 O. 151.
ceedings against the corporation its 56. Illinois. —
Where, by the charter
assets are fully administered, and the of a bank, the stockholders are liable
fact and amount of deficiency of assets to the amount of their stock for the
judicially ascertained; and a suit within payment of the debts of the bank, they
six years after such judicial ascertain- can not plead the statute of limita-
Liabilities Incurred Prior to Close of Civil War Period. — Statutes

limiting the time for suing to enforce rights which accrued prior to or dur-
ing the Civil War period apply to actions to enforce a bank stockholder's
^'^
personal liability.
Order of Distribution. —In a proceeding to secure distribution of fund

paid into court by stockholders of an insolvent bank in full of their stock
on the condition that, if it should be found there was an overpay-
liability,
ment, the amount should be repaid, where such payment was made within
six years after the appointment of the receiver, and six years have not elapsed
since the fund was so paid, during which time the receiver was restrained
from taking proceedings against stockholders secondarily liable, the right
of the receiver to apply for an order vacating the injunction and distrib-
uting the fund is not barred.^*
§ 49 (5f) Operation and Stay of Proceedings. —A perpetual staj

of proceedings will be granted upon a motion therefor upon a reference for
the apportionment of the debts of an insolvent bank among its stockholders
where the apportionment is not made within the time limited by the act or
the utmost extension of time that could be granted thereunder.^^
§ 49 (5g) Laches and Lapse of Time. —Lapse of time sufficient to

justify the application of the doctrine of stale demands precludes creditors
of insolvent banks from enforcing a stockholder's personal liability in
equity,which if freshly pursued would be available.^**

—
Period in Equity in Analogy to Law. When the statute bars an action
at law to enforce a bank stockholder's personal liability, it is also a good
defense in equity.®^
tions in bar to an action against them limiting the time for suing to enforce
for such debt, unless the action is rights which accrued prior to June
barred as against the bank. Fleischer 1, 1865, and declaring that such suits
V. Rentchler, 17 111. App. 402. must be brought before January 1,
57. Liabilities incurred prior to 1870, may
be pleaded as a bar to suits
close of civil war period. —A
suit in brought after that time to enforce the
equity, begun December 3, 1870, against individual liability of the stockholders
stockholders of a bank, for a failure of a bank for the redemption of bills
occurring in November, 1860, under which it ceased and failed to pay be-
the provisions of a statute of South fore June 1, 1865, or to recover the
Carolina rendering each stockholder, unpaid balance due on stock subscrip-
in case of a failure of the bank, in- tion at the time of such failure. Terry
dividually liable for a sum not exceed- v. Anderson, 95 U. S. 628, 24 L. Ed.
ing twice the amount of his share or 365.
shares, was held barred by the statute gg. Order of distribution.— Pope v-
of limitations Godfrey v. Terry, 97 Germania Bank, 106 Minn. 446, 119 N.
U. S. 171, 24 L. Ed. 944. -yy g]^
The liability of a stockholder of a co o... r j- t t-
^.t^^ °^
bank, whose insolvency occurred prior
to June 1, 1865, is barred by the Geor-
.^^^
Pf,^
City ?Tx?
Bank (N -^"?
Y.) Vl u
J^ i?"""
4 Abb. Prac
gia statute of limitations^f March
N' ^- '"^'^^ ^^''
fl^'^^^l^'l^^^^.''
^^-aws 1849, c. 226).
16, 1869, if not commenced by January
1, 1870, by the direct provisions of 60. —
Lapse of time. Twelve years
such statute. Terry v. Tubman, 92 U. may constitute the lapse of time. Gil-
S. 156, 33 L. Ed. 537.
more v. Bank, 8 O. 62.
The Georgia Act of March 16, 1869, 61. Period in equity in analogy to
§ 49 (6aaab) STOCKHOLDERS. 229
§ 49 (5^) Process and Appearance. —A judicial ascertainment of

the liabilities of an insolvent bank, such as is necessary before an action
to enforce the liability of stockholders, can only be had in an action where
the bank, being a party, has been properly served, or where it has volun-
tarily appeared.*^
§ 49 (6) Parties— § 49 (6a) Parties Plaintiff— § 49 (6aa) Nec-

—
essary and Proper Parties § 49 (6aaa) Suit to Enforce Liability
—
for Debts of Bank § 49 (6aaaa) In General. Since the individual —
liabihty of shareholders of bank stock is purely statutory, there can be no
general rule as to who are proper parties to enforce such liability. In every
instance the question must be determined from the statutes creating the
liability and prescribing means to enforce it.®^
§ 49 (6aaab) Creditors, —The statutory liability of stockholders of

a bank is enforceable only by the creditors in the states of Georgia,®*
Indiana,®^ Kentucky,e6 Maine,«'^ Maryland,** New York,«9 and Utah,^*
and not by the bank or corporation, receiver, assignee for the benefit of
creditors, or trustee.
—
law. Carrol v. Green, 93 U. S. 509, amendment of the original charter of
23 L. Ed. 738. the American Banking & Trust Com-
Twenty years after the appointment pany on the stockholders in that cor-
of a receiver of an insolvent bank is poration for all contracts, debts, and
a period of time beyond which by engagements of the corporation to the
analogy no proceedings should be al- amount of their stock, in addition to
lowed to enforce the liability of stock- the amount invested therein, is not an
holders. In re Bank (N. Y.), 33 Hun asset of the corporation, and can not
462. be enforced by the corporation or its
62. Process and appearance. An- — receiver, but only by creditors of the
drews V. Holcomb, 79 Neb. 660, 113 corporation. Flynn v American, etc..
N. W. 204. Trust Co., 104 Me. 141, 69 Atl. 771.
63.Proper parties plaintiff. — Runner 68. Maryland. —The indebtedness of
V. Dwiggins, 147 Ind. 338, 46 N. E. 580, the stockholders in a Maryland bank,
36 L. R. A. 645. liable under its charter "to the amount
—
Idaho. Rev. Codes, § 3979, provides of their respective share or shares of
stock in their corporation for all its
that stockholders of incorporated
banks shall be liable to the amount of debts'' is to the creditors and not to
their stock at its par value, in addition the corporation and enforceable only
to the stock held by them, and that by the former. Colton v. Mayer, 90
such liability may be enforced by the Md. 711, 45 Atl. 874, 47 L. R. A. 617,
bank in liquidation, or by any receiver 78 Am. St. Rep. 456.
or person succeeding to its legal rights. 69. New ForA— Hirschfeld v. Fitz-
McTamany v. Day (Idaho), 138 Pac. gerald, 157 N. Y. 166, 51 N. E. 997, 46
563. L. R. A. 839, rehearing denied in 157
64. Georgia. — Suit by billholder.— N. Y. 707, 53 N. E. 1124, reversing
Lane v. Morris, 8 Ga. App. 468. Hishfeld v. Bopp, 37 App. Div. 180,
See post, "Liability of Stockholders 50 N. Y. S. 676.
or Officers," § 311.
70. f/toA.— Under Acts 18th Gen.
Assem. Iowa, c. 208, iixing the liability
Indiana. Runner v.
65. — Dwiggins,
of stockholders, in excess of their
147 Ind. 238, 46 N. E. 580, 36 L. R. A.
stock, for debts of the bank, and de-
645.
claring such liability to be to the cred-
66. Kentucky. — Farmer's Bank v. itors, not to the bank, an action
Scott, 144 Ky. 575, 139 S. W. 801; Alsop against stockholders upon the liability
V. Conway, 110 C. C. A. 366, 188 Fed.
created by said act should be brought
568. by the creditors, and not by the bank
67. Maine.' —The liability imposed by or its receiver. Steinke v. Loofbourow,
Sp. Laws 1889, p. 547, c. 349, § 6, in 17 Utah 252, 54 Pac. 130.
230 BANKS AND BANKING. § 49 (6aaad)
§ 49 (6aaac) Corporation or Bank. —The statutory liability of

stockholders in a bank can not be enforced by the bank or corporation in
Maine/i New York/2 and UtahJS
§ 49 (6aaad) Receivers. —The statutory liability of stockholders in-

a bank for its debts is and creditors are not
enforceable by its receivers
allowed to supersede them in enforcing the without first showing liability
good cause and obtaining leave of court in Idaho/^^ Iowa/* Minnesota/^

New York/s and Washington/'' but such liability can not be enforced by a
receiver of the bank in Georgia/^ Kentucky/^ Maryland,^** Missouri^! and
71. Maine. —
Flynn v. American, etc., 1097. See, also, Mahoney v. Adams,
Trust Co., 104 Me. 141, 69 Atl. 771. 29 App. Div. 629, 51 N. Y. S. 1082.
72. New
York. —A
bank's stockhold- 77. Washington. —A
receiver of a
er's statutory liability for its debts is Washington state bank may maintain
not an asset of, and can not be en- an action to enforce the individual lia-
forced by, the bank, being for the ex- bility of stockholders to the extent of
clusive benefit of creditors whose their stock. Under the decision of the
debts are payable within two years, Washington courts this liability can
and who sue thereon within two years only be enforced by a receiver under
after maturity, as provided by Stock the direction of the court. Howarth
Corporation Law (Consol. Laws, c. V. Ellwanger, 86 Fed. 54.
59), § 59. Assets Realization Co. v. The contingent liability of stock-
Howard, 70 Misc. Rep. 651, 127 N. Y. holders of a bank under Const.,
S. 798. art. 12, § 11, for its debts, can be en-
See ante, "Time to Sue and Limita- forced only by its receiver. Wat-
tions and Laches," § 49 (5). terson v. Masterson, 15 Wash. 511, 46
73. Utah. —
Steinke v. Loofbourow, 17 Pac. 1041.
Utah 352, 54 Pac. 120. 78. Georgia. —
Lane v. Morris, 8 Ga.
73a. —
Idaho. McTamany v. Day 468.
(Idaho), 128 Pac. 563. 79. Kentucky.— Ky. St., § 616 (Rus-
_
74. Iowa. —
In a suit by the state, sell's St., § 2256), authorizes the ap-
under Code, § 1572, to wind up an in- pointment of a receiver for an in-
solvent bank, the liability of the stock- solvent bank or corporation who shall,
holders under Acts 18th Gen. Assem. under the direction of the court, take
c. 208, is not directly to the creditors, possession of the "assets of every de-
but constitutes a fund for the debts scription" of such bank or corporation
of the bank, which the receiver is and collect or dispose of the debts
authorized to collect and distribute. due it and sell all of its property. Sec-
State V. Union Stock Yards, etc., Bank, tion 547 (§ 2131) provides that stock-
103 Iowa 549, 70 N. W. 752, 72 N. W. holders in corporations "shall be liable
1076. to creditors" only for the unpaid part
75. Minnesota. —
Receivers appointed of their stock, "except stockholders in
under Laws 1895, c. 145, § 20, have banks, trust companies * * * shall be
primarily an exclusive right to insti- liable equally and ratably, and not one
tute proceedings to enforce the stock- for the other, for all contracts and lia-
holders' liability; and creditors are bilities of such corporations to the ex-
not permitted by Gen. St. 1894, c. 76, tent of the amount of their stock at
to supersede them in the exercise of par value, in addition to the amount of
this right,without first showing good such stock." Held, under the decisions
cause and obtaining leave of court. An- of the court of appeals of the state,
derson V. Seymour, 70 Minn. 358, 73 . that the double liability of stockhold-
N. W. 171. ers in a bank or trust company is not
76. New York. —Under New York an asset of the corporation and can not
Law 1897, c. 441, the receiver is re- be enforced by a receiver appointed
quired to bring the action to enforce under § 616. Alsop v. Conway, 110 C.
bank stockholder's personal liability; C. A. 366, 188 Fed. 568.
but that provision is not retroactive.
Mahoney v. Bernhardt, 27 Misc. Rep.
80. Maryland. —
Acts 1896, c. 349, re-
quiring all the assets of an insolvent
339, 58 N. Y. S. 748; Mahoney v. Bern-
hard, 45 App. Div. 499, 63 N. Y. S. 81. Missouri. — Millisack v. Moore, 76
642, affirmed in 169 N. E. 589, 62 N. E. Mo. App. 528.
§ 49 (6aaai) stockholders. 231
Utah.s2
Action to Recover Loss to Depositor. — In an action to recover from

a stockholder of a banking corporation for loss sustained by a depositor
in the failure of the bank, the receiver is not a necessary plaintiff, since the
amount to be recovered does not belong to the receiver, but is additional
security for the individual depositor.^^
§ 49 (6aaae) Assignees for Benefit of Creditors. In the absence —

of statutory authority, an assignee for the benefit of creditors can not sue
to enforce the statutory liability of the stockholders for the bank's debts.^*
A general assignment executed by a bank of its effects to a trustee for the
benefit of its creditors does not carry the statutory liability of the stock-
holders for debts outside of unpaid subscription. ^s
In Pennsylvania where a bank has become insolvent, and, under the
general laws, it is sought to make the stockholders liable for its debts, pro-
ceedings must be in the name of the assignee.**^
§ 49 (6aaaf) Trustees.— See ante, "Creditors," § 49 (6aaab).
§ 49 (6aaag) Superintendent of Banks. See ante, "Superintend- —

ent of Bank Authorized to Enforce," § 49 (Ice); post, "Necessary Al-
legations," § 49 (7aa).
§ 49 (6aaah) Comptroller of Banks. —See post, "Suit on Stock-

holder's Bond," § 49 (6aac).
§ 49 (6aaai) Attorney General. — See ante, "Action by Attorney
corporation to be distributed to its The double liability of the stock-

creditors in the same way. as the assfets holders of a bank is not a "right" or
of an insolvent debtor, and Code, art. "credit" of the bank, which Rev. St.
33, § 269, vesting in receivers of a cor- 1894, § 3908 (Rev. St. 1881, § 3671),
poration "all the estate and assets of authorizes the assignee for the benefit
every kind belonging to such corpora- of creditors to collect. Runner v.
tion," do not enable the receivers of a Dwiggins, 147 Ind. 338, 46 N. E. 580,
bank to sue its stockholders under its 36 L. R. A. 645.
charter (Acts 1888, c. 394), making Kentucky.— Ky. St., § 547 (Russell's
them liable "to the amount of their St., § 313), provides that stockholders
respective share or shares of stock in in banks shall be liable equally and
this corporation for all of its debts;" ratably, and not one for the other, for
the indebtedness being to the credit- all contracts and liabilities of the cor-
ors, and not to the corporation. Colton poration, to the extent of the amount
V. Mayer, 90 Md. 711, 45 Atl. 874, 47 L. of their stock at par value, in addition
R. A. 617, 78 Am. St. Rep. 456. to the amount of such stock. Held,
82. Utah.—Steinke v. Loofbourow, 'hat such liability was not an asset of
17 Utah 353 54 Pac 120 *"S corporation on insolvency, recover-
83. Action to recover' loss to de- ,^°''P°"t^°"'| assignee for
f^'^^^ ^^
positor.-Millisack v. Moore, 76 Mo.
^__ 528
^'''c^' f ÂfV'
Scott, 144 139 c'"w"o.^^"''
.'^.°'^,o
Ky.
575, S. W. 801.
„.' r- T r •
rr
Psssagc undcr general assign-
^^-
Georgia.— Lzne
IV
84. -v. Morns, 8 Ga. ment.—Terry v. Abraham, 93 U, S. 38,
*^S- 40, 33 L. Ed. 794.
Indiana. —
Runner v. Dwiggins, 147 Pennsylvania. Appeal
86. — of Means
Ind. 338, 46 X. E. 580, 36 L. R. A. 045. (i Norris), 85 Pa. 75.
232 BANKS AND BANKING. § 49 (6aca)
General to Dissolve Bank," § 49 (led) ;

post, "Forms, Requisites and Va-
lidity," § 49 (9cb).
§ 49 (6aaaj) County Treasurer. — See post, "Suit for Public

Moneys," § 49 (6aab).
§ 49 (6aab) Suit for Public Moneys. —The county treasurer is the

proper party to sue stockholders of -a bank to recover public moneys be-
longing to the county.*''
§ 49 (6aac) Suit on Stockholder's Bond.— See ante, "Stock Mort-

gages and Bonds," § 39 (6).
§ 49 (6ab) Interest. —
An objection to a creditor's suit to enforce
the liability of certain stockholders in a bank for its debts to the amount
of the plaintiffs' claims against the bank, because of the trifling interest
of the plaintiffs, can not be sustained where they have a real and tangible
claim against the defendants.**
§ 49 (6ac) Joinder of Parties Plaintiff— § 49 (6aca) Receivers

and Creditors. Where — the statute authorizes the enforcement of the
statutory liability of stockholders in a bank by one suit in equity a suit by
the receiver of the bank and all participating creditors is not bad for mis-
joinder of parties plaintiff.*^
87. money. Kirby's

Suit for county — in the bank because of the trifling in-
Dig., §provides that county
1990, terest of plaintiffs can not be sustained,
treasurers may deposit public funds in since in theory all creditors are plain-
their custody in incorporated banks tiffs to such an action, and, if the
for safekeeping, and that said officers other creditors refused to join in the
and their sureties and the bank and prosecution of the suit on due notice,
its stockholders shall be liable for all defendants were liable to plaintiffs to
such funds, if such bank, upon demand, the full amount of their shares. Reh-
shall fail to pay the person entitled to bein v. Rahr, 109 Wis. 136, 85 N. W.
receive the same. Section 1159 pro- 315.
vides that the county treasurer is the 89. Joinder of receivers and creditors.
proper person to receive all moneys — While there is no necessity for join-
payable into the county treasury, and ing creditors of a bank as parties plain-
§ 6002 provides that the trustee of an tiff in a suit brought by the receiver
express trust a person in whose name to enforce the stockholders' double lia-
a contract has been made for the bene- bility imposed by Pub. Laws 1897, p.
fit of another, or any officer, may 473, c. 298, such joinder is not preju-
bring an action without joining with him dicial to defendants. Smathers v. West-
the person for whose benefit it is prose- ern Carolina Bank, 135 N. C. 410, 47
cuted. Held, that the county treas- S. E. 893.
urer is the proper party to sue stock- Under Gen. St. Minn., § 3501, de-
holders of an insolvent bank to re- claring that a stockholder in a bank
cover the public moneys belonging to shall be individually liable for a sum
the county. Warren v. Nix, 97 Ark. double the amount of the stock held
374, 135 S. W. 896. by him for all the debts of the bank,
88. Interest. — Where
the claims of and §§ 5905-5907, 5911, authorizing en-
plaintiffsagainst an insolvent banking forcement of the double liability of
corporation amounted to only $2,800 stockholders by one suit in equity, etc.,
out of a total liability of $485,000, the a suit by the receiver of a bank and all
contention that plaintiffs could not participating creditors was not bad for
maintain an action in equity to enforce misjoinder of parties plaintiff, since
the individual liability of defendants such liability is several as to each
as the owners of $3,500 worth of shares stockholder to all the creditors, but
§ 49 (6bab) StockhoIvDees. 233
§ 49 (6acb) Creditor alld Assignee of Claim against Bank. —The

assignee of a claim against an insolvent bank has the same rights as his
assignor to bemade a party to an action by a creditor in his own behalf
and in behalf of all others to enforce the liability of its stockholders,
whether he became assignee before or after the action was begun. 8"
§ 49 (6ad) Bringing in Parties Plaintiff. — Creditors. —Creditors

of an insolvent bank may be made parties to an action by another creditor
in behalf of himself and all other creditors to enforce the liability for stock-
holders, after the action is at issue and before it has been noticed for trial.®^
§ 49 (6b) Parties Defendant— § 49 (6ba) Proper and Neces-

—
sary Parties § 49 (6baa) Creditor's Suit against Bank. Neces- —
sity for Making Stockholder's Party. —
Under Code, § 1882, creating
double liability against certain bank stockholders, and providing that the re-
ceiver, etc., may maintain an action to determine the stockholders' liability,
and that "all persons interested shall be brought into court" to make an
assessment binding upon a stockholder, he must be brought into the litiga-
tion individually before the asscssment.^^
Nonresident Stockholders. — Nonresident stockholders, who are not in

reach of the process of the court and against* whom it can not render a
personal judgment, enforcing their statutory liability for the debts of the
bank, need not be made parties to a suit to sequester the assets of the cor-
poration, and ascertain the assessment to be made to liquidate the bank's
debts as they were represented by the corporation, or its general receiver,
appointed prior to the institution of such suit.^^
§ 49 (6bab) Actions against Stockholders by Creditors. —Re-

ceivers. — Receivers of an insolvent bank are not necessary parties de-
fendant in an action by a creditor against the stockholders under New
York Laws 1892, c. 689, § 52, commenced prior to the passage of Laws
1897, c. 441, requiring the receivers to bring such actions.^*
joint in that it requires one action in 714. See post, "Nonresident Stock-
equity, in which all the creditors partic- holders," § 49 (6bbabb).
ipating must appear on one side, and 94. Receivers. —
Mahoney v. Bern-
all the stockholders over whom juris- hardt, 27 Misc. Rep. 339, 58 N. Y. S.
diction can be obtained on the other. 748; Mahoney v. Bernhard, 45 App.
Finney v. Guy, 106 Wis. 256, 82 N. W. Div. 499, 63 N. Y. S. 642, affirmed in
595, 49 L. R. A. 486. 169 N. Y. 589, 62 N. E. 1097.
90. Creditor and assignee of claim I" ^n action brought in 1896 by a
against bank.— Hagmayer v. Alten, 41 creditor of a banking corporation to
App Div 487 58 N Y 684 enforce the stockholders' liability,
91. Bringing in parties plaintiff- V^'^^

Laws 1892, c. 689, § 52, a motion
Creditors.-Hagmayer v. Alten, 41 ôr leave to brmgm, as parties de-
App. Div. 487, 58 N. Y. S. 684.
fendant, permanent receivers subse-
„„ „ .' , ,. , ,. ,j
92. Necessity for making stockhold-
quently appomted, was opposed on the
ground that Laws 1897, c. 441, amend-
?" ?f!!'*^;7:^T^°,Tr ;^-. Wnght, 134 ing ^^ ^s to require such an action
§ 52
Iowa 634, 112 N. W. 105. to be brought by the receivers, was
93. Nonresident stockholders. retroactive. Held, that the question
— Childs V. Cleaves, 95 Me. 498, 50 Atl. thus raised should be left to be de-
234 BANKS AND BANKING. § 49 (6bbabb)
§ 49 (6bb) Joinder of Parties— § 49 (6bba) Joinder of Stock-

holders— § 49 (6bbaa) Action at Law by Creditors § 49 (6bbaaa) —
—
In General. Where the liability of stockholders in a bank for its debts
is several, the stockholders must be separately sued, even where an action
at law is maintainable by one creditor.^^ This is the rule in the courts of
the United States. ^^
§ 49 (6bbaab) Stockholders Who Transferred Stock.—In an

action by a depositor in an insolvent bank against the stockholders to
recover the balance due him at the time of the suspension of the bank, it
is not necessary to join as defendants persons who signed the articles of

incorporation, but have since transferred their stock, though such transfer
was not made in the manner provided by the articles of incorporation.^^
§ 49 (6bbab) Creditors Suits— § 49 (6bbaba) In General.—

The liability of stockholders of a bank for its debts must be enforced in
a single action, against all stockholders within the jurisdiction of the court
and not against certain selected stockholders. This is the rule in the states
of Minnesota,** Nebraska,^* and South Carolina.
§ 49 (6bbabb) Nonresident Stockholders. Under Laws 1892, c. —

689, § 52, making the stockholders of an insolvent bank "individually re-
.sponsible equally and ratably, and not one for the other," for the bank's
debts, a creditor of such a bank may sue such stockholders as are residents,
and omit others who are nonresidents ;2 but it is proper for the receiver
of an insolvent bank to include nonresident stockholders in the equity suit
for the purpose of determining their liability .^
termined upon the trial, and that the claiming any interest in the subject-
motion should be granted. Mahoney matter shall be joined or properly rep-
V. Adams, 29 App. Div. 629, 51 N. Y. resented, and their respective rights
S. 1082. and liabilities determined. Allen v.
—
Liability several. Terry v. Lit-
95. Walsh, 35 Minn. 543.
tie,101 U. S. 216, 25 L. Ed. 864; Pol- 99. A>6rajâ.— Hastings v. Barnd, 55
lard V. Bailey (U. S.), 20 Wall. 520, 23 Neb. 93, 75 N. W. 49.
L. Ed. 376. The liability of stockholders in bank-
96. Where a bank charter provided ing corporations under Const., art. 11,
that, on failure of the bank, each § 7, must be enforced against all stock-
stockholder should be liable for a sum holders liable. A suit by and on behalf of
not exceeding twice the amount of one out of many creditors against cer-
his shares, even were an action at law tain selected stockholders will not lie.
maintainable by one creditor, the Pickering v. Hastings, 56 Neb. 201, 76
stockholders must be separately sued. N. W. 587; Hastings v. Barnd, 55 Neb.
Terry v. Little, 101 U. S. 316, 35 L. Ed. 93, 75 N. W. 49.
864. 1. South Carolina. —
Terry z: Martin,
97. Shareholders who have trans- 10 S. C. 363.
ferred stock. —Wadsworth v. Hocking, 2. Nonresident stockholders. Ma- —
61 111. App. 156. honey Bernhardt, 27 Misc. Rep. 339,
v.
98. Minnesota. — An action
will not 58 N. Y. S. 748; Mahoney v. Bernhard,
lie favor of a creditor against indi-
in 45 App. Div. 499, 63 N. Y. S. 643, af-
vidual stockholders to enforce their firmed in 169 N. Y. 589, 62 N. E. 1097.
liability for the debts of a bank im- See ante, "Creditor's Suit against
posed by Gen. St. 1866, c. 33, § 31; but Bank," § 49 (6baa).
such liability must be enforced by a 3. It is the duty of the receiver of a
single action, in which all persons Nebraska bank to include nonresident
§ 49 (6bbba) STOCKHOLDERS. 235
§ 49 (6bbac) Actions by Receiver. —

In an action by the receiver,
under order of court, to enforce the statutory HabiHty of the stockholders
of an insolvent bank having no assets, all of the stockholders may be joined
as defendants in the one action,* but such joinder is not necessary. An
action may be maintained against a single stockholder.^
Rule of Federal Court as to Iowa Statute. The federal court has —
held that a receiver of an insolvent Iowa bank can not maintain a suit in
equity in a federal court against a number of stockholders to recover as-
sessments levied under the state statute, as the liability of the defendants
is several, arising on their contracts of subscription, each of which is a
separate obligation, and is a legal, and not an equitable, liability.'' Such a
suit can not be maintained on the ground that it will prevent a multiplicity
of suits, but is objectionable upon the ground of multifariousness.''
§ 49 (6bbb) Joinder of Bank, Its Trustee or Assignee— § 49

—
(6bbba) Actions by Creditors. An action by creditors to enforce the
liability of bank stockholders should be against the bank and all the stock-
holders, unless it be impossible or impracticable to bring them all before
the court, or unless some other sufficient cause for the omission be shown.
This is the rule under the laws of North Carolina^ and Wisconsin,® and the
stockholders in the equity suit in Ne- 9. —

Wisconsin. Coleman v. White, 14
braska, for the purpose of determining Wis. 700, 80 Am. Dec. 797; Merchants'
their liability. Hazlett v. Woodhead, Bank v. Chandler, 19 Wis. 434.
27 R. I. 506, 63 Atl. 952. Rev. St. c. 148, § 25 (2 Taylor's St.
4. Georgia. —
Moore v. Ripley, 106 Ga. p. 1734), provides, with reference to
556, 32 S. E. 647. proceedings against corporations, for
5. Where a bank is forced into liq- failure to pay debts or for charter vio-
uidation, and the stockholders are de- lations, that if an application for an in-
creed to contribute pro rata on their junction and the appointment of a re-
debts for stock, a suit to enforce such ceiver be made by a creditor of any
decree may be sustained against one corporation whose stockholders are
of the stockholders to the decree. Bank liable for the payment of the debt, in
V. Iglehart, Fed. Cas. No. 860, 6 Mc- any event or contingency, they "or any
Lean 568. of them may be made parties to the
Where the court, on petition of the action, either at the commencement
receiver of an insolvent bank, pro- thereof, or in any subsequent stage of
ceeded to ascertain the amount of lia- the proceedings, whenever it shall be-
bilities, and the value of the assets, come necessary to enforce such lia-
and the amount required in addition bility." Section 26 provides that if
thereto to pay the liabilities, and de- any creditor desires to make stock-
termined the amount of statutory lia- holders parties to the action, "after a
bility of stockholders, the receiver judgment therein against the corpora-
might thereafter maintain an action tion," he may do so by filing a com-
against a single stockholder to enforce plaint against them founded on such
such statutory liability; the question judgment. Held, that § 26 is but an
of allowing such action being one of extension of the remedy to such cred-
policy, resting in the discretion of the itors as may choose to proceed to
court. Shuey v. Adair, 24 Wash. 378, judgment before resorting to the
64 Pac. 536. equitable proceeding, and is not an
6. Rule of Federal court as to Iowa implied denial of the action expressly
—
statute. Tompkins v. Craig, 93 Fed. authorized by § 25; a'nd hence a cred-
885 itor of a bank, existing under the laws
7. Tompkins v. Craig, 93 Fed. 885. of Wisconsin, may, without having ob-
8. Action by creditors —
North Caro- tained a judgment at law against it,
lina.— Glenn V. Farmers' Bank, 72 N. C. maintain an action against the bank
626. and its stockholders jointly, to re-
236 BANKS AND BANKING. § 49 {6j4)
trustees of the bank may be joined.^"

In Colorado neither the bank nor its assignee is a necessary party.^^
§ 49 (6bbbb) Actions by Receiver. —

In an action by the receiver,
under order of court, to enforce the statutory liabihty of- stockholders of
an insolvent bank having no assets, the baiik, as a corporation, need not be
made a party defendant.!^
§ 49 (6bc) Bringing in Parties Defendant. —

Omitted stockholders
may be brought in by the defendant stockholders or by other creditors. ^^
—
49 (6bd) Death of Party Revival. In â suit by a creditor of
§ —
a banking company to enforce the individual liability of stockholders,
where some of the latter die pending the suit it is not necessary to revive
it against the personal reprisentatives.^*
§ 49 (6be) Dismissal and Striking Off Parties.— Parties Not

Served. —A bill by a creditor of a banking company to enforce the indi-
vidual liability of the stockholders will be dismissed as to those named in
the bill but not served with process, without regard to whether or not they
could be brought before the court.'^
Parties as to Whom BUI Taken Pro Confess©. —A bill by a creditor
of a banking company to enforce the individual liability of the stockholders
will be dismissed as to those who were served with process, but did not an-
swer, and to whom the bill was taken pro confesso and set down for hear-
ing. i®
§ 49 (6 J) Dismissal of Suit. —An assignee of the claim on which a
strain the further exercise of corpo- action by certain creditors of an in-

rate franchises, and to procure the solvent bank to enforce the individual
appointment of a receiver, the distri- liability of stockholders, the fact that
bution of assets, and, if necessary, plaintiffs elected to omit certain stock-
enforce the stockholders' individual holders because of their insolvency will
liability. Cleveland v. Marine Bank, not preclude the defendants or any
17 Wis. 545. other creditors or the court from
10. Trustee. —An
action against an bringing in the omitted stockholders,
insolvent bank and the stockholders since an adjudication in the case will
therein, on account of their individual bar all creditors from any demand on
liability, is properly brought also the omitted stockholders, and the de-
against certain trustees of the bank. fendants from any right of contribu-
Glenn Farmers' Bank, 72 N. C. 636.
v. tion against them. Rehbein v. Rahr,
11. Colorado.— Where the object of a 109 Wis. 136, 85 N. W. 315.
suit by creditors of an insolvent bank- 14. Death of —
party Revival. —
ing corporation is to ascertain the Riggs v. Swann, Fed. Cas. No. 11,831,
liability of stockholders under Mills' 3 Cranch, C. C. 183, reversed in 3 Pet.
Ann. St., § 533, defining the liability 483, 7 L. Ed. 493.
of stockholders in banks, neither the 15. Parties not served. Riggs v. —
bank nor its assignee is a necessary Swann, Fed. Cas. No. 11,831, 3 Cranch,
party, but the suit may be maintained C. C. 183, reversed in 3 Pet. 483, 7 L.
against the stockholders alone. Kipp Ed. 493.
57. Miller, 47 Colo. 598, 108 Pac. 164. le. Parties as to whom bill taken pro
12. Action by receiver. — Moore v. —
confesso. Riggs v. Swann, Fed. Cas.
Ripley, 106 Ga. 556, 32 S. E. 647. No. 11,831, 3 Cranch, C. C. 183, re-
13. Omitted stockholder.— In an versed in 2 Pet. 482, 7 L. Ed. 493.
§ 49 (7aa) STOCKHOLDERS. 237
creditor of a bank has sued the stockholder to enforce their personal liability
can dismiss such suit.^^
§ 49 (7) Pleading. —See ante, "Enjoining Illegal Acts and Practices,"

§ 45 (2).
§ 49 (7a) Complaint, Declaration or Petition— § 49 (7aa) Nec-

—
essary Allegations. The complaint in an action to enforce the liability
of a stockholder for the debts of the bank should allege a compliance with
the requirements without which no liability exists or such a state of facts
as render a compliance unnecessary.^®
As to Necessity for Enforcement. —The facts showing it necessary to

enforce the individual liability of bank stockholders must be alleged in an
action brought by the superintendent of banks to enforce such liability.!^
Judicial Determination of Insolvency. — In an action to enforce the

secondary liability of stockholders of an insolvent bank, an averment of
such a judicial determination of the insolvency of the corporation as ren-
17.Dismissal by assignee of claim. for a debt of the bank must allege a

—-Where a creditor of an insolvent compliance with the requirements of
bank, under an agreement with the § 55, or facts showing that such com-
receivers that they would bear half the pliance was impossible. Hirshfeld v.
expenses, sues the stockholders, join- Kursheedt, 81 Hun 555, 30 N. Y. S.
ing the receivers as defendants, and 1033, 63 N. Y. St. Rep. 217, judgment
the claim is afterwards assigned and affirmed in 145 N. Y. 84, 39 N. E. 817.
settled, and the assignee seelcs to dis- 19. Action by superintendent of
miss the action, the receivers can not —
bank. Const., art. 8, § 7, provides that
carry it on, as, under Laws 1892, c. the stockholders of every banking cor-
688, § 55, providing that "no action poration shall be individually liable for
shall be brought against a stockholder the amount of their respective shares
for any debt of the corporation until of stock for all its debts and liabilities,
judgment therefor has been recovered and Banking Law (Consol. Laws
against the corporation and an execu- 1909, c. 2) § 19, provides that the su-
tion therein has been returned unsatis- perintendent of banks may take pos-
fied," the receivers could not have session of the property and business
brought the action. Judgment Hirsch- of any corporation or individual
feld V. Bopp, 27 App. Div. 180, 50 N. banker, under specified circumstances,
Y. S. 676, reversed. Hirshfeld v. Fitz- and retain possession until the corpo-
gerald, 157 N. Y. 166, 51 N. E. 997, 46 ration or banker shall resume business
L. R. A. 839, rehearing denied, 157 N. or its affairs be liquidated, and that
Y. 707, 53 N. E. 1124. such superintendent, if necessary to
18. Allegation of compliance with pay the debts of the corporation, may
—
conditions precedent. Laws 1893, c. enforce the individual liability of
688, § 55 (Stock Corporation Law), stockholders. Held that, since the su-
providing that no action shall be perintendent was authorized to take
brought against a stockholder for any possession of the affairs of the bank
debt of the corporation until certain for reasons other than its inability to
requirements have been complied with, pay debts, it was insufficient in an
must be construed in connection with action by the superintendent against
Laws 1892, c, 689, § 53 (Banking a stockholder to recover the amount
Law), which provides "except as
that, of his personal liability to show that
prescribed in the stock corporation the superintendent had considered it
law," stockholders of banks shall be necessary to enforce such liability; it
liable for corporate debts to a certain being essential that the facts showing
extent, thereby rendering the stock- such necessity be alleged and proved.
holders' liability secondary; and there- Cheney v. Scharmann, 145 App. Div.
fore a complaint against a stockholder 456, 129 N. Y. S. 993.
dered the liability of such stockholders enforceable against them is nec-

essary.^"
As to Ownership of Shares. —
In an action to enforce the individual
liabilityimposed on bank stockholders, the complaint should state the time
when the several defendants became stockholders,^! and in an action against
a single stockholder the numbers of shares held by him.^^
—
As to Debts. In an action to enforce the liability of a stockholder for
the debts of the bank, the complaint should state the amount of the debts ;23
and the dates when they were contracted,^* but need not set out the con-
sideration. ^s
Suit on —
Bank Bills. Where the suit is upon the bank's bills, it should
set outand describe them.^^
—
Property Belonging to Defendant. It is not necessary in a petition
seeking to enforce bank stockholders' personal liability to allege that the
^'^
defendants had property or of what that property consisted.
—
Ultimate Exhaustion of Liability. The complaint in an action to
enforce the individual liability of bank stockholders need not allege the facts
which show that the liability will ultimately have to be exhausted in order
to pay the debts. ^^
Exhibiting Petition under Which Receiver Appointed. It is not —
necessary that the petition under which the receiver was appointed should
be exhibited with the petition in a suit by such receiver to enforce the liabil-
ity of stockholders for the debts of the bank.^s

Actions against Nonresident Stockholders. —The declaration in an
action against a nonresident stockholder in a bank to enforce his liability
for its debts must show that the appointment of the receiver was not made
20. Judicial determination of in- It was so held under N. C. Pub.

solvency. — Dickason v. Grafton Sav. Laws 1899, p. 473, c. 298. Smathers v.
Bank Co., 37 O. C. C. 357. Western Carolina Bank, 135 N. C.
21. Ownership of shares. —
It was so 410, 47 S. E. 893.
held in an action by a receiver, under 25. Consideration. —
It was not nec-
N. C. Pub. Laws 1897, p. 473, c. 398. essary for the declaration seeking to
Smathers v. Western Carolina Bank, enforce bank stockholder's individual
135 N. C. 410, 47 S. E. 893. liability to set out the consideration of
22. Number of shares. Under 1 — the contract sued on. Porter v. Kep-
Mills' Ann. St., § 518, declaring stock- ler, 14 O. 127; Porter v. Porter, 14
holders of a banking corporation in- O. 220.
dividually liable for all its debts con- 26. Bank bills.— Branch v. Knapp, 61
tracted while they were stockholders Qg 614
equally and ratably to the extent of gee post, "Liability of Stockholders
their shares, the complaint m
an action gj. Officers " § 211.
against a single stockholder should nw-n '
t-'i .. • .. a c a
show the total number of shares of J^' ,?/v°P^r^ "^^^°"^'"^
^'°^^''' r ^^^'
io? ^^-
^^^ 7io'
defendants holding. Richardson v. ^^V^^'^l'^^
Boot, 18 Colo. App. 140, 70 Pac. 454. ^* ^- ^- °^''
23. Amount of debts.— It was so 28. Ultimate exhaustion of liability.
held under 1 Mill. Am. St. of Colorado, —Booth v. Dear, 96 Wis. 516, 71 N. W.
§ 518. Richardson v. Boot, 18 Colo. §16.

App. 140, 70 Pac. 454. 29. Exhibiting petition under which
24. Dates when contracted. Rich-— receiver appointed. —W
h e a 1 1 e y v.
ardson v. Boot, 18 Colo. App. 140, 70 Glover, 125 Ga. 710, 54 S. E. 636.
Pac. 454.
§ 49 (7ab) STOCKHOLDERS. 239
without notice to the stockholders.^" And a declaration in such action

which fails to allege that the stockholders had notice or were parties to the
proceedings establishing the liability of the stockholders to the creditors is
fatally defective, although it alleges that the bank was a party.^^
§ 49 (Tab) Sufaciency of Allegations. —A petition in an action to

enforce the liability of a stockholder in a bank for its debts, which sets
forth the substance of a cause of action given'by the statute, is sufficient."^
Appointment of Receiver. —Allegations which fully describe the pro-
ceedings under which the receiver was appointed are sufficient to show his
30. Notice —
Action against nonresi- to stockholders, on the court in
sue
—
dent stockholder. A declaration, in an Nebraska, finding that the assets of
action in Rhode Island to enforce lia- the bank had been exhausted, and
bility of stockholders of a Nebraska which fails to show that any notice
bank, by the receiver appointed in Ne- had been given to all stockholders of
braska, which alleges that prior to and the pendency of the proceedings which
since the appointment of the receiver resulted in such finding, is fatally bad
the laws of Nebraska authorized the for failing to allege that the stock-
appointment of a receiver of a bank- holders had notice of or were parties
ing corporation conducting business in to the proceedings in the Nebraska
an unsafe manner, etc., and empowered court establishing the liability of the
the receiver to enforce the liability of stockholders. Hazlett ^. Woodhead
stockholders, and which annexed as an (R. I.), 67 Atl. 736.
exhibit the statutes (Comp. St. Neb.
Substance of cause of action.
32. —
1905, c. 8, §§ 34, 35) which took effect
in July, 1895, and which shows that
Georgia. —
In an action by a receiver of
a bank against the stockholders,
a pe-
the appointment was made in March, tition,alleging that defendant was a
1895, shows that the receiver is not
subscriber to the capital stock for a
governed by such statute, but is gov- certain number of
erned by Code Civ. Proc. Neb. §§ 366,
shares, and the
stock held by him represented his sub-
267, 274, relating to the appointment
scription to the capital stock, and that
of receivers, and declaring that an
there were debts against the bank
order appointing a receiver without
which were unpaid, and that there
notice shall be void. Hazlett v. Wood-
were not assets sufficient to pay the
head (R. I.), 67 Atl. 736. debts referred to, and praying a judg-
31. Adeclaration, in an action in
ment against defendant for the sum
Rhode Island to enforce the liability representing the par value of the
of stockholders of a Nebraska bank,
stock, set forth a cause of action. Reid
imposed by Const. Neb. 1875, art. lib, V. Jones, 137 Ga. 114, 56 S. E. 138.
making every stockholder in a
§ 7,
banking corporation liable to its cred- —
Ohio. The declaration filed under
itors above the amount of stock to an
the act of 1816, to prohibit the issuing
amount equal to the stock, which fails and circulating of unauthorized bank
to allege that the stockholders had
paper _
(Swan's Stat. 136), was suffi-
notice of or were parties to the pro- cient, if it contained the requisites pre-
ceedings in the Nebraska court estab- scribed in the thirteenth section of
lishing the liability of the stockholders that act. 3 Bates' Anno. Stat., § 3831-4;
to the creditors, is fatally bad though
Act Jan. 27, 1816, § 14; Kearny v. But-
tles, 1 O. St. 363; Lawler v. Walker,
it alleges that the bank was a party,
since, in a proceeding touching the in-
18 O. 151.
dividual liability of stockholders, the —
Wisconsin. It is sufficient to allege
bank can not represent them. Hazlett that plaintiff is a creditor having a
V. Woodhead, 27 R. I. 506, 63 Atl. 953. debt due; that he sues on behalf of
Adeclaration, in an action in Rhode himself and all other creditors; that
Island to enforce the liability of stock- defendants are stockholders, liable for
holders of a Nebraska bank, which sets such indebtedness, under the Wiscon-
forth notice by publication to all stock- sin Laws 1853, c. 479, § 47; and, where
holders to appear on or before Feb- the corporation is not a defendant, thai
ruary 24, 1903, in a court in Nebraska, sufficient reason exists for the omis-
but which shows that leave had been sion, setting forth such reason. Bootli
given on June 37, 1898, to the receiver V. Dear, 96 Wis. 516, 71 N. W. 816.
240 BANKS AND BANKING. § 49 (7ab)
authority to bring a suit to enforce the stockholders' Hability for debts of

the bank, without the petition under which h^ was appointed being ex-
hibited.^^
Demurrer. —A petition stating the substancp of a cause of action in a,
bank stockholder is good against a general
suit to enforce the individual of
demurrer although defective as against a special demurrer directed to and
specifying the defects therein.^*
Particular Allegation. —There are many instances in which particular
allegations in a complaint to enforce the liability of stockholders in a bank
for its" debts have been held sufficient foi- the purpose of a demurrer. The
following allegations which are set out in full in ftie footnotes, to wit: that
defendants were stockholders,^^ of the dissolution of the bank,^^ of reason
for omitting certain stockholders from writ;^'' of several liability ,8* and of
nonpayment,^® were held sufficient; but an averment that a judgment at
33. Appointment of receivers.— —

36. Dissolution of bank. (An allega-
Wheatley v. Glover, 125 Ga. 710, 54 tion that a bank has suspended busi-
S. E. 626. ness for more than a year is a sufficient
34. —
Demurrer. A petition against averrnent of the dissolution of the cor-
poration, under Gen. St. 1889, par. 1200,
stockholders of a bank alleged the in-
solvency of the bank; stated approxi- to authorize a suit by a creditor
mately the amount due depositors, and against a stockholder. Sterne v. Ather-
that, in order to pay them, it would be ton, 7 Kan. App. 20, 51 Pac. 791.
necessary for each stockholder to be 37. Reason
for omitting stockholder.
assessed the full amount of his statu- — In an action to fix the liability of
tory liability, which under the charter, stockholders of an insolvent bank, an
was a sum equal to the amount of allegation that some of the stockhold-
stock held by each stockholder; made ers are dead and their estates are un-
the persons named as stockholders represented, that others are corpora-
parties defendant; and prayed judg- tions which are "defunct," and that
ment against each of them for the others are beyond the jurisdiction of
amount of their statutory liability. Held the court, sets forth a sufficient reason
not subject to a general demurrer. for omitting them from the suit as
Moore v. Ripley, 106 Ga. 556, 32 S. parties defendant. Wheatley v. Glover,
E. 647. 125 Ga. 710, 54 S. E. 636.
35. Allegation that defendants stock- 38. Allegation of several liability. —
—
holders. In a complaint to enforce A bill was filed by the assignee of a
the liability of stockholders of an in- bank against a number of the stock-
solvent bank, an allegation that de- holders of another insolvent bank to
fendants were stockholders within two compel such stockholders to ratably
years before the commencement of the contribute under a clause in the char-
action, there being no allegation that ter which makes them personally liable
they transferred their stock, suffi- for the bills in circulation, and also
ciently shows them to be stockhold- to appropriate the amount of stock
ers, where the objection is by demur- subscribed by them and unpaid to the
rer; since, for the purpose of the de- payment of dfbts due by the latter in-
murrer, it will be presumed that they stitution to the former as a trust fund
remained stockholders until the disso- in their hands. Held, that a demurrer
lution. Persons v. Gardner, 36 Misc. on the ground that the liability of the
Rep. 663, 56 N. Y. S. 822. 42 App. Div. stockholders is several, and not joint,
490, affirmed in 59 N. Y. S. 463, 43 was not warranted by the bill, it seek-
App. Div. 490. ing to charge them severally, and not
_
It was sufficient in such declaration jointly. Robison v. Carey, 8 Ga. 527.

to aver that the defendant was a stock- 39. Nonpayment. —The allegation of
holder at the dates of the notes, or sub- the complaint, in an action against
sequently, without showing him such shareholders in a bank,- that "defend-
at the commencement of the suits. ant, though demanded, has failed and
Kearny v. Buttles, 1 O. St. 362. refused to pay said assessment, or any
§ 49 (7ae) stockholdh;rs. 241
law against the bank could not have been obtained, was held insufficient.***
§ 49 (7ac) Prayer for Recovery. —The complaint must contain a

sufficient prayer for recovery.*^
§ 49 (Tad) Amendments and Aider by Verdict. —The general rules

as to amendments and aider by verdict apply to petitions in actions to en-
force the individual liability of bank stockholders. *2
§ 49 (7ae) Affidavit of Amount of Indebtedness. —The statute

may require the plaintiff in an action to enforce a bank stockholder's lia-
bility to file with his declaration an affidavit stating amount the defendant
is indebted to him, etc.**
part thereof," is a sufficient averment, —

New cause of action. Where the
as against a general demurrer, of non- subscribing stockholders of a bank
payment at the time action was com- upon insolvency were liable under
menced. O'Connor v. Witherby, 111 charter provisions for an amount
Cal. 523, 44 Pac. 227. equal to their subscription to its stock
Inability obtain judgment
and the petition of the receiver of the
40. to
insolvent bank failed to make the al-
—
against bank. It is not a sufficient al-
legation that defendant was a sub-
legation that no judgment at law
scribing shareholder, but contained
could have been obtained against the
allegations that defendant was a
bank to aver, that the stockholders
stockholder at the time the debts were
have failed and refused to elect di-
contracted, which were unpaid as well
rectors and officers, an act of the legis-
as at the time of the failure of the
lature expressly authorizing process
bank and there were not sufficient as-
to be served on the late president,
sets to pay the above debts, it was
cashier or any director. Blake v.
held that, the petition above set forth
Hinkle, 18 Tenn. (10 Yerg.) 218.
a cause of action and should not have
41. Prayer for recovery. —
While the been dismissed and that the amend-
petition as amended did not pray for ment as to subscribing stockholders
the recovery of a specific sum of did not set forth a new cause of ac-
money against each of the defendants, tion and should have been allowed.
there was a prayer that recovery be Reid V. Jones, 127 Ga. 114, 56 S. E.
had against each defendant for the par 138.
value of his stock, with interest from 43. Affidavit of amount of indebted-
date the suit was filed; and the aver- ness.—Act 1886, p. 308, c. 184, § 171,
ments of the petition was sufficient to requires plaintiff to file with his dec-
show the exact sum for which each laration an affidavit "stating the true
defendant would be rendered liable amount defendant is indebted to him
under this prayer. Wheatley v. Glover, over and above all discounts, and shall
125 Ga. 710, 54 S. E. 626. file the bond, bill of exchange, note,
42. Amendments —Aided by verdict. or other writing or account by which
— Where shareholders of
subscribing defendant is so indebted; or, if the ac-
a bank were liable under charter pro- tion be founded on a verbal or im-
visions for an amount equal to their plied contract, shall file a statement
stock upon insolvency of the bank, of the particulars of defendant's in-
and the declaration contained allega- debtedness thereunder." Held, in an
tions that he was a shareholder when action to enforce the liability of a
the debt was created and the bank
J
stockholder in a banking corporation
failed, but there was no allegation in under Acts 1892, p. 156, c. 109, § 851,
express terms that he was a subscrib- that the affidavit, which was accom-
ing shareholder, it was held that this panied by an account for money due
was amendable and cured by verdict; plaintiff as depositor with the corpo-
and after verdict and judgment a mo- ration of which defendant was stock-
tion to set aside such judgment on holder, setting forth the dates and
that ground should not be sustained. amounts of all deposits made and the
Reid V. Hearn, 127 Ga. 117, 56 S. E. aggregate thereof, with credits for
139. money withdrawn, was sufficient with-
1 B & B— 16
§ 49 (7b) Cross —
Bill. Where a bill was filed against parties charged
as being directors and stockholders of a bank organized under the general
banking law, or, in the alternative, as being fraudulent partners, the object
of the bill being to enforce payment of notes of the bank, the defendants
were not entitled to file a cross bill to compel complainant to disclose when he
became owner of the notes or how much he paid for them, as such dis-
covery would be immaterial to thedefense.^**
§ 49 (8) Evidence.— See ante, "In General," § 47 (1).
§ 49 (8a) Presumptions and Burden and Degree of Proof. —The

facts without the existence of which the statute does not enforce liability
on the stockholder in a bank for its debts must be affirmatively shown.

Thus where the power to enforce the liability can be exercised only in the
case of a bank issuing bills for circulation that fact must be affirmatively
shown.*5 In an action by the superintendent of banks to enforce the lia-
bility of a stockholder in a bank for its debts, it is essential for him to
allege and prove the facts showing necessity for such action in order to pay
the debts of the bank.*^
Insolvency. —
To entitle creditors of a bank to subject the capital stock
in the hands of stockholders to payment of their claims, they must show
that the bank is insolvent, or has no property from which the claims may
be satisfied.*^
That Defendant a Stockholder. —Proof must be made of the fact that
the person sought to be charged is a stockholder in order to sustain a judg-
ment.*^
As to Issuance and Signature of Stock Certificate. In a suit against —
a stockholder for assessments levied by the comptroller of the currency, it
will be presumed that the stock certificate bearing the corporate seal of the
bank was issued and signed by the officer having authority so to do.*^ In a
suit to charge defendant as a stockholder in an insolvent banking corpora-
out filing plaintiff's bankbook or de- 5, Held, that the power to en-
1849.
fendant's certificates of stock. Coul- force the liability can be exercised
bourn Bros. v. Boulton, 100 Md. 350, only in the case of a bank issuing
59 Atl. 711. bills for circulation, which fact must
44. Cross
_
bill. —
It was so held un- be affirmatively shown. In re Empire
der the general banking law of Michi- City Bank (N. Y.), 6 Abb. Prac. 385.
ât" T^"^^ '"
}?r- ^°°^
" Wheeler 46. Cheney v. Scharmann, 145 App.
(Mich.) Har. 443. D;^ 456 ^gg n. Y. S. 993.
—
_
45. Banks issuing bills. Const., ,11, t 1 ijr j t^

art. 8, § 7, declares that stockholders
p^J" n"^°lT^"7;-y°°'l/'
^^^- ^'^T™^'''
^^s. No. 17,944, 3 Mason, 308.
in every corporation and general stock
association for banking purposes, "is- *8. That defendant a stockholder. —
suing bank notes or any kind of paper So held in proceedings under Laws
credits to circulate as morêy," shall 1849, 226, providing for the enforce-
c.
be individually responsible, to the ment of the liability of stockholders,

amount of their respective shares, for 2S such, of banks of issue. Diven v.
all debts and liabilities of the corpo- Lee, 36 N. Y. 302, 34 How. Prac. 197.
ration or association. Special and 49. As to issuance and signature.
summary proceedings to enforce this Davis v. Watkins, 56 Neb. 288, 76 N.
liability are provided for by Act April W. 575.
§ 49 (8c) STOCKHOLDERS. 243
tion with double liability under the statute, where it was shown that certifi-
cates of stock, issued in his name, were in his safety deposit box at the
time of the failure, and that he had been credited on his bank book with
two dividends thereon, the presumption is that he was the owner of such
stock, and the burden rested on him to prove the contrary. ^^
§ 49 (8b) Admissibility. —Evidence Respecting Transfer of

Stock. —Evidence of the bona fides of the transfer of the stock^^ and that
the transfer was made pursuant to an agreement with the associates that
the transferrer was to be released on substituting responsible transferees,'^
is admissible.
The bank's stock ledger, identified and supported by the evidence of
the ex-cashier of the bank, is admissible to prove that defendants, in an
action against alleged stockholders of an insolvent bank to enforce their
statutory liability for its debts, appearing by the book to be stockholders,
were such in fact.^^
Pass Book as Proof of Character of Deposit. When the charter of —
a banking corporation provides that its officers, when required by any per-
son making a deposit in its savings department, shall issue certificates for
the same, and makes the stockholders personally liable to depositors, it is
not essential to the liability of the stockholders that a certificate be given,
as the character of the deposit may be shown by a pass book given to the
depositor.^*
§ 49 (8c) Weight and Sufficiency.— The fact that the defendant

in an action to enforce the liability of a stockholder in a bank for its
50. As to ownership. — Alsop v. a complete bar. Cowles v. Cromwell

Conway, 110 C. C. A. 366, 188 Fed. (N. Y.), 25 Barb. 413.
568. 53. —
Stock ledger. Adams v. Clark,
51. Bona fides of transfer. — In a 36 Colo. 65, 85 Pac. 643.
suit against the former owner of all —
Transfer book. In a suit against
the stock of a bank, who transferred one as a stockholder in a bank, a
it to third persons without considera- transfer of stock by him on the trans-
tion, and at the same time received a fer book of the bank, is evidence
transfer of all the property and assets against him that he once owned stock
of the bank, evidence is admissible to to the amount of the stock so trans-
show the bona fides of the transaction, ferred. Robinson v. Bealle, 20 Ga. 275.
and that no fraud was intended, but In an action by a bill holder against
only a transfer of the charter without a stockholder of a bank, a transfer of
rendering the former owner of the stock made on the books of the bank
stock liable for the subsequent debts. by its cashier to which the defendant
Morgan V. Brower, 77 Ga. 637. stockholder had free access under the
52. In an action by the receiver of law, is prima facie evidence of his
a bank to enforce the liability of an ownership of the shares. Thornton!',
original stockholder who had trans- Lane, 11 Ga. 459.
ferred his stock before anything was The ledger of a bank, although not
paid therefor, to which transfer the a book of original entry, is competent
bank consented, evidence that the evidence against a stockholder of the
transfer was made pursuant to an bank in an action against him by a
agreement with the associates that he depositor to establish his personal lia-
was to be released, on substituting re- bility under the terms of the charter
sponsible transferees, is admissible to of the bank. Dows v. Naper, 91 111. 44.
show that the bank intended to re- 54. Pass book as proof of character
lieve him. from liability, though not as of deposit. — Dows i>. Naper, 91 lU. 44.
debts was a stockholder may be sufficiently proved by the bank's stock

ledger s''^ or by proof of a colorable transfer of stock which in fact
belonged to the defendant and on which he was liable or the issuance of
the stock certificate in another name.^®
An answer alleging that defendant transferred his stock in good faith
for value is not an admission that he did not transfer to the person in
whose name appears on the books and inconsistent with evidence that
it
^''
was
the sale good faith for. value.
in
Judgment Ascertaining Bank's Insolvency. The allegations in a bill —
hy receivers of a bank against the stockholders, that the court has decided
that the assets of the batik are insufficient to pay the claims, against it, can
"be proved only by the record of a judgment to which the bank was a
party.s®
Production of Certificate of Deposit. —The creditor must prove own-
ership of the certificate of deposit sued on by production thereof.^*
Pass Book as Proof of Character of Deposit. — See "Admissi- ante,
bility," § 49 (8b).
§ 49 (9) Trial and Judgment— § 49 (9a) Reference and Re-

ceiver's Report. —
Time of Apportionment. A provision in the law, —
relative to closing up the
an insolvent bank, prescribing the time
affairs of
within which the referee is to make the apportionment of liabilities among
the stockholders, is directory only, and such apportionment made after the
55. Stock ledger as proof of owner- and that such purchaser transferred
ship.— Adams v. Clark, 36 Colo. 65, the stock from the name of defendant,
85 Pac 642 '"^ answer is not an admission that
defendant did not transfer his stock
56. Proof of colorable transfer.-
In an action to enforce the liability of r^.r^^rthrhn^'oW °4f. claim left
H,"?^
pears on the books; the being
,j
,
a stockholder
,
m
an insolventi u
, •
bank,
•
1
^^^ ^j^^ ^^^^^ g^^;^ ^j^^^ ^^^ ^^^^^

evidence he d to ^hovv tha. a certifi- ^^j^ -^ ^^^ ^^-^^ ^^^ ^^^ ^^^^,1
cate issued to defendant s wife was in transferred on the books of the bank,
tact stock belonging to defendant and
^^^ defendant not being allowed to
on which he was liable H"nt j.
Reardon, 9S Mmn. 375, 101 N. W. 60o.
^ ^^ for what consid-
^^^^-^^ ^j^^ ^^^^^^^^ ^^^ ^^^^^ ^^ ^^^^
Evidence action m
to enforce ^ that it was made in good
finding
stockholder's liability, held to show faith was sustained by the evidence
that defendant was a stockholder. and was not inconsistent with the al-
Voorhees v. Bank, IS O. 463. legations of the answer. Hunt v.
57. Answer as evidence. In an ac- — Uoran, 92 Minn. 423, 100 N. W. 222.
tion by the receiver of an insolvent Judgment ascertaining bank's in-
58.
bank to recover an assessment against —
solvency. Hewett v. Adams, 54 Me.
a stockholder, the complaint alleged 206.
that defendant caused a pretended 59. Production of certificate of de-
transfer of his stock to be entered on posit. —
Allowance by the court of a
the books of the bank to a certain verified claim, based on a certificate of
company to evade his stock liability, deposit presented to the assignee of
and that he never specifically made any a bank, is not a ividgment in per-
transfer, and the answer denied all al- sonam, even against the bank, and
legations of fraud, and alleged that de- does not, in an action against the
fendant had for value sold and tr?ns- stockholders, avoid the necessity of
ferred the certificate to a party other proof of ownership of the certificate
than the one to whom the transfer by production thereof. Zang v.
was entered on the books of the bank, Wyant, 25 Colo. 551, 56 Pac. 565, 71
and that such person was then solvent, Am. St. Rep. 145.
time prescribed, in pursuance of extensions of the time ordered by the

court, is not invalid.®*'
Claims Which May Be Counted

as Debts. The referee appointed to —
apportion among the stockholders of a bank its liabilities is not authorized,
without proof, to apportion liabilities not admitted' by the receiver nor es-
tablished by the determination of a competent tribunal. The report of the
referee should not count as debts certain claims which the receiver is resist-
ing by litigation.® 1
Right of Auditor to Disallow Claim of Stockholders. — See ante, "In
General," § 47 (12a).
Persons Who May Object. —In proceedings to enforce the personal
liability of stockholders, under laws relative to closing up the affairs of
insolvent banks, only those who are directly affected thereby are entitled
to object to defects in the account presented by the receiver, and referred
to the referee. ®2
Jurisdiction of Court over Proceeding on Report. —A want of par-
ticularity, in respect to certain debts of the bank, in the account presented
by the receiver and referred to the referee, or the omission of the place of
residence of some of the stockholders, in the list of the stockholders, does
not affect the jurisdiction of the court over the proceedings on the referee's
report, based on that account.®^
Questioning Receiver's Account and Allowance of Attorneys' Fees.
—The stockholders of an insolvent bank, not having been parties to the
suit in behalf of its creditors, in which its assets were collected and distrib-
uted through a receiver, may, in an action against them on their stockhold-
ers' liability, be heard on the accounts of the receiver, and may attack any
items as improper or excessive.®*
Allowance of Attorney's Pees. —The
decree, in a suit against an in-
solvent bank on behalf of its having merely contemplated that
creditors,
the fees of plaintiff's counsel should be paid from the fund going to cred-
itors, and not adjudged them debts of the bank, or a liability of its stock-
holders, such stockholders, though appearing in such suit -in opposition to

the allowance of the fees, are not estopped to assert, in an action against
60. Time of apportionment.— It was âs so held under N. Y. Laws of

so held under the Laws of New York, 1394^ c. 226. In re Empire City Bank
1849, c. 226. In re Empire City Bank (n. y.), 6 Abb. Prac. 385.
(N. Y.), 6 Abb. Prac. 385, affirmed in „,
18 N. V 199 S Abb Prac. 192, re-
T,„-!o/i;-t;«^ ^t ^
J^J/l^f^ZA^:: sV'^.lTt
4.
^êr^cfaims'wWch-may be counted ChUv^ô? slo^kh"^''/"

^^%P"I°-^
as debts-It was so hel'd in proceed-
'.f
^'^ ^^ 2^2^ rel°ati"%o" dosin^^^p
ings to enforce the personal liab.hty
^j^^ ^Jf^^3 ^f '^^ insolvent bank In
of stockholders, under Laws of New ,.„ p™-:.- p;,.„ d~„u /-m v^ c aki,
York 1849, c. 226, relative to closing pâc 335
up the affairs of insolvent banks. In '
_ '
. . . ,
re Empire City Bank, 18 N. Y. 199, 8 ^4. Questiomng receivers account

Abb. Prac. 192. reversing 6 Abb. Prac. ?nd allowance of attorneys' fees.—
385, Buist V. Williams, 81 S. C. 495, 62 S.
62. Persons who may object. — It E. 859.
246 BANKS AND BANKING. § 49 (9ca)
them on their stockholders' liability, that their liability is not increased by

allowance of the fees.®^
§ 49 (9b) Findings of Pact and Conclusions of Law. —The find-

ings of fact in a suit to enforce the individual liability of bank stockholders
must not be contrary to the evidence ;*8 and the conclusions of law must
not conflict with the findings of fact.®''
§ 49 (9c) Judgment or Decree — § 49 (9ca) Form, Requisites

and Validity. — See 49 (9cga).
post, "Execution," §
Jurisdiction and Service of Process. — No judgment enforcing a bank
stockholder's personal liability can be rendered against a man who is not
brought within the jurisdiction of the court, because somebody else is on a
similar liability.®*
Proper Pleadings and Issue. —Where the liability of bank stockhold-
ers is not put in issue by any pleading, notice or paper in an action by cred-
itors against an insolvent bank, no part of the decree should relate to the
liability of the stockholder.®
Default Judgments. —A default judgment may be entered against a
stockholder in a bank in an action to enforce his individual liability, but in
an action against all the stockholders for the entire debt of the bank a
65. Allowance of attorney's fees. — officers of the bank to enter the trans-
Buist V. Williams, 81 S. C. 495, 63 S. fer, which he had in good faith made
E. 859. of his stock, but that such officers
66. Findings of fact and conclusions neglected to enter on the stock books
of law. —
In a suit on certificates of at the time, such findings are in con-
deposit against an alleged stockholder flict with the conclusion of law that
in the issuing bank, it appeared from defendant was liable on a statutory
the stock book that a certain number assessment against the stockholders.
of shares had been issued to defendant, Hunt V. Seeger, 91 Minn. 264, 98 N.
and that the same stood in her name W. 91.
until the certificate was surrendered Jurisdiction and service of proc-
68.
and canceled. Two days after the cer- ess. — Godfreyv. Terry, 97 U. S. 171,
tificate was issued, defendant assigned 24 L. Ed. 944, citing Pollard v. Bailey
the same to her husband, but con- (U. S.), 20 Wall. 520, 22 L. Ed. 375;
tinued to appear on the books as the Hornor v. Henning, 93 U. S. 228, 23
holder. The husband testified that, on L. Ed. 879.
notifying defendant of the issue of the Proper pleadings and issues.
69. —
stock, she refused to accept it, and The holder of the notes of an insolvent
that he told her that, if she would not bank, the stockholders whereof are
receive it, she must assign it to him, liable for so much of the just claims
but there was no finding as to such of creditors as remain unpaid after
facts. Held, that under Civ. Code, the assets of the bank shall be ex-
§ 322, providing that the term "stock- hausted, filed a bill in equity to wind
holder" includes not only persons ap- up the affairs of the institution under
pearing on the books to be such, but the provisions of its charter. The
rlso every equitable owner of stock, stockholders were not made parties,
a finding that defendant was never the nor served with process; nor was any
owner of any stock was contrary to motion, petition, or prayer filed to
the evidence. Abbott v. Jack, 136 Cal. subject them to liability. Held, that
510, 69 Pac. 257. so much of the final decree as dis-
67. Conclusions of law. Where, in— charged them from all liability for and
an action to hold defendant as a stock- on account of any debt or demand
holder in an insolvent bank, the find- against them or the bank was erro-
ings of fact show that he. as a former neous. Terrv :'. Commercial Bank, 92
stockholder, in good faith ordered the U. S. 454. 23 L. Ed. 630.
§ 49 (9ca) STOCKHOLDERS. 247
judgment by default against one for the whole amount can not be takenJ"
— —
Form Joint or Several. Where a statute provides that, in case of
the failure of a bank, each stockholder shall be individually liable for a sum
in addition to the amount of his share or shares, it is the duty of a court
of equity, in granting relief against the stockholders under such statute, to
do justice to all the stockholders, as far as may be, by equalizing and prop-
erly distributing among them the relief and burden. The judgment, there-
fore, should not be joint but against each party served, severally. '^^ In
receivership proceedings in a suit against an insolvent bank, the court ren-
dered judgment which determined the amount due each creditor and which
fixed the statutory liability of each stockholder to the creditors, the judg-
ment was a several judgment against the several stockholders, authorizing
the creditors to sue any stockholder on the judgment.''
Form under New York Code of Civil Procedure.
Code Civ. Proc, —
§ 1786, after declaring that an action by the people to dissolve a bank as
provided by § 1785 shall be brought by the attorney general, provides for
an action by a creditor, where the attorney general, after notice, omits to
sue the stockholders and it is only to such an action, and not to an action
;
by the attorney general, that Code Civ. Proc, §§ 1790, 1795, authorizing
the making of stockholders parties in order to determine their individual
liability, and directing the form of the several judgments against such
.'^^
stockholders, apply
Verdict against Part of Defendants.- — In an action against persons,
charging them as stockholders of an unauthorized banking association, if
the jury find a verdict against a part of the defendants and in favor of
others, judgment can be rendered against those found to be liable by the
jury.''*
70. —
Default judgment. Under Gen. from each holder, give a decree nisi
Laws 1883, c. 19, § 43, providing that with for each man to pay the
time
"the officers and stockholders of every sum assessed. Against such as did not
banking corporation or association pay let execution issue; and if nulla
formed under the provisions of this bona was returned, there must be a
act shall be individually liable for all new assessment against the others
debts contracted during the term of until all should be paid or the sum of
their being officers or stockholders of the several liabilities exhausted. On
such corporation equally and ratably the other hand, the whole benefit of
to the extent of their respective shares the chancery remedy, namely, the
of stock, * * *" in an action against all power to do justice to all by equaliz-
the stockholders for the entire debt ing and properly distributing the relief
of the corporation a judgment by dc- and the burden was not exercised by
fault against one for the whole amount this decree. Godfrey v. Terry, 97 U.
will be reversed. Buenz v. Cook, 15 S. 171, 24 L. Ed. 944, citing Pollard v.
Colo. 38, 34 Pac. 679. Bailey (U. S.), 20 Wall. 530, 23 L. Ed..
71. Joint or several judgment. — 376; Hornor v. Henning, 93 U. S. 238,
Godfrey v. Terry, 97 U. S. 171, 34 L. 23 L. Ed. 879.
Ed. 944. 72. Childs v. Blethen, 40 Wash. 340,
A decree which leaves the marshal 82 Pac. 405.
of the court to collect the whole of 73. Form under New York Code of
each execution out of one man, or any Civil Procedure. ^People — v. Com-
number, as he pleases, is erroneous.
. mcrcial Bank, 37 Misc. Rep. 16,, 74 N.
It was no trouble to take the sum due Y, S. 806.
to each creditor and the sums due 74. Verdict against part of defend-
248 BANKS AND BANKING. § 49 (9cdaaa)
§ 49 (9cb) Amount for Which Rendered. judgment against —A

stockholders of a bank on their stockholders' liability should be for the full
amount thereof, such assessments to be made from time to time as are
found necessary, and the stockholders are not entitled to have the amount
necessary to pay creditors estimated and prorated among the stockholders
and judgment entered accordingly.' ° The creditors are entitled to judgment
against each stockholder for the full amount of his statutory liability, though
this exceeds the aggregate of all the indebtedness and the costs and ex-
penses of the action.''^
Amount Greater than Demand in Complaint. —No greater judgment

can be taken against stockholders of an insolvent bank in an action by a
creditor in his own behalf and in behalf of all others to enforce their lia-
bility, under the banking law, than is demanded in the original complaint,
though other creditors are afterwards allowed to be made parties thereto.'^''
Suit by Part of Creditor against Part of Stockholder. In a suit by —
part of the creditors of a bank against part of the stockholders to subject
the dividends of capital stock received by defendants to payment of plain-
tiffs' claims, the decree will be that defendants pay so much of the claims
of plaintiffs as the number of shares held by defendants bears to the whole

number of shares issued.''®
§ 49 (9cc) Second Assessment. When one assessment has been—

made and confirmed, no second assessment to make good deficiencies in the
collection of the first is authorized, while the first apportionment remains
in force, neither reversed or modified.'*
§ 49 (9cd) Persons Bound and Matters Concluded § 49 (9cda) —

Judgment in Creditor's Suit against Bank § 49 (9cdaa) Persons —
—
Bound § 49 (9cdaaa) Stockholders. Where the statute or the char- —
ter of a bank makes the private or individual property of each stockholder
subject to execution and sale if the proceeds of the property of the bank
be insufficient to pay off the execution, a judgment against the bank is also
a judgment against each stockholder to the extent of his stock.*** The as-
certainment of the deficiency of the assets of an insolvent bank and order
of assessment to meet their deficiency is like the common case of a judg-
ants.— The common-law rule upon of N. Y. banking law. Hagmayer v.

this subject was changed, by the act Alten, 41 App. Div. 487, 58 N. Y. S.
of the Ohio legislature of January 27, 684
1816. 2 Bates' Anno. Stat., § 3821-5; „!, q,,-,. l„ „,,. . „,«jj<.«„ „ -^.^
Porter v. Kepler, 14 O. 127. See, also J^t' „?"Ll.f„lH»r/
Pf" °FeH P.^ Nn 77^.T
w^ *!?
"""
*
Porter v. Ported, 14 O. 220; Johnson
V. Bentley, 16 O. 97; Kearny v. But-
""' ^^^- *^^'- ^°- "'9^*'
."•
^
M
M^^""
""**„
ties, 1 O. St. 362. „
75. Amount.— Man v. Boykin, 79 S. ^^- Second assessment.— In re Hol-
,.
C. 1, 60 S. E. 17, 128 Am. St. Rep. 830. "Ster Bank, 27 N. Y. 393, 84 Am. Dec.
76. Harper v. Carroll, 66 Minn. 487, 392; Holhster v. Holhster Bank, 41 N.
69 N. W. 610, 1069. Y. (2 Keyes) 245, 2 Abb. Dec. 867.
77. Amount greater than demand in 80. Stockholders bond. — Lowry v.
complaint. — It was so held under § 52 Parsons, 52 Ga. 356.
§ 49 (9cdab) STOCKHOLDERS. 249
ment against a corporation which is binding on stockholders. Such deci-

sions and orders are binding on stockholders who are not before the court
otherwise than by virtue of their membership in the corporation.®
§ 49 (9cdaab) Stockholders Not Served. — See post,"Nonresident

Stockholders," § 49 (9cdaac) ; "Matters Concluded," § 49 (9cdab).
§ 49 (9cdaac) Nonresident Stockholders. —

The judgment, fixing
the liability of each stockholder, in receivership proceedings in a suit against
an insolvent bank, is binding on nonresident defendants upon whom notice
was had by personal service by a court of general jurisdiction, having au-
thority under the laws of the state to render such judgment 5*^ but such
judgment is not binding on a nonresident never brought within the juris-
diction of the court administering the affairs of the bank.*^
§ 49 (9cdab) Matters Concltided. — In an action under an order

of court by a receiver against a stockholder of an insolvent bank for an
assessment to discharge his individual liability over and above the amount
of his stock, such stockholder can not contest any matter that was consid-
ered and determined in making said order of assessment.** The assess-
ment forms a basis for recovery and is binding in so far as it determines
the amount as a whole of the superadded liability.*^
81. Howarth v. Lombard, 175 Mass. Under Code, § 1629, providing a cor-
570, 56 N. E. 888, 49 L. R. A. 301. poration whose charter has expired
82. Nonresident stockholders. — may continue to act to wind up its
Childs V. Blethen, 40 Wash. 340, 82 affairs, on an appeal from a judgment
Pac. 405. allowing recovery under the stock-
83. A
judgment of a Colorado court holders' double liability law, it must
administering the affairs of an insol- be presumed the lower court in the
vent bank, imposing a double liability receivership proceeding determined the
on stockholders under a Colorado necessity of an assessment upon the
statute, was not binding on a resident stockholders and the amount thereof
of California never brought within the on the basis of the bank's liability as
jurisdiction of the Colorado court. a corporation, and the stockholder can
Miller -v. Lane (Cal.), 116 Pac. 58. not insist that the indebtedness for
In an action in one state to enforce which he is sought to be held liable
the statutory liability against bank was indebtedness for which he was
stockholders, the fact that the cor- not liable to assessment as a stock-
poration was made a party to the suit holder, though the bank's charter had
is not sufficient to bind nonresident expired when the receivership proceed-
stockholders, in respect to the deter- ing was brought. Elson v. Wright,
minations jn such suit, in an ancillary 134 Iowa 634, 112 N. W. 105.
proceeding against such nonresident 86. Where the court, on petition of
stockholders in their own state to en- the receiver of an insolvent bank, pro-
force their statutory liability, since ceeded to ascertain the amount of
the corporation in no way stood for or liabilities and value of the assets, and
represented such absent stockholders the amount required in addition thereto
in the original action. Finney v. Guy, to pay the liabilities, and to assess the
106 Wis. 256, 83 N. W. 595, 49 L. R. A. stockholders on their statutory lia-
486. See post, "Matters Concluded," bility, and on this assessment the re-
§ 49 (9cdab). ceiver brought suit against a stock-
84. Matters concluded. — State v. holder, in which it appeared that the
Union Stock Yards, etc.. Bank, 103 defendant had been assessed for a
Iowa 549, 70 N. W. 752, 72 N. W. 1076. proportionate share of the indebted-
So held under act 18th Gen. Assem., ness regardless of the amount of the
c. 208, § 1. debt that accrued before he was a
250 BANKS AND BANKING. § 49 (9cdb)
—
Personal Liability as Stockholders. Stockholders of an insolvent
bank are bound by a judgment entered against the bank, in proceedings to
which they are not parties, only so far as it concerns the affairs of the bank
itself and such judgment does not conclude them on questions respecting
;
their personal liability as stockholders. *' Where a creditor of a bank ob-

tained a judgment against it for services rendered after the bank was placed
in the hands of a receiver, such judgment, though prima facie conclusive
on the question of the indebtedness of the corporation did not deprive a
court of equity sitting in another state of the right to determine whether
the claimant's right of action was such as to bind the stockholders, in a pro-
ceeding to enforce a stockholder's subscription and statutory liability.^®
Amount of Debt. —In a suit to charge a bank's stockholders with its
debts, a former judgment against the bank on the debts is not conclusive as
to the amount thereof.^^
Nonresident Stockholders. —In a proceeding to sequester assets of a
banking corporation, nonresident stockholders, who are not parties, are not
concluded by the finding on the ultimate question of their individual liabil-
ity, nor as to the measure of such which is not an asset of the cor-
liability,
poration, and inwhich neither the corporation nor its receiver has any legal
interest to render them representatives of the stockholders, but in an action
by the receiver to enforce the individual liability of a nonresident stock-
holder, such defendant is bound by the decree of the court, in which the
parent suit was instituted and whereby, the assets of the corporation hav-
was appointed receiver for creditors.^"
ing been sequestered, the plaintiff
A
default judgment against a bank on a liquidation agreement does not
preclude any defenses otherwise open, to stockholders subsequently sued on
their statutory liability, where the judgment was conclusive. ^^
§ 49 (9cdb) Judgment against a Bank as Stockholder. —Under

the law of Kansas, as settled by the decisions of its supreme court, a judg-
ment against a bank, adjudging it liable for an assessment as a stockholder
in another bank, is conclusive upon its stockholders as to such liability,
stockholder, the proceedings in which ment against the stockholders, to dis-

the assessment was made were not charge their liability, under Acts 18th
invalid, so as not to form a basis for Gen. Assem., c. 20S, § 1, subject to the
recovery, but they were binding on right of each stockholder to contest
stockholders in so far as it determined such liability when sued for payment
the amount, as a whole, of their su- of the assessment. State v. Union
peradded liability. Shuey v. Adair, 24 Stock Yards, etc.. Bank, 103 Iowa 549,
Wash. 378, 64 Pac. 536. 70 X. W. 752, 72 N. W. 1076.
87. Personal liability as stockholder. 88. Covell z: Fowler, 144 Fed. 535.
— In re Receivership, 91 Minn. 494, 9^ 89. Amount of debt. —
Assets Reali-
X. W. 341, rehearing denied in 98 N. zation Co. v. Howard, 70 Misc. Rep.
W. 867; Tompkins v. Craig, 93 Fed. 651, 127 X. Y. 798.
SS5 See, also, Flash v. Conn, 109 U. 90. Childs v. Cleaves. 95 Me. 498 50
S. 371, 27 L. Ed. 966, 3 S. Ct. 363. Atl. 714. See ante, "Xonresident Stock-
In a proceeding under Code, § 1572, holders,'' § 49 (9cdaac).
to wind up an insolvent bank, the court
may, on the application of the receiver,
91. —
Default judgment. Assets Re-
alizatioii Co. v. Howard, 70 Misc. Rep.
make an ex parte order for an assess- 651, 127 X. Y. 798.
§ 49 (9cgb) STOCKHOLDERS. 251
and a stockholder sued on such judgment in another jurisdiction to enforce

can not set up the want of power of the bank to be-
his statutory liability
come a subscriber to the stock of another corporation. ^2
§ 49 (9ce) Lien and Priority. —When a charter of a bank or a

statute provides that "the individual property of the stockholders" shall
be liable for the ultimate payment of debts, a liability is imposed upon
etc.,
a stockholder which may result in a personaljudgment against him, bind-

ing all of his property at the date of the judgment and any that may be
thereafter acquired. ^^
Priorities. —Where the statute or the charter of a bank makes the
private or individual property of each stockholder subject to execution
and sale if the proceeds of the property of the bank be insufficient to pay
off the execution, as between judgments against the bank, which are also
judgments against each stockholder to the extent of his stock, the oldest
has the right to be first paid out of any money raised by the sheriff out
of the property of any stockholder.^*
§ 49 (9cf) Payment and Discharge. See — ante, "Prior Recovery or

Payment of Judgment," § 47 (lleb).
Interest.— See ante, "Interest," § 47 (12e).
§ 49 (9cg) Enforcement— § 49 (9cga) Execution.— Motion for

—
Execution. It is a good defense to a motion for execution against a
stockholder of a bank either that the judgment against the bank was ren-
dered without jurisdiction or that it was obtained by fraud. ^^
§ 49 (9cgb) Action on Judgment or Assessment. —After the rate

of assessment to meet a deficiency in the assets of a bank has been fixed,
and the individual liability of each stockholder thus ascertained, enforce-
ment of such liability is the proper subject of a suit at law, in which the
separate rights of the individual stockholders are distinctively to be con-
sidered.*^
Enforcement of Foreign Judgment —
Against Shareholder Not a
Party. —A receiver of an insolvent bank whose assets are insufficient to
pay its debts can not maintain an action in a foreign jurisdiction against
a shareholder in such bank for the amount of an assessment directed to
be made by was not
the court in the parent suit to which the shareholder
a party and to which he did not appeal and could not have been required
^'^
to appeal because of his being beyond the jurisdiction of the court.
92. Judgment against bank as stock- 96. Action on assessment. —Tomp-

holder.— Martin v. Wilson, 58 C. C. A. kins Craig, 93 Fed. 885; Flasli
v. v.
181, 120 Fed. 202. Conn, 109 U. S. 371, 27 L. Ed. 966, 3

93. Lien and priorities. Wheatley — S. Ct. 263. See ante, "blatters Con-
'u. Glover, 125 Ga. 710, 54 S. E. 626. eluded," § 49 (9cdab).
94. Priorities. —
Lowry v. Parsons, 97. —
Foreign judgment Sliareholder
52 Ga. 356. —
not a party. Wigton v. Bosler, 102
95. Motion for execution. Choate — Fed. 70.
V. Boyd, 59 Kan. 682, 54 Pac. 1042. The individual liability of the share-
—
Foreign Judgment Defendant Personally Served. Where the —
judgment was rendered against the defendants upon notice by personal
service by a court of general jurisdiction having authority under the laws
of the state to render such a judgment, the creditors, together with the
receiver, directed to collect the judgment, are authorized to sue on the
judgment in court of the state of residence of the stockholder.®*
§ 49 (10) Liability for Expenses. —Where a creditor of a bank ap-

plied to share in the proceeds of an action to enforce a stockholders' stat-
utory liability, he was chargeable with a proportionate amount of the ex-
penses of such litigation.^®
holders of a bank to the creditors of necessary, to prosecute actions against

the corporation, being conditioned by every party failing to pay the assess-
the statute of Iowa upon the bank ment, wherever such party may be
having become insolvent, and upon the found, within or without the state.
insufficiency of its assets to pay its Held, that an order of a Minnesota
debts, and being limited to the stock- court directing the payment of an as-
holder's share of the deficiency only, sessment is not enforceable as a judg-
the receiver of a bank, appointed un- ment in the courts of Wisconsin
der the general powers -of a court in against a resident of Wisconsin. Hunt
Iowa, can not ihaintain an action in V. Whewell, 123 Wis. 33, 99 N. W. 599.
a foreign jurisdiction against a share- 98. foreign judgment —Defendant
holder, for the amount of an assess-
ment upon stock directed to be made
—
personally served. Pending receiver-
ship proceedings in a suit in a sister
by the court in Iowa, in a proceeding state against an insolvent bank, a
to which the shareholder was not a creditor intervened on behalf of the
party, and to which he did not appear, creditors and impleaded the stock-
and to which he could not have been holders as parties defendant for the
required to appear, because of his be- purpose of enforcing their statutory
ing beyond the jurisdiction of the liability in accordance with law of the
court. Wigton v. Bosler, 103 Fed. 70. foreign jurisdiction. The stockholders
Gen. St. Minn. 1878, c. 33, § 21, im- were within the jurisdiction of the
poses on stockholders of state banks court and were summoned. The court
a double liability for debts of the bank. determined the amount due to each
Laws Minn. 1899, p. 315, c. 272, pro- creditor, and fixed the liability of each
vides that in a receivership proceed- stockholder, and rendered judgment in
ing the court shall set a time for hear- favor of the creditors. Held, that the
ing, and that direct notice be given by creditors, together with the receiver
publication or otherwise, and if at the directed to collect the judgment, were
hearing it appears that the corporation authorized to sue on the judgment in
assets are insufficient to pay its debts, the courts of Washington. Childs v.
and that it is. necessary to enforce the Blethen, 40 Wash. 340, 82 Pac. 405.
stockholders' liability, the court shall
levy an assessment on all the stock-
99. —
Liability for expenses. In re
Ziegler, 98 App. Div. 117, 90 N. Y. S.
holders, and direct the payment of the 681. See ante, "Reference and Receiv-
amount so assessed within a specified er's Report," § 49 (9a).
time, and authorizes the receiver, if
,
CHAPTER V.
D. Officers and AqSNTs.

§ 50a. Definitions and General Considerations.
§ 51. Election or Appointment, Qualification and Tenure.
§ 51 (1) Authority to Employ Officers and Agents How Appointed. —
§ 51 (2) Eligibility —
Statutory and Charter Provisions*.
§ 51 (3) Election.
§ 51 (4) Qualification.
'
§ 51 (4a) Oath.
§ 51 (4b) Bond.
§ 51 (5) Beginning and Duration of Term.
§ 51 (6) Removal or Discharge.
§ 51 (7) Trial of Right or Title to Office.
§ 53. Meetings of Directors.
§ 53. Rights and Liabilities as to Bank and Stockholders.
§ 54 (la) Povvfers, Duties and Liabilities of Directors.
§ 54 (lb) President's Powers, Duties and Liabilities.
§ 54 (Ic) Cashi-er's Powers, Duties and Liabilities.
§ 54 (Id) Wrongful Acts from Which No Loss or Injury Results.
§ 54 (le) Liability for Acts Done during Absence, Sickness, etc.
§ 54 (If) Duty with Respect to Statements of Bank's Condition.
Funds, Securities, etc.
§ 54 (2) Misappropriation of Funds.
§ 54 (3) Duties and Liabilities with Respect to Loans, Discounts, Over-
drafts, etc.
§ 54 (4) Liability of One Officer for Acts of Another.

§ 54 (5) Right of Stockholders to Enforce Liability.
§ 54 (6) Individual Interest in Transaction.
§ 54 (7) Compensation of Officers.
§ 54 (8) Power to Close Bank or Decline Deposits.
§ 54 (9) Liability on Bond.
§ 54 (9a) Duration of Liability.
§ and Delinquencies Covered by Bond.
54 (9b) Risks
§ Representations in Procuring Bond.
54 (9c) False
§ 54 (9d) Supervision and Notice of Default or Loss.
§ 54 (9e) Filing Claim for Loss.
§ 54 (9f) Actions on Bonds.
'
§ 55. Actions and Proceedings to Enforce Liability.

§ 55 (1) Nature and Form; Jurisdiction.
§ 55 (2) Limitations and Laches.
§ 55 (3) Parties.
§ 55 (4) Pleadings.
§ 55 (5) Evidence, Issues, etc.
§ 55 (6) Trial.
§ 56. Liability of Directors and Officers to Third Persons.

§ 57 (la) Affirmative View.
§ 57 (lb) Negative View.
§ 57 (Ic) Constitutional and Statutory Provisions.
§ 57 (2) Individual Liability upon Obligations of Bank.
§ 57 (3) Liability for Ultra Vires Acts.
§ 57 (4) For Incurring Excessive Indebtedness.
§ 57 (5) Liability with Respect to Reports, Statements, and Representa-
tions.
§ 57 Receiving Deposits after Insolvency.
(6)
§ 57 (7) Sak of Drafts of Insolvent Bank.
§ 57 (8) Liability with Respect to Special Deposits.
§ 57 (9) Personal Liability with Respect to Loans, Discounts, and Invest-
ments.
§ 57 (9a) At Common Law.
§ 57 (9b) Loans and Investments in Violation of Statute.
§ 57 Acts of Associates and Subordinates.
(9c) Liability for
§ 57 (10) Individual Liability with Respect to Collections and Payments,
§ 57 (11) Individual Liability with Respect to Sale, Transfer or Pur-
chase of Stock.
§ 57 (12) Wrongfully
Declaring Dividends.
§ 57 (13) Officers of Fraudulent and Illegal Banks.
§ 57 (14) Nominal Directors and Persons Held Out as Directors.
§ 58. Actions and Proceedings to Enforce.
§ 58 (1) Time to Su-e and Limitations.
§ 58 (IJ^) Nature and Form of Proceeding.
§ 58 (2) Set-Ofif.
§ 58 (3) Parties.
§ 58 (3b) Joinder of Parties and Causes.
§ 58 (4) Pleading.
§ 58 (4a) General Rules and Observations.
§ 58 (4b) Where Cause of Action Based upon Negligence, Fraud,
or Deceit.
§ Matters of Defense.
58 (4c)
§ 58 (5) Evidence.
§ 58 (5a) Presumption and Burden of Proof.
§ 58 (5b) Competency and Admissibility of Evidence.
§ 58 (5c) Weight and Sufficiency of Evidence.
§ 58 (6) Trial.
§ 60. Criminal Responsibility.
§ 60 (1) Constitutional and Statutory Provisions.
§ 60 (2) Accessories, Aiders, and Abettors.
§ 60 (3) Officers of De Facto Banking Corporations.
§ 61. Offenses.
§ 61 (1) Illegal and Unauthorized Banking.
§ 61 (2) Criminal Liability for Fraud, Negligence, Fraudulent Insolvency,
etc.
§ 61 (3), Doing Business While Insolvent; Receiving Deposits, etc.
§ 61 (3b) Receiving Deposits after Knowledge of Insolvency.
§ 50 OFFICERS AND AGENTS. 255
§ 61 (4) Embezzlement, Misappropriation, False Entries, etc.

§ 61 (5) False Reports, Statements, and Returns, Exhibiting False Books,
etc.
§ 61 (6) to Loans, Discounts, and Overdrafts.

With Respect
§ 61 Purchase, Sale or Transfer of Stock.
(7)
§ 61 (8) Illegal Dividends.
§ 62. Prosecution and Punishment.
§ 62 (1) Indictment or Information.
§ 62 (la) Following Words of Statute.
§ 62 (lb) Existence and Operation of Bank; Defendant's Official
Relation.
§ 62 (Ic) Intent; Willful or Intentional.
§ 62 (Id) Joinder of Parties and Offenses.
§ 62 (le) Indictments for Particular Ofifenses Considered.
§ 62 (lea) Illegal and Unauthorized Banking.
§ 62 (leb) False Entries.
§ 63 (lee) False Reports and Statements.
§ 62 (led) Conversion and Misappropriation of Funds.
§ 62 (lee) Indictment for Aiding and Abetting.
§ 62 (lef) Overdrawing Account.
§ 62 (leg) Fraudulent Insolvency.
§ 62 (leh) Receiving Deposits after Knowledge of Insolvency.
§ 62 (2) Evidence.
§ 62 (2a) Presumption and Burden of Proof.
§ 62 (2b) Admissibility of Evidence.
§ 62 (2c) Weight and Sufficiency; Variance.
§ 62 (3) Instructions.
§ 62 (4) Verdict.
§ 62 (5) Sentence and Punishment.
D. OFFICERS AND AGENTS.i

§ 50. Constitutional and Statutory Provisions. —As to statutory
provisions with respect to the cumulative voting of stock upon the election
of officers, see post, "Election or Appointment, Qualification and Tenure,"
§ 51. As to the ipso facto operation of statutes removing those officers
violating provisions with respect to loans to officers, see post, "Election or
1. Of loan, trust and investment § 77 (1).

companies, see post, "Officers and Criminal responsibility of officers of
Agents," § 314. national banks, see post, "Criminal
Of national banks, see post, "Elec- Responsibility of Officers or of Per-
tion or Appointment of Officers," sons Aiding or Abetting Them,"
§ 231; "Nature and Extent," § 333; § 235; "Officers," § 256; "Prosecution
"Actions to Enforce Liability," § 254; and Punishment," § 357.
"Officers," § 336; "Prosecutions and Authority during liquidation of
Punishment," § 257. bank to assign pledged securities to
Of savings banks, see post, "Officers pledgee, see post, "Insolvency and Its
and Agents," § 394. Representation of Effect in General," § 73.
bank by officers and agents, see post, Effect of dissolution on right to com-
"Representation of Bank by Officers pensation. see post, "Effect of Disso-
and Agents," §§ 103-118. lution." § 72.
Right to sue directors depending on Enforcement of lien on stock, see
character of receiver,
plaintiff's title to ante, "Lien of Bank on Stock and Divi-
see post, ".Appointment and Removal,'' dends," § 42.
Appointment, Qualification and Tenure," § 51: As to constitutional and

and criminal responsibility of of-
statutory provisions relating to the civil
ficers receiving deposits knowing the bank to be insolvent, see post, "Elec-
tion or Appointment, Qualification and Tenure," § 51; "Offenses," § 61.
License or Occupation Tax. See footnote 2. —
§ 50a. Definitions and General Considerations. — See, generally,
post, "In General," § 54 (1).
§ 51. Election or Appointment, Qualification and Tenure —§ 51

(1) Authority to Employ Officers and Agents How Appointed. — —
bank may appoint an agent to transact any business which it may lawfully
do, and such appointment may be made by a mere corporate vote.*
Necessity for Actual Employment or Consent on Part of Bank. —

Before one can be deemed the agent of a bank, however, so as to hold the
bank liable for his acts or omissions, there must have been either such
actual employment or consent on the part of the bank, or such conduct as
amounts to a ratification or estoppel.*
2. License or occupation —
tax. Un- pointed cashier." Fancher v. Kaneen
der § 2, par. 2, of the acts of general (O.), 5 N. P., N. S., 614.
assembly approved Dec. 16, 1902 (Acts If a person appointed a director of
1909, p. 19) one who acts as president a bank by the executive, under Act
of two or more banks, must pay the March 23, 1837 (.Sess. Acts, p. 57), de-
tax of $10 for each bank of which he clines to accept the office, or resigns,
is president. Witham v. Stewart, 129 the executive is not authorized to make
Ga. 48, 58 E. 463.
S. anpther appointment, but his place is
3. Authority to employ agent. — to be supplied by the appointment of
Bates V. Bank, 2 Ala. 451. the directors of the bank. Bank v.
Act Feb. 1839, providing that the Robinson, 46 Va. (5 Gratt.) 174.
several attorneys of the Bank of the 4. Necessity for actual employment
State of Alabama, and its branches, —
or recognition. Holman v. Bank, 12
shall hereafter receive an annual sal- Ala. 369; National Bank v. Allen, 33
ary of $1,000, and no more,^ does not C. C. A. 169, 90 Fed. 545.
prohibit the banks from employing Neither a remittance of money to
such other legal assistance as their one as the agent of a bank by an-
interests may require. Bank of Ala- other party, and his consent to re-
bama V. Martin, 4 Ala. 615. ceive it as such, nor his admissions,
Agent or attorney to convey real or the fact that he is a director of the
estate. —
An agent or attorney may be bank, have any tendency to prove that
duly appointed to convey the real es- he is the agent of the bank. The con-
tate of an incorporated bank by a sent of the bank that he should so act
vote of the directors, without a power, is necessary. Holman v. Bank, 12
under the corporate seal. Savings Ala. 369.
Bank v. Davis, 8 Conn. 191. Neither the fact that a bank held as
Filling —
vacancies Statutory pro- collateral security a majority of the
—
visions. The appointment of a bank stock of a mercantile corporation, nor
cashier by the finance committee to that one of its officers was for a time
fill a vacancy, subject to the approval a director of the mercantile company,
of the board at its semi-annual meet- renders the latter the agent of the
ing, constituted under the rules and bank, so as to make the bank liable to
by-laws of the bank concerned in this creditors of the company for mis-
action a valid and legal appointment, representations as to its financial con-
where the appointee proceeded to act dition made by its officers. National
under the appointment, and gave bond Bank v. Allen, 33 C. C. A. 169, 90 Fed.
pursuant thereto, and particularly 545.
where the bond recites that the prin- Servant quoad hoc. — If a bank de-
cipal therein "has been chosen and ap- livers to A certain notes, with a re-
§ 51 (2) OFFICERS AND AGENTS. 257
Presumption as to Approval or Consent. —Where one is employed

by less than all of the directors of the bank and proceeds to perform the
duties of the position with full knowledge and without objection on the
part of the others, it will be presumed that they approved of his employ-
ment.^
§ 51 (2) Eligibility — Statutory and Charter Provisions. — It is
not necessary that a director should be a stockholder unless expressly re-

quired by the charter or by statute.® Where the charter provides that
quest that he would pass them away shall hold his office more than three
for the benefit of the bank, or, if he years out of four. Held, that directors
could not do that, to return them, under appointment of the governor for
which he agrees to do. A, quoad hoc, the previous year, and left out in the
is the servant of the bank. Towson reappointments, could not be consid-
V. Havre-de-Grace Bank (Md.), 6 ered new members, if then elected by
Har. & T,. 47, 14 Am. Dec. 254. the stockholders. Jordy v. Hcbrard,
5. Presumption as to approval of 18 La. 455.
—
.
consent. Bradstreet v. Bank, 42 Vt. Director removed by operation of

128. —
law, not again eligible. Where the of-
fice of a cashier and director has be-
A employing plaintiff was
contract
come vacant by operation of law, by
originally made by two directors of a
reason of his indebtedness to the bank,
bank, and afterwards approved by a
it is beyond the power of the corpora-
third. The contract was not in terms
limited to time, and the same three di-
tion, either by direct or indirect
means, to make of him a de jure or a
rectors, by re-election, continued in de facto officer, so long as the dis-
office during the entire service of five
ability continues. Cupit v. Park City
years. Held, that it would be pre-
Bank, 20 Utah 292, 58 Pac. 839.
sumed that the contract was approved Requiring directors of Mechanics'
by the three directors during the
whole time, although it did not af-
Bank to be practical mechanics. Un-
der the charter of the Mechanics' Bank
—
firmatively appear that more than two
of Alexandria, which provided that
of them assented to the employment
"there shall be fifteen directors, eight
after the first year. Bradstreet v.
of which at least shall be practical me-
Bank, 42 Vt. 128.
chanics," it was not necessary that such
6.Eligibility —
Statutory and char- eight directors should be in actual
ter —
provisions. Hume v. Commercial practice at the time of election. Gray
Bank, 77 Tenn. (9 Lea) 728. V. Mechanics' Bank, Fed. Cas. No.
In the case just cited, it was held, 5,723, 2 Cranch, C. C. 51.
construing the charter and the general
law together, that not more than' two-
Requirements of federal statutes. —
Section 5146, U. S. Rev. Stat., pre-
thirds of the directory need be stock- scribes the qualifications of directors:
holders in the ba,nk for which they (1) Every director must, during his
acted as directors. Hume v. Com- whole term of service, be. a citizen of
mercial Bank, 77 Tenn. (9 Lea) 728. the United States, and at least three-
Statutes limiting terms and forbid- fourths of the directors must have re-
ding directors to succeed themselves. sided in the state, territory or district
—Charter of the State Bank (§ 3) in which the association is located,
provides that the board of directors for at least one year immediately pre-
shall consist of eighteen members, six ceding their election, and must be
to be appointed by the governor, and residents therein during their continu-
twelve to be elected by the stockhold- ance in office. (2) Every director
ers; provided, however, that no more must own, in his own right, at least
than two-thirds of the directors elected ten shares of the capital stock of the
by the stockholders, and no more than association. Adirector who ceases to
two-thirds of the directors appointed be the owner of ten shares or other-
by the governor, who shall be in of- wise becomes disqualified shall thereby
fice at the time of an annual election, vacate his place. Mason v. Moore, 73
shall be elected or ajipointed for the O. St 275, 76 N. E. 933, 4 L. R. A.,
next succeeding year, and no director N. S. 597.
1 B & B— 17
Stockholders only shall be elected directors, persons having no interest in

the stock, but fraudulently and coUusively receiving the transfer of a
and the stockholders combining in
share to qualify them, are not eligible;
such fraud have no power to confer upon them authority to do corporate
actsJ
Same Person Serving as Director in More than One Bank. —
bank charter forbidding the appointment of a director of any other bank,
or the co-partner of a director, applies to directors of banks in other
states.*
§ 51 (3) Election. —Original Incorporators Not Ipso Facto Di-

rectors. —The original persons vsfho associate themselves together for the
purpose of organizing the corporation and bringing it into being, do not,
even when limited to a small number, as five or seven, become its directors
ipso facto upon the completion of the organization, unless the statute so
provides. Ordinarily they are merely stockholders, and should proceed
to the election of directors in the manner prescribed by statute.* Under
the act of congress with reference to national banks, the directors are
elected annually by the stockholders. i"
Time and Place —
of Election. An election of directors must be held
at the time and place fixed by law, or designated according to law.^^
Quorum. —What shall constitute a quorum of the directorate for the

purpose of holding an election or transacting other business is a matter of
statutory regulation. Where, in the election of a president, a majority
of the directors constitute a board to do business, and a majority vote, the
7. Directors having no bona fide the act, which certificate also stated
—
ownership of stock. Bartholomew v. that the associates had elected one of
Bentley, 1 O. St. 37. their number to be president of the as-
8. Directors serving in more than sociation, and the association went into
oiie bank. —
State v. Buchanan (O.), operation without further organiza-
Wright 233. tion, except the selection of a cashier.
In view of the failures of banks held, that the persons signing said cei
caused by overtrading, the legislature tificate were only associates and cor-
intended to cut off facilities to com- porators or stockholders, and not
bined overissue of bank notes by the managers or directors of said corpora-
restriction requiring them to have no tion; the eighteenth section giving to
officer in common with any other them only power to "choose a board of
bank. State v. Buchanan (O.), Wright directors," under whose "direction"
233. Ihe business of banking might be con-
9. Incorporators not ipso facto di- ducted. Kinsela v. Cataract City
rectors. —
Kinsela v. Cataract City Bank, 18 N. J. Eq. (3 Green) 158.
Bank, 18 N. J. Eq. (3 Green) 158. 10. Under National Banking Act.—
Where "seven (or more) citizens of Brown v. Farmers', etc., Nat. Bank,
this state" associated to establish an 88 Tex. 265, 31 S. W. 285, 33 L. R. A.
office of discount, deposit, and circu- 359,
lation, under the act to authorize the 11. Time and place of election. —
business of banking, approved Feb- State v. Ashley,
Ark. 513.
1
ruary 27, 1850, and executed, acknowl- The election for all the directors of
edged, and had recorded, in the offices the Real-Estate Bank must be held at
of the secretary of state and the clerk one and the same time, and at one and
of the county where said office was the same place, to be appointed by the
proposed to be located, the certificate central board. State v. Ashley, 1
lequired by the sixteenth section of Ark. 513.
§ 51 (4a) OFFICERS AND AGENTS. 259
person receiving a majority of the votes cast is duly elected. ^^

De Facto Officer Elected by Less than Quorum. —As regards out-
side parties, one may be a de facto officer -though elected at a meeting at-
tended by a less number than required by the charter to constitute a
quorum. 13
Manner of Voting. —A stockholder can not be deprived of his charter
right to vote for the entire directory of the institution j^* though where the
statute so provides, he may multiply his shares by the number of directors
to be elected and vote them all for one director.^^
Election or Appointment of Director to Fill Vacancy. On ap- —
plication, in proceedings to liquidate a bank, for the appointment of a
director to take the place of one who has resigned, the burden is on one
claiming to have been elected to the office to show such election, and where
there is no evidence of, but merely an answer to the petition alleging
such appointment, the court is authorized to appoint another.^^
§ 51 (4) Qualification— § 51 (4a) Oath.— Where the statute or

charter requires it, officers and directors must qualify by taking an oath
12. Quorum. — Booker v. Young, 53 elected at a meeting of stockholders,

Va. (12 Gratt.) 303. each shareholder being entitled to one
Under Code, c. 58, § 4, a majority vote for each share for each director,
of the board of directors of a bank are and repealing all acts inconsistent
a quorum to elect a president and, a therewith. Attorney General v. Bridg-
quorum voting, a majority of them man, 134 Mich. 379, 96 N. W. 438.
will elect him. Booker v. Young, 53 Election of different classes by dif-
Va. (12 Gratt.) 303. —
ferent interests. Where the charter
13. De facto officers elected by less requires the board to consist of thir-
than quorum. —
Baird v. Bank (Pa.) 11 teen members, eleven to be chosen
by the ordinary stockholders and two
Serg. &
R. 411.
One elected to the office of bank di- by the city council, the city being a
rector at a meeting of five directors, st6ckholder, there is no distinction
and subsequently acting as such, is a among the directors; they all have the
de facto director, so that his acts are right of voting to fill vacancies in
binding so far as they are relied on either class of directors. Prieur v.
by outside parties, though under the Commercial Bank, 7 La. 509.
bank's charter a meeting of a ma- A bank, being so authorized by its
jority of thirteen directors was re- charter, established a branch and fur-
quired to make a valid election of an- nished to it a capital of $63,500. An
other director. Baird v. Bank (Pa.), equal amount of stock was subscribed
11 Serg. &
R. 411. at the branch, but only $33,660 were
paid in. The charter provided that
14. Manner of voting. — State v. Ash-
the parent bank and the branch bank
ley, 1 Ark. 513.
should choose
15. Right to cumulate shares. .f^t- — nine directors, the
former four and the latter five, if each
torney General v. Bridgman, 134 Mich. furnished an equal amount of capital.
379, 96 N. W. 438. As the branch furnished a less amount
—
Same Repeal of statute. Comp. — of capital than the parent, the latter
Laws, § 8553, provides that a stock- claimed the right to choose six, and
holder may multiply his shares of chose six, leaving three to be chosen
stock by the number of directors to by the branch. Held, that as capital
be elected, and cast that number of meant not stock subscribed, but cash
votes for one director. Held that, if paid in, the division was equitable and
such act ever applied to banks or- proper. State v. Thompson, 27 Mo.
ganized under the banking law of 1887, 365.
it was repealed by Comp. Laws, 16. Filling vacancy —Presumption.
§§ 6101, 6153, subsequently enacted, Braslan v. Suoerior Court, 124 Cal.
providing that bank directors shall be 133, 56 Pac. 792.
before entering upon the duties of the office." Under the act of con-
gress with reference to national banks, each director, before entering upon
the discharge of the duties of such office, is required to make oath that
he will, so far as the duty devolves on him, diligently and honestly admin-
ister the affairs of the association. i^
§ 51 (4b) Bond. —Form —

and Validity. The surety bond required
of a bank official should be made payable to the person designated by
statute.i^ Such bond is not void because executed after the officer has
entered upon his duties.^'' Nor is the validity of a bond given at a time
when the statute did not require it affected by the subsequent enactment
of a statute requiring a bond.^^
Formal Defects. —Generally
speaking, the validity of the bond is not
affected by mere and formal defects. ^^ The failure to join
clerical errors
the official, the faithful discharge of whose duties it is given to secure, will
not release the sureties where such bond has been accepted by the di-
rectors.^* And even the failure to express any consideration will not
vitiate it, though the appointment was made before its execution, where
it appears that the execution of the bond was necessary to render the
appointment effectual.^* Naming a greater penalty than that prescribed
17. Qualification — Oath.— State Bank governor. Held, that the bond of the
V.Chetwood, 8 N. J. L. (3 Halst.) 1; agent was rightly made payable to the
Mason v. Moore, 73 O. St. 275, 76 N. governor. Anderson v. State, 2 Ga.
E. 932, 4 L. R. A., N. S., 597. 370.
"By § 5147, each director, when ap- 20. Execution after principal has as-
pointed or elected, shall take an oath sumed duties. — Bank v. Brent, Fed.
that he will, so far as the duty de- Cas. No. 910, 2 Cranch, C. C. 696.
volves on him, diligently and honestly 21. Effect of subsequent enactment
administer the affairs of the associa-
tion, and will not knowingly violate or
on bond already given. Lionberger v. —
Krieger, 88 Mo. 160.
willingly permit to be violated, any of
the provisions of this title, and that
22. Formal defects. Pendleton v. —
he is the owner in good faith and in
Bank (Ky.), 1 T. B. Mon. 171; Fancher
V. Kaneen (O.), 5 N. P., N. S., 614.
his own right of the number of shares
of stotk required, etc." Mason v. Amisnomer of the corporation, in
the official bond of a cashier, by the
Moore, 73 O. St. 275, 76 N. E. 932,
emission of the words "and company,"
4 L. R. A., N. S., 597.
does not vitiate the bond. Pendleton
It is the duty of the cashier of ^
V. Bank (Ky.), 1 T. B. Mon. 171.
bank to be sworn before he enters
upon the duties of his office. State
Under the terms of a bond given to
the directors of a bank as directors
Bank v. Chetwood, 8 N. J. L. (3
and not as individuals, with the rela-
Halst.) 1.
Under National Banking Act.
18. — tions and understanding of the parties
as in this case, the bank becomes the
Brown v. Farmers', etc., Nat. Bank, 88 real and sole party in interest with the
Tex. 265, 275, 31 S. W. 285, 33 L. R.
right to sue thereon, and the assignee
A. 359.
19. Bond— Form and validity. —An- of the bank succeeds to
right. Fancher
the
v.
same
Kaneen (O.), 5 N.
derson V. State, 2 Ga. 370.
P., N, S., 614.
In 1841 a hank charter was re-
pealed, and the assets transferred to 23. Failure to join principal iii bond.
another bank, which appointed an — Bank v. Cresson (Pa.), 12 Serg. &

agent to collect them, who gave bond R. 306.
to the governor of the state. The char- 24. Failure to express consideration.
ter of such other bank required its — Fourth Nat. Bank v. Spinnev, 14 N.
officers to give bonds, payable to the Y. St. Rep. 216. 47 Hun 293.
§ 51 (4b) OFFICERS AND AGENTS. 261
by the charter or by-laws of the bank will not prevent the bond being a
good and binding obligation upon the sureties. ^^ In such a case, the
charter provision may be construed as directory and not mandatory or im-
perative.2®
Sureties. —Where the statute provides that such a bond shall not be
signed by a director, it will be valid, though signed by a director, where
^'^
he ceases to be one before it is accepted.
Conditions. —A bond voluntarily executed and containing nothing con-
trary to law is not invalid because the condition varies from the form
required by statute,^^ since it is a general principle, as to statutory bonds,
that superadded and distinct conditions not imposed by the statute may
be rejected as illegal, and the conditions required by the statute enforced
as valid.^^
—
Acceptance of Bond. The acceptance of a bond need not be by an
expressact, nor in the manner prescribed by the charter in order to rendei
the sureties liable for a breach of its conditions. Its retention by the di-
rectors or their permitting the officer to enter upon and continue in the
discharge of the duties of the position without raising objections to the
bond, will be deemed an acceptance thereof-^" Record evidence of ap-
25. Naming greater than prescribed 29. Same— Superadded conditions.

penalty. — Durkin v. Exchange Bank —Banks v. McDowel, 41 Tenn. (1
(Va.), 2 Pat. & H. 277 (citing Carter Coldw.) 85, 87; Sharp v. Pickens, 44
V. Bank of Va. special court of ap- Tenn. (4 Coldw.) 268; McLean v.
peals, 1851, unreported). State, 55 Tenn. (8 Heisk.) 22; Ranning
26- Same— Charter provisions held V. Reeves, 2 Tenn. Ch. 263, all citing
to be directory. —
Durkin v. Exchange this case. And see Davis v. Bratton, 29
Bank (Va.), 2 Pat. & H. 277. Tenn. (10 Humph.) 179, where this case
27. Director as surety. Franklin — is cited to distinguish the point de-
Bank v. Cooper, 36 Me. 179. cided. Polk V. Plummet, 21 Tenn. (2
28. —
Conditions. Grocers' Bank v. Humph.) 500, 37 Am. Dec. 566.
Kingman (Mass.), 16 Gray 473. 30. Acceptance of bond. —
Bank v.
A condition in a cashier's bond "to Dandridge (U. S.), 12 Wheat. 64, 6 L.
account for, settle, and pay over all Ed. 552. See, also, Jacksonville, etc.,
moneys," etc., is tantamount to the Nav. Co. V. Hooper, 160 U. S. 514, 522,
condition prescribed by statute, which 40 L. Ed. 515.
is "for his good behavior." And, if it Where a board of directors, by a
were not, yet the condition prescribed vote, approved of two persons as sure-
by the statute does not preclude the ties in a bond to be given by the
insertion of the former. State Bank cashier, and a bond, duly executed by
V. Locke, 15 N. C. 529. them and the cashier, was afterwards
A bank authorized to make by-laws, found in the possession of the presi-
and to take bond from the cashier for dent, it was held that there was a suffi-
the "faithful discharge of the duties cient acceptance thereof by the cor-
of his office," may take a bond with poration. Union Bank v. Ridgely
condition that he shall perform the (Md.), 1 Har. & G. 324; Dedham Bank
duties of his office according to law V. Chickering (Mass.), 3 Pick. 335.
and the by-laws of the institution, and The facts that the bond of a cashier
that he shall not make known any was delivered to, and considered and
secrets, or the state of the funds, etc., retained by, the directors of a bank,
to any person except the directors, etc. and that the cashier was placed in
As these things may be required of office, are sufficient to establish the
the cashier by the by-laws, they may acceptance of the bond, though no ac-
be required in the bond. Bank v. ceptance is shown by the minutes of
Hopkins (Ky.), 1 T. B. Mon. 245, 15 the board. Pryse v. Farmers' Bank,
Am. Dec. 113. 17 Ky. L. Rep. 1056, 33 S. W. 532.
proval by the directors is not necessary; presumptive evidence with proof

of its execution is sufficient.^ ^
Failure to Require Bond —Liability for Negligence. — If the direct-
ors fail to exact a bond of the cashier as required by law, they are liable
to the stockholders for any loss resulting from their negligence in that
behalf.32 g^t where, in such a case, the directors, supposing that a bond
has been taken, with the cashier for his delinquencies and order
settle
ihis bond cancelled, they can not be held liable for their failure to take a
bond, since even if one had been taken all liability of the cashier and his
sureties thereonwould have been extinguished by the settlement. In other

words, there can be no recovery for their negligence where no injury re-
sulted therefrom.33
§ 51 (5) Beginning and Duration of Term. The title of a person —

to the presidency of a bank is complete at the moment that the vote- of a
majority of the directors declaring him to be elected to such office is de-
clared.8*
Tenure. — Where,
by the charter of a bank, the directors are to be
chosen annually, and they, "for the time being, have power to appoint a
cashier, and such other officers under them, as may be necessary for exe-
cuting the business of said corporation," a cashier so appointed is an officer
of the corporation, the duration of whose office, in the absence of an ex-
press limitation, is limited only by the duration of the charter; but he is
liable to be removed by the directors as occasion may require, and is not

necessarily an annual officer. ^^
—
Holding Over. The tendency of the cases is, in the absence of terms
in a charter restricting or enlarging the powers of the corporation upon
the point, to maintain the authority of the officers, who hold over without
an election, to exercise the corporate authority .^^ And it is held that any
31. Evidence of approval. Bank v. — poration, or as the agents of a cor-

Dandridge (U. S.), 12 Wheat. 64, 6 L. poration. Bank v. Dandridge (U. S.),
Ed. 552. 12 Wheat. 64, 6 L. Ed. 552.
Proof of execution and approval of 32. Failure to require bond Lia- —
bond. —
In a suit brought by the presi- bility for negligence. Jones v. John- —
dent, directors and company of the son, 86 Ky. 530, 9 Ky. L. Rep. 789, 6
Bank of the United States, upon a S. W. 582.
bond given to the bank to secure the 33. jongs 86 Ky. 530, 9
v. Johnson,
faithful performance of the official
cashiers, it was
j^y \^ Sg^gp 582 lygg
6 W
°"^ °^ g^g ;„„;„ \^^ duration of term.
i^'iÂ^^l
held that evidence ''f
of the execu ion of
the bond, and of its approval by tne
_Booker\. Young,
.,„„ ^'
53 Va. (12 Graft.)
'
board of directors (according to the ^ „' _,t -,, , t,- ,

•
,
rules and regulations contained in the 35. Tenure.—Union Bank z;. Ridgely
charter of the bank), was admissible <-Md.), 1 Har. G. 324; Dedham Bank
&
"" Chickering (Mass.), 3 Pick. 335.
notwithstanding there was no record
of such approval; and that the plain- 36. Holding over. —Nashville
Bank
tii? might prove the fact of such ap- t.-. Petway, 22 Tenn. Humph.) 522.
(3
proval by the board, by presumptive The power of election was vested
evidence, in the same manner as such in a board of directors, who were ac-
fact might be proved in the case of customed to elect their cashier an-
private persons, not acting as a cor- nually, according to a resolution to that
provision of the charter looking to a continuance of the power of the board

of directors in case of a failure to elect at the proper time, ought to receive
a favorable consideration.^''
Effect of Insolvency, Suspension, Abandonment of Office, etc. —
The insolvency of a bank and the suspension of all its corporate functions
during a long period of years may operate also as a suspension of its- di-
rectory and all its corporate officers.^^
§ 51 —
(6) Removal or Discharge. Ipso Facto Removal by Opera-
tion of Statute. —
A statute which provides that the office of any director
effect, but the charter provided that, had on some other day. At a meeting
before he entered upon the duties of of stockholders, held on Decem-
the
his office, he should give bond. Held, ber 20, 1865, the directors were au-
that the term of office did not expire thorized to cause the then president
at the end of the year, but that the and cashier to execute a deed of as-
old cashier continued in office until a signment. The instrument was made
new one was qualified by giving a and delivered on January 4, 1866, by
bond. Sparks v. B'armers' Bank, 3 the president and cashier in office at
Del. Ch. 274. the time of the aforesaid meeting of
37. — —
Same Charter ^Construction. — the stockholders. The first Monday
Nashville Bank v. Petway, 22 Tenn. in January, 1866, was then passed, and
(3 Humph.) 522. no new board of directors or new of-
Therefore, a provision which, after ficers had been elected. Held, that the
fixing the time for the annual election president and cashier before referred
of directors and the day when the new to were the proper officers to execute
board shall go in, stipulates that, until such assignment. They were officers
the new directors take their seats, the de facto, if not de jure. Milliken v.
former board shall continue to man- Steiner, 56 Ga. 251.
age the affairs of the company, is 38. Effect of insolvency, suspension,
sufficient to keep alive the powers of etc. — Bartholomew v. Bentley, 1 O.
the old board, and the addition of a St. 37,
specific reference to the date of the Directors of a bank elected in 1822,
first election is not restrictive, but the bank being entirely insolvent and
amplifying in its meaning. Nashville performing no corporate acts from
Bank v. Petway, 22 Tenn. C3 Humph.) that time until 1838, will not be held
522. to have continued in office until the
Under a bank charter providing for latter period, although the charter
the election of directors by the stock- provided that they should continue in
holders, and then providing that "the office until their successors were
officers" shall hold their offices for one elected. Bartholomew v. Bentley, 1
year, but may be removed by a ma- O. St. 37.
jority at a meeting of the stockhold- The act of such persons in appoint-
ers, and that the directors msv ?" ing directors to fill vacancies in the
point certain officers, the limitation of board was entirely void, although the
the term to one year applies only to charter provided that a part of the di-
the directors, and not to the officers rectors of the bank might fill such
appointed by them. Deposit Bank v. vacancies. Bartholomew v. Bentley, 1
Hearne, 104 Ky. 819, 20 Ky. Law Rep. O. St. 37.
1019, 48 S. W. 160. Where the stockholders of a bank,
Thecharter of a bank provided that in an instrument authorizing its con-
the directors should serve until the version from a state to a national
end of the first Monday in January bank, named all the directors who had
next ensuing the time of their elec- been elected at the last annual elec-
tion, and no longer; that the directors, tion as those "who are now the di-
at the first meeting after their election, rectors of said bank," the court can
should choose one of their number not hold that two of those so named
president; that, if it should happen were not directors merely because they
that an election of directors should had never acted in that capacity since
not take place upon the proper day. their election, five months previously.
the corporation should not be deemed, Lockwood V. Mechanics' Nat. Bank, 9
dissolved, but the election should be R. I. 308, 11 Am. Rep. 253.
264 BANKS AND BANKING. § 51 (7.)
or other official shall become vacant by reason of his violation of the pro-
hibitions contained therein is self -executing, and operates to ipso facto
vacate his office upon proof of violation of its terms.^^

Time of Taking Effect.— See footnote.*"
Proceedings to Remove. —In an action to remove the directors of a
bank, acting as trustees under the statute in closing up its affairs, a pe-
tition which does have been in any way ex-

-not allege that the trustees
travagant or negligent or dilatory in the performance of- their duties, or
that they have violated any law or contract, or done any wrong or with-
held any right or threatened to do any such thing, is insufficient to state a
cause of action.*^
—
Dishonesty Proof of. Proof of dishonesty — is a question for the jury
upon all the evidence in the case.*^
§ 51 (7) Trial of Eight or Title to Office.— Quo warranto is the

proper remedy to inquire by what authority a person holds the office of
bank director. It is the proper writ to try the right to office, and to arrest
the usurper.*^ Such writ will be made returnable forthwith, or at short
day, so that a trial may be had before the term of office expires, that
course being necessary to the due administration of justice.** On return
of such writ, short rules will be granted for pleading to issue, and the
defendant has no right to send the cause to the common rules for plead-
ing, as that would work a continuance, and defeat the object of the writ.*'
39. Ipso facto removal. — Cupit v. feet until three days after its passage.
Park City Bank, 20 Utah 292, 58 Pac. Held, that the suspension did not
839. take effect until it was known to the
Comp. Laws 1888, § 2515, provides cashier. Bank v. Magill, Fed. Cas. No.
that no officer of any bank organized 929, 1 Paine 661, affirmed in 12 Wheat,
under this law shall borrow money 511, 6 L- Ed. 711.
from unless he furnish security in
it 41. Proceedings to remove.— Sands
at least double the amount of the loan ^ Gund 4 Neb 316 93 N W. 990
made, and no loan by any officer shall '
^^^^^ ^^ dishonesty.-Merchants'
^^
be made for a period to exceed three
months, nor shall any officer become
^
o -d ^^ ^. Am.
^
a
^c -d -ion Guilmartin, 93 Ga. 503, 21
55, 44 St. Rep 182.
an indorser or security for loans to ^V^.
fhe purchase or sale of stock by the
ti,
others. „ Tt also ^^„
It „i„„ ;,i=/<-i,„t
provides that *!,= „«;„„
the office u not^ of itself
u-
ofc a u it -j.
-.t „„
ot director %^,
any ,!;,„.-(„, officer who
or ..,«;„«, i,„ „o.n ;,-
act.': n
cashier bank would 1 jr
u j-
ê proof^ ofr dishonesty,
,
i.-i ii,
while the buy- .. 1
contravention to the provision imme-

diately thereon becomes vacant. Held, '"?, ^""^ selling of stock beyond his
^"1^"* ™^?"^ be. This en-
that the statute is self-executing, so
that from the time a loan by way of '" f
for
§^ht
the jury. It is for
is
overdraft, unsecured, was made by the

them ^to "^f
J^f^'^ determine whether or not
speculation on his part is such a cir-
bank to a firm of which a cashier who
ûmstance as would render him unfit
was also a director was a member, his
office became vacant, and from that
^° îs position as cashier Mer-
^'f'^ ^^
time on he had no authority to act for 5^^"*^ ^f c -^ .=
"•<.
Â'™''c""t
the corporation. Cupit v. Park City 9'^.^°^' ^1 S. E. 55, 44 Am. St. Rep.
Bank, 20 Utah 292, 58 Pac. 839. ^^f, „ .
, , .^, ^ a- n
*'*'^
40. Time of taking effect.-A bank,
on being informed that its cashier had '33
"
^^f- ^"f\°^"' ^"''^^"^"
1° °^^^P^^r^T.
^°-^' Wright
been' guilty of a breach of trust, by
resolution, suspended him from office ^4. Same—Return of writ.— State Z).
until the further pleasure of the board, Buchanan (O.), Wright 233.
but which resolution was not com- 45. Same — Pleading—Imparlances.—
municated to him nor carried into ef- State v. Buchanan (O.), Wright 233.
§ 52 OFFICERS AND AGENTS. 265
Evidence of Authority. —The records of a corporation are the best

evidence of its officers, but it is competent to prove that such officers exist
by the admissions of the defendant.*® Newspaper statements and the un-
derstanding of a witness from such sources is no evidence who are direct-
ors of a banic.*'^
Presumption and Burden of Proof. — See footnote.*^
§ 52. Meetings of Directors. —Notice of Meeting. — It is the gen-

eral rule that, where no provision is made in the statute or in the by-laws
of a bank or corporation for the notice required for regular meetings of
the directors, or the mode of calling special meetings, all meetings must
be called by special notice, to be given to each director.*"
But, where, by the charter of a bank, a certain number of its directors
are made a quorum, the bank is bound by the unanimous concurrence of
that number at a casual meeting, and without notice to the others, if
notice is not prescribed by the charter or by-laws. ^^ And if the directors

of a bank have long pursued an established custom of holding meetings and
transacting business at the bank during business hours whenever a sufficient
number were would carry with it a standing notice
present, the custom
to each director, and enable those present to proceed, in the absence of a
controlling by-law or statute. ^^
— —
Object of Meeting Specifying. Failure of the notice to specify the
object of the meeting will not prevent its being a legal meeting for the
transaction of ordinary business. ^^
46.Evidence. State — v. Buchanan being a quorum, called a meeting, and

CO.), Wright 23'J. passed a resolution authorizing the
47. Same. —
State v. Buchanan (O.), president and secretary to assign all
Wright 333. of the bank's property for the benefit
48. Presumption and burden of of its creditors, after which a deed of
—
proof. Presumption that the law reassignment was executed in due form
quiring a bank cashier to be director and properly filed. Subsequently,
has been complied with. See Hibernia two of the absent directors recognized
Sav. Bank v. McGinnis, 9 Mo. App. the assignment by attending and par-
578. ticipating in the election of an as-
Burden of proving that bank cashier signee, as provided by law. Neither
was not a director as required by the the bank as a corporation, nor any di-
law. See Hibernia Sav. Bank v. Mc- rector, objected to the assignment.
Ginnis, 9 Mo. App. 578. Held, that the assignment was valid,
49. Meeting of directors Notice. — — notwithstanding the absence of the
Paola, etc., Anderson, 16
R. Co. v. three directors from the meeting of
Kan. 302; Paulen, 15 Kan.
Scott v. the board. National Bank v. Shum-
162; Aikenan v. School Dist, 27 Kan. way, 49 Kan. 224, 30 Pac. 411.
129; National Bank v. Drake, 35 Kan. 51. Same — Custom. — American
564, 11 Pac. 445; National Bank v. Exch. Nat. Bank First Nat. Bank,
v.
Shumway, 49 Kan, 224, 30 Pac. 411. £7 C. C. A. 274, 82 Fed. 961.
50. —
Same Unanimous concurrence 52. Specifying object of meeting.—
of quorum without notice. Edgerly — Savings Bank v. Davis, 8 Conn. 191.
V. Emerson, 23 N. H. 555, 55 Am. Dec. Where a meeting of a board of di-
307. rectors of a bank in New Haven was
Three of the seven directors of an called by the cashier, in pursuance of
insolvent bank were nonresidents, and instructions from the president, then
could not be notified of a meeting of in Xevi^ York, by personal notice to
the directors in time to attend the the directors in New Haven, without
same. The four remaining directors, specifying, in such notice, the object
Quorum. The — provisions in the charter of a bank as to what shall con-

stitute a quorum of the directors to do business are directory, and for
the security of the stockholders and bill holders ; but the bank may endanger
its franchises by disregarding them.^s As a rule, a majority of the direct-
ors constitute a quorum, and a majority of the quorum may act.^* Where
the charter requires the presence of a specified number to constitute a
board, and declares the president to be entitled to all the powers and privi-
leges of a director, the president and one less than the number specified
by the charter constitute a sufficient board to satisfy the requirements of
the charter. ^5
Bias or Interest Disqualifying Director. —?Vlthough, as between the
corporation and the individual, a bank director has no right to vote in a
matter in which his interest is concerned, yet, as respects the bona fide con-
tracts of third persons, such vote will be valid. ^^
Minutes of Meeting. — It is unnecessary that the votes or decisions
of the directors or agents of a banking corporation should be recorded un-
^'^
less recording is required by the charter or by-laws.
of the meeting, it was held that this was discounted the next day; that the
was a legal meeting for ordinary trans- rules of the bank required the pres-
actions, and that the giving of security ence of a majority of the directors or-
for a debt of the bank, by a mortgage of the finance committee to authorize
of its real estate, was of this descrip- a discount; but that it was the custom
tion. Savings Bank v. Davis, 8 Conn. in some cases for the cashier and one
191. director to discount a note; and that,
53. Quorum. — Smith v. Bank, 18 Ind. on the day the note in question was
337. discounted, there was no meeting of
54. Same— Number required to bind the directors or of the finance com-
bank. — Leary Interstate Nat. Bank
v. —
mittee warranted a finding that the
(Tex. Civ. lApp.), 63 S. W. 149; cashier, and the director with whom
Edgerly v. Emerson, 23 N. H. 555, 55 the note was left, acted for the bank
Am. Dec. 207; Dickason v. Grafton in discounting it. National Security
Sav. Bank Co., 27 O. C. C. 357. Bank v. Cushrnan, 121 Mass. 490.
The directors of a bank may bind 55. Quorum composed of president
the corporation by a major vote of and one less than required number of
those present at a regular stated meet- directors.— Bank v. Ruff (Md.), 7 Gill
ing, or at a special meeting of which & 448.
J.
all have been notified, if a quorum is
Thus, where the charter required
present. Edgerly v. Emerson, 23 N. H. seven directors to make a board, and
555, 55 Am. Dec. 207. declared the president to be entitled
Under Rev. St., § 3247, providing to all the powers and privileges of a
that a majority of the trustees or di- director, the president and six di-
rectors shall form a board, three of rectors constituted a sufficient board
the five directors of a bank have to satisfy the requisitions of the char-
authority to transact the business of ter. Bank Ruff (Md.), 7 Gill &
V. J.
the bank. Dickason v. Grafton Sav. 448.
Bank Co., 27 O. C. C. 357.
56. Disqualification of director by
Where only half of the directors of
a bank who were qualified to act for
—
bias or interest. Baird v. Bank (Pa.),
11 Serg. & R. 411.
it in selling certain piroperty were
present at the board meeting, there 57. Minutes of meeting. Edgerly v. —
is no quorum, and their act in mak- Emerson, 23 N. H. 555, 55 Am. Dec.
ing the sale is not binding on the 307.
bank. Leary v. Interstate Nat. Bank, The direction of the directors to the
(Tex. Civ. App.), 63 S. W. 149. president as to the application of
Same— Custom— Discounting paper. moneys received need not be recorded.
— Evidence that a note, which was left Stamford Bank v. Benedict, 15 Conn.
with a bank director to be discounted. 437.
§ 54 (la) OFPlCeRS AND AGENTS. 267
§ 53. Rights and Liabilities as to Bank and Stockholders

§ 54. Nature and Extent— § 54 (1) In General— § 54 (la)
Powers, Duties and Liabilities of —
Directors. Care and Diligence
—
Required. The directors and officers of a bank are, in a sense,
trustees for the depositors and stockholders, and they can be called
upon in a court of equity to account for misfeasance in the manage-
ment of the business of the bank.^* They are the agents of the cor-
poration, and are liable for an abuse of their trust wherever the agents
of an individual would be.^® The standard of diligence and prudence
by which they should be tried is that which business men have erected
for themselves. Reasonable conformity to the customs and methods in
vogue among prudent bankers is the degree of diligence required of
such officers.®" As regards directors, the law requires of them the
exercise of good faith and ordinary diligence and care, including the
duty of reasonable oversight and supervision of the bank's affairs, and
they are liable for losses resulting from their negligence or misman-
agement of the bank's affairs.^^ The degree of care to which they are
bound is that which ordinarily prudent and diligent men would exercise
under similar circumstances, and in determining that, the restrictions of
statute and the usages of business should be taken into account. What
may. be negligence in one case may not be want of ordinary care in another,
and the question of negligence is, therefore, ultimately a question of fact,
to be determined under all the circumstances. ^^ Other cases have held
58. Nature of relation to bank. 62. Same. —

Briggs v. Spaulding, 141
Hersey v. Veazie, 24 Me. 9, 41 Am. U. S. 133, 35 L. Ed. 662, 11 S. Ct. 924;
Dec. 364; Smith v. Poor, 40 Me. 415, Trustees v. Bosseiux, 3 Fed. 817; Dunn
63 Am. Dec. 672; Robinson v. Smith v. Kyle, 77 Ky. (14 Bush) 134; Com-
(N. Y.), Paige, 233, 24 Am. Dec. 213;
3 mercial Bank v. Chatfield, 131 Mich.
Cunningham v. Pitts (N. Y.), 5 Paige 641, 80 N. W. 712; Stone v. Rottman,
607; Meisse v. Loren, 4 N. P. 100, 6 183 Mo. 552, 82 S. W. 76; Wallace v.
O. D. 258. Lincoln Sav. Bank, 89 Tenn. 630, 15
59. —
Same. Austin v. Daniels (N. S. W. 448, 24 Am. St. Rep. 625; Min-
Y.), 4 Denio 399. ton v. Stahlman, 96 Tenn. 98, 34 S. W.
60. —
Standard of' diligence. Wallace 222; Marshall v. Farmers', etc., Sav.
V. Lincoln Sav. Bank, 89 Tenn. 630, 15 Bank, 85 Va. 676, 8 S. E. 586, 2 L. R. A.
S. W. 448, 34 Am. St. Rep. 625. 534, 17 Am. St. Rep. 84.
61. Duties and liabilities —
Diligence A director and officer of a bank is
—
required. Briggs v. Spaulding, 141 U. bound to exercise that degree of care
S. 132, 152, 35 L. Ed. 663, 11 S. Ct. in the business affairs of the bank
924; Trustees v. Bosseiux, 3 Fed. 817; that a careful man would exercise in
Lowndes v. City Nat. Bank, 82 Conn. his own affairs of like importance;
8, 72 Atl. 150; Dunn v. Kyle, 77 Ky. and if, by reason of his neglect to exer-
(14 Bush.) 134; Commercial Bank v. cise such care, the bank loses money,
Chatfield, 121 Mich. 641, 80 N. W. 712; he is liable therefor. Commercial
Stone V. Rottman, 183 Mo.. 552, 82 S. Bank v. Chatfield, 121 Mich. 641, 80 N.
W. 76; Wallace v. Lincoln Sav. Bank, W. 713; Wallace v. Lincoln Sav.
89 Tenn. 630, 15 S. W. 448, 34 Am. Bank, 89 Tenn. 630, 15 S. W. 448, 24
St. Rep. 625; Minton v. Stahlman, 96 Am. St. Rep. 625; Minton v. Stahlman,'
Tenn. 98, 34 S. W. 222; Marshall v. 96 Tenn. 98, 34 S. W. 322; Marshal v.
Farmers', etc., Sav. Bank, 85 Va. 676, Farmers', etc., Sav. Bank. 85 Va. 676,
8 S. E. 586, 2 L. R. A. 534, 17 Am. 8 S. E. 586, 3 L. R. A. 534, 17 Am. St.
St. Rep. 84; Elliott v. Farmer's Bank,
'
Rep. 84.
61 W. Va. 641, 57 S. E. 342. The director of a bank is only re-
that directors will not be personally liable for losses, except in cases of
gross negligence, amounting to active or passive fraud.®*
Delegation of Duties —Supervision, Inspection, Knowledge of
Bank's Affairs. —Directors are not required devote to themselves to the
details of the business, which may be left to the clerks and bookkeepers
under the supervision of the cashier.^'* They are bound, however, in the
exercise of the ordinary diligence required of them by law, to maintain
a reasonable oversightand supervision of the bank's affairs, and it is gross
negligence for them to commit the entire business of the bank to the
cashier and his subordinates without supervision or control on their part,
even though he be an entirely competent man.'^^ while they are not in-
quired to act in good faith and to 73 O. St. 275, 76 N. E. 933, 4 L. R. A.,

exercise such a degree of care as a N. S., 597; Wallace v. Lincoln Sav.
reasonably prudent man would exer- Bank, 89 Tenn. 630, 15 S. W. 448, 34
cise under the same circumstances; Am. St. Rep. 635; Minton v. Stahl-
not that which a prudent man would man, 96 Tenn. 98, 34 S. W. 223; Lane
exercise in his own business. Stone v. & Co. V. Bank, 56 Tenn. (9 Heisk.)
Rottman, 183 Mo. 553, 82 S. W. 76. 419; Scale v. Baker, 70 Tex. 283, 7 S.
If by their gross mismanagement W. 742, 8 Am. St. Rep. 593; Warren v.
and neglect loss is incurred, they will Robison, 19 Utah 289, 57 Pac. 287, 75
be rendered- liable therefor to credit- Am. St. Rep. 734; Marshall v. Farm-
ors and stockholders. Elliott v. Farm- ers', etc., Sav. Bank, 85 Va. 676, 8 S. E.
ers' Bank, 61 W. Va. 641, 57 S. E. 242. 586, 3 L. R. A. 534, 17 Am. St. Rep.
63. Robinson v. Hall, 59 Fed. 648; 84; Wolfe v. Second Nat. Bank, 54 W.
Mutual, etc., Sav. Bank v. Bosseiux, 3 Va. 689, 47 S. E. 243.
Fed. 817, 4 Hughes 387. A showing that certain directors of
Illness may be sufficient excuse for a defunct banking institution were
passive negligence. —A
director chosen careless and negligent as such; that
to fill a vacancy created by death they exercised no supervision over its
was at the time an invalid, and by affairs,but turned everything over to
reason of his infirmity in health unable the executive officers, and allowed
to transact business, at least with loans to be made to the officers of the
facility. His codirectors at the time of bank and to others, practically with-
his election were supposedly con- out security; and that these loans
versant with and capable of managing —
resulted in wrecking the bank is suffi-
the banks affairs. Held, that while it cient, in an action on behalf of stock-
might be said that he should not have holders and creditors for an account-
accepted the position of director, and ing and for damages, to establish a
should not have allowed himself to be prima facie case against such directors.
re-elected, yet upon this question of Warren v. Robison, 19 Utah, 289, 57
passive negligence the rule should not Pac. 287, 75 Am. St. Rep. 734.
be so rigorously applied as to make no Kirby's Dig., §§ 841, 863, 864, provid-
allowance for the person charged ing that the business of every corpo-
under such circumstances, and that he ration shall be managed by the di-
should not be held liable therefor. rectors, and making the officers of a
Briggs V. Spaulding, 141 U. S. 132, 35 corporation who intentionally neglect
L. Ed. 662, 11 S. Ct. 924. to comply with the statutes and to per-
64. Delegation of duties —
Supervision form the duties required of them
—
and inspection. Briggs v. Spaulding, jointly and severally liable for the
141 U. S. 132, 35 L. Ed. 662, 11 S. Ct. debts of the corporation contracted
924; Mason v. Moore, 73 O. St. 375, during the period of such negligence,
76 N. E. 932, 4 L. R. A., N. S., 597; etc., require the directors of a corpo-
Wallace v. Lincoln Sav. Bank, 89 Tenn. ration to perform the functions re-
630, 15 S. W. 448, 24 Am. St. Rep. 625. quired of them by statute, common
65. Same. —
Briggs v. Spaulding, 141 usage, and the by-laws. Therefore the
U. S. 132. 35 L. Ed. 662, 11 S. Ct. 934; directors of a bank who appoint a
Lowndes v. City Nat. Bank, 82 Conn. cashier can not divest themselves
8, 72 Atl. 150; Bailey v. O'Neal, 92 Ark. of the duty of general supervi-
337, 122 S. W. 503; Mason v. Moore, sion and control and can not rely en-
§ 54 (la) OFFICERS AND AGENTS. 269
surers of the competency or fidelity of the cashier or his subordinates, nor

liable for their acts upon any principle of agency, "^ nor required to look
with suspicion upon the conduct of these agents and employees, nor to
practice a system of espionage over the cashier or his subordinates, in
the absence of circumstances calculated to excite doubt or suspicion,®'^ yet
they are required to exercise due care in their selection and proper su-
pervision over their actions and conduct of the bank's While in
affairs.*'^
some corporations directors may constitute merely an advisory body main-

taining only a general oversight as to the affairs of the company, it ie not
so as to the directors of banks. As directors, it is their duty to know the
system of management and its daily workings, including the general finan-
cial condition of the bank and all important matters in its dealings. They
can not escape by showing that they were ignorant of the business
liability
of the corporation with respect to those matters which it is their duty

to know and if they negligently entrust such matters to others, and loss
;
is thereby incurred, it should fall upon them, and not upon their de-
tirely on the good faith and judgment In relation to these officers, the
of the cashier; so that where the duties of directors are those of con-
directors knowingly allowed the cash- trol, and the neglect which would ren-
ier to lend to one man and his various der them responsible for not exercis-
enterprises without substantial se- ing that control properly, must depend
curity sums largely in excess of the on circumstances, and in a great
capital stock of the bank and to con- measure be tested by the facts of the
tinue that course of dealing for a case. If nothing has come to their
period of several years, resulting in the knowledge, to awaken suspicion of the
insolvency of the bank, the directors fidelity of the president and cashier,
were personally liable to creditors be- ordinary attention to the affairs of the
coming such during such period. institution is sufficient. If they be-
Bailey v. O'Neal, 93 Ark. 327, 132 S. come acquainted with any fact calcu-
W. 503. lated to put prudent men on their
Not insurers of fidelity of em-
6G. guard, a degree of care commensurate
—
ployees. Mason v. Moore, 73 O. St. with the evil to be avoided is required,
275, 76 N. E. 932, 4 L. R. A. (N. S.) and a want of that care certainly
597; Wallace v. Lincoln Sav. Bank, makes them responsible. Briggs v.
89 Tenn. 630, 15 S. W. 448, 24 Am. St. Spaulding, 141 U. S. 132, 35 L. Ed.
Rep. 625. 662, 11 S. Ct. 934.
67. Nor required to look with Although no formal resolution au-
suspicion on conduct of subordinates. thorized the president to transact the
— Briggs V. Spaulding, 141 U. S. 133, 35 business of the bank, yet in view of
L. Ed. 662, 11 S. Ct. 934; Mason v. the practice of fourteen years or more,
Moore, 73 O. St. 275, 76 N. E. 933, 4 it must be held that he was duly au-
L. R. A., N. S., 597. thorized to do so. It does not follow

68. But held to a proper oversight. — that the executive officers should have
Briggs V. Spaulding, 141 U. S. 132, 35 been left to control the business of
L. Ed. 663, 11 S. Ct. 924; Lowndes v. the bank absolutely and without su-
City Nat. Bank, 82 Conn. 8, 73 Atl. pervision, or that the statute furnishes
150; Wallace v. Lincoln Sav. Bank, 89 a justification for the pursuit of that
Tenn. 630, 15 S. W. 448, 24 Am. St. course. Its language does enable in-
Rep. 625; Minton v. Stahlman, 96 Tenn. dividual directors to say that they
98, 34 S. W. 223; Seale v. Baker, 70 were guilty of no violation of a duty
Tex. 383, 7 S. W. 743, 8 Am. St. Rep. directly devolved upon them. Whether
593; Warren v. Robison, 19 Utah 389, they were responsible for any neglect
57 Pac. 287, 75 Am. St. Rep. 734; of the board as such, or in failing to
Marshall v. Farmers', etc., Sav. Bank, obtain proper action on its part, is
85 Va. 676, 8 S. E. 586, 3 L. R. A. 534, another question, Briggs v. Spaulding,
17 Am. St. Rep. 84; Zinn v. Mendel, 9 141 U. S. 132, 35 L. Ed. 663, 11 S. Ct.
W. Va. 580. 934.
positorsand stockholders.^® They are not required, however, to give their

whole time and attention to the performance of these duties, but only so
much as, under the special circumstances of each particular case, may be
demanded for the reasonable protection of the interests committed to
their care.''" And a mere failure to make or cause an investigation, in a
short term of service, nothing appearing to cause suspicion, is not negli-
gence.'^^
69. Same —
Can not escape liability by to do. These and other facts show
—
plea of ignorance. Briggs v. Spauld- such negligence on the part of the di-
ing, 141 U. S. 132, 35 L. Ed. 662, 11 S. rectors as will make them personally
Ct. 924; German Sav. Bank v. Wul- liable for' the losses caused thereby.
fekuhler, 19 Kan. 60; Meisse v. Loren, Marshall v. Farmers', etc., Sav. Bank,
4 N. P. 100, 6 O. Dec. 258; Lane & Co. 85 Va. 676, 8 S. E. 586, 2 E. R. A. 534,
V. Bank, 56 Tenn. (9 Heisk.) 419; War- 17 Am. St. Rep. 84.
ren V. Robison, 19 Utah 289, 57 Pac. One who is a director and vice-presi-
287, 75 Am. St. Rep. 734; Marshall v. dent of a bank is bound, and conclu-
Farmers', etc., Sav. Bank, 58 Va. 676, sively presumed, to know its general
8 S. E. 586, 2 L. R. A. 534, 17 Am. St. financial condition and management,
Rep. 84; Zinn v. Mendel, 9 W. Va. and all important matters in its deal-
580; Wolfe v. Second Nat. Bank, 54 ings. He is chargeable with knowledge
W. Va. 689, 47 S. E. 243; Elliott v. when his bank is in an embarrassed
Farmers' Bank, 61 W. Va. 641, 57 S. E. condition, and the condition of an ac-
243. count which has been overdrawn sev-
Directors must exercise ordinary eral months. The fact that from ill
care and prudence in the administra- health he gives no personal attention
tion of the affairs of a bank, and this to the business of the bank will not
includes something more than officiat- exempt him from this obligation and
ing as figureheads. They are entitled liability. German Sav. Bank v. Wulfe-
under the law to commit the banking, kuhler, 19 Kan. 60.
business, as defined, to their duly-au- Bank directors must be considered
thorized officers, but this does not ab- as affected with the knowledge of such
solve them from the duty of reasonable facts as appear upon the bank books.
supervision, nor ought they be per- Zinn V. Mendel, 9 W. Va. 580.
mitted to be shielded from liability The directors of a bank are equally
because of want of knowledge of
bound with the cashier to constant
wrong doing, if that ignorance is the activity and thorough acquaintance
result of gross inattention. Briggs v.
with its daily course of affairs and
Spaulding,' 141 U. S. 132, 35 L. Ed. 662,
dealings. They must know its debts
11 S. Ct. 924.
and its securities; and, in the absence,
A bank director is personally re- illness, or negligence of the cashier,
sponsible to a depositor for loss sus-
must perfect and collect them; and
tained by him for a dereliction of duty
perform all the duties devolving upon
on the part of such director in the
following particulars, to wit: Failure
him. Lane &
Co. v. Bank, 56 Tenn.
(9 Heisk.) 419.
to hold weekly meetings as prescribed
by the by-laws of the bank, it appear-
A long and systematic violation of
the directions of the charter by the
ing that they sometimes only met
semi-annually and even at greater in-
president and committeemen is prima
facie presumption that such course of
tervals; allowing a depositing railroad
misconduct was known to the man-
company to overdraw its account to agers, and the latter can not demur to
the extent of many thousand dollars,
the bill seeking to charge them with
such director being the president of
such mismanagement, on the ground
the company part of the time and one
that such misconduct is not traced to
of the bank directors being president
them. Meisse v. Loren, 4 N. P. 100, 6
of the company the other part of the
O. Dec. 258.
time in question, while the treasurer
of the railroad company was the cash- 70. Not required to give entire time
ier of the savings bank; lending money —
and attention. Wallace' v. Lincoln
to friends and relatives without any Sav. Bank, 89 Tenn. 630, 15 S. W. 448,
security; failing to cause the books of 24 Am. St. Rep. 625.
the banks to be examined at regular 71. Failure to cause investigation
intervals as they were in duty bound during short term of service. Briggs —
§ 54 (la) OFlflCERS AND AGENTS. 271
Directors as Trustees —As Agents. — It has been held in a number of

cases that the relationship of officers and directors of a corporation and
stockholders and creditors is that of trustees and cestuis que trustent, and
in the scrutiny of possible breaches of duty the rigid rules which govern
trustees have been applied. This has been especially true with regard to
banking corporations, where the directors owe an earlier duty to the
depositors, and where they are liable for losses incurred through their
mismanagement, neglect of duty, or abuse of trust.''' ^ But while bank di-
rectors are often styled trustees, this is not true in any technical sense.
They are not express trustees, but the relation is rather that of agents or
mandatories, and as such they occupy a fiduciary relation just in the sense
that every agent is a trustee for his principal, or in the sense that any
person may, under given circumstances and the operation of familiar prin-
ciples of equity, be held as an impHed or constructive trustee for another.'''^
Not to Manage Affairs of Bank for Their Personal and Private
—
Advantage. The fiduciary character of directors is such that the law will
not permit them to manage the affairs of the corporation for their personal
V. Spaulding, 141 U. S. 133, 35 L. Ed. V.Ludeling, 31 Wall. 616, 22 L. Ed.

662, 11 S. Ct. 924. 492;Scale v. Baker, 70 Tex. 383, 7 S.
Directors should not be subjected W. 742, 8 Am. St. Rep. 592; Hume v.
to upon the ground of want
liability Commercial Bank, 77 Tenn. (9 Lea)
of ordinary care, where the bank be- 738; Marshall v. Farmers', etc., Sav.
came insolvent within ninety days after Bank, 85 Va. 676, 8 S. E. 586, 3 L. R.
their election to the board because A. 534, 17 Am. St. Rep. 84; Elliott v.
they did not compel the board of di- Farmers' Bank, 61 W. Va. 641, 57 S.
rectors to make an investigation and E. 243.
did not themselves individually con- 73. Same —Implied
or quasi trustees.
duct an examination, during their — Briggs Spaulding, 141 U. S. 132,
V.
short period of service; or because 147, 35 L. Ed. 663, 11 S. Ct. 924; In re
they did not happen to go among the Spering's Appeal, 71 Pa. St. 11, 10
clerks and look through the books, Am. Rep. 684; Hughes v. Brown, 88
or call for and run over the bills re- Tenn. 578, 13 S. W. 386, 8 L. R. A.
ceivable, where there was no obvious 480; Wallace v. Lincoln Sav. Bank, 89
reason to suspect anything wrong. Tenn. 630, 15 S. W. 448, 24 Am. St.
Briggs V. Spaulding, 141 U. S. 132, 35 Rep. 625; Minton v. Stahlman, 96
L. Ed. 662, 11 S. Ct. 924, affirming Tenn. 98, 34 S. W. 322; Deadrick v.
Movius V. Lee, 30 Fed. 298. Bank, 100 Tenn. 457, 45 S. W. 786;
72. Directors as trustees or agents. Scale V. Baker, 70 Tex. 383, 294, 7
— Mutual, etc., Sav. Bank v. Bosseiux, S. \y. 742, 8 Am. St. Rep. 592.
3 Fed. 817, 4 Hughes 387; Hersey v. Directors are not express trustees.
Veazie, 24 Me. 9, 41 Am. Dec. 364; They do not hold the legal title, and
Smith V. Poor, 40 Me. 415, 63 Am. Dec. more often than otherwise are 'not the
672; Wilkinson v. Dodd, 40 N. J. Eq. officers of the corporation having pos-
123, 3 Atl. 360; Robinson v. Smith (N. session of the corporate property. Wal-
Y.), 3 Paige 222, 24 Am. Dec. 212; lace V. Lincoln Sav. Bank, 89 Tenn.
Cunningham v. (N. Y.), 5 Paige
Pitts 630, 15 S. W. 448, 34 Am. St. Rep.
607; Rouse v. Merchants Nat. Bank, 635; Deadrick v. Bank, 100 Tenn. 457,
46 O. St. 493, 23 N. E. 293, 5 L. R. A. 45 S. W. 786.
378, 15 Am. Rep. 644; Taylor v.
St. Everydirector of a bank is its
Miami Exporting Co., 5 O. 163; Zinn agent; appointed by the bank, and
V. Baxter, 65 O. St. 341, 63 N. E. 327; held out to the public as entitled to
Meisse v. Loren, 4 N. P. 100, 6 O. Dec. confidence. Union Bank v. Camp-
258; Shea v. Mabry, 69 Tenn. Cl Lea) bell,23 Tenn. (4 Humph.) 394. See,
319; Lane & Co. v. Bank, 56 Tenn. (9 to the same effect, Hume
v. Commer-
Heisk.) 419; Vance v, Phrenix Ins. Co., cial Bank, 77 Tenn. (9 Lea) 738;
73 Tenn. (4 Lea) 385; Parker v. Mc- Minton v. Stahlman, 96 Tenn 98 34
Kenna, L. R. 10 ch. (Tenn.) 9; Jackson S. W. 222.
and private advantage, when their duty would require them to work for
and use reasonable efforts for the general interest of the corporation and
its stockholders and creditors. The confidence thus reposed in them can
not be thus abused with impunity; and they can not use their position to
promote their own interest in respect to anything thus intrusted to them,
to the prejudice of creditors or other members.'^*
Misfeasance and Nonfeasance —Mistake of Judgment. —As agents
—an action will lie against directors for malfeasance, misfeasance, nonfeas-
ance, or negligence in office ;'^5 but they can not, in general, be held liable
for loss or depreciation resulting through mere error of judgrnent.''® One
accepting a director's place, however, must be considered as holding him-
self out as possessed of ordinary -business skill and ability, and if he is not
possessed of these qualifications, he should decline to serve, for if he com-
mit an error of judgment through mere recklessness or the want of or-
dinary prudence and skill, the corporation may hold him responsible for
the consequences.'^'^ They must show reasonable capacity for the position
they accept, and use in it and industry, and a scrupu-
their best discretion
lous conscientiousness in every matter, and obey accurately the requisitions
of the charter and of the general law.'^^
Fraudulent and Illegal Acts. —As agents, directors are of course liable
for their fraudulent or illegal acts. If they fraudulently abuse their trust,
and misapply the funds of the corporation, they are personally liable to
make^good that loss.'^^ Though to inculpate a director, it is not necessary
74. SealeBaker, 70 Tex. 383, 7 S.

v. v. Kyle, 77 Ky. (14 Bush) 134; War-
W. 743, 8 Am.
St. Rep. 593. ren v. Robinson, 25 Utah 205, 70 Pac.
75. Misfeasance and nonfeasance. — 989; Marshall v. Farmers', etc., Sav.
Wallace v. Lincoln Sav. Bank, 89 Bank, 85 Va. 676, 8 S. E. 586, 2 L R.
Tenn. 630, 15 S. W. 448, 24 Am. St. A. 534, 17 Am. St. Rep. 84.
Bank, 100 Tenn.
?.? .?î Htfîi^}"W^. Directors of a bank are not re-
457, 45 S 786; Shea t- Knoxville, sponsible to the stockholders for loss,
etc., R. Co 65 Term (6 Baxt.) 277; unless occasioned by fraud or gross
Moses V. Ocoee Bank, 69 Tenn. (1 negligence on their part. Dunn v.
^^^^, „l^î ^TS
„£°T'^'""^'
Bank, 77 Tenn. (9 Lea) 728; Seale v. \ Kyle, 77 Ky. (14 Bush) 134.
„„ „
,, , „ .
\
Baker, 70 Tex. 283, 7 S. W. 742, 8 Am. J'^- JP-°^^^ "^"Hl^" .°"t as possessed
Rep. 592; Warren ordinary qualifications.— Marshall v.
St. Robinson, 25 v. °J
Utah 305, 70 Pac. 989; Marshall v. ?^"''' ^^
„ o'^n?''" .^^^''t^^,?- X^" ^^^•
S. E 586, 2 L. R. A. 534, 17 Am. St.
'
Farmers', etc., Sav. Bank," 85 Va. 676, %

8 S. E. 586, 2 L. R. A. 534, 17 Am. St. "^^P' ^*-
Rep. 84. 78. Reasonable capacity —Conscien-
A liability of this kind should not t'°is discharge of duty.— Marshall v.
lightly be imposed upon directors in Farmers', etc., Sav. Bank, 85 Va. 676,
the absence of any element of positive 8 S. E. 586, 3 L. R. A. 534, 17 Am. St.
misfeasance, and solely upon the ^^p. 84.
ground of passive negligence; and it 79. Fraudulent and illegal acts. —
must be made to appear that the Hersey Veazie, 34 Me. 9, 41 Am.
v.
losses for which defendants are re- Dec. 364; Smith v. Poor, 40 Me. 415,
quired to respond were the natural 63 Am. Dec. 673; Robinson v. Smith
and necessary consequence of omis- (N. Y.), 3 Paige 323, 24 Am. Dec. 213;
sion on their part. Briggs v. Spauld- Cunningham v. Pitts (N. Y.), 5 Paige
ing, 141 U. S. 133, 35 L. Ed. 662, 11 S. 607; Mabey v. Adams, 16 N. Y. 346;
Ct. 934. Hume v. Commercial Bank, 77 Tenn
76. Mere errors of judgment.— Dunn (9 Lea) 738.
§ 54 (lb) OFFICERS AND AGfiNTS. 273
that actual dishonesty should be shown, or that it should be proved that
he was influenced by interested motives; it is sufficient to show that he

has been guilty of a breach of the implied obligations arising out of the
nature of his position. ^^
Mistakes of Law. —Directors of banks are not liable for excusable
mistakes concerning the law; that is to say, mistakes involving such
knowledge as could be reasonably expected only from a professional man ;^^
but even in such cases, if the directors feel any doubts, they may be
guilty of negligence if they fail to seek and be guided by competent legal
advice.®^
Right to Inspect Books. —A board of directors has no right to pass
a resolution excluding one of its members from an. inspection of its books,
though they deem him hostile to its interests; and a mandamus will lie,
commanding that the books be submitted to his examination. ^^
—
Nominal Directors. A director in law and fact, who actually assumes
the duties of the office, must be held to its responsibilities, and will be bound
by the necessary presumptions raised by the facts. The same strict rules
are clearly not applicable to nominal directors who have never accepted
the office although held out as such. Nor are the defendants estopped to
deny that they were stockholders by the fact of having become directors,
or held themselves out as such.**
§ 54 (lb) President's Powers, Duties and Liabilities. —The

president is not only a director but also the chief executive officer of the
bank, and from the nature of his office, naturally has great influence upon
the policy of the bank and the conduct of the various employees in the
Actual dishonesty not necessary.

80. ^^^^^Sfi declaration of a dividend.—
—Marshall v. Farmers', etc., Sav. The illegal declaration of a dividend,
Bank, 85 Va. 676, 8 S. E. 586, 2 h. R. wn^re there are no net profits to pay
A. 534 17 Am. St. Rep. 84. "^^^ subject the directors to a per-
''^'
'
„
'
„ ^ sonal liability to the association or its

o r g a n i zed
• '
,' •
-r,
Banking associations stockholders for damages suffered in
under the general bankmg law are
^q^, ^.^^^ thereof. United States v.
withm 1 Rev. St. pt 1, c. 18, tit. 2, Bîtton, 108 U. S. 199, 27 L. Ed. 698,
art. 1, §10, to prevent the insolvency of
g g. Ct. 531; Evans v. United States,
moneyed corporations, and makmg di- ^gg y. s. 584, 38 L. Ed. 830, 14 S. Ct.
rectors liable to stockholders who
gg^
suffer an actual loss by the depfecia- ^\ Mistakes of law.— Soloman v.
tion of the stock in their hands by ^ ^^g ^^ ^ 3^ g ^ ^^
reason of the fraudulent conduct of the j^^ g^ ^ ^^ Marshall v. Farm-
directors. Mabey v. Adams, 16 N. Y. ^^^.^ ^^^^ g^^^ ^^^^^ g^ y^^ g^g^ g g^
3^^- ^ E. 586, 2 L. R. A. 534, 17 Am. St.
Under the Tennessee Statutes (Code, Rgp, §4.
§ 1488, Act of 1860, ch. 27, § 26, Rev. Failure to seek competent advice.
gg.
Code, § 1829b) declaring directors m- —Marshall v. Farmers', etc., Sav.
dividually liable for losses occasioned Bank, 85 Va. 683, 8 S. E. 586, 2 L. R.
through fraud and willful mismanage- A, 534, 17 Am. St. Rep. 84.
ment it is held that the cases pro- 83. Right to inspect books.— People
vided for are cases of intentional fraud y_ Throop (N. Y.), 12 Wend. 183.
and willful mismanagement.
Commercial Bank, 77 Tenn.
Hume
Eea)
v. 84. Nominal directors. Hume v. —
(9 Commercial Bank. 77 Tenn. (9 Lea)
728. 728.
1 B & B— 18
274 BANKS AND BANKING. § 54 (Ic)
discharge of their duties. ^^ He may be authorized by the directors to do

anything within the authority of the bank's charter.*® It is his duty to pre-
side, and his other duties may vary according to usage or by-law of the
institution, and, while he is usually expected to exercise a more constant,
immediate, and personal supervision than an ordinary director, the mere
fact that he permits the cashier to have physical control of securities is not
necessarily proof of his negligence.*'^ He is to be regarded as a trustee
bound to exercise such care and prudence in his office as men of common
prudence ordinarily show in their own affairs; the measure of his care
being dependent on the subject to which it is due and the circumstances of
each particular case.**
§ 54 (Ic) Cashier's Powers, Duties and Liabilities. —The cash-

ier of a bank is its executive officer through whom its financial operations
are conducted and by whom its debts are received and paid and its se-
curities taken and transferred.*® By virtue of his office he is generally en-

trusted with the bank's funds and securities and charged with the duty
of superintending its books, payments and receipts as a moneyed institu-
tion.®" But it does not follow that he is the only oificer of the bank whose
duty it is to look after the securities of the bank, and to perfect and collect
them. It is equally the duty of the president and directors.®^

An Agent of the Bank. —The cashier of a bank is its agent,®^ and his
acts, to be binding upon the bank, must be done within the ordinary course
of his duties.®^
A Quasi Trustee. —Though a cashier is a quasi trustee, and though in his
dealings with the public he is the agent of the bank, and is held as to the bank
likea trustee, yet he is not strictly speaking, and if he wrongfully acquires its
funds and invests them in his own name, it can not fasten a trust or lien on
the property, as in case of a real trustee, since the acquisition of the funds
85. President's powers and duties. — Bank (Tex. Civ. App.), 27 S. W. 897;
Gidding v. Baker, 80 Tex. 308, 16 S. First Nat. Bank v. Ledbetter (Civ.
W. 33; Brown v. Farmers', etc., Nat. App.), 34 S. W. 1043.
Bank, 88 Tex. 265, 31 S. W. 285, 33 L. 90. Custodian of funds— Supervision
R. A. 359, reversing 31 S.W. 216. of books— Payments and receipts.—
86. Same.— Boyd First Nat. Bank,
v. Davenport v. Prentice, 126 App. Div.
32 Ky. L. Rep. 1333, 108 S. W. 360. 451^ no N. Y. S. 1056; Sturges & Co. v.
87. Same.— Davenport v. Prentice, Bank, 11 O. St. 153; Durkin v. Ex-
126 App. Div. 451, 110 N. Y. S. 1056. change Bank (Va.), 2 Pat. & H. 277.
88. Same— As a trustee— Diligence gee, also. Bank Wetzel, 58 W. Va.
—
required. Davenport v. Prentice, 126 W
50 S 886
v. 1,
directors also re-

^^8^9:
°C^^sht^^s"lSesI:T'he"e^xêcutive
officer.-United States v. City Bank
J^J^^^^J^
*° ^ ^°- "'
Bank,
?,"'^t'^ 56 t
Tenn. 7o t7 -'rwfo
(9 He.sk.) 419.
(U. S.), 21 How. 356, 16 L. Ed. 130;
Davenport Prentice, 126 App. Div.
v.
Cashier as agent of bank.— Max-
92.
451, 110 N. Y. S. 1056;. Sturges & Co.
well Planters' Bank, 29 Tenn. (10
v.
V Bank, 11 O. St. 153; Lane & Co. v. Humph.) 507; Wynn v. Tallapoosa
Bank, 56 Tenn. (9 Heisk.) 419; First County Bank, 168 Ala. 469, 53 So. 228.
Nat. Bank v. Greenville Oil, etc., Co., 93. Same —
Power to bind bank.
24 Tex. Civ. App. 645, 60 S. W. 828. Bank v. Wetzel, 58 W. Va. 1, 5, 50
See, also, Rosenberg v. First Nat. S. W. 886.
§ 54 (Ic) OFFICERS AND AGEjNTS. 275
being wrong in such case, the trust does not exist. ®^^
•
Care and Diligence Required —Duty to Observe By-Laws. —A bank
cashier is required to exercise reasonable skill, care and diligence in the
discharge of his duties, and is personally liable to the bank for losses re-
sulting from his failure to exercise such care in the discharge of the duties
of his office whether it be in the matter of making loans or transacting the
other duties of his office;®* and it does not avail that the directors ordered
or authorized him so to act, if they had no authority to do so, nor to do the
act themselves which they authorized him to do, and he knew or ovight to
have known that the act done or authorized was unlawful. ^^ He is not re-
sponsible for losses resulting through mere errors of judgment.*® If intrusted
with the responsibility of making loans, he will be liable to the bank for
improper loans, discounts or overdrafts where he fails to make reasonable
inquiry into the financial standing of those to whom such loans, discounts
or overdrafts are made or allowed, or if he knowingly or negligently fails
to take proper security ; but he is not an insurer or guarantor of their sol-

vency or integrity.*'^ Nor is the cashier liable merely because he did not
observe the by-laws, unless negligent or inexcusable in not doing so.*^ The
directors can not, by neglecting to perform any duties, and imposing all on
the cashier, make him an absolute insurer of the bank against all loss
merely because, to carry on its business successfully, he must ignore or fail
to observe the by-laws, or fail to confer with them.** Whatever the direct-
ors may themselves do, they may authorize the cashier to do, and if he acts
under their lawful authority, he is not liable to them or to the bank.i More-
over, what the directors may authorize in the first instance, they may also
ratify, and stockholders, directors, committees and officers must be pre-
93a. Cashier as a trustee. Wynn v. — lAm. St. 625; Commercial Bank

Rep.
Tallapoosa County Bank, 168 Ala. 469, v. Ten Eyck, 48 N. Y. 305.
53 So. 228. 98. Failure to observe charter and
Care and diligence required of
94. by-laws. —Wynn v. Tallapoosa County
—
cashier. Wynn v. Tallapoosa County Bank, 168 Ala. 469, 53 So. 228.
Bank, 168 Ala. 469,. 53 So. 328; Com- 99. Same— Not an insurer.— Wynn v.
mercial Bank v. Ten Eyck, 48 N. Y. Tallapoosa County Bank, 168 Ala. 469,
305; Wallace v. Lincoln Sav. Bank, 89 53 gg 228.
Tenn. 630, 15 S. W. 448, 24 Am. St. place on the cashier the
if directors
Rep. 625; Vance v. Mottley, 92 Tenn. duty of carrying on the bank's busi-
310, 21 S. W. 593. ness, and they as a body, or the com-
95. How
far protected by order of mittees thereof, fail to meet, or to
directors.—Wynn v. Tallapoosa County instruct, help, and supervise him, ab-
Bank, 168 Ala. 469, 53 So. 238. senting themselves from the bank and
96. Losses through errors of judg- its business, and 'thus put on him
—
ment. Wynn v. Tallapoosa County the whole burden, neither they nor the
Bank, 168 Ala. 469, 53 So. 238; Com- bank can hold him responsible for not
mercial Bank v. Ten Eyck, 48 N. Y. consulting with them, as required by
305; Wallace v. Lincoln Sav. Bank, the by-laws, as to discounts and loans.
89 Tenn. 630, 15 S. W. 448, 24 Am. St. Wynn v. Tallapoosa County Bank, 168
Rep. 625. Ala. 469, 53 So. 328; Second Nat. Bank
97. Care in making loans. Wynn v. — v. Burt, 93 N. Y. 333.
Tallapoosa County Bank, 168 Ala. 469, Authorization and ratification by
1.
53 So. 238; Wallace v. Lincoln Sav. directors.— Wynn v. Tallapoosa

Bank, 89 Tenn. 630, 15 S. W. 448, 24 County Bank, 168 Ala. 469, 53 So. 228.
276 BANKS AND BANKING. § 54 (le)
sumed to have known of and consented to a cashier's course of business as

to overdrafts, loans and discounts where the same has continued over a
course of years without suspicion or complaint, and after allowing it for
that period of time and profiting thereby, they must be presumed to have
ratified his acts.^
Duty of Director Acting as Cashier. —A director appointed as acting
cashier and acting in the absence of any regular cashier is held to the
same duties and responsibilities, and required to perform whatever duties
may be imposed by law upon the cashier, as, for example, the keeping, or
causing to be kept, of the list of shareholders and the number of their
shares as required by the national banking act.^
§ 54 (Id) Wrongful Acts from Which No Loss or Injury Results.

— Bank though negligent or guilty of wrongful
officials, acts, incur no lia-
bility where there is no resulting loss.*
§ 54 (le) Liability for Acts Done during Absence, Sickness,

etc. — Â teller of a bank can not be held liable for losses incurred during
his absence from the bank.^ The board of directors has power to grant
2. Sam e. —W
y n n v. Tallapoosa as the brokers were liable to the bank
County Bank, 168 Ala. 469,. 53 So. 238. for the balance, and were able to re-
3. Duty of director acting as cash- spond in damages, the bank had sus-
ier.— Finn V. Brown, 142 U. S. 56, 35 tained no damage from the cashier's
L. Ed. 936, 13 S. Ct. 136. negligence, and he, therefore, was not
4. Where no loss results from liable for want of care. Commercial
—
wrongful act. Wynn v. Tallapoosa Bank v. Ten Eyck, 48 N. Y. 305.
County Bank, 168 Ala. 469, 53 So. 228; In an action by a shareholder against
Jones V. Johnson, 86 Ky. 530, 9 Ky. L. the directors of a bank, to recover for
Rep. 789, 6 S. W. 583; Commercial alleged losses due to their inattention
Bank v. Ten Eyck, 48 N. Y. 305; Wal- and mismanagement, it appeared that,
lace V. Lincoln Sav. Bank, 89 Tenn. by resolution of the directors on the
630, 15 S. W. 448, 34 Am. St. Rep. 635. formation of the bank, the entire man-
The directors, having removed a agement was given to its cashier, a
cashier on account of his overdrafts, man of large estate and rare financial
took his notes, secured by an indorser ability; that such cashier, without
and mortgage, in settlement, and to theirknowledge or consent, borrowed
reconcile him, and avoid exposure and enormous sums of the bank for a firm
consequent loss, made him director of which he was a member; that on
with a salary. Held, a proper exer- discovery of such fact, after several
cise of their discretion, and that, as no years, he was deposed, and the direct-
damage resulted, the stockholders had ors obtained security for his indebted-
no cause of action against them. Jones ness, which was thereafter reduced
V. Johnson, 86 Ky. 530, 9 Ky. L,. Rep. from time to time by payments; and
789, 6 S. W. 583. that an action by the trustee of the
A cashier forwarded certain bonds, bank, in insolvency, to recover the bal-
pledged to his bank as collateral se- ance of $38,000, in which usury was
curity, to responsible brokers, for sale, set up in defense, was compromised
drawing against them for a portion by leave of court on the payment of
of the value of the bonds. His draft $8,000. Held, admitting the negligence
was accepted and paid. He negligently of the bank officers, that no such loss
omitted to inquire after the securities, was shown as would sustain a re-
or to collect the balance realized from covery. Wallace v. Lincoln Sav.
their sale. The brokers, with knowl- Bank, 89 Tenn. 630, 15 S. W. 448, 24
edge of the interest of the bank, wrong- Am. St. Rep. 635.
fully applied such balance upon a 5. Liability for acts during absence
claim of their own against the pledgor or —
sickness. Bank v. Johnson, Fed.
of the bonds to the bank. Held, that Cas. No. 919, 3 Cranch C. C. 228.
§ 54 (If) OFFICERS AND AGENTS. 277
leave of absence to a director, for good cause such as illness, which will
excuse him from all dutiestime,*' and a director of a bank
for such
(national), who has been granted leave of absence by the board on ac-
count of illness, is not responsible for what occurs in his absenceJ
§ 54 (If) Duty with Respect to Statements of Bank's Condi-

tion. — See, also, ante, "Reports and Statements," § 16; post, "Criminal Re-
sponsibility," § 60. It is the duty of directors to know the condition of
their bank, and to prevent publication of false statements of its condi-
tion, and by no private arrangement can they be excused from giving proper
attention to such duties because they are nonresidents of the town wherein
the bank is located.^ Where the officers of a bank have represented to the
state official, who examined its assets and condition, that certain mortgages
held by the bank were valid securities, good morals and public policy will
not allow them afterward to change their ground with respect to the va-
lidity of the mortgages.®
"Knowledge and Belief." —
In determining whether a bank president
was negligent in making oath that a report to the superintendent of bank-
ing was true to the best of his knowledge and belief, the word "knowledge"
6. Board may grant leave of absence. titiously and without the knowledge of
— Briggs V. Spaulding, 141 U. S. 132, three of the directors, two of whom
35 L. Ed. 663, 11 S. Ct. 924. were at the time out of the state on
7. Same. — Briggs
v. Spaulding, 141 important business, and one of
was sick, and that the loan was for
whom
U. S. Ed. 662, 11 S. Ct. 924,
133, 35 L.
affirming Movius v. Lee, 30 Fed. 298. some time concealed by the manager.
Leave of absence absolves from lia-
When the directors discovered that
the loan had been made, they made all
bility. —Where
a director (who was
reasonable efforts to collect it. Held,
also president) of a national bank be-
that these three directors were guilty
came seriously ill, it was within the of no neglect of duty making them.
authority of the board to grant him a
liable to stockholders for loss on the
leave of absence for a year. It can
loan. Warren v. Robinson, 25 Utah
not be contended that the resolution
205, 70 Pac. 989.
referred to absence as president and
not as director, and that no power 8. Duty with respect to statements.
existed to allow leave of absence to —Houston V. Thornton, 123 N. C. 365,
a member of the board, and that 29 S. E. 827, 65 Am. St. Rep. 699.
the resolution should be limited to ex- Where it appears that the affairs of
cusing him from attendance at the bank, a bank were left in the management
but not as permitting him to leave the of officers thereof, who, by gross frauds
city; or that if he wished to be ab- extending through a period of several
solved from responsibility while ab- years, ruined the bank, and during
sent in search of health, he should which time false statements were pub-
have resigned. He was guilty of no lished showing the bank to be in a
want of ordinary care in acting upon good condition, the fact that the di-
the leave of absence, and was not rectors resided away from the town
to be held, because he did not resign, where the bank was located will not
to responsibility tfor what occurred warrant the assumption that such di-
in his absence. Briggs v. Spaulding, rectors could not, in the proper dis-
141 U. S. 132, 35 L. Ed. 662, 11 S. Ct. charge of their duty, have ascertained
924. that such statements were false. Hous-
In an action by stockholders of a ton V. Thornton, 123 N. C. 365, 29 S. E.
827, 65 Am. St. Rep. 699.
bank against the directors and officers
to recover for depreciation of stock, 9. —
Same Estoppel with respect to
the court found that a certain loan was —
representations. White v. Leslie (N.
made by the general manager surrep- Y.), 54 How. Prac. 394.
278 BANKS AND BANKING. § 54 (Ig)
must be taken in its common, ordinary meaning.^"

—
Funds, Securities, etc.- An officer of a bank, who has unfaithfully man-
aged its funds, is liable to the corporation. ^^ Such an officer entitled, as
against everybody, to the care and control of its assets, and who accepts
that service and employment, while he may not be an insurer, yet, when
his duties are fixed and determined for him, in the accomplishment of that
service, and the manner prescribed, and the place fixed, and the where-
withal provided by which he may safely perform that engagement, is held
to the exercise of such care to effect it as an ordinarily prudent man, under
the same or similar circumstances, would exercise; and if he fails in this,
and loss directly results, he must make good such loss.^^ Reasonable care
upon the part of officers having the care of the funds of the bank, in the
matter of attending to the vault doors, is to lock them and see that they
are locked. Failure of the president of a bank, in caring for its funds, to
see that the doors of the vault provided for their safe-keeping are locked,
will render him liable for a loss resulting therefrom and good faith on his ;
part, and a reasonable supposition that other officers of the bank more
particularly intrusted with such duty will perform it. is no defense.^^ But
while the presidentis usually expected to exercise a more constant, imme-
diate and personal supervision than an ordinary director, the mere fact
that he permits the cashier to have physical control of securities is not
necessarily proof of his negligence. i*
Usage or Custom. —When the question is one of diligence, between a
bank and its agent, it is not competent for the latter to protect himself,
by proving the custom of another bank, in providing its agents with suit-
able buildings and iron safes, for the purpose of keeping securely the money
10. Same — Knowledge and belief. — return the security, notwithstanding

Davenport v. Prentice, 126 App. Div. a prevailing custom among banks to
451, 110 N. Y. S. 3 056. allow securities to be taken by cus-
11. Handling and safe keeping of tomers for inspection and comparison
funds.— H insdale v. Larned, 16 with their books. Citizens' Bank v.
Wiegand (Pa.), 33 Leg. Int. 100, 11
Mass. 65.
12. Same. — Kalb v. American Nat. Phila. 326.
Bank, 21 O. C. C. 1, 11 O. C. D. 437, 13. Same— Care in locking vault —
affirmed in 65 O. St. 566, 63 N. E. 1129. Kalb v. American Nat. Bank, 21 O.
An unauthorized deposit of securi- C. C. 11 O. C. D. 437.
1,
ties by the managers of a bank with To instruct the jury, in such case,
third parties, when there is a contrary that if the officers "acted in good faith
order from the court, is a gross breach about the affairs of the bank, and
of trust, for which the managers are used reasonable diligence in and about
liable. Wilkinson v. Dodd, 40 N. J. the closing and locking of the door"
Eq. 123, 3 vA.tl. 360. they would be relieved from liability,
A president of a bank, who allowed would have been improper. Kalb v
a customer to take a bill of lading American Nat. Bank, 21 O C C 1
which had been deposited as security 11 O. C. D. 437, affirmed in 63
O St'
for an indebtedness to the bank, that 566, 63 N. E. 1129.
the customer might compare it with 14. As between
president and cash-
his books, is liable to the bank for a ier. — Davenport Prentice 126 App
v.
'
loss through the customer's failure to Div. 451, 110 N. Y. S. 1056

of the principal. But it is competent for an agent who has been robbed
of the money show that banks and other custodians of
of his principal, to
money, look and safes for security, and not to the outside
to their vaults
fastenings of the building in which it is kept.^^
Effect of Resolution Exonerating Officer. A resolution passed by —
the board of directors of a banking corporation exonerating an officer of
the bank from any liability for the loss of money which was stolen or
which disappeared from the bank, does not amount to a relinquishment of
the claim or estop the corporation from subsequently bringing suit to re-
cover the money on the ground that it was lost through the negligence of
the officials. 18
Rights of Officers upon Recovery of Lost Securities. Officers who —

have been held liable for such losses, and compelled to make the same
good to the bank, are entitled, upon the recovery and return of the lost
securities to the bank, to be subrogated to the right of the bank in such
^'^
securities or the proceeds thereof.
§ 54 (2) Misappropriation of Funds. —In General. — Directors

and officers who fraudulently abuse their trust and misapply the funds of
make good that loss.^*
the corporation are personally liable, as trustees, to
Ultra Vires and Unlawful Investments. Directors are personally —
liable to the bank for losses sustained through the investment of the funds
of the bank in ultra vires and forbidden enterprises. ^^
—
Unlawful Disposition of Stock. Directors of a banking corporation
accepting securities in payment of its stock not authorized by its charter,
are personally liable for the whole amount so accepted in breach of their
trust. While those suffering such securities, however, inferior to those
required by the charter, to be lost by the statute of limitations would, a
15. Usage or custom.— Wright v. 18. Misappropriation of funds.—

Central R., etc., Co., 16 Ga. 38. Hersey Veazie, 24 Me. 9, 41 Am.
v.
Dec. 364, Smith .,. Poor, 40 Me. 415 63
16. Resolution exonerating officer.-
^m, Dec^ 672; Robinson v. Smith (N.
Kalb V. American Nat. Bank, 21 O. C.
C 1 11 O. C, D. 437, affirmed in 65 ^-'^ ? l^'ê 223 24 Am
Dec. 213;
Cunningham v. Pitts (N. Y.), 5 Paige
O. St. 566, 63 N. E. 1129.
17. Rights upon recovery of lost se- jg. ultra vires and unlawful invest-
cunties.— Royce v. Bank, 31 Okl. 484, ments.— Stone
v. Rottman, 183 Mo
552
96 Pac. 640. 82 S. W. 76.
Where a territorial bank commis- A
statute declared that a bank might
sioner required the officers of a bank sell all kinds of property coming into
to repair its assets by a deposit of its hands as collateral security for
$2,000 on the erroneous assumption loans, but forbade an investment of
that certain notes were lost, and the funds in trade or commerce. The bank,
officers made such deposit, on the dis- on a sale of the stock of a corpo-
covery and return to the bank of the ration which it held as security, pur-
said notes, the officers making the de- chased the stock, and through its offi-
posit were entitled to be subrogated cers ran the company, which traded in
to the rights of the bank in the notes coal, for four years at a continual loss,
or the proceeds thereof; and it was Held, that the directors of the bank
error to sustain a demurrer to the an- were liable for the loss in a suit by
swer setting up such fact. Royce v. the receiver. Stone v. Rottman, 183
Bank, 21 Okl. 484, 96 Pac. 640. Mo. 552, 83 S. W. 76.
fortiori, be subject to the same liability. Trustees, to whom the manage-

ment of the bank had been confided, would be similarly liable for losses
arising through their laches, especially in a case where the assets had been
in their possession for years, and where they had been admonished to dili-
gence and good faith by suits of creditors, to whom they had refused in-
formation as to the affairs of the banlc^**
Failure to Account for Funds. — and agents are bound to ac-
Officers
count to the bank for moneys and securities belonging to it and shown to
have "come into their hands. ^^ The liability of a cashier for loss of money,
based on failure to account for money received as shown by the books, is
not affected by the fact that on other occasions there was more cash in
the bank' than the books called for, when he does not claim that he paid
it in. 22 The mere fact, however, that notes taken by the cashier are en-
tered on the books as bills receivable, is not sufficient to render him liable
for not accounting for the proceeds, where there is no proof that they were
ever paid.^^ And even the appropriation of bills receivable by directors as
indemnity for notes issued by them for the accommodation of the bank
will not render them liable for either fraud or negligence, where done in
good faith and in ignorance of the impending insolvency of the bank.^*
^\nd although the receipt by the director of an insolvent bank of negotiable
papers against third persons in payment of a debt due and payable from
the bank to such director may be a breach of his duty to the bank, such
circumstance constitutes no defense available to the person liable on the
papers so long as the stockholders make no complaint of it.^s A bank
agent to collect money is bound to respond instanter. Such agent collecting
money in distinct cases against the same individual, although he gives a
single receipt for moneys collected, is liable to an action by the bank in
each case. The consolidation of the whole amount in his receipt to the
20. Unlawful disposition of stock. — ing the war; and B. & Co. removed to
Moses V. Ocoee Bank, 69 Tenn. (1 the same city. In January, 1863, M.
Lea) 398. collected of the treasurer of the state
A stockholder released a valid the interest on state bonds held by
claim for services against the bank, the bank, in Confederate money. Held,
in return for notes given by him in that after the war the O. D. Bank
payment for the stock. Held, that the could maintain an action of assumpsit
other stockholders had no cause of against M. for the money so collected
action against the directors. Jones v. by him. McVeigh v. Bank, 67 Va. {2&
Johnson, 86 Ky. 530, 9 Ky. L. Rep. Graft.) 188.
789, 6 S. W. 582. 22. Same— Surplus cash at other
21. Failure to account for funds. —
times. Rio State Bank v. Amondson,
Wynn v. Tallapoosa County Bank, 168 141 Wis. 83, 123 N. W. 634.
Ala. 469, 53 So. 228; Merchants' Bank 23. Accounting for bills receivable —
V. Rawls, 21 Ga. 289; :McVeigh v. —
Proof of payment. Wynn v. Talla-
Bank, 67 Va. (26 Gratt.) 188; Rio poosa County Bank, 168 lAla. 469, 53
State Bank v. Amondson, 141 Wis. So. 228.
82, 123 N. W. 634. 24. Appropriation of bills, receivable
M. was president of the O. D. Bank, as indemnity against debts assumed
located in the city of Alexandria, and —
for bank. In re Warner's Appeal
was a member of the firm of B. & Co. (Pa.) 7 Atl. 216, 1 Sad. 310.
of that city. In May, 1861, M. went 25. Same— No defense to action on.
to Richmond, where he remained dur- bills.— Bruce v. Hawley, 31 Vt. 643.
debtor, does not constitute a contract with the bank. The manner of his
receipting does not change the nature of his habihty.^"
Applying Funds to Private Use and Benefit. There is no Hmit to —
the various ways in which funds may be misappropriated, and each case
must stand upon its own facts to determine whether or not the funds of
the bank have been unlawfully appHed.^'' Assets of the bank coming into
the hands of a director, even after the dissolution of the bank, and at a
time when he is the sole surviving director, are still the property of the
bank, and he holds them as a trustee for the bank and has no right to
apply them in payment of his individual liabilities. ^^
Loans to Officers of Bank. —In the absence of a statute forbidding

loans to officers of the bank, there no moral or legal turpitude involved
is
in a bona fide loan obtained from the bank with the knowledge and con-
sent of the directors.^*'
26. Accounting for moneys collected of the president, who was the financial
— Manner of receipting. —
Merchants' officer of the bank, for thepurpose of
Bank v. Rawls, 21 Ga. 389. fulfilling an engagement by them, and
27. Misapplication of funds — Illus- purporting to bind the bank, to buy
trations. —The
president of a bank, state stocks, to carry on a private un-
dertaking of their own, it was held
having placed the money of a de-
positor to his own credit, instead that such assent of the president did
of the depositor's, and then having al- not protect the cashier from his lia-
lowed the depositor to withdraw, be- bility to thebank to repay the amount.
comes debtor to the bank. In re Austin V. Daniels (N. Y.), 4 Denio 299.
Boker (Pa.), 7 Phila. 479. 28. Same —
Assets received after dis-
an unlawful taking and misap-
It is —
solution of bank. New York Life Ins.
propriation, amounting to a conversion Co. V. Kansas City Bank, 121 Mo. App.
of its funds by the vice president of 479, 97 S. W. 195.
a bank, whose charter prohibits its offi- Where a life policy was assigned to
cers from borrowing its funds, either a bank as security for a debt, and,
directly or indirectly, where he takes upon the bank's going out of business,
checks upon the bank signed by its passed to a director and trustee, who
secretary and president, and uses them became the surviving director and
in individual stock speculations, and trustee, an assignment of such policy
such checks are paid by other checks by him to a third person in payment
upon banks where his bank keeps its of an indebtedness owing by him to
funds on deposit. Knapp v. Roche, 37 such third person was invalid, since he
N. Y. Super. Ct. 395, judgment re- held the policy as a trustee for the
versed in 62 N. Y. 614. shareholders of the bank and had no
Acashier's brother was his creditor, authority to pledge or assign the as-
and agreed that the cashier should sets of the bank. Upon the death of
deposit to the brother's credit the the insured, the director was entitled
amount of the indebtedness. The to the amount of the policy as trustee
brother gave the cashier receipted bills for the shareholders of the bank. New
of the indebtedness, and drew on his York Life Ins. Co. v. Kansas City
own account. The cashier paid the Bank, 131 Mo. App. 479, 97 S. W. 195.
drafts out of the funds of the bank, 29. Same —Loans obtained by ofR-
but did not credit the brother's ac- —
cers. Mcllroy Banking Co. v. Dick-
count, or deposit to that account, the son, 66 Ark. 337, 50 S. W. 868.
amount of indebtedness receipted for. A bank cashier obtaining money to
Held to constitute an appropriation of build a residence by checks drawn on
the bank's funds to the cashier's own the bank by his wife, with the knowl-
use, for which his estate was bound. edge of the other officials, is not guilty
First Nat. Bank v. Briggs, 70 Vt. 599, of a misuse of trust funds, but simply
41 Atl. 586. obtains a loan from the bank in the
Where money was taken from a usual way. Mcllroy Banking Co. v.
bank by the cashier, with the assent Dickson, 66 Ark. 327, 50 S. W. 868.
Use Made of Misappropriated Funds Immaterial. —Where money

has been actually misappropriated, it is immaterial to what use it has been
applied, whether the defaulting official spent it or lost it in unsuccessful
speculations or loaned it to his friends to enable them to prop up insolvent

enterprises; and allegations of that character are subject to be stricken
from the complaint.^"
— —
Recovery Following Funds, etc. Where the sole surviving director
of a bank which has ceased to be a going concern collects an insurance
policy belonging to the bank, he holds the proceeds so obtained as a trustee
for the bank, and they are entitled to recover them from persons who have
received them with notice of the bank's rights.^ ^ Where the officers of the
bank have received stock of payment for funds and prop-
a corporation in
erty fraudulently obtained from the bank, and invested in the corporate
property, the bank is not compelled to follow the stock in the hands of the
officers of the bank so receiving it, but may, at its option, follow the prop-
erty so purchased or created with such fraudulently misappropriated bank
funds, with the profits thereof, or their proper proportion, where substan-
tially all the property of the defendant corporation has been acquired or
created with the misappropriated bank funds, and the profits thereof, under
circumstances showing that the defendant received such property with
notice of all the facts, and where all the stock of the defendant is held by
the bank ofiicers or by parties having notice of all the facts.^^ It has been
held, however, that where an bank fraudulently abstracted the
officer of a
funds and invested them in a own name and on his own

mortgage in his
account, that the court could not declare him a trustee, and indemnify the
bank out of the mortgage. ^^
—
Defenses. It is no defense to an action brought by a bank against its
late cashier for a wrongful appropriation of moneys, that at the time of
such appropriation he was the owner of four-fifths of the stock of the bank,
and has since that time sold all of said stock to other parties, who are now
the officers and managing authority of the bank.^* Nor can a ratification
of such wrongful use of the bank's funds be established by evidence show-
ing that the various transactions were entered on the books of the bank
where it is not shown that the directors had actual knowledge thereof. ^^
30. Same —
Use made of misappro- owned by defendant. — First Nat. Bank
priated funds immaterial. First Nat. — v. Drake, 29 Kan. 311, 44 Am. Rep. 646.
Bank v. Gaddis, 31 Wash. 596, 72 Pac. 35. Same —That transactions were
460. —
entered in books. First Nat. Bank v.
31. Recovery —
Following funds, etc. Drake, 29 Kan. 311, 44 Am. Rep. 646.
— New Life Ins. Co. v. Kansas
York The cashier of a bank, having agreed
City Bank, 121 Mo. App. 479, 97 S. W. to discharge his duties without com-
195. pensation, appropriated funds of the
32. —
Same. Farmers', etc.. Bank r. bank for compensation. Knowing that
Kimball Milling Co., 1 S. Dak. 388, 47 the rules of the bank forbade interest
N. W. 402. on demand certificates, he issued de-
33. Same. —Pascoag Bank v. Hunt mand certificates on interest to him-
(N. Y.). 3 Edw. Ch. 583. self, and took funds of the bank to
34. Defenses — Majority of stock pay such interest. He also sold bonds
Amount of Recovery. —Where a cashier applies to his own use the

notes and other securities of the bank, he is hable for the full nominal
amount, and can not show that they were depreciated.^^ But where an
officer of the bank collected interest owing the bank in Confederate cur-
rency and used the moneys so collected in his private business, it was held
that he was liable to account to the bank for the value of the currency so
used as of the time at which it was appropriated.^'^
— —
Same Interest. When the directors and officers of a bank have mis-
appropriated its funds, they are liable for interest on the amount from the
date of the misappropriation, as damages and no statute is necessary to
;
authorize the allowance of such interest by a court of equity. s*

Liability of Third Person for Funds Misapplied by Officer, Third —
persons colluding with a bank officer in the misappropriation of the bank's
funds, or who accept such funds from the guilty official knowing that they
are being misapplied, is equally guilty and equally liable with the dishonest
official to make good the loss to the bank.^'
§ 54 (3) Duties and Liabilities with Respect to Loans, Dis-

—
counts, Overdrafts, etc. As to the duties of directors, see also, ante.
belonging to the bank to himself for —

applied funds. Kissam v. Anderson,
less than their value. These trans- 145 U. S. 435, 36 L. Ed. 765, 12 S. Ct.
actions were entered on the bank 960.
books, but the directors had no actual The managing officer of a bank
knowledge thereof. Held, that a rati- who had practically the entire control
fication by the bank could not be im- of its affairs, being engaged in stock
plied. First Nat. Bank v. Drake, 29 speculations, on his own account, used
Kan. 311, 44 Am. Rep. 646. the funds of the bank on deposit with
36. Amount of recovery. Pendleton — a correspondent bank, for that pur-
V. Bank (Ky.), 1 T. B. Mon. 171. pose, by drawing thereon in favor of
M. was president of a bank located his brokers for large sums. In a suit
in Alexandria, and also a member of to recover from such brokers funds
a firm of that place. In May, 1861, of the bank so received by them, it
he went to Richmond, where he re- was held that though the circum-
mained during the war. The firm stances were such as to affect them
also to the same city.
moved In 1863 with notice that such funds were being
he collected of the Treasurer of the improperly used by the officer for his
state the interest on state bonds held own purpose and make them liable to
by the bank in Confederate money. refund same, still, if it further approved
He invested this money, with money that the brokers had from time to
of the firm, in tobacco, intending it time deposited with the corre-
to be at his own risk, and holding him- spondent bank various sums to the
self pay the bank as on an
bound to credit of the defrauded bank, thus re-
investment, with interest. The to- ducing the net amount of its funds
bacco was destroyed during the war. received by them and not so returned,
Held, that M. was responsible to the they were entitled to have it sub-
bank for the value of the Confederate mitted to the jury whether the offi-
notes at the time they were appro- cers of the bank, other than the
priated by him in the purchase of the defaulting officer, in the exercise of
tobacco. McVeigh v. Bank, 67 Va. (26 reasonable and proper care could have
Graft.) 188. ascertained that these moneys had
37. Same —Conversion of confederate been deposited to the account of their
currency. — McVeigh Bank,
v. 67 Va. bank, and would or would not have
(36 Gratt.) 188. accepted such deposits as the return of
38. Same—Interest. — Cooper v. Hill, the money to the bank. Kissam v
36 C. C. A. 402, 94 Fed. 582. Anderson, 145 U. S. 435, 36 L. Ed 765
39. Liability of third party for mis- 12 S. Ct. 960.
"Powers, Duties and Liabilities of Directors," § 54 (la). As to the duties

of the president, see also, ante, "President's Powers, Duties and Liabilities,"
§ 54 (lb). As to the duties of the cashier, see also, ante, "Cashier's Pow-
ers,Duties and Liabilities," § 54 (Ic).
Loans to Officers of the Bank. There — is no question as to the in-
dividual liability of directors for losses resulting from loans made to offi-
cers of the bank in violation of a statute forbidding such loans to be
made; indeed, the statute itself usually prescribes that individual liability
shall follow the making -of loans in contravention of its provisions.*"
The question most frequently arisingwhat constitutes a violation of the
is
statute. Where the charter provided that no director should be indebted

to the bank, except as therein provided, it was held that a director who
was at the same time president of a company which had borrowed money
from the bank, and who gave to the bank his draft therefor, drawn upon
the treasurer of the company, incurred no liability to the bank by reason of
such draft, and that his estate could not be held liable thereon.* ^
Loans to Insolvent or Irresponsible Persons —Inadequate Secu-
rity. — It is the duty of all officers charged with the responsibility of lending
the bank's funds, to inquire with reasonable care and diligence into the
solvency and responsibility of persons applying for loans and to see that
adequate security is taken when the loan is made.*^ If the bank suffers
loss through the negligence of an officer thereof in loaning money to an
40. Loans to officers of the bank. — timeinsolvent, to the knowledge of

State V. Seneca County Bank, 5 O. St. the directors. Stone v. Rottman, 183
171; Conant, etc., Co. v. Reed, 1 O. St. Mo. 552, 82 S. W. 76.
298. By-laws requiring two indorsers. —
Under the "Act to incorporate the A
bank cashier is not chargeable with
State Bank of Ohio and other banking neglect of duty in discounting paper
companies," each director of a bank not bearing the names of two firms,
incorporated thereunder who know- as required by a by-law of the bank,
ingly participated in or assented to a where the names of the firms were
loan to another director before the different, but the members of both
adoption by the stockholders of by- were the same. Second Nat. Bank v.
laws to regulate the liabilities of di- Burt, 93 N. Y. 333.
rectors to the bank, was individually Loans to infant.— The president of a
liable for all damages which the com- bank, who requests the cashier to
pany or its shareholders sustained in make advances to a minor, verbally
consequence of such violation of the promising that he will see them re-
statute. State V. Seneca County Bank, Paid, is liable to the bank for any loss
5 O. St. 171; Conant, etc., Co. v. Reed, sustained by reason of said loans, as
1 O. St. 298; Arnold v. Reid, 1 O. Dec. having been guilty of a breach of trust.
347. Brown v. Farmers', etc., Nat. Bank, 88
41. Same-What constitutes viola- êx. 265, 31 S W
285 33 L. R. A. 359,
tion of the statute.-Penn t,. Bornman, "^/"^"'"^ !f ^- ^- -^^^ ,
102 111 523 Where the president of a ,- ,
national
.„ 1 ' _ , . bank advises and procures a loan to
42. Same— Loans to insolvent and
,
be made by his bank to a minor, pay-
irresponsible persons.--Commercial ênt of which can not be enforced,
Chatfield, 121 Mich. 641, 80 N. he is liable for the amount of the loan,
Sr° J:; ^°"™^"' 1^2 ^°- with lawful interest, and not for con-
55^, 83 b. w"t«''"
KKo li 'q
W. 76. ventional interest or stipulated at-
In a suit by the receiver of a bank, torney's fees. Brown v. Farmers', etc.,
the directors were liable for sums Nat. Bank, 88 Tex. 265, 31 S. W. 285,
loaned borrowers who were at the 33 L. R. A. 359, reversing 31 S. W. 216.
§ 54 (3) OFFICERS AND AGFNTS. 285
irresponsible person on inadequate security, themere fact that in doing so

he acted in good faith will not relieve him from liability to the bank.*^
It has been held, however, where the president was a mere figure head and
the directors received no salary, that in the absence of fraud they were not
makers
liable to the stockholders for discounting certain notes believing the
and indorsers to be solvent when they were in fact worthless.** A cashier
of a bank authorized to loan the money of the bank without security is
liable for losses resulting from loans without security not entered on the
books of the bank, and treated in his reports as cash on hand.*^
Acknowledgment Assuming Responsibility. —Where the directors of
a bank, after discounting a note, acknowledged in a writing, signed and
sealed by them, that they had transcended their duty in discounting said
note, and that they considered themselves individually bound for their
equal proportions of said debt, should it, or any portion, under any cir-
cumstances, be lost to the bank, and delivered said instrument to the offi-
cers of the bank, it was held, 'that said instrument was neither a suretyship
nor a guaranty, but an original contract, upon which said parties were liable
to the bank in the event of loss by reason of said discount; and that a re-
lease by the bank of one of the endorsers of said note, who was insolvent
and largely indebted to the bank on his own account, of all indebtedness,
upon his paying a certain sum of money, did not discharge said parties
from their liability under said instrument.*"
—
Excessive Loans. While the lending of an amount exceeding the en-
tire capital stock of a bank to a single person would seem to be unwise
and hazardous, yet, where such a loan was made to one of the directors,
who was the chief merchant of the town, largely while his business and
financial standing were good, and afterwards to preserve his credit, and
with an entirely honest purpose on the part of the bank officials to enable
him to continue business, in the hope that he would finally be able to pay,
it was held, that this was not sufficient, at common law, in the absence of
any trace of fraud, to render the directors of the bank personally liable to
the stockholders (depositors and creditors having been fully paid) for
resulting losses.*''
43. Good faith in loaning to irre- Aiken County, etc., Sav. Bank, 75
sponsible —
person. Commercial Bank Fed. 781.
V. Chatfield, 121 Mich. 641, 80 N. W. The making of a loan of bank funds
713. by president in an amount exceed-
its
44. Same —
Where president and di- ing one-fifth of its combined surplus
rectors receive no salary. Jones v. — and paid-up capital, without taking
Johnson, 86 Ky. 530, 9 Ky. L. Rep. 789, collateral of a value 10 per cent
6 S. W. 582. greater than the sum loaned, while
45. Loans without security entered Laws 1893, c. 696, prohibiting a bank
—
as cash. San Joaquin Valley Bank v. from making such loans, was in force,
Bours, 65 Cal. '347, 3 Pac. 864. was illegal, and the bank may recover
46. Acknowledgment assuming re- the amount lost by such a loan from
sponsibility. —
Bank v. Barksdale, 37 the president. Seventeenth Ward Bank
Tenn. (5 Sneed) 73. v. Smith, 51 App. Div. 259, 64 N. Y.
47. Excessive loans. Wheeler v. S. 883.
Overdrafts. —The question of the liability of bank officials for paying

out, or permitting the cashier to pay out, the bank's funds upon the over-
drafts of depositors, is one of reasonable care and good faith.** Bank
directors, even though negligent in their supervision and control of the
corporate affairs, are not liable for overchecks permitted by the cashier
to a reasonable extent in favor of responsible customers, since the payment
of the overdrafts of responsible customers in a reasonable amount is some-
thing which they might properly have authorized in the first instance, and
the loss resulting therefrom can not be said to have resulted from their
negligence even though it be shown to have existed.*^
Indeed, it has been
any case for overchecks per-
held, that the directors are not responsible in
mitted to customers by the cashier without their authority or knowledge i^"
and that the fact that such overchecks appeared upon the books of the
bank was not sufficient to affect the directors with knowledge thereof in a
suit between the directors and the bank.^^ Where the president of a bank
permits or directs the payment of overdrafts in favor of his friends or
members of his family known to be irresponsible or insolvent, he can not
be said to have acted in goodfaith, and he is personally responsible for
from the payment of such overdrafts especially where the
losses resulting ;
funds were withdrawn for the purpose of being used in enterprises in

which he was interested. ^^
48. Overdrafts. — Oakland Bank v. them personally liable to stockholders.

Wilcox, 60 Cal. 126; Western Bank v. Cope V. Westbay, 188 Mo. 638, 87 S.
Coldewey, 120 Ky. 776, 26 Ky. L. Rep. W. 504.
1247, 83 S. 629; First Nat. Bank v.
W. 49. Same —Liability of directors for
Reed, 36 Mich. 263; Cope v. Westbay, overdrafts permitted by cashier.
188 Mo. 638, 87 S. W. S04; Wallace v. Wynn v. Tallapoosa County Bank, 168
Lincoln Sav. Bank, 89 Tenn. 630, 15 Ala. 469, 53 So. 228; First Nat. Bank
S. W. 448, 24 Am. St. Rep. 625. V. Reese, 25 Ky. L. Rep. 778, 76 S. W.
The officers of a bank permitted S., 384; Wallace v. Lincoln Sav. Bank, 89
who was a reliable man of large Tenn. 630, 15 S. W. 448, 24 Am. St. Rep.
means, to overdraw his account to 625.
the amount of $3,500, on his agree- 50. — —
Same Same. Wallace v. Lin-
ment to pay interest thereon, after coln Sav. Bank, 89 Tenn. 630, 15 S. W.
which he sold his business to R., the 448, 24 Am. St. Rep. 629.
sale including debts due, which were 51. Same —
Knowledge of directors.
assumed by R., who
executed a deed — Wallace v. Lincoln Sav. Bank, 89
of trust to S. covering all the property Tenn. 630, 15 S. W. 448, 24 Ani. St.
conveyed. The bank, being advised of Rep. 625.
the transaction, permitted R., who 52. Same — resident permitting
continued the business, to make de- overchecks to irresponsible persons,
posits in the same name as had been members of family, etc. Oakland —
previously used by S., and draw checks Bank v. Wilcox, 60 Cal. 136; Western
against the sam^, which continued Bank v. Coldewey, 120 Ky. 776, 26 Ky.
until the property conveyed was L. Rep. 1247, 83 S. W. 629; First Nat.
burned, when there was an overdraft Bank v. Reed, 36 Mich. 263.
of $4,000, consisting of the $3,500 over- Where the rules of a bank required
drawn by S. before the sale and the that all applications for loans be
balance afterwards overdrawn by R., brought before the directors or ad-
which claim, on the insolvency of the visory committee for approval," but the
bank, was sold for much less than president of the bank permitted his in-
its face. Held, that such facts did not solvent son to overdraw his account
establish mismanagement on the part without bringing the matter before the
of the officers of the bank, rendering directors or advisory committee, the
Directors May Authorize Payment of Overdraft. —The directors of

the bank may authorize the cashier to pay the overdrafts of its customers in
good credit at the bank ;^^ and where the cashier, in accordance with a cus-
tom or usage, and by the advice of the president and directors individually,
pays the overchecks of such customers, he is not absolutely liable therefor
to the bank, but is only required to exercise due care to ascertain the finan-
cial standing of the customers.^* Even in the absence of authority from
the directors, it is not negligence per se for the cashier to pay the over-
drafts of responsible customers in a reasonable amount, unless there is
some by-law or positive order to the contrary. ^^ A cashier on whom, by

continued absence of the directors, has devolved the duty of making loans
and discounts, will be liable for losses through overdrafts and discounts
made by him only where it appears that he failed to make reasonable in-
quiry into the financial standing of those making the overdrafts, and those
whose paper was discounted, and failed to exercise the care and discretion
which an ordinarily prudent man would exercise in his own business. ^^ Of
course where the rules or by-laws of the bank require that the cashier shall
keep the money of the bank and pay it out only upon the checks of per-
sons entitled to draw upon the funds of the bank, and require that loans
and overdrafts shall be brought before the president and directors and
passed upon by them, the violation of such rule by the president or cashier
is in itself negligence, which in the absence of some special excuse will
president was liable for the loss the absence of any act of ratification
thereby sustained by the bank. West- or acquiescence on its part, would
ern Bank v. Coldewey, 120 Ky. 776, 26 have a right, under the circumstances,
Ky. L. Rep. 1247, 83 S. W. 629. to repudiate it as a transaction with
A
president of a bank who, knowing the nominal borrower, and to insist on
a customer to be without means, in- repayment by its president. First
duces him to open an account at the Nat. BankReed, 36 Mich. 263.
v.
bank, and to overdraw that account, 53. Directors may authorize pay-
and who, by his orders to the cashier, ment of overcheck. Wynn v. Talla- —
establishes the custom of paying such poosa County Bank, 168 Ala. 469, 53
overdrafts, may be held liable to the So. 228; Wallace v. Lincoln Sav. Bank,
bank for the amount of the over- 89 Tenn. 630, 15 S. W. 448, 24 Am. St.
drafts. Oakland Bank v. Wilcox, 60 Rep. 625.
Cal. 126. 54. —
Saine Cashier acting under a''
A bank president, while generalin thority of directors. First Nat. Bank —
charge of the business, with the cash- V. Reese, 25 Ky. L. Rep. 778, 76 S.
ier under his authority, permitted W. 384.
and directed the drawing of moneys absence of authority from di-
55. In
from the bank, without security, by rectors. Wallace— v. Lincoln Sav.
one known to be irresponsible, and Bank. 89 Tenn. 630, 15 S. Vv". 448, 24
with whom he was interested in the Am. St. Rep. 625.
business for which the money was ob- 56. Same — Care
required. Pryse v. —
tained, and requested the cashier not Farmers' Bank, 17 Ky. L. Rep. 1056,
to say anything to the directors abouc 33 S. W. 532.
it. Held, that he was personally liable Whether it is negligence in a cashier
to the bank for the monej'S thus paid to pay the overchecks to a reasonable
out by him in violation of his trust. amount of regular customers, who
The fact that they were charged on have but little property, but who have
the books of the bank to the irrespon- credit and are accustomed to pay
sible borrower wovild not necessarily 'their debts, quasre? Wallace v.
determine the transaction as a loan to Lincoln Sav. Bank. 89 Tenn. 630, 15
him by the bank; but the bank, in S. W. 448, 24 Am. St. Rep. 625.
render him personally liable to the bank for any resulting loss.^'^ The
cashier of a bank is not personally liable for permitting an overdraft,
where the transaction is in realty a loan upon sufficient security ;S^ and
where a cashier allows numerous drafts to accumulate, and afterwards
closes up the transaction by taking secured notes therefor, the wrong, if
any, for which he is liable to the bank was in the original transactions, and
not in taking the notes, which could not of itself injure it.^^
—
Defenses Authorization, Ratification, etc. The cashier can not be —
held liable for unwise or fraudulent loans where it is provided in his con-
tract of employment that he shall ^not be chargec^ with the responsibility of
making loans or selecting securities, and where in making such loans he
acts merely under the instructions of his superior officers whose duty it is
to pass upon applications for loans.^" Where the president of a bank
makes a loan of its funds which is illegal because not secured by sufficient
collaterals, he is not relieved from liability from the loss resulting there-
from by the ratification of the loan by the directors;''^ and even where a
ratification might otherwise avail, it is no defense when the approval of
the directors was obtained through misrepresentation as to the sufficiency
of the collateral upon which the loan was made.^^ Where the directors
know that the cashier is making loans and discounts to certain persons or
corporations not entitled to credit in the first instance,, and permit such
57. Payment of overcheck in violation, on note indorsed by a solvent

its
tion of charter or by-law.^Western firm. The
cashier, under the instruc-
Bank v. Coldewey, 120 Ky. 776, 26 tions of the manager, entered the
Ky. L. R. 1247, 83 S. W. 629; Bank v. amount of tlie loan to the credit of
Calder (S. C), 3 Strob. 403; Wallace J'. the corporation, and paid it out on the
Lincoln Sav. Bank, 89 Tenn. 630, 15 corporation's checks. Held, that the
S. W. 448, 24 Am. St. Rep. 625. cashier was not guilty of negligence
58. Where transaction is really a or of any violation of his duties to
loan. —Wynn v. Tallapoosa County the bank, making him liable to the
Bank, 168 Ala. 469, 53 So. 223; Com- stockholders for any part of the
mercial Bank v. Ten Eyck, 48 N. Y. amount lost by the loan. Warren v.
305. Robinson, 25 Utah 205, 70 Pac. 989.
59.Effect of taking note or security 61. —
Same Ratification of improper
for —
overdraft. Wynn v. Tallapoosa —
loan. Seventeenth Ward Bank v.
County Bank, 168 Ala. 469, 53 So. 228. Smith, 51 App. Div. 359, 64 N. Y. S.
60. Defense —Authorization and rati- 883.
fication of overcheck. Warren — v. 62. Approval obtained through mis-
Robinson, 25 Utah 205, 70 Pac. 989. —
representation. Commercial Bank i'.
In an action by stockholders of a Chatfield, 127 Mich. 407, 86 N. W.

bank against the directors and officers 1015.
to recover for depreciation of stock, An action was brought by a bank
it was found that by the cashier's con- against a former president and di-
tract of employment it was agreed rector to recover for moneys lost by
that he should not be charged with his negligence in permitting the
the responsibility of making loans or cashier to borrow on inadequate
selecting securities. The vice presi- security. Held that, if defendant had
dent and manager of the bank was no sufficient collateral, the action of
president of a corporation of a specu- the board in approving the loan in
lative character and financially un- reliance on his representation was not
sound, to the knowledge of the cashier, such a ratification of the transaction
who was also an officer of the corpo- as to estop the bank from holding him
ration. Without the knowledge of the accountable for the loss. Commercial
cashier, the manager negotiated a Bank v Chatfield, 127 Mich. 407, 86
loan from the bank to the corpora- N. W. 1015.
§ 54 (3) OFIflCERS AND AGENTS. 289
practice to continue for a great length of time, accepting the profits there-
from so long as profits accrue, they can not, upon such transactions result-
ing in ultimate loss, repudiate the whole series of dealings and hold the
cashier personally responsible.®^
Same— Compromise and Settlement. —The fact that the bank has
compromised or settled with the person to whom loans have been fraudu-
lently or negligently made, or accepted security from him for money wrong-
fully paid out upon it from bringing an action
his overdrafts, will not estop
from the officers guilty of making such
to recover the difference or net loss
moneys upon the overdrafts.®*
loans or of advancing the
Duty of Officers and Agents with Respect to Collection of Debts
—
and Claims Owing to Bank. It is the duty of the officers and agents
of banking institutions to exercise due diligence in the collection of debts
and claims owing to the corporation. Where, by the failure of the cashier
of a banking firm to demand payment of a note from the maker, the in-
dorser, the only solvent and responsible party to the note, is discharged,
the cashier is liable to his employers for the damages arising from such
failure, and the subsequent payment of his salary is no waiver or abandon-
ment of their right to reimbursement.® ^ The officers of a bank can not
consent to any arrangement by which the security of the bank or paper
Knowledge of improper loans

63. notes for his overdrafts at diSEerent
and accepting profits. First Nat. — times, which action was explained to
Bank v. Gaddis, 31 Wash. 596, 73 Pac. the president, and not objected to by
460. him, did not release him from lia-
Even if the corporation to which the bility for the amounts. Brown v.
cashier and assistant cashier of a bank Farmers', etc., Nat. Bank (Civ. App.),
loaned money was of a speculative 31 S. W. 216, afiirmed in 88 Tex. 365.
character, and not entitled to credit Where the president of a bank
in the first instance, and they knew wrongfully permitted his son to over-
this fact, and even if they were not draw his account, and thereafter the
authorized to extend credit to it, yet son made a deed of trust for the bene-
fit of his creditors, and the bank, to-
when the directors of the bank knew
that credit had been extended, and gether with other creditors, agreed in
made no objection thereto, the bank consideration of the conveyance to
could not, after five years' dealings look only to the assets so conveyed
with the corporation, hold the cashier for the satisfaction of its claims
or assistant cashier liable for the against the son, the bank was not es-
amount which the corporation owed topped from bringing' an action against
it at the end of such time. First Nat. the estate of the president for loss sus-
Bank v. Gaddis, 31 Wash. 596, 72 Pac. tained by his breach of trust in per-
460. mitting the overdrafts. Western Bank
V. Coldewev, 120 Ky. 776, 26 Ky. L.
64. Effect of compromise and set-
Rep. 1347, 83 S. W. 629.
tlement by bank. Western Bank v. — 65. Duty with respect to collection of
Coldewey, 120 Ky. 776, 26 Ky. L. Rep.
1247, 83 S. W. 629; Brown v. Farm-
—
debts and claims. Bidwell v. Madison,
10 Minn. 13 (Gil. 1).
ers', Nat. Bank (Civ. App."), 31
etc.,
Bank directors, though negligent in
S. W. 216, affirmed in 88 Tex. 365. their supervision and control of the
Where the president of a bank had corporate affairs, are not responsible
agreed to answer to a bank for the for the failure to collect a well-secured
overdrafts of another person, the fact debt for the reason that usury was in-
that the bank, in accordance with its cluded therein. Wallace v. Lincoln
custom, which was well known to the Savings Bank, 89 Tenn. 630, 15 S. W.
president, required such person to give 448, 24 Am. St. Rep. 625.
1 B & B— 19
due to it will be impaired.*® Acceptance by the president of a bank of

doubtful securities in payment of good debts is negligence charging him
with resulting loss.'^''
Collection of Debts Owing by Officers and Agents to Bank. —In

cases of this character, in which the element of the personal interest of
the officer or agent enters, the circumstances call for the utmost good
faith in the settlement of their obligations to the bank, and payment in
securities instead of cash, or any other compromise or concession, can be
had only with the consent and approval of the governing body of the
bank. 8* Of course, where the directors discover that one of the officers
has overdrawn his account or misappropriated* the funds of the bank
they may compromise or settle the claim or take such security therefor
as may, under the circumstances, seem best for the interests of the bank,
and then, if loss results, they will not, in the absence of negligence and
want of good faith, be liable therefor.®^
—
Same Application of Payments. Where property is turned over —
by the cashier to the president of the bank, as trustee, to secure to that
extent his indebtedness to the bank by reason of his defalcations, without
designation as to what part of the indebtedness this credit shall be applied,
the law, upon equitable principles, will imply that the debtor intended that
it should be used in payment of that part of his indebtedness which was
the most precarious.''*'
§ 54 (4) Liability of One Officer for Acts of Another. Lia- —

bility of Directors for Acts of Other Directors and Agents. See, —
also, ante, "Powers, Duties and Liabilities of Directors," § 54 (la). A
director of a bank undertakes that he possesses at least ordinary knowl-
66. Same-Consent to impairment personal indebtedness to the bank can

of security.— Gallery v. National Bank, not be satisfied by his acceptance as
41 Mich. 169, 2 N. W. 193, 32 Am. Rep. cashier of the note of a third person,
^'^'^-
. . , , . , .
since his obligation is to pay in cash.
67. Acceptance of doubtful securi- pirst Nat. Bank v. Gunhus, 133 Iowa
ties. — Lawrence v. Stearns, 79 Fed. 409 no
'
611 N W
878
The purchase of a note by the pres- Compromise and settlement of
,
f/
"^^^ °^'"S ^y officer or agent.-Jones
ident and managing officer of a bank,
for which he paid from its funds ove;
$20,000, with knowledge that it was
^Jf^Zr
'^^' ^- *" ^-
L
^**'^-
^^
.
' ^^ ^^ °-
burdened with a guaranty made by the Directors, having discovered an

payee, which might defeat its collec- overdraft by the cashier, took his
tion, is such negligence as renders him ""'Otes and those of his father-in-law,
liable to account to the bank or its secured by mortgage, to the full

creditors for any loss which resulted, amount of the overdraft. Held that,
including the expenses of an unsuc- having done this m good faith, no lia-
cessful defense made by the bank to îlity attached to them for lack of the
an action by the maker of the note to utmost diligence, both they and the
enforce the condition. Stearns v. stockholders having the greatest con-
Lawrence, 28 C. C. A. 66, 83 Fed. 738. fidence in the solvency of both parties.
68. Collection of debts owing by of- Jones v. Johnson, 86 Ky. 530, 9 Ky. L-
ficers and agents of bank.— First Nat. ReP- '''89. 6 S. W. 582.
Bank v. Gunhus, 133 Iowa 409, 110 N. 70. Application of payments. Fan- —
W. 611. cher v. Kaneen (O.), 5 N. P., N. S.,
The obligation of a cashier to pay his 614.
§ 54 (4) OFFICERS AND AGENTS, 291
edge and and that he will bring them to bear in the" discharge "of his
skill,
duties. through recklessness and inattention to the duties confided to

If,
him, frauds and misconduct are perpetrated by other officers and agents
or codirectors, which ordinary care on his part would have prevented, he
is But while to the directors of
personally liable for the loss resultingJ^
3. bank are committed the general management and supervision of its
affairs, they are authorized to appoint a cashier and confer upon hiffl
the usual powers pertaining to such an office, and to him may be properly
confided the custody of the money, securities and valuable papers of the
bank, and the supervision of its books and accounts and while this does
;
not absolve the directors from the duty of reasonable supervision and
the exercise of that degree of care which is exercised by ordinarily care-
ful and prudent men, acting under similar circumstances, yet they are not
insurers of the fidelity of the cashier and other agents whom they have
appointed; and where such directors act in good faith, and with ordinary
care, they are not responsible for losses resulting from the wrongful acts
or omissions of such cashier or other agents or other directors, unless
the loss is a consequence of their own neglect of duty or negligence in
failing to exercise proper care in the selection of such agents in the first
instance.'^^
71. Liability of directors for acts of regarded as gratuitous bailees, and not
—
other directors and officers. Marshall liable to the stockholders for losses
V. Farmers', etc., Sav. Bank, 85 Va. 676, sustained by the bank by the dishon-
8 S. E. 586, 3 L. R. A. 534, 17 Am. St. esty or carelessness of the cashier or
Rep. 84. other persons employed by them.
72. Same. —
Bank v. Bosseiux, 3 Fed. Dunn V. Kyle, 77 Ky. (14 Bush) 134.
817; Dunn v. Kyle, 77 Ky. (14 Bush) Such negligence is often of such a
134; Savings Bank v. Caperton, 87 Ky. character as to amount to fraud. Mar-
306, 10 Ky. L. Rep. 201, 8 S. "W. 885, shall I'. Farmers', etc., Sav. Bank, 83
12 Am. St. R. 488; "Williams v. Halli- Va. 676, 8 S. E. 586, 2 L. R. A. 534, 17
ard, 38 N. J. Eq. (11 Stew.) 373; Mason Am. St. Rep. S4, citing Trustees v.
V. Moore, 73 O. St. 275, 76 N. E. 932, Bosseiux, 3 Fed. 817; Jones v. Clark,
4 L. R. A., N. S., 597; "Wallace v. Lin- 66 "Va. (25 Gratt.) 642. -
coln Sav. Bank. 89 Tenn. 630, 15 S. "W. Corporate managers, who were not
448, 34 Am. St. Rep. 625; Jones v. on the committees of investments, are
Clark, 66 "Va. (25 Gratt.") 643. not liable, in the absence of cognizance
A director of a bank is not liable to or complicity, for irregular or unsafe
it for losses .suffered by it through the investments. "Williams v. Halliard, 38
negligence of his codirectors. Com- N. J. Eq. (11 Stew.) 373.
mercial Bank v. Chatfield, 121 Mich, The directors of a dissolved banking
641, 80 N, "W. 712. corporation can not be held personally
The directors of a bank are not li- responsible for a loss to the bank by
able for loss resulting from the frauds the negligence of its disbursing officers
of an officer of the bank unless they in paying unauthorized checks. Daugh-
have been guilty of gross neglect, erty v. Poundstone, 120 Mo. App. 300,
which means an absence of that dili- 96 S. "W. 728.
gence that ordinarily prudent men in A bank director is not required to
the conduct of such business would be either an expert or a competent
have exercised. Savings Bank v. Cap- bookkeeper, or do more in the general
erton. 87 Ky. 306, 10 Ky. L. Rep. 301, management of the bank with refer-
8 S. "W. 885, 13 Am. St. Rep. 488.^ ence to its cashier and bookkeeper,
In the absence of any showing of whom they have used proper care in
fraud or of such gross negligence as selecting, than to see that the daily or
would imply bad faith on the part of weekly statements made to the board,
the directors of a bank, they are to be as the case may be, correspond with
Liability of the President for Acts of Other Officers and Agents.

— See, also, ante, "President's Powers, Duties and Liabilities," § 54 (lb).
A bank president is not an insurer of the honesty of the cashier or other
agents employed by the bank, and is only required to exercise reasonable
care and diligence in the supervision of such subordinates in the per-
formance of their duties.''^
Liability of Cashier for Acts of His Subordinates. —A bank cash-
ier is not an insurer of the honesty and fidelity of those who occupy subor-
dinate positions in the bank, and is not liable for misappropriations by
them, if he exercised reasonable diligence in sup^vising their work.'* He
need not examine and supervise every act of his subordinates, but as to
such acts need only use such care and diligence as an ordinarily prudent man
would exercise in his own business affairs.'^ ^ The cashier only undertakes to
supervise the acts of his subordinates in their work in the bank in so far
as is practicable with reference to the discharge of his other duties.''*
Same —Assistants Employed by Cashier. —A cashier employing as-

sistants to aidhim in the discharge of his duties is held to the exercise
of ordinary care and good faith both in their selection and in their sub-
sequent supervision; and if in spite of such care and diligence on his
part he discovers that they have been guilty of defalcations or irregulari-
duty to report the same to the president and directors at once
ties, it is his
and to take whatever other steps that may be necessary to protect the
interest of the bank and its depositors.''
the general balances upon the books; prosecution (Rev. St. S. C, § 1540),
and this, connected with the period- affects only the officer so borrowing,
ical count of the money, notes, bonds, and does not make other directors per-
the supervision required, un-
etc., is all sonally liable to the stockholders for
less there is some reason for suspect- losses resulting therefrom. Wheeler
ing that the cashier is neglecting his V. Aiken County, etc., Sav. Bank, 75
duties. Savings Bank v. Caperton, 87 F. 781.
Ky. 306, 10 Ky. L. Rep. 201, 8 S. W. 73. Liability of president for acts of
885, 12 Am. St. Rep. 488.
Where one bank was merged into
—
other officers and agents. Davenport
V. Prentice, 126 App. Div. 451, 110 N.
another, the president of the new bank Y. S. 1056.
was properly selected by the directors 74. Liability of cashier for acts of
to transfer the balances from the subordinates. —Wynn v. Tallapoosa
books of the old bank to the books of County Bank, 168 Ala. 469, 53 So. 328;
the new, and although the president Batchelor v. Planters' Nat. Bank, 78
was at the time a defaulter as an offi- Ky. 435.
cer in the old bank, but nothing 75. —
Same. Wynn v. Tallapoosa
to excite any suspicion as to his County Bank, 168 Ala. 469, 53 So. 228.
honesty, the directors were not 76. Same.— Pepper v. Planters' Nat.
guilty of negligence in permitting him Bank, 5 Ky. L. Rep. 85.
to use the books of the old bank for 77. Same —Where assistant was em-
the purposes of the new, instead of ployed by cashier. — Grant County De-
making a transfer to a new set of posit Bank v. Points, 22 Ky. L. Rep.
books. Savings Bank v. Caperton, 87 105, 56 S. W. 662; Vance v. Mottley, 92
Ky. 306, 10 Ky. L. Rep. 201, 8 S. W. Tenn. 310, 21 S. W. 593.
885, 12 Am. St. Rep. 488. A bank cashier who, without author-
A state statute merely forbidding ity or necessity, employs an assistant
the directors and other officers of a on his own account, is liable for
statebank from borrowing any money moneys of the bank fraudulently em-
from the bank, on pain of criminal bezzled by such assistant while thus
Same—Effect of Examination by Directors. —The fact that the

board of directors periodically examined into the affairs of the bank, and
reported its condition all right, did not estop the bank from holding the
cashier liable for any fraud perpetrated by a subordinate, if, on exercising
due care and diligence, the cashier could have prevented the fraudJ^
Liability of Other Officers. —A bank teller who knowingly assists in
or connives at the misappropriation of funds of the bank by the cashier or
other officer is answerable to the bank so far as it may have sustained a
loss by it.''®
§ Right of Stockholders to Enforce Liability. A stock-

54 (5) —
holder has a remedy in chancery against the directors of a bank to pre-
vent them from doing acts which would amount to a violation of its char-
ter, or to prevent them from any misapplication of its capital, which
might lessen the value of the shares, if the acts intended to be done
shall amount to what the law deems a breach of trust.*'' Cases are
employed, upon the suit of the bank, thus lulling the representatives of F.
its assignee, or successor when he into security until it was too late for
fraudulently concealed the fact of such them to protect themselves. Grant
embezzlement after it came to his County Deposit Bank v. Points, 23 Ky.
knowledge, and where the successor Law R. 105, 56 S. W. 662.
purchased the bank's entire assets, sub- By-law making cashier liable for
ject to its liabilities, without knowl- —
acts of his assistants. A by-law mak-
edge of the embezzlement. Vance v. ing the cashier responsible "for all the
Mottley, 92 Tenn. 310, 21 S. W. 593. moneys, funds, and valuables of the
Where F., a bank cashier, who had bank," in force when defendant was
given bond for the faithful discharge elected cashier, became a part of his
of his duties, though incompetent, by contract and made him liable for losses
reason of drunkenness, to perform his from mistakes or malfeasance of
duties during the last two years of his his assistant, liable under another by-
service, continued to draw his salary, law for money coming into his posses-
he was responsible for the default of sion. Rio Statfe Bank v. Araondson,
N., a bookkeeper originally employed 141 Wis. 82, 123 N. W. 634.
and paid by him, though the latter was 78 Effect of examination by direct-
the cashier de facto during that time, ors. — Pepper v. Farmers' Nat. Bank, 5
and received from the bank additional Ky. L. Rep. 85.
compensation on account of his in- 79. Liability of other officers. Ho- —
creased duties. Grant County Deposit bart V. Dovell, 38 N. J. Eq. 553; Lati-
Bank v. Points, 22 Ky. L. Rep. 105, 56 mer V. Veader, 20 App. Div. 418, 46 N.
S. W. 662. Y. S. 823.
As the liability of F. for the mis- 80. Right of stockholders to enforce
conduct N.,of under the circum- liability —
Remedy. Jefferson — Branch
stances, was, in substance, only that of Bank V. Skelly (U. S.), 1 Black 436, 17
guarantor or surety, he was entitled L. Ed. 173.
to at least good faith from the bank; and Where the directors of a bank re-
therefore his estate can not be held fused to take the proper measures to
liable for an overdraft by a firm of resist the collection of a tax, which
which N. was a member, where the they themselves believed to have been
firm continued to do business with the imposed upon them in violation of
bank for five years after N. succeeded their charter, this refusal amounted to
F. as cashier, and, with knowledge of what is termed in law a breach of trust,
the bank, made and withdrew depos- and a stockholder had a right to file
its in the name of another largely in a bill in chancery asking for such a
excess of such overdraft; the bank con- remedy as the case might require.
tinuing during that time to publish Dodge V. Woolsey (U. S.). 18 How.
semiannual statements giving assur- 331, 15 L. Ed. 401, citing Mechanics'
ance that everything was right, and etc.. Bank v. Debolt (U. S.\ 18
numerous, also, where the directors having made themselves personally

liable for neglect or breach of duty, and the corporation refusing to pro-
ceed against them, a stockholder has been permitted to sue in its behalf.
In such cases the corporation an indispensable party defendant. The
is
refusal to sue must be made distinctly to appear, and the avails of the
litigation, if there be any, go to the corporation and are a part of its
means, as if it had itself sued and recovered.*^ Though directors are
How. 380, 15 L. Ed. 458; Mechanics', 162, 22 Am. Dec. 785; Mathews v.
Bank
etc., v. Thomas (U. S.), 18 How. Bank, 60 S. C. 183, 38 S. E. 437; Dead-
384, 15 L. Ed. 460. erick v. Bank, 100 Tenn. 457, 45 S. W.
If the stockholder be a resident of 786; Shea v. Knoxville, etc., R. Co., 65
another state than that in which the Tenn. (6 Baxt.) 277; Moses v. Ocoee
bank and persons attempting to vio- Bank, 69 Tenn. (1 Lea) 398; Hume v.
late its charter, or commit a breach of Commercial Bank, 77 Tenn. (9 Lea)
trust or duty, have their domicile, he 728; Tenison v. Patton (Tex. Cr. App.),
may file his bill in the courts of the 64 S. W. 810, reversed in 95 Tex. 284,
United States. He has this right under 67 S. W. 92.
the constitution and laws of the United A
stockholder of a bank who has
States. Dodge v. Woolsey (U. S.), 18 been injured by fraud, culpable neg-
How. 331, 15 L. Ed. 401, citing Me- lect of duty, or a violation of provi-
chanics', etc., Bank v. Debolt (U. S.), sions of law by an agent or director of
18 How. 380, 15 L. Ed. 458; Mechan- the bank has an ample remedy against
ics', etc.. Bank v. Thomas (U. S.), 18 the director or agent whose acts or
How. 384, 15 L. Ed. 460. See, also, omissions have produced his loss, but
Tefiferson Branch Bank v. Skelly (U. he can not sue the bank for the injury
S.), 1 Black 436, 17 L. Ed. 173. suffered. Butterworth v. Fox (N. Y.),
81. Same—Remedy. — Carey v. Hous- 15 How. Prac. 545.
ton, etc., R. Co., 161 U. S. 115, 131, 40 seems that at common law and
It
L. Ed. 638, 16 S. Ct. 537, reaffirmed in under the rules of equity a stockholder
Murphy v. Colorado Paving Co., 166 in an incorporated bank may maintain
U. S. 41 L. Ed. 1188; Darragh v.
719, an action against the directors for such
Wetter Mfg. Co., 169 U. S. 735, 42 L. damages as he has individually sus-
Ed. 1316; Blythe Co. Vr- Blythe, 173 U. tained by reason of the wrongful acts
S. 644, 43 E. Ed. 1183; Mobile Transp. of the directors, even though the same
Co. V. Mobile, 199 U. S. 604, 50 L. Ed. acts damnified all the stockholders in
330, 36 S. Ct. 751; Greenwood v. Freight the same degree as they did him, and
Co, 105 U. S. 13, 26 L. Ed. 961; Dodge even though the corporation is a going
V. Woolsey (U. S.), 18 How. 331, 15 L. concern and has not been dissolved.
Ed. 401; Bacon v. Robertson (U. S..), See Zinn v. Baxter, 65 O. St. 341, 62
18 How. 480, 15 L. Ed. 499; Memphis N. E. 327; Taylor v. Miami Exporting
V. Dean (U. S.), 8 Wall. 64, 19 L. Ed. Co., 5 O. 162, 22 Am. Dec. 785.
336; Trask v. Maguire (U. S.), 18 Wall. Where directors of a bank procured
391, 21 L. Ed. 938; Davenport v. Dows the sale of mining stock owned by the
fU. S.), 18 Wall. 626, 21 L. Ed. 938; bank to such directors in fraud of
Dewing v. Perdicaries, 96 U. S. 193, 24 stockholders, and in violation of their
L. Ed. 654; Hawes v. Oakland, 104 U. duties as directors, the fact that the
S. 450, 26 L. Ed. 837; Detriot v. Dean, stock had paid dividends exceeding the
106 U. S. 537, 27 L. Ed. 300, 1 S. Ct. purchase price which the directors paid
560; Smyth v. Ames, 169 U. S. 466, 43 to the bank showed a substantial loss
L. Ed. 819, 18 S. Ct. 418; Cotting v. of profits to the bank, justifying a
Kansas City Stock Yards Co., 183 U. stockholder in suing to set aside the
S. 79. 46 L. Ed. 92, 22 S. Ct. 30; Porter sale. Morgan v. King, 27 Colo. 539,
V. Sabin, 149 U. S 473, 37 E. Ed. 815, 63 Pac. 416.
13 S. Ct. 1008; Morgan v. King, 37 Complainant's bill alleged that three
Colo. 539, 63 Pac. 416; Hanna v. Peo- years before, at a meeting of the stock-
Dle"S Nat. Bank. 76 App. Div. 224, 78 N. holders of the bank, of which the de-
Y. S. 516, modified Hanna v. Lyon, 179 fendants wye directors and complain-
N. Y. 107, 71 N. E. 778; Smith v. Rath- ant a stockholder, it was resolved that
fun (N. Y."), 23 Hun. 150; Butterworth the officers of the bank wind up its
V. Fo3f (N. Y.), 15 How. Prac. 545; aflfairs and return the stock with its
Taylor v. Miami Exporting Co., 5 O. profits to the stockholders; that forty
liable to a bank which has suffered loss through their negligence, and any
stockholder may prosecute an action for himself and others in a similar
situation, where the bank does not bring the action after demand, or with-
out demand when the officers who committed the wrong are still directors,
such plaintiff must be a stockholder both at the time of the commission
of the acts complained of, and at the time of the commencement of the
action. 82 Thus a director of a banking association is not liable to one
per cent of the stock had not been re- the such case, see Brown v.
suit in
turned; that the officers were still Adams, Fed. Cas. No. 1986, 5 Biss.
conducting a banking business, and 181; Smith v. Hurd (Mass.), 12 Mete.
through their deficient business capac- 371, 46 Am. Dec. 690; Rich v. Shaw, 23
ity there had been a large loss of as- Me. 343; Zinn v. Baxter, 17 O. C. C.
sets; that complainant had in vain 283, 9 O. C. D. 731; Craig v. Gregg, 83
sought information as to the bank's Pa. 19, 22 Pittsb. L. J. 193.
affairs and a distribution of her stock, A stockholder of a bank can not
and she prayed for an accounting by maintain an action against the direct-
the directors and the appointment of a ors for their neglect in so conducting
receiver. Held, that the bill was not its affairs that its capital is wasted
demurrable on the ground that the re- and lost. Rich v. Shaw, 23 Me. 343;
lief could only be granted in a suit by Smith V. Hurd (Mass.), 12 Mete. 371,
the corporation. Mathews v. Bank, 60 46 Am. Dec. 690.
S. C. 183, 38 S. E. 437, An individual stockholder can not
Defendant cashier was authorized maintain an action against the direct-
by the directors of a bank which had ors for negligence. Craig v. Gregg. S3
gone into voluntary liquidation to ex- Pa. 19, 22 Pittsb. L. J.. 193.
ecute a deed of land owned by the Where a shareholder's stock in a na-
bank in compliance with a third per- tional bank was sold to satisfy an as-
son's offer to pay a certain amount for sessment by the comptroller, to make
it, provided defendant would take good an impairment of its capital
charge of it and resell it. Defendant caused by the negligence of the offi-
was to be allowed a share in the prof- cers and directors, such stockholder
its realized from the resale. He was has no standing to sue such directors
the only member of the board who and officers to recover the loss so
knew the value of the land, and, though caused. Zinn v. Baxter, 17 O. C. C.
he informed the board fully on the sub- 283, 9 O. C. D. 731.
ject, he expected to make a profit on A cashier of a bank, who has made
the sale. The grantee executed a sale of his property, and holds a bal-
power of attorney to defendant au- ance in his hands, must be deemed the
thorizing the sale of the land by him. agent of the board of directors, and
Defendant surveyed the land, finding not of the respective stockholders, and
it to contain more than was originally can not be charged by an individual
estimated, which fact was not reported stockholder as holding such balance
to the directors. A
portion was sold for his benefit. Brown v. Adams, Fed.
to one party, and a part to another; Cas. No. 1,986. 5 Biss. 181.
the second part being taken back by 82. Necessity that plaintiff be a
defendant's grantee in default of pay- —
stockholder Time of acquiring stock.
ment. The bank's stockholders knew — Mabey v. Adams, 16 N. Y. Super.
nothing of the offer, and the bank re- Ct. 346; Hanna v. Lyon, 179 N. Y. 107,
fused to sue defendant for his individ- 71 N. E. 778, modifying Hanna v. Peo-
ual profits. Held, that the defendant ple's 'Nat. Bank, 76 App. Div. 224, 78
was not, as a matter of law, liable to N. Y. S. 516.
the for the profits made upon the
bank has been held, however, that a
It
resale, but that the burden was upon stockholder in a bank, who obtained
him to show the fairness of the trans- her stock from a director who had
action, failing which the stockholders knowledge of the prior commission of
were entitled to recover against him certain negligent acts by the directors
the profits he was entitled to receive. and stockholders, causing depreciation
Tenison v. Patton, 95 Tex. 284, 67 S. W. was not pre-
in the value of the stock,
92, reversing (Tex. Civ. App.), 64 S. W. cluded from recovering for such neg-
810. ligence by reason of her assignor's
Contra. —As tending to deny the knowledge. Warren v. Robison, 25
right of the stockholder to maintain Utah 205, 70 Pac. 989.
who becomes a stockholder for false statements in the articles of asso-

amount of capital actually subscribed and paid in,
ciation respecting the
by which he was induced thereafter to become a stockholder.*^ But
although the stockholder suing is not qualified, yet if a qualified stock-
holder has been permitted by the court to intervene, the complaint should
not be dismissed as to such intervening stockholder.**
—
Estoppel of Stockholders to Sue. If for any reason the corporation
is estopped from suing, or its action is barred, the suit of the stockholder
or creditor is likewise affected, since the suit is brought to enforce the
corporate or collective rights, and not the individual rights of the share-
holders.*^ The stockholders may also be estopped to sue the directors upon
the ground that they have been guilty of the species of contributory neg-
ligence in the election of such directorsand in permitting them to continue
knowledge of their negligence and inattention to the affairs
in office after
of the bank; and this is especially true where directors serve without com-
pensation, and with the knowledge of the stockholders give the substantial
management of the bank into the hands of salaried officers to whose fraudu-
lent acts great loss is entailed.*^
§ 54 (6) Individual Interest in Transaction. —

Wherever in deal-
ings between an officer or agent and his bank the element of the personal
interest of such officer or agent enters, so that he occupies, as regards such
personal interest, a position adverse to that of the bank, a situation has
arisen calling for the exercise of that degree of fairness and good faith
known as uberriemse fidei. In every such transaction his conduct will be
examined with the closest scrutiny, and it is his duty to not only make
full disclosures of all material .facts within his knowledge, but if, in such
transaction, he represents both the bank and his own interests, then it is
plainly his duty, as an officer of the bank, to execute his trust with an
eye single to the interests of the bank, and, in case of conflict, to guard
the interests of the bank even to the loss or destruction of his own.*'^ In
83. Same.— Mabey v. Adams, 16 N. Tenn. 630, 15 S. W. 448, 24 Am. St.

Y. Super. Ct. 346. Rep. 625.
One who purchases stock in a bank- 86. —
Same. Brannin v. Loving, 82
ing association from the association Ky. 6 Ky. L,. Rep. 328; Dunn v.
370,
itself can not maintain an action against Kyle, 77 Ky. (14 Bush) 134; Savings
a director of the association for viola- Bank v. Caperton, 87 Ky. 306, 10 Ky. L.
tions of the statute relating to mon- Rep. 201, 8 S. W. 885, 12 Am. St. Rep.
eyed corporations, which- occurred be- 488.
fore he became a stockholder, although 87. Individual interest of officer in
the value of the stock is depreciated —
transaction. Hicks v. Steel, 126 Mich,
by reason of such violations of the 408, 85 N.'W. 1121; McDowell v. First
statute. Mabey v. Adams, 16 N. Y. Nat. Bank, 73 Neb. 307, 3 02 N. W. 615;
Super. Ct. 346. Leonhardt v. Citizens' Bank, 56 Neb.
84. Same—Intervention by qualified 38, 76 N. W. 452; Gund v. Ballard, 73
—
stockholder. Judgment, Hanna z;. Peo- Neb. 547, 103 N. W. 309; Wallace v.
Lincoln Sav. Bank, 89 Tenn.
pie's Nat. Bank, 76 App. Div. 224, 78 630, 15
N. Y. S. 516, modified Hanna v. Lyon, S. W. 448, 24 Am. St. Rep. 625; Brown
179 N. Y. 107, 71 N. E. 778. V. Farmers', etc., Nat. Bank, 88 Tex.
85. Estoppel of stockholder to sue. 265, 31 S. W. 285, 33 L. R. A. 359, re-
— Wallace v. Lincoln Sav. Bank, 89 versing 31 S. W. 216.
§ 54 (6) OI^FICeRS AND AGENTS. 297
the absence of full knowledge and consent on the part of the directors
or managing officers of the bank, it is contrary to the well settled prin-
ciples of equity and to the policy of the law to permit an officer of a bank
to represent both himself and the bank in a transaction in which his
personal interest is antagonistic to that of the bank, and in the absence
of affirmative proof of full knowledge and consent, ratification or estop-
pel, such contracts are presumptively void, and are voidable at the option
of the bank or its stockholders, and an action will lie to compel restitution
or to recover whatever loss the institution may have sustained.^* The
directors of a corporation hold a fiduciary relation to the stockholders,
and have been intrusted by them with the management of the corporate
property for the common benefit and advantage of each and every stock-
holder, and by their acceptance of this office they preclude themselves from
doing any act, or engaging in any transaction, in which their private in-
terest will conflict with the duty they owe to the stockholders, and from
making any use of their power or of the corporate property for their
own advantage.^* It is against public policy to permit persons occupying
fiduciary relations to be placed in such a position that the influence of
selfish motives may be a temptation so- great as to overpower their duty
and lead to a betrayal of their trust, and the rule is unyielding that a
trustee shall not, under any circumstances, be allowed to have any deal-
ings in the trust property with himself, or acquire any interest therein.
Courts will not permit any investigation into the fairness or unfairness of
the transaction, or allow the trustee to show that the dealing was for
the best interest of the beneficiary, but will set the transaction aside at
the mere option of the cestui que trust.^" There is no limit to the variety
of the circumstances under which cases illustrating these principles may
arise. A resolution by a board of bank directors intrusting the lending
of money and discounting paper to the discretion of the cashier does not
authorize him to lend to himself. ^^ The president of a bank who has
been in the habit of advising and assisting the bank in the matter of loans,
88. —
Same Contract voidable at the 30 Barb. 571; Hoyle v. Plattsburgh, etc.,
option of the bank. West St. Louis— Co., 54 N. Y. 314, 13 Am. Rep. 595;
Sav. Bank v. Parmalee, 95 U. S. 557, Barnes v. Brown, 80 N. Y. 527; San Di-
24 L. Ed. 490; Morgan v. King, 27 Colo. ego v. San Diego, etc., Co., 44 Cal. 106;
539, 63 Pac. 416; Hicks v. Steel, 126 Wilbur v. Lynde, 49 Cal. 290, 19 Am.
Mich. 408, 85 N. W. 1121; Leonhardt Rep. 645; Farmers' Bank v. Downey,
V. Citizens' Bank, 56 Neb. 38, 76 N.. W. 53 Cal. 466; Wickersham v. Crittenden,
452; Dunn v. O'Connor, 25 App. Div. 93 Cal. 17, 38 Pac. 788.
73, 49 N. Y. S. 270; Northwestern, etc., 90. Same. —Davoue v. Fanning (N.
Ins. Co. V. Lough, 13 N. Dak. 601, 102 Y.), 2 Johns. Ch. 253; Taussig v. Hart,
N. W. 160; Wallace v. Lincoln Sav. 58 N. Y. 425; Elevated R. Case, 11
Bank, 89 Tenn. 630, 15 S. W. 448, 34 Daily 486; Michoud v. Girod (U.
Am. St. Rep. 625; City Nat. Bank v. S.), 4 How. 503, 11 L. Ed. 1076;
Merchants', etc., Nat. Bank (Tex. Civ. Davis v. Rock Creek, etc., Min. Co., 55
App.), 105 S. W. 338; Leary v. Inter- Cal. 359, 36 Am. Rep. 40; Wickersham
state Nat. Bank (Tex. Civ. App.), 63 v. Crittenden, 93 Cal. 17, 28 Pac. 788.
S. W. 149. 91.Cashier lending to himself.—

89. Same —Fiduciary nature of re- Wallace v. Lincoln Sav. Bank, 89 Tenn.
lation.— Coal Co. v. Sherman (N. Y.), 630, 15 S. W. 448, 24 Am. St. Rep. 625.
discounts and investments, and who presents for sale or discount the paper
of third persons which he personally owns, is bound to make full dis-
closure of whatever knowledge he may possess as to their solvency and
responsibility, and for his failure to place the bank in possession of such
facts within his knowledge it is entitled to rescind its purchase of the
paper and recover the consideration paid therefor; and a fortiori is this
true where such officer affirmatively misrepresents the facts within his
knowledge affecting the solvency and responsibility of the makers of the
paper.^2
Officer Securing His Debt before That of Bank. —Where the same
person is indebted both to the bank and to one of its officers individually,
such officer, in adjusting such debts, has no right to secure the debt owing
to him as an individual to the exclusion or injury of the debt held by
the bank, and upon a readjustment in a court of equity, the court will
see that the obligation owing to the bank is satisfied first.^^ But where
the president and cashier borrow from their bank and lend the proceeds
to a failing debtor of the bank and of the president, taking from him a
mortgage with power to sell, and upon the understanding of all parties
that the proceeds arising from foreclosure shall be applied to pay the
debt owing by the president and cashier to the bank, such officers are en-
titled to have the proceeds of the foreclosure applied to the payment of
their debt to the bank in preference to other indebtedness owing by the

mortgagor to the bank.^*
Right of Officer as Surety for Bank. Where the general manager of —
a bank, together with others, became sureties for the repayment of a loan
92. Personal interest of president in The president and cashier borrowed

loan or discount.— Hicks v. Steel, 126 °f *eir bank a sum which they loaned
Mich 408
93.'
85 N W 1121 t° ^ failing debtor of the bank and of
^he president. The debtor gave a
Ofacer securing his debt before
°" and land, and de-
that of bank.-Brown%. Farmers', etc., f°'^^^^l ^°°f" o the mortgagees,
Nat. Bank, 88 Tex. 265, 31 S. W. 285, ^"^.^l^^
*^ property
33 L. R. A
359, reversing 31 S. W. 216 ^'"^ authority to sell and appropriate
also, McDowell First Nat.
^^ Proceeds to the mortgage debt, af-
See, v.
Bank, 73 Neb. 307, 102 N. W. 615. '" applying enough of the goods to
, ' pay for another tract of land, which
A .
minor executed a deedJ , , J.

of trust to ^^^ accordingly paid for, and conveyed
secure his creditors, among whom by the debtor's vendor to the mort-
were, first, the president of the bank gagees. It did not appear that any-
in his individual capacity, and, second, thing more was realized from the
after such payment, the debt to the goods. The president promised that
bank. It appearing that the president the debt to the bank would thus be
had induced the cashier to advance the paid, and, relying thereon, the direct-
funds to the minor for which he was ors made no effort to collect it other-
still indebted, promising to see it paid, îse. Held, that the president, who
the court, having appointed a receiver controlled the property and received
for the trust property, will direct the the proceeds, was entitled to have the
payment of the debt to the bank be- proceeds of both parcels of land ap-
fore that or the president. Brown v. plied, first, to the payment of the loan
Farmers', etc., Nat. Bank, 88 Tex. 265, to him and the cashier, and that the
31 S. W. 285, 33 L. R. A. 359, reversing balance should be applied to the debts
31 S. W. 216. due to the bank and the president. Ap-
94. —
Same. Apperson v. Exchange person v. Exchange Bank, 10 Ky. L.
Bank, 10 Ky. L. Rep. 943, 10 S. W. 801. Rep 943, 10 S. W. 801.
from the state, obtained for its benefit, it was held that at any time after-
wards, while the bank was neither insolvent nor contemplating insolvency,
he might use the funds of the bank to buy property in his own name, for
the security of himself and his cosureties. ^^
Conflicting Interests in Litigation. —Where the president of a bank
engages in litigation in which his individual interests are in conflict with
those he represents in a fiduciary capacity, actual fraud is unnecessary to
avoid the proceedings thus entered into.^^

Purchasing Property from Bank. —Where certain directors of a bank
are seeking to purchase certain property from it, they are not qualified to
participate as directors in consummating the sale;^'' and where directors, by
reason of their position as such, effect a sale of property owned by the
bank to themselves at figures greatly below its actual value, such trans-
action is fraudulent as a matter of law, and good faith on their part is no
defense to an action to rescind or to recover damages. ^^ It has been
held in such a case that where a director of an insolvent bank purchased
a note from the bank at a large discount, with notice that its transfer had
not been authorized by a resolution of the board of directors as required
by statute, he was not entitled to set off the price paid against a bill filed
by a subsequently appointed receiver to set aside the transfer. ^^ On the
other hand, where a director had purchased land of the bank at a price
far below its value, but without any willfully fraudulent purpose, though
knowing that the transaction was probably illegal, it was held that he
should be allowed what he had paid for the land, and compelled to make
good the difference between that amount and the true value.^
Officer Executing Deed to Himself. A deed executed by the cash- —
ier of a bank to himself as an individual is, in the absence of affirmative
evidence of authority, presumptively void and of no effect.
—
Rights of Third Persons Bona Fide Purchasers. To the general —
rule that the acts and contracts of a gejieral agent, within the scope of
his powers, are presumed to be lawfully done and made, there is an ex-
ception as universal and inflexible as the rule. It is that an act done or
a contract made with himself by an agent on behalf of his principal is

presumed to be, and is notice of the fact that it is, without the scope of
his general power, and no one who has notice of its character may safely
rely upon it without proof that the agent was expressly and specifically
95. Rights of officer as surety of Colo. 539, 6,S Pac. 416.

bank. — Smith Lansing, 22
v. N. Y. 520. 99. — Setting
Same^ price off paid.—
96. Conflicting interests in litiga- Gillet Phillips, 13 N. Y. 114.
v.
tion. — Gund Ballard, 73
v. Neb. 547, 1. Same— Same.— Millsaps v. Chap-
103 N. W. 309. See, also, McDowell man, 76 Miss. 942, 26 So. 309, 71 Am.
V. First Nat. Bank, 73 Neb. 307, 102 N. St. Rep. 547.
W. 615. 2. Officer executing deed to himself.
97. Officer purchasing property from — West St. Louis Sav. Bp.nk ?'. Parma-
bank.— Leary V. Interstate Nat. Bank lee, 95 U. S. 557, 24 L- Ed. 490; North-
(Tex. Civ. App.), 63 S. W. 149. western, etc., Ins. Co. v. Lough, 13 N.
98. Same. — Morgan v. King, 27 Dak. 601, 102 N. W. 160.
authorized by his principal to do the act or make the contract.^ Persons

not paying value for the property received by them are not entitled to
claim as bona fide purchasers for value. No matter what the facts may
be as to notice or the want thereof they stand in no better position than
the oificials from whom they obtained it.*
Avoidance of Contract — —
Estoppel. The right to waive such a con-
tract on the ground of fraud and illegality rests with the bank or stock-
holders as the party whose rights have been violated; it is not available
to the director or other officer, when sued thereon, to set up its illegality.^
And even the objecting party, though otherwise entitled to avoid the con-
tract, will not be entitled to do so after acceptmg its benefits with full
knowledge of the facts.*

Same Persons Officers in Both Corporations. —A contract between
two banks having a majority of the controlling officers in common is void-
able, and, if questioned at the be set aside on the ap-
proper time, •will
pearance of unfairness;'^ but the fact that one person was an officer in
3. Rights of third persons — Bona fide did sign it as a surety and not as a
—
purchasers. Park Hotel Co. v. Fourth principal, states no defense. The con-
Nat. Bank, 86 Fed. 742, 30 C. C. A. tract as surety was not void, but was
409; Security Bank v. Kingsland, 5 N. as binding on defendant as it would
Dak. 263, 65 N. W. 697; Northwestern, have been had he not been a di-
etc., Ins. Co. V. Lough, 13 N. Dak. 601, rector. Bank v. Triplett (Ky.), 6 J. J.
102 N. W. 160. Marsh. 549.
4. —
Same. Morgan v. King, 27 Colo. 6. Same — —
Same. City Nat. Bank v.
539, 63 Pac. 416. Merchants', etc., Nat. Bank (Tex. Civ.
Where the director of a bank trans- App.), 105 S. W. 338.
ferred mining stock which he had pur- Where one bank accepts a deposit
chased from the bank under an abuse from another bank, agreeing to pay the
of his office to his wife, the. wife was usual two per cent interest, it may not
not entitled to hold the same, as avoid the contract and refuse to pay
against stockholders of the bank, in the interest after retaining the de-
an action to set aside the sale, since posit for several months merely be-
she acquired no better title than her cause one of the officers was com-
husband possessed. Morgan v. King, mon to both banks. City Nat. Bank
27 Colo. 539, 63 Pac. 416. V. Merchants', etc., Nat. Bank (Tex.
5. Avoidance of contract, estoppel. Civ. App.), 105 S. W. 338.
—Bank v. Triplett (Ky.), 6 J. J. Marsh 7. Same persons officers in both
549; Dunn v. O'Connor, 25 App. Div. corporations. — City Nat. Bank v. Mer-
73, 49 N. Y. S. 270. chants', etc., Nat. Bank' (Tex. Civ.
The president of a bank, who as such App.), 105 S. W. 338.
made a loan to himself in excess of Where partners engaged in bank-
one-fifth of its capital stock and sur- ing transfer their assets to an incor-
plus, in violation of Laws 1892, c. 689, porated bank, guarantying the paper
§ 25, is estopped to set up the illegal- transferred, and become stockholders
ity of the loan as a defense to an action of the incorporated bank, and some of
to foreclose a mortgage given by him them the managers thereof, a com-
to secure it. Dunn v. O'Connor, 25 promise and settlement of the liability
App. Div. 73, 49 N. Y. S. 270. of the copartnership and the incor-
In a suit instituted by the president porated bank by its managing officers
and directors of the bank of the com- is avoidable at the election of the in-
monwealth, on a promissory note to corporated bank, unless in such set-
the bank, a plea by one of defendants tlement the full amount due on the
that at the time the note sued on was guaranty is paid, or the settlement is
executed he was a director of the authorized or ratified by the stock-
bank, and therefore not competent to holders or board of directors of the
sign said note as a surety, and that he bank, the partners not voting as stock-
§ 54 (6) OPFICBRS AND AGENTS. 301
both corporations does not render the contract void as against public
policy.^
Duty to Account for Profits —Right to Buy in Property Sold for
Banks Debts. It is a — general principle, applicable to the officers and
agents of banks as well as to other cases, that where a person is actually
or constructively the agent of another, all profits and advantages made by
him in the business, beyond his ordinary compensation, is for the benefit
of his employer.^ And it has even been held in such a case that a cashier
was estopped from denying his agency and from claiming the profits, not-
withstanding the transaction may have been outside of his duties. ^^ Profits
derived from the use of the bank's money belong to the bank though there ;
is no principle forbidding the officer or agent of the bank, where not for-
bidden by law, from obtaining a bona fide loan from his bank and in-
vesting it for his own profit.^^ And where a director is charged with the
duty of selling property as a trustee^ for the bank, it is a question depending
upon the particular facts of the case whether he' is liable to the bank for
profits received by him individually for services rendered the purchaser
holders or director.s. Leonhardt v. 10. Same. — Mt. Vernon Bank v.

Citizens' Bank, 56 Neb. 38, 76 N. W. Porter, 52 Mo. App. 244.
452. In an action by a bank against its
8. Same. — City Nat. Bank v. Mer- cashier to recover certain commissions
chants', etc.. Nat. Bank (Tex. Civ. on sale of bonds which the bank was
App.), 105 S. W. 338. employed to negotiate, which com-
L. was president of defendant bank missions had been retained by the
and vice president of plaintiff bank. cashier, he is estopped from denying
B cashier of defendant bank, with
. his agency, and from claiming the
full authority to make such a contract, profits, notwithstanding the transac-
solicited plaintiff bank to deposit the tion may have been outside his du-
money on hand with defendant bank, ties.Mt. Vernon Bank v. Porter, 52
and with L,. agreed to pay the two Mo. App. 244.
per cent interest on the deposit. No 11. Loans to officers Profits from
fraud, deception, or concealment was
claimed, and there was no evidence
use of bank's money. Lindemann v. —
Rusk, 125 Wis. 310, t04 N. W. 119.
that the contract was made without Just before the termination by
the consent of defendant's officers, di- charter limitation of the existence of
rectors, and stockholders. Held, that a banking corporation, a director ob-
the contract was not void on the fained from it a sum which he invested
pround of L.'s interest in the plaintiff in another banking corporation. The
adverse to the stockholders in defend- director gave his note for the money,
ant. City Nat. Bank v. Merchants', secured by collateral and bearing in-
etc.. Nat. Bank (Tex. Civ. App.), 105 terest, and the amount was less than
S- W. 338. the director's interest in the assets of
9. Duty
to account for profits; pur- the corporation from which the money
chase of property sold for bank's was obtained. The note was paid.
—
debts. Pomeroy v. Benton, 57 Mo. Held that, especially in the absence
531; Murdoch Milner, 84 Mo. 96;
v. of any showing that the interest paid
Beni V. Mo. 475; Mt. Vernon
Priest, 86 by the director did not equal the
Bank v. Porter, 148 Mo. 176, 49 S. W. profits he derived from the use of the
982; S. C, 52 Mo. App. 244. money, the court was justified, in a
Profits derived by a cashier of a suit to wind up the affairs of the de-
bank from a sale of bonds negotiated funct corporation, in treating the
by him while cashier, and in the dis- transaction as a loan instead of an
charge of his duties as such cashier, investment in the new corporation for
belong to the bank. Judgment (1896) the benefit of those interested in the
65 Mo. App. 448, reversed. Mt. Vernon old one. Lindemann v. Rusk, 125 Wis.
Bank v. Porter, 148 Mo. 176, 49 S. W. 210; 104 N. W. 119.
983.
upon a subsequent division and resale of the same property. ^^ A bank

officer may buy in, for his own benefit, a pledge held by the bank; and,
if he pays enough for it to satisfy the debt to the bank, he will not be held
as a trustee for the residue,^^ but if he use the funds or credit of the
bank making the purchase he is bound to account to the bank for any
in
profits arising upon his purchase.^*
Using Official Position for Private Advantage Undue Preference —
of Officers as Depositors and Creditors. Upon well-settled equitable —
principles it is not permitted to a' director or other officer to use his official
position as a means of private advantage to himself, or to take advantage
of his inside information in order to obtain any preference for himself
as against stockholders or creditors upon the dissolution or insolvency of
the bank.i^ It is a gross breach of their duty as trustees and a fraud upon
12. Compensation for services ren- 15. Using official position for pri-
dered purchaser by bank's agent. — —
vate advantage Preference of ofiicers
Tenison v. Patton, 95 Tex. 284, 67 S. as creditors and depositors. German —
W. 92, reversing 64 S.W. 810. Sav. Bank v. Wulfekuhler, 19 Kan. 60;
A bank director who held title to Swentzel v. Penn Bank, 147 Pa. 140, 23
land as trustee for the bank and also Atl. 405, 15 L. R. A. 305, 30 Am. St.
as security for advances made by him R. 718; Lamb v. Laughlin, 25 W. Va.
for the bank, by authority of the di- 300; Lamb v. Cecil, 28 W. Va. 653;
rectors sold it to a third party for a Lamb v. Pannell, 28 W. Va. 663.
cash price satisfactory to the directors, A director of a bank can not, on be-
which was offered with the under- _ half of a firm of which he is a mem-
standing, made known to the directors, ber, draw the firm's money from the
that the trustee was to take charge of bank, after it has suspended payment..
subdividing and reselling the land for Swentzel v. Penn Bank, 147 Pa. 140,
the purchaser, and to share in any 23 Atl. 405, 15 L R. A. 305, 30 Am. St.
profits over the purchase price. Held, Rep. 718.
that the trustee was not, as a matter One who was director, vice presi-
of law, liable to the bank for the
dent, and stockholder sold his shares
profits gained by them through such
in the bank, when it was in an em-
resale, but the question was one of
barrassed condition, to a customer of
fact, the burden being on him to show
the bank, who had already overdrawn
the fairness of the transaction.
Tenison v. Patton, 95 Tex. 284, 67 S.
his account. The purchaser paid for
the shares by a check on the bank, by
W. 92, reversing 64 S. W. 810. which his account was further over-
13. Right to buy pledge held by
drawn. The cashier, in breach of his
—
bank. Smith v. Lansing, 22 N. Y.
duty to refuse any overdraft, allowed
520.
14. —
Same Use of bank's credit or the seller to draw out the money.
funds in making purchase. Moses v. — Held, that the bank could recover it
back, on the ground that, as an officer
Ocoee Bank, 69 Tenn. (1 Lea) 398.
of the bank, the seller of the shares
An officer of a bank buying in prop-
erty at execution sale for the bank debt
was chargeable with knowledge of its
for which it was sold, will not be per-
embarrassed condition, and of the
state of the purchaser's account. Ger-
mitted to claim the benefit of the pur-
chase for himself where he used the man Sav. Bank v. Wulfekuhler, 19
debt for a time to pay his bid, and Kan. 60.
then without any corporate action to W., a director and vice president of
ratify the transactions, settled the debt a bank, sold his stock while" the bank
with the bank. Property so purchased was in an embarrassed condition to H.,
is assets for the benefit of the creditors who had an overdrawn account with
of the bank, and may be so applied, the bank of several months standing.
allowing the bank officer the proper W.- received in payment for his stock
credit for the amount actually paid by a check for $2,100 drawn by H. on the
him in his settlement with the bank. bank. H. afterwards sold the stock
Moses V. Ocoee Bank, 69 Tenn. (1 to the cashier of the bank, who pur-
Lea) 498. chased it for the bank, but without any-
§ 54- (6) OFFICERS AND AGENTS. 303
the public for directors, having knowledge of the insolvency of the bank,
to permit it do business and to receive deposits until they
to continue to
have succeeded in withdrawing their own deposits. Any such fraudulent
and unlawful preference may be recovered by a receiver or assignee for
the benefit of the bank and of all the creditors. ^^ And when a director,
who is also a depositor, has knowledge that the bank is probably insolvent
and that it will likely be unable to continue business or to pay depositors,
obtains from the cashier without authority from the board of directors,
discounted bills and notes, equal to the amount of his deposits, and for
the purpose of avoiding the loss thereof, such transaction will be held in-
valid, and himself bank for the amount of the
liable to the assignee of the
securities so obtained. ^'^But it has been held that the fact that one is a
director of an insolvent bank does not render it illegal for him to receive
in good faith from the bank a transfer of negotiable paper against third
persons, held by the bank, in payment of a debt due and payable from
the bank to him; and if he so receive negotiable paper, before maturity,
not payable on its face to the bank, he may collect it of those liable upon
it in his own name, and they have no right to pay it in the bills of the
bank.is Although the receipt by the director of such securities may be

a breach of his duty to the bank, such circumstance constitutes no ground
of defense for the person liable on the papers so long as the stockholders
of the bank do not complain of it.^^ There is no principle which forbids
the president of a bank, where he has loaned it funds or advanced it money,
in order to tide it over periods of embarrassment, from coming in as any
other creditor and having his claim allowed i^" and where a bank director
authority from it or from any one else 18. Same— Same.— Bruce v. Hawley,
to so purchase it, and gave H. credit 31 Vt. 643.
for $2,100 for such stock on the bank's 19- Same.— Bruce v. Hawley, 31 Vt.
books. On the same day he gave W. *'^^-
,
rr
a credit on the bank's books for the 20. Rights of officer whomade has
same amount, and charged H. with a advances to bank. — Bank
State
like amount. Several days afterwards Comm rs v. St. Lawrence Bank (N.
W. drew the $2,100 out of the bank. Y.) 8 Barb. 436.
Held that, as affecting the right of the ^ bankmg association, being em-
bank to maintain an action against W. barrassed, authorized its president and
for the amount of money so drawn cashier to raise money to redeem the
by him, it was immaterial that such circulation of the bank. In pursuance
stock in fact belonged to W. and his °f such authority, they purchased a
brother as partners, and that all the latere amount of stocks of the state,
transactions in selling such stock, giv- 3"d gave notes of the bank, signed by
ing such credit, and in drawing out ^ê president and cashier payable at
money were done in the name of the future periods. The stocks went to
firm. German Sav. Bank v. Wulfe- ^"6 "se of the bank The notes were
kuhler 19 Kan. protested for nonpayment, and the
Same— Continmng to receive
,„
16.
...
o /->
60.
i- • i -Jde- president, on being applied
^
them. „ tt
Held, it, u
that fu
^^ • to,
t.
the president had
.
paid
j
a
^
posits m msolyent u T
. ,
bank.-Lamb ... 1 i_
v.
^^^^ , j ^j^;^ ;„^ ^
Laughlin, 25 W. Va. 300.
^^^ ^^^^„^ ^^ pî^ ^^ 1,;^_ ^„^_ ^^^
17. Same— Same— Withdrawing _
se- bank having failed, he was entitled to

curities amount of deposits
to in in- come in as a creditor thereof, before
solvent bank.— Lamb v. Cecil, 28 W. the receiver, and have his claim al-
Va. 653; Lamb v. Pannell, 28 W. Va. lowed. State Bank Comm'rs v. St.
G'eS. Lawrence Bank (N. Y.), 8 Barb. 436.
loans money to the bank and takes a mortgage to secure it, he may fore-
close his mortgage after the insolvency of the bank.^^ So the appropria-
tion of bills receivable, by directors, as indemnity for notes issued by
them accommodation of the bank, if done in good faith,
for the in ignorance
of the impending insolvency of the bank, does not render them liable either
for fraud or negligence.^^
§ 54 (7) Compensation of Officers. — Compensation of Directors.

—A director in a banking corporation is not entitled to compensation for
his service as director, in the absence of any agreement in advance that he
shall receive such compensation ;23 nor have they any authority to vote
salaries to themselves after their election as directors.^* If, in the course
of his office, a director renders to the corporation any unusual services,
that may be the basis of a quantum meruit ;25 provided there is no statu-
tory or charter provision prescribing the emoluments to be allowed to di-
rectors and either expressly or impliedly forbidding that they shall re-
ceive anything additional ;2® but even under such a statute the giving of
21. Same —
Right to foreclose mort- bursements connected with the prose-
gage securing advances. Millsaps v. — cution of the case, including attorney's
Chapman, 76 Miss. 942, 71 Am. St. Rep. fees, and where the necessity of
547, 26 So. 369. spending fifteen days to watch the as-
22. Appropriation of bills receivable signee of the debtor, twelve days to
as indemnity against accommodation attend the assignee's sale, and twelve
—
notes. In re Warner's Appeal (Pa.), days in connection with the trial was
not shown. Forster v. Columbia Nat.
7 Atl. 216, 1 Sad. 310.
23. Compensation of directors. — Bank, 77 Minn. 119, 79 N. W. 605.
26. Same — Charter provisions.-^Mo-
Wickersham v. Crittenden, 93 Cat. 17,
bile BranchBank v. Collins, 7 Ala. 95;
28 Pac. 788.
Branch Bank v. Scott, 7 Ala. 107.
24. —
Same. Wickersham v. Critten- Under the statute fixing the com-
den, 93 Cal. 17, 28 Pac. 788. pensation of directors of the State
25. Same —
Unusual services. Wick- — Bank, a director of a branch bank, re-
ersham V. Crittenden, 93 Cal. 17, 28 ceiving the compensation provided by
Pac. 788; Lowe v. Ring, 106 Wis. 647, law, can be allowed no compensation
82 N. W. 571. by the board for extra services while
Where by the vote of the directors he continues a director. Mobile
of a bank the -plaintifif was appointed Branch Bank v. Collins, 7 Ala. 95;
special director, to receive such com- Branch Bank v. Scott, 7 Ala. 107.
pensation as "should, in the opinion Where work was done by mechanics
of the board, be reasonable and fair," for the bank, under the superintend-
and he declared for a reasonable com- ence of one of the directors, the
pensation in a quantum meruit count, board might lawfully direct their com-
and the defendants paid into, court the pensation to be paid to him for their
amount voted by the directors to be use. Mobile Branch Bank v. Collins,
a "reasonable compensation," it was 7 Ala. 95.
held that, by paying the money into Aprovision in the charter of a bank
court, the defendant waived this limi- that "no director shall be entitled to
tation of the contract. Huntington v. any emolument unless the same shall
.
American Bank (Mass.), 6 Pick. 340. have been allowed by the stockholders
Fourteen dollars a day for forty- at a general meeting" applies to the di-
seven days, besides traveling expenses, rectors only in their official capacity,
awarded to a director of a bank by and does not prevent them from tak-
the verdict of a jury, for attending to ing compensation for services rendered
the collection of a $3,000 note held by individually by them, as agents of the
the bank, was grossly excessive, where bank. Chandler v. Monmouth, 13 N.
the bank paid all the expenses and dis- J. L. 1 Green 255.
compensation to a member of the board of directors, for extra services as

an agent of the bank, though unlawful, is not such an act as will expose
the directors to liability, if done in good faith, and with the honest intent
of benefiting the bank.^''^
Compensation of the President. — The law raises no implied promise

to pay the president of a bank for his official services; nor can he recover
pay for such services upon a quantum meruit.^* Neither is there any im-
plied obligation to pay for extra and unusual services ;29 though where such
duties are wholly foreign and outside of his duties as president, it is a
question for the jury whether the circumstances are such as to raise an im-
plied contract to pay for the samc^** His compensation is to be fixed by
the directors in such sum as they may think reasonable,^! or in such sum
as they and the president may agree upon;^^ and where such contract re-
27. Same — —
Same. Godbold v. Branch press contract to pay defendant for
Bank, 11 Ala. 191, 46 Am. Dec. 211. such services, it was error for the trial
28. Compensation of president. — court to hold, as a matter of law, that
Sawyer v. Pawners' Bank (Mass.), 6 the defendant was entitled to no com-
Allen 207; Holland v. Lewiston Falls pensation therefor, since they con-
Bank, 52 Me. 564. stituted no part of defendant's duties
There is no implied contract on the as president, and whether the circum-
part of a banking corporation, whose stances were such as to raise an im-
objects are partly charitable, to pay plied contract to pay for such serv-
for official services rendered to it by ices should have been left to the jury.
its president; nor is such contract es- Lowe V. Ring, 106 Wis. 647, 82 N. W.
tablished by proof that the president 571.
informally mentioned to some of its 31. Salary fixed by directors. Hol- —
directors that he should expect com- land V. Lewiston Falls Bank, 52 Me.
pensation, and that they made no re- 564.
ply. Sawyer v. Pawners' Bank (Mass.) 32. Or by contract. — Sawyer v.
6 Allen 207. Pawners' Bank (Mass.) 6 Allen 207;
But see contra Withers v. Edwards, Pew V. First Nat. Bank, 130 Mass.
26 Tex. Civ. App. 189, 62 S. W. 795, 391.
where it is said that the presumption The directors of a bank, by vote,
is that the offices of president and fixed the salary of the president at
teller are lucrative, and that the law $400 a year, for which he served for
implies that a reasonable compensa- four years, then demanded an increase
tion will be paid to the persons hold- of salary, and verbally resigned his
ing' them. office. A committee of conference re-
29. Same —
For unusual services. — ported at a subsequent directors' meet-
Leavitt v. Beers (N. Y.), Labor's Supp. ing that he would not serve as presi-
(Hill. & Denis) 221 Pew v. First Nat.
; dent unless his salary was $2,000.
Bsnk, 130 Mass. 391. After this report, the directors passed
The president of a bank can not a vote^ fixing the salary at $400; and,
maintain any claim for guarantying at their next meeting, a vote was
its naoer without proof of a clear and nassed approving the record of the
explicit contract to that efifect. Leavitt last meeting: and plaintiflf, in igno-
V. Beers (N. Y.), Labor's Supp. (Hill rance of these votes, came into the
& Denis) 221. meeting and presided, saying: "At
30. Services wholly foreign and out- your request, and uoon the assurance
side of duties as president. Lowe v. — that the salary shall be arranged to
my
Rino-. 106 Wis. 647, 82 N. W. 571. satisfaction, I withdraw my resig-
Where defendant was president
the nation." Nothing was said in replv by
of a bank, and was requested by the any of the directors: and plaintiff con-
other directors to administer an es- tinued to act as president for four
tate, so that the bank could realize as months longer, when, there having been
much as possible from securities it no other vote passed fixing his ^lalary,
held against it, and there was no ex- he resigned, and his resignation was
1 B & B—20
306 BANKS AND BANKING. §54 (7)
quires him to render any particular service or to devote a given number

of hours to the business of the bank each day, it is a good defense that
he has failed to do so.^^ The directors can not in any instance, however,
vote a salary to one of their number as president when he takes part in
the proceeding or his vote is essential to the adoption of the resolution.^*
Compensation of Vice-President. —A vice-president of a banking cor-
poration is not entitled to compensation for his services, in the absence of
a governing statute, by-law, regulation, or contract to which his own vote

was not essential, providing for it.^^
—
Cashier and Other Officers. The salary paid the cashier and othei
subordinates is fixed by contract, and questions involving the amount agreed
to be paid, the mode and medium of payment, etc., are dependent upon the
existence and proper construction of the contract.^^
—
Waiver or Estoppel to Claim Salary. Where the officials of a bank,
being large stockholders, and desirous of making a good showing, omitted
accepted. Held, that there was no 6 Ark. 293; San Joaquin Valley Bank
contract, express or implied, to pay V. Bours, 65 Cal. 247, 3 Pac. 864;
him as a salary more than $.400 a year. Regester v. Medcalf, 71 Md. 528, 18
Pew V. First Nat. Bank, 130 Mass. 391.
33. —
Same Breach of contract. — Atl.
A
966.
bank cashier originally appointed
Lapsley v. Merchants' Bank, 105 Mo. from month to month, at a salary of
App. 98, 78 S. W. 1095; Edwards v. $200, was at length appointed annually,
Merchants' Bank (Mo.), 78 S. W. 1133.
and continued to draw the same sal-
34. —
Director President voting sal-
ary for three months, when he drev/
—
ary to himself. Butts v. Wood, 37 N.
$300 per month, which amounts were
Y. 317; Kelsey v. Sargent (N. Y.), 40 charged in the books of the bank, and
Hun. 150; Copeland v. Johnson Mfg. reported to the board of trustees.
Co., 47 Hun. 235, 14 N. J. St. Rep. 245;
Held, that an implied agreement was
Gardner v. Butler, 30 N. J. Eq. 702; created fixing the salary at $300 per
Ward V. Davidson, 89 Mo. 445, 1 S. month. Jan Joaquin Valley Bank v.
W. 846; Chamberlain v. Pacific Wool, Bours, 65 Cal. 247, 3 Pac. 864.
etc., Co., 54 Cal. 103; Wickersham v.
CriUenden, 93 Cal. 38 Pac. 788.
17,
In an action on an alleged contract
The directors of a bank, at a regu- of employment as cashier against the
lar meeting, appointed its president, persons who had agreed among them-
cashier, and a director, a committee selves to organize a bank, and who
on alterations of a building bought by had appointed one of their number to
the bank. At a subsequent meeting, make arrangements for carrying out
complaint being made that nobody their plan, refusal to charge, as re-
was attending to the work, the presi- quested by certain defendants, that, if
dent, after consultation with the other they were not present when the reso-
members of the committee, and with lution electing plaintiff as cashier was
the knowledge of the directors, but passed, and did not subsequently ratify
it, then plaintiff could not recover, was
without any other vote having been
passed upon the subject, devoted all not prejudicial where it appeared that
his time, except what was required for one of the organizers might have been
his duties as president, to superin- a duly-authorized agent to employ
tending the work for a period of six plaintiff. Regester v. Medcalf, 71 Md.
months. If he had not done so, it 538, 18 Atl. 966.
would have been necessary to employ Medium of payment. The —
officers
a superintendent. Held, that he could of the State Bank were entitled to
not recover for such services. Pew have their salaries paid in gold and
V. First Nat. Bank, 130 Mass. 391. silver; and, notwithstanding the liqui-
35. Compensation of vice president. dation Act of 1843, they were entitled
—Blue V. Capitol Nat. Bank, 145 Ind. to continue in office, and to draw their
518, 43 N. E. 655. salaries, until the surrender of the as-
36. Compensation of cashier and sets of the bank to the receivers. State
—
other officers. State Bank v. Crease, Bank V- Crease, 6 Ark. 292.
§ 54 (9a) OFFICERS and agents. 307
to draw their salaries for the first year, the sums due being placed to the
credit of the bank, and no mention thereof made in the published repon,
required by the statute, it was held, that this omission to publish did not, as
against other stockholders (as distinguished from creditors), estop them
from claiming their salaries upon the failure of the bank.^'^
§ 54 (8) Power to Close Bank or Decline Deposits. —Unless

specially authorized by the board of directors, the president or a director
of a bank is not legally authorized to close the bank, or to prevent the
reception of deposits so long as the bank continues solvent. He is as de-
void of power in this regard as the president or director of a railroad com-
pany to stop the operation of trains or other business of the company.^^
Where Bank Has Become Insolvent. —See post, "Receiving De-
posits after Insolvency," § 57 (6) ; "Receiving Deposits after Knowledge
of Insolvency," § 61 (3b).
§ 54 (9) Liability on Bond —

§ 54 (9a)- Duration of Liability.
—
Constituting Liability. A bond conditioned for the faithful discharge
of his duties by a director while he shall remain a director extends to his
duties as director under successive annual elections, although it be not re-
newed and approved as required by statute ;89 ^nd a bond given by a cash-
ier to secure the faithful performance of his duties, containing no limits
as to its duration, is broad enough to cover a continuing liability under a
statute providing that the officers and directors, after the first year, shall
be such as may be prescribed by the by-laws and shall be appointed or re-
moved as said by-laws may provide; for the election of a cashier to an
office which he already holds, and would hold without election, must be
regarded as a manifestation of the will and intent of the directors that

he should hold for another year. In such a case the court said that "un-
less we are to charge these sureties, who were also directors, with a gross
violation of duty in not demanding a new bond, they must have con-
strued the bond as continuing."*" On the contrary, however, under a
statute providing that bank officers shall hold their office until others shall
be chosen in their stead, it has been held that the term of office of a cash-
37. Waiver or estoppel to claim sal- but never gave any other bond. Held,
ary.— Wheeler v. Aiken County, etc., that notwithstanding the statute for-
Sav Bank 75 Fed 781 bade any bank director from entering
38. Power to close bank.-Ex parte "P°" ^% ^"t'es of his office until his
hond had been execued and approved
Smith, 33 Nev. 490, 111 Pac. 938; Ex
.^"d also provided th.t a director should
parte Griffin, 33 Nev. 490, 111 Pac.
^„g ' nold hip office until another was ap-
_ . . ,. , ... , , . pointed and qualified, nevertheless the
39. Continuing liabilitv on bond in o^ê was to be considered an annual
absence of renewal.— Treasurer v. oê, and M. was to be regarded as act-
Mann, 34 Vt. 371, 80 Am. Dec. 688. \^^ ^s director each year under his
M., a bank director elected in 1849, last preceding election. Treasurer r.'.
gave a bond conditioned for discharge Mann, 34 Vt. 371, 80 Am. Dec. 6S8.
of his duties "while he should be a 40. Same. — EJam v. Commercial
director." He was re-elected annually. Bank, 86 Va. 92, 9 S. E. 498.
1
ier, elected for a year, comes to an end, as to that particular term, upon
his re-election at the end of the year to succeed himself, so that his bonds-
men for the first year are not liable for defalcations in the second.* ^ Where
the bond is given by an officer of a bank, appointed by the finance com-
mittee to fill a vacancy, its life will be held to cover only the period in-
tervening between such appointment and its confirmation by an election
by the board of directors and the laches and negligence of the directors at
;
the time of such confirmation, in failing to provide for a new bond predi-
cated upon such election, is the misfortune and default of the bank, and
can not be charged against the bondsmen.*^
— —
Same Renewals of Bond. An indemnity bond promising "during the
term" of one year for which it is executed, "or any subsequent renewal of
such term," to reimburse and make good fraudulent and dishonest trans-
actions and losses by a bank cashier, "committed during the continuance of
said term, or any renewal thereof, and discovered during said continuance or
renewal thereof or within six months thereafter," is a continuous contract
extending the indemnity from year to year, as distinguished from separate
and distinct contracts for each year, and covers a misappropriation or
fraud committed during the first year of the contract of indemnity but not
discovered until six months after the bond had been renewed.*^ Where a
bank, pursuant to its by-laws, requires the cashier to renew his bond,
and the order requiring the renewal provides that the previous bond shall
not thereby be impaired until given up to be cancelled, the first bond, re-
maining uncancelled, continues in force after the second is executed.**
—
Upon Extension of Cliarter. Where the charter of a bank is extended,
and no new security taken of the cashier, securities under the first charter
are not liable for defalcation under the new charter.*^
Liability after Suspension of Cashier. —
The liability of the sureties
continues after the cashier's suspension from office by the board until
communicated to the cashier and carried into effect, three days later.*''
41. Same. — Mcllroy Banking Co. v. office of cashier of one of the offices
Dickson, 66 Ark. 337, 50 S. W. S68. of discount and deposit, during the
42. Bond of officer appointed to fill term he should hold that office; the
—
vacancy. Fancher v. Kaneen, 3 N. P., president and directors of the bank
N. S., 614. having- discovered that he had been
43. Renewal of bond. Cutts v. — guilty of a gross breach of trust, passed
Spear (O.), 8 N. P., N. S., 445, 19 O. a resolution, at Philadelphia, on the
D. N. P. 608. 27th of October, 1820, "that A. W.
44. Continuance of former bond un- McG., cashier, etc., be and he is
—
cancelled. Pendleton v. Bank (Ky.), hereby suspended from office, till the
1 T. B. Mon. 171. further pleasure of the board be
45. Effect of extension of charter. known;" and another resolution, "that
Thompson v. Young, 2 O. 334. the president of the office at Middle-
46. Liability after suspension of town, be authorized and requested to
cashier. —
McGill v. Bank (U. S.), receive into his care, from A. W. McG..
12 Wheat 511, 512, 6 L. Ed. 711. the cashier, the cash, bills discounted,
—
Termination. A. W. IVlcG. gave a books, papers and other property in
bond to the Bank of the United States, said office, and to take such measures
with sureties, conditioned for the faith- for having the duties of cashier dis-
ful performance of the duties of the charged, as he may deem expedient;"
§ 54 (9b) Risks and Delinquencies Covered by Bond. —Con-r

struction of Bond in Favor of Liability. —Where a bond given by a
surety company bank for its cashier is sued on after breach, if, lookr
to a
ing at all its bond is fairly and reasonably susceptible of
provisions, the
two constructions, one favorable to the bank and the other favorable to
the surety company, the former, if consistent with the objects for which
the bond was given, must be adopted, and this for the reason that the in-
strument which the court is invited to interpret was drawn by the at-
torneys, officers or agents of the surety company.*'^
Risks and Delinquencies Covered by Bond. It obligates not only —
and diligence ;*8 it covers willful or per-
to honesty, but to reasonable skill
missive misapplication of the bank's funds ;*9 and default can not be ex-
cused by any act or vote of the directors in violation of their duties,^"' such
as an attempted sanction of an usage to allow overdrafts, ^^ or, in the ab-
these resolutions were immediately terly illusory, if we were ô narrow

transmitted by mail, to the president down its import to a guarantee against
of the office at Middletown, who re- personal fraud only. Minor v. Me-
ceived them on the morning of Sun- chanics' Bank (U. S.), 1 Pet. 46, 7 L.
day, the 39th of the same month, but Ed. 47.
did not communicate them to the 49. Willful or permissive misappli-
cashier, nor carry them into effect, un- —
cation. The sureties are liable upon
til the afternoon of the 30th, between the cashier's bond, for any willful or
four and five o'clock. Held, that the permissive misapplication of the
sureties continued liable for his de- moneys of the bank, which the cashier
faults until that time. McGill v. Bank knowingly made, or suffered, without
(U. S.), 13 Wheat. 511, 513, 6 \^. Ed. authority, whereby the same moneys
711. have been lost to the bank. Minor v.
The resolution was only to suspend, Mechanics' Bank (U. S.), 1 Pet. 46, 7
and this implies the right to restore. L. Ed. 47.
The cashier's salary went on, and had 60. Authorization of directors no
the board rescinded their resolution, excuse. —
Minor v. Mechanics' Bank (U.
there would have been no necessity S.), 1 Pet. 46, 7 L. Ed. 47.
for a redelivery of his bond. McGill No act or vote of the board of di-
V. Bank (U. S.), 12 Wheat. 511, 514, 6 rectors of a bank, in violation of their
L. Ed. 711. own duties, and in fraud of the rights
47. Construction of bond in favor of and interests of the stockholders of
liability thereon. —
American Surety Co. the bank, will justify the cashier of
V Paulv. No. 1, 170 U. S. 133, 43 E. the bank in acts which are in violation
Ed. 977, 18 S. Ct. 553; S. C, No. 2, 170 of the stipulation in his official bond,
U. S. ]60, 43 L. Ed 987, 18 S. Ct. 563. "well and truly" to execute the duties
See post, "Supervision and Notice of of his office. Acts done by a cashier,
Default or Loss," IV, B, 2, a, (3), (c). under the authority of such a vote, or
48. Risks and delinquencies covered of a_ usage permitted by the directors,
—
by bond Obligates to reasonable skill in violation of the trusts assumed by
—
and diligence. The condition of a them, are on the responsibility of the
cashier's bond, "Well and truly to ex- rashier. and of his sureties. Minor v.
ecute the duties of the office," includes Mechanics' Bank (U. S.), 1 Pet. 46
not only honestv. but reasonable skill 7 L. Ed. 47.
and diligence. If the duties are per- 51. —
Same With respect to over-
formed negligently and unskillfully drafts. —
Minor v. Mechanics' Bank (U.
if they are violated, from v/ant of ca- S.\ 1 Pet. 46, 7 L. Ed. 47.
pacity or want of care they can — A usasre to allow customers to over-
never be said to be "well and trulv draw, and to have their checks and
executed." The operations of a bank notes charged up, without present
require diligence, with fitness and ca- funds_ in the bank stripped — of all
pacity, as well as honesty, in its cash- technical disguise, the usage and prac-
ier; and the securitv for the faithful tice, thus attempted to be sanctioned,
discharge of his duties, would be ut- is a usage and practice to misapply
sence of express agreement, by the laches or negligence of the directors,

not amounting to fraud or bad faith, or by the connivance of ordinary
agents or employees. ^^
Construction of Bonds Conditioned against Fraud and Dis-
—
honesty. "Fraud or dishonesty" of a bank cashier "amounting to embez-
zlement or larceny," for which a fidelity and guaranty company promises
"to make good and reimburse," comprehends such dishonest and fraudu-
lent conduct resulting in loss as is equivalent to embezzlement or larceny,
and is not confined to the technical offenses mentioned or such misap-
propriation of funds as would subject the cashier to a conviction for em-
bezzlement or larceny. ^^
Change —
in Position Added Duties and Responsibilities. The offi- —
cialbond of a cashier must be construed to cover all defaults in duty which
are annexed to the office, from time to time, by those who are authorized
to control the affairs of the bank; and the sureties in the bond are pre-
sumed to enter into a cantract, with reference to the rights and authorities
the funds of the bank; and to connive ant of a bank neglects his duty, and by
at the withdrawal of the same, with- his carelessness permits another serv-
out any security, in favor of certain ant of the bank to commit a fraud, the
privileged persons. Such a usage and surety of the fraudulent servant shall
practice is surely, a manifest departure be thereby discharged. Fidelity, etc.,
from the duty, both of the directors Co. V. Courtney, 186 U. S. 342, 46 L.
and the cashier, and can not receive any Ed. 1193, 22 S. Ct. 833, reaffirmed in
countenance in a court of justice, Cherry v. Fidelity, etc., Co., 205 U. S.
could not be supported by any vote 537, 51 L. Ed. 920.
of the directors, however formal; and S3. Construction of bonds condi-
therefore, whenever done by the tioned against fraud and dishonesty. —
cashier, is at his own peri), and upon Cutts V. Spear (O.), 8 N. P., N. S., 445,
the responsibility of himself and his 19 O. D. N. P. 608.
sureties. Minor v. Mechanics' Bank The cashier of a bank, whose bond,
(U. S), 1 Pet. 46, 7 L. Ed. 47. with sureties, was conditioned that he
52. Laches or neglect of directors. would "faithfully and honestly dis-
— Fidelity, Co. v. Courtney, 18B
etc., charge his duties as cashier, and ac-
U. S. 342, 46 L. Ed. 1193, 22 S. Ct. 833, count for all such moneys, funds and
reaffirmed in Cherry v. Fidelity, etc., valuables" as came into his hands,
Co 205 U. S. 537, 51 E. Ed. 020.
, cashed a draft, payable to his order,
It is well settled that, in the absence amply secured by bills of lading of cot-
of express agreement, the surety on a ton, and duly forwarded the same, with
bond given to a bank, conditioned for the bills of lading, to a bank in another
faithful performance by an employee city, for collection.The draft and bills
of his duties, is not relieved from lia- of lading were lost in the mail. The
bility for a loss within the condition cashier's bookkeeper, whose duty it
of the bond by reason of the laches or was to check the statements and .ac-
neglect of the board of directors, not counts with other banks, reported the
amounting to fraud or bad faith, and draft as credited on their account with
that the acts of ordinary agents or em- the bank to which they had been for-
ployees of the indemnified corporation, warded, and his accounts balanced ac-
conniving at or cooperating with the cording to his report. The agent of
wrongful act of the bonded emplovee, the railroad company, without produc-
will not be imputed to the corporation. tion of the bills of lading and without
Fidelity, etc., Co. v. Courtney, 186 U. the consent of the cashier, delivered
S 342, 46 L. Ed. 1193, 22 S. Ct, 833, re- the cotton to consiarnee. Held, that
affirmed in Cherry v. Fidelity, etc., the cashier was not liable on his bond.
Co., 205 U. S. 537, 51 L. Ed. 920. First Nat. Bank v. Still (Civ. App.), 32
It can not be said that if one serv- S. W. 61.
§ 54 (9b) OFFICSRS AND AGUNTS. 311
of the president and directors, under the charter and by-laws;^* but the
liability of the sureties upon a bond given to secure the faithful per-
formance of the duties of a bank official in a given position does not

extend to acts of dishonesty committed by him in a higher and more
responsible position to which he has been promoted by the bank subse-
quent to the execution of the bond, unless the bond, fairly construed, was
intended to provide for such added responsibility. ^^ The obligation is
not enlarged to cover the default in such case by reason of a stipulation

contained in the bond "and in every way faithfully and honestly admin-
ister his duties while in the employ of the aforesaid bank/'^^
Breach of Trust or Theft Outside Scope of Duties. —A bond con-
ditioned upon the performance of the duties assigned to, and the
faithful
trust reposed in, one of the obligors as an employee of a bank is not to
be narrowed by construction into an undertaking to make good only those
losses resulting from a failure of the employee to faithfully perform and
execute the trust in so far as it relates only to the duties incident strictly
to his particular position, but it is an undertaking to stand sponsor for
his honesty as an employee of the bank, without regard to whether he
54. Change in position Added — du- of receiving teller; and, upon this be-
ties and responsibilities. Minor v. — Me- ing done, the company is as much
bound to make good to the bank losses
chanics' Bank (U. S.), 1 Pet. 46, 7 L.
Ed. 47. occasioned, during the period covered
by the contract, by reason of the em-
55. Same. — Northwestern Nat. Bank ployee's fraud or dishonesty while act-
V. Keen (Pa.), 14 Phila. 7.
ing in the capacity of assistant cash-
has been held that the official bond
It ier as in that of receiving teller. Fi-
of a bank cashier conditioned for the delity Trust, etc., Co. v. Gate City Nat.
faithfulperformance of "the duties of Bank, 97 Ga. 634, 25 S. E. 392, 33 L. R.
the of cashier, which may-
said office A. 821, 54 Am. St. Rep. 440.
be prescribed by the board of direct- A bank was incorporated with the
ors." extends to all duties theretofore power to appoint necessary officers, ta
prescribed, as well as those thereafter take bonds from them, and to make all
to be prescribed; that it is intended to necessary by-laws, rules and regula-
be more comprehensive even than a tions. By one of the by-laws of such
bond conditioned for good behavior corporation it was provided, that it
or for the performance of the duties should be the duty of every officer of
of the office, without saying more; the bank, to perform such servjces as
either of which conditions will be suf- might be required of them, by the
ficient to bind and charge the securi- president and cashier. In an action
ties, without any prospective or future against principal and sureties, on a
prescription of duty. Durkin v. Ex- bond given by a bookkeeper of said
change Bank (Va.), 2 Pat. & H. 277. bank, conditioned for the faithful per-
Under
a contract by which a fidel- formance of the duties required of him
ity and casualty company binds itself in said bank, etc., it is held, that the
to make good to a bank, to a specified bond was taken in conformity to, and
extent, such pecuniary loss as the lat- authorized by the charter. And where
ter may sustain by reason of the fraud such bookkeeper, whilst in the dis-
or dishonesty of a named employee charge of "other duties in said bank,"
in connection with his duties as re- fraudulently took large sums of
ceiving teller, "all the duties to which, money therefrom, the securities on his
in the employer's service, he may be official bond were liable to the amount
consequently appointed or assigned by of their bond. Planters' Bank v. Lam-
the employer," it is the right of the kin (Ga.), R. M. Charl. 29.
bank, without notifying the company, 56. —
Same Stipulation construed.^ —
to confer upon this employee the office Northwestern Nat. Bank v. Keen (Pa.),
of assistant cashier in addition to that 14 Phila. 7.
purloins the particular money or property entrusted to him by virtue of

his position, or whether he misappropriates other funds of the bank which
do not, in the ordinary course of business, come into his hands, and with
which he officially has nothing to do, but to which his employment enables
him to gain access. ^'^ The contrary doctrine was applied, however, in a
Virginia case, in which it was held that the sureties of an accountant were
not liable for moneys taken by him out of the teller's drawer, without the
teller's knowledge or consent, the accountant not being entrusted with nor
put in possession of any moneys of the bank.^* The majority of the

court in that case took the ground that the sureties were not bound for
his faithfulness in matters outside the scope of the duties of his position,
as that he should commit no theft or other felony against the bank with
respect to matters wholly unconnected with the duties of his position.
But dishonesty and theft can never be within the scope of an employee's
duties, and beyond question the better doctrine is that stated in the New
York case, which criticises and refused to follow the Virginia decision. s*
§ 54 (9c) False Representations in Procuring Bond. —A bank is
responsible for the representations of its cashier and its president in pro-
curing these contracts of indemnity. Where the representations made in
the certificate or declaration on which the officer'sbond was issued were
clearly misrepresentations, by such officer, made on behalf of the bank to
procure the bond for the bank, and acting for the bank, the bank can not
recover on the bond.^*' Thus where a certificate, required by a bonding
57. Breach of trust or theft outside 59. —

Same. Rochester City Bank v.
—
scope of duties. Rochester City Bank Elwood, 21 N. Y. 88.
V. Elwood, 21 N. Y. 88. 60. False representations in procur-
A bond conditioned upon the faith- —
ing bond. Guarantee Co. v. Mechan-
ful discharge of the trust reposed in one ics' Sav. Bank, etc., Co., 183 U. S. 402,
of the obligors as an assistant book- 46 L. Ed. 253, 22 S. Ct. 124; Fidelity,
keeper in a bank is not simply an un- etc., Co. v. Courtney, 186 U. S. 342, 46
dertaking that he would keep, with L. Ed. 1193, 22 S. Ct. 833, reaffirmed in
reasonable care and skill, such books Cherry v. Fidelity, etc., Co., 205 U. S.
of the bank as he might properly be 537, 51 L. Ed. 920.
required to keep as assistant book- It was competent for the defendant
keeper, and nothing more, but is an bonding company to show that the
engasrement for his honesty and fidel- bank had concerned itself in and about
ity to his trust as an employee of the the obtaining of the bond and renewals
bank. Rochester City Bank v. Elwood, in such manner as to cause the trans-
21 N. Y. 88. action to become in effect the business
The surety upon such bond is liable of the bank. The bank had notice
for a loss occasioned by his principal's from the terms of the original bond
embezzling the funds of the bank and that it was issued in reliance upon
making false and fraudulent entries in statements and representations made
the books of the bank for the purpose on its behalf to the surety company,
of avoiding detention. It is immate- and that, in the ordinary course, re-
rial that the credit journal, in which newals, which were to be optional with
such false entries were made, was us- the surety company, might also be
ually kept by the teller when the book- based upon further statements to be
keeper entered upon his duties. Ro- made on behalf of the bank. Thus, in
Chester City Bank v. Elwood, 21 N. the original bond, it was recited that
Y. 88. ' "The said employer has delivered to
58. Same. —Allison v. Farmers' the company a certain statement, it
Bank, 27 Va. (6 Rand.) 204. being agreed and understood that such
54 (9c) OFflCBRS AND AGENTS. 313
company, that the bonded officer's accounts had been examined and found
correct,was false as furnished by the bank, the bond issued thereon is not
binding on the company.*^ But where the certifying officer (president)
was a confederate in the dishonesty of the bonded officer, and the pro-
curing of the bond was the business of the officer to be bonded and not
of the bank, it was held that it was no part of the duties of the president
to make such a certificate as to the honesty and fidelity of the applicant,
and the bank was not responsible for his misrepresentation so as to bar
recovery on the bond.^^ Such a certificate is competent evidence to go to
statement constitutes an essential part that a certificate must be furnished be-

of the contract hereinafter expressed." fore each renewal every year that the
It was a reasonable and proper pre- accounts of the teller had been ex-
caution, in anticipation of a desired re- amined by the bank's finance committee
newal, to propoun,d the inquiries which and found correct, and when the bond
were submitted by the surety com- was renewed in January, 1893, the
pany. The inquiry was contained in bank's books showed that the em-
a written communication, addressed ployee was a defaulter in the sum of
to the bank; it was received by the $19,600 understated liabilities, and of
bank, and it was proper to presume $3,765.44 abstracted from bills receiv-
that was delivered to the official who
it able, both of which could have been
made reply thereto, by authority of detected by the taking of a trial bal-
the bank, he being the executive officer ance as is customary, or a mere com-
who was charged with conducting the parison between the books kept by
correspondence of the bank. The teller and the individual ledger, and a
making of the certificate was an act correct footing of the notes, the bank
done in the course of the business of had not only failed to comply with its
the bank, by an agent dealing with the engagements above referred to, and
surety company for and on behalf of falsely certified to a verification which
the bank. It did not purport to be, nor in fact had not been had, but was guilty
was it designed to be, the mere per- of such laches as would of itself defeat
sonal representation of the individual a recovery. Guarantee Co. v. Mechanics'
who filled the office of cashier, but it Sav. Bank, etc., Co., 183 U. S. 403, 46
was an official act, performed on be- L. Ed. 353, 22 S. Ct. 134, reaffirmed in
half of the bank. The information so- Cherry v. Fidelity, etc., Co., 305 U. S.
licited was such
as was proper to be 537, 51 L. Ed. 920.
asked and communicated by the
of 62. Same— Officer exceeding author-
bank, and as the renewal was presum- ity. — Guarantee Co. v. Mechanics' Sav.
ably made upon the faith of the state- Bank, etc., Co., 183 U. S. 403, 46 L. Ed.
ments contained in the certificate, the 253, 23 S. Ct. 124, reaffirmed in Cherry
bank ought not to be heard, while V. Fidelity, etc., Co., 205 U. S. 537, 51
seeking to obtain the benefits of the L. Ed. 920.

stipulations agreed to be performed American Surety Co. v. Pauly, 170
by the surety, to deny the authority of U. 133, 43 L.
S. Ed. 977, 18 S. Ct. 552,
its officer to make the representations distinguished in Guarantee Co. v. Mer-
which induced the surety to again bind chants' Sav. Bank, etc., Co., 183 U. S.
itself to be answerable for the faithful 402, 46 E. Ed. 253, 22 S. Ct. 124, where
performance by the defaulting officer it was said: "In Pauly's Case, the
of the duties of his employment. Fi- president and the cashier were con-
delity, etc., Co. V. Courtnev, 186 U. S. federates in the dishonesty of the
342, 46 L. Ed. 1193, 23 S. Ct. 833, reaf- cashier, for the purpose of defrauding
firmed in Cherrv v. Fidelity, etc., Co ,
the bank; and also it was held no part
205 U. S. 537, 5l'L. Ed. 920. of the duties of the president under
61. False certificate furnished by the circumstances there disclosed to
bank as a bar to recovery on bond. — certify to the integrity of the cashier
Guarantee Co. v. Mechanics' Sav. Bank, as he did. In this case the dishonesty
etc.. Co., 183 U. S. 403, 46 L. Ed. 353, 23 was that of the cashier alone; the
S. Ct. 124, reaffirming in Cherry v. statements were required to be and
Fidelity, etc., Co., 305 U. S. 537, 51 L. were made on behalf of the bank, and
Ed. 920. the president acted for the bank in so
Where a bank teller's bond provided doing; and the bonds were procured
the jury.**
§ 54 (9d) Supervision and Notice of Default or Loss. A stipu- —

lation for due supervision, contained in a bank officer's bond, means that it
is to be exercised by the bank, and the neglect or omission of a minority
of the board or of a subordinate officer or agent, is not a breach thereof.®*
by the bank, and the bank paid the will not presume that he communi-
premiums." Cherry v. Fidelity, etc., cated to the bank what he had done in
Co., 205 U. S. 537, 51 L. Ed. 920. order to promote the scheme devised
There are many acts which the presi- by him in hostility to its interests.
dent of a bank may do without express American Surety Co. v. Pauly, 170 U.
authority of the board of directors, in S. 133, 42 L. Ed. 977, 18 S. Ct. 552.
some cases because the usage of the As between the bank and the surety
particular bank impliedly authorized company, the former can not be
them, in other cases because such acts deemed, merel}' by reason of the pres-
were fairly within the ordinary routine ident's relation to it, to have had con-
of his business as president; but the structive notice that he as president
making of a statement, as to the hon- gave the certificate in question. Amer-
esty and fidelity of an employee for ican Surety Co. v. Pauly, 170 U. S. 133,
the benefit of the employee, and to en- 42 L. Ed. 977, 18 S. Ct. 552.
able the latter to obtain a bond insur- 63. Certificate in evidence. —
Fidelity,
ing his fidelity, was no part of the or- etc., Co. V. Courtney, 186 U. S. 342, 46
dinary routine business of a bank L. Ed. 1193, 22 S. Ct. 833, reafiirmed in
president, and there was nothing to Cherry v. Fidelity, etc., Co., 205 U. S.
show that by any usage of this par- 537, 51 L. Ed. 920.
ticular bank such function was com- "As held in First Nat. Bank v. Stew-
mitted to its president. American art, 114 U. S. 224, 29 L. Ed. 101, 5
Surety Co. v. Pauly, 170 U. S. 133, 42 S. Ct. 845, a communication which
L. Ed.- 977, 18 S. Ct. 552. on its face evidences that it was writ-
The procuring of a bond for the ten by the cashier of a bank, should
cashier, in order that he might become not be excluded from the jury as not
qualified to act as cashier, was no part being an act of the bank, where
of the business of the bank nor within 'it appears with reasonable certainty
the scope of any duty imposed upon to have regard to the business of
the president of the bank. It was the the bank.' In the case at bar it
business of the cashier to obtain and is manifest these elements were
present an acceptable bond. And it present, and the exclusion of the cer-
was for the bank, by its constituted tificate, as also of the evidence de-
authorities, to accept or reject the signed to establish that the giving of
bond so presented. The bank did not the certificate was an act done in the
authorize its president to give, nor course of the business of the bank, was
was it aware that he gave, nor was he erroneous." Fidelity, etc., Co. v
entitled by virtue of his office as presi- Courtney, 186 U. S. 342, 46 L. Ed. 1193.
dent to sign, any certificate as to the 22 S. Ct. 833, reaffirmed in Cherry v
efficiency, fidelity or integrity of the Fidelity, etc., Co., 205 U. S. 537, 51 L
cashier. No relations existed between Ed. 920.
the bank and the surety company until But where the very question which
the cashier presented to the former the the jury would have been called upon
bond in suit. What therefore the to determine if the certificate had been
president assumed in his capacity as received in evidence was fully sub-
president to certify as to the cashier's mitted to them and was necessarily
fidelity or integrity, was not in the negatived by their verdict, no founda-
course of the business of the bank nor tion exists for holding that prejudicial
within any authority he possessed. error resulted from excluding the cer-
He could not create such authority by tificate. Fidelity, etc.. Po. v. Courtnev,
simply assuming to have it. American 186 U. S. 342, 46 L. Ed. 1193, 22 S. Ct.
Surety Co. v. Paulv, 170 U. S. 133, 42 833, reaffirmed in Cherry v. Fidelity,
L. Ed. 977, 18 S. Ct. 552. etc.,Co.. 205 U. S. 537. 51 L. Ed. 920.
Tf he gave the certificate that he 64. StiDulation for due supervision
might, with the aid of the cashier, —
construed. Fidelity, etc., Co. v. Court-
carry out his purpose to defraud the ney. 186 U. S. 342, 46 L. Ed. 1193, 22
bank for his personal benefit, the law S. Ct. 833, reaffirmed in Cherry v. Fi-
§ 54 (9d) OFFICERS AND AGENTS. 315
And where, in addition to the provisions already mentioned, was agreed

it
"that the employer shall at once notify the company, on his becoming aware
of the said employee being engaged in speculation or gambling, or indulg-
ing in any disreputable or unlawful habits or pursuits," and the cashier
did become informed of speculation by the teller, and told the president,
but on the teller's assurance that he had ceased such practices, did not in-
form the bonding company, this was a breach of the bank's duty to that
company which would defeat recovery on the bond.^^ But notice need not
delity, etc., Co., 205 U. S. 537, 51 L. Ed. cated by him to the board of directors,
920. should be regarded as the knowledge
A stipulation in a bank officer's of the bank." Fidelity, etc., Co. v.
bond: "That the employer shall ob- Courtney, 186 U. S. 342, 46 L. Ed. 1193,
serve, or cause to be observed, due 23 S. Ct. 833, reaffirmed in Cherry v.
and customary supervision over the Fidelitv. etc., Co., 305 U. S. 537, 51 L.
employee for the prevention of default, Ed. 920.
and if the employer shall at any time To instruct the jury in broad terms
during the currency of this bond con- that if they found that the directors
done any act or default upon the part were careless in the management of
of the employee which would give the the bank generally they should find
employer the right to claim hereun- for the defendant bonding company,
der, and shall continue the employee could only have served to mislead.
in his service without written notice The court did not err in refusing the
to the the company shall
company, requested instructions. Fidelity, etc.,
not be responsible hereunder for any Co. V. Courtney,. 186 U. S. 342, 46 L.
default of the employee which may oc- Ed. 1193, 23 S. Ct. 833, reaffirmed in
cur subsequent to such act or default Cherry v. Fidelity, etc., Co., 305 U. S.
so condoned," is not fairly subject to 537, 51 L. Ed. 930.
the construction that it was the inten- 65. Speculation and other bad hab-
tion that the neglect or omission of a —
its —
Notice. Guarantee Co. v. Mechan-
minority in number of the board of ics' Sav. Bank, etc., Co., 183 U. S.
directors or the neglect or omission of 402, 46 L. Ed. 253, 22 S. Ct. 134, reaf-
subordinate officers or agents of the firmed in Cherry v. Fidelity, etc., Co ,
hank should be treated as the neglect 205 U. S. 537, 51 L. Ed. 930.

or omission of the bank. The provi- Where the officer's bond required
sion is not that a minority in number notification if the bank were informed
of the board of directors or that sub- of speculation on the officer's part,
ordinate officers or agents would ex- and the_ president had heard of such
ercise due and customary supervision, speculation, it was his duty to inform
and would not condone a default of the banking company, not withstand-
the bonded employee or retain him in ing the second stipulation was that he
his employment after the commission would inform the company as to
of a default, but the agreement is that rnatters about which he deemed it ad-
the bank would do or not do these visable for the company to inquire.
thing's. Fidelity, etc., Co.- v. Courtney, The word "deem" might be said to give
186 U. S. 342, 46 L. Ed. 1193, 22 S. Ct. a considerable discretion, but it was not
833, reaffirmed in Cherry v. Fidelity, a discretion to be abused. That the
etc. Co., 205 U. S. 537, 51 L. Ed. 920. company would consider it advisable
"The court rightly refused to in- to make inquiry is too plain for argu-
struct the jury that the mere knowl- ment, and the bank was responsible
edge of one or more directors, less for the misrepresentation in the an-
than a majority of the board, and of swer. Guarantee Co. v. Mechanics'
the vice president of the bank, of the Sav. Bank, etc., Co., 183 U. S 402. 46
default of the oresident, was imputable L. Ed, 353, 32 S. Ct. 124, reaffirmed in
to the bank. Indeed, when the charge Cherry v. Fidelity, etc., Co., 205 U. S.
which the court gave is considered, it 537. 51 L'. Ed. 920,
is apparent that the court went quite What the company stipulated for
as far as the law warranted, in favor was prompt notification of information
of the defendant, since the court in- by the banl: in regard to speculation
structed that knov/ledge acquired by or gambling on the part of the em-
the cashier in the course of the busi- ployee. It was entitled to exercise its
ness of the bank, and not communi- own judgment on that information and
be given of mere suspicions of an act which may involve a loss; there

must be knowledge,^* and the notice need not be given instantly, but within
had not agreed to rely on the bank's Pauly, 170 U. S. 133, 42 L. Ed. 977, 18
belief in that regard. It had the right S. Ct. 552.
to investigate for itself whether the Where the bond for the cashier re-
bank did so or not. Notification of the quired written notice to be given to
existence of reason for inquiry was the company, at its office in New York,
exactly what the clause was intended of any act on the part of the cashier
to secure. The bank neither investi- "which may involve a loss for which
gated nor gave the company notice oi the company is responsible hereunder,
the information it had, and substituted as soon as practicable after the oc-
its own judgment as to the value of currence of such act shall have come
that information for that of the com- to the knowledge of the employer,"
pany. This conduct on its part the defendant was entitled to notice
amounted to a breach of the stipula- in writing of any act of the cashier
tion. Guarantee Co. v. Mechanics' which came to the knowledge of the
Sav. Bank, etc., Co., 183 U. S. 402, 46 plaintiff of a fraudulent or a dishonest
L. Ed. 253, 23 S. Ct. 124. character as soon as practicable after
It was the duty of this bank to have the plaintiff acquired knowledge. It
made prompt investigation, or at all is not sufficient to defeat the plaintiff's
events to have notified the company right of action upon the policy that it
at once of the information that it had, be shown that the plaintiff may have
and the bank's misplaced confidence had suspicions of dishonest conduct
in its officer affords insufficient ground of the cashier; but it was plaintiff's
for enforcing the liability of the surety duty under the policy, when it came
company on the theory of good faith. to his knowledge, when he was satis-
The failure of the bank in the particu- fied that the cashier had committed
lars adverted to defeats a recovery on acts of dishonesty or fraud likely to
the teller's bond for defalcation after involve loss to the defendant under
information of his being engaged in the bond, as soon as was practicable
speculation was received. Guarantee thereafter to give written notice to
Co. V. Mechanics' Sav. Bank, etc., Co., the defendant. Though he may have
183 U. S. 402, 46 L. Ed. 253, 22 S. Ct. had suspicions of irregularities, and
124, reaffirmed in Cherry v. Fidelity, of fraud, he was not bound to act un-
etc., Co., 205 U. S. 537, 51 L. Ed. 930. til he had acquired knowledge of some
"Whatever the common-law duty on specific fraudulent or dishonest act
the part of the employer to notify the which might involve the defendant in
guarantor of the fraud or dishonesty liability for the misconduct. Ameri-
of the employee whose fidelity is guar- can Surety Co. v. Pauly, 170 U. S. 133,
anteed, the parties to this contract un- 42 L. Ed. 977, 18 S. Ct. 552.
dertook to declare the duty of the Where a surety company gave bond
bank to the company in certain speci- for the president of a national bank,
fied particulars. It required that the which was sued upon by the bank's re-
employee should not have been guilty ceiver, it was proper to instruct the
of previous default or dereliction with- jury that the receiver need not have
in the knowledge of the employer. It given the required notice on mere sus-
provided for notification of any act of picion as to acts by the president in-
the employee which might involve a volving fraud or dishonesty on his part
loss without unreasonable delay after as president of the bank, but was bound
the occurrence of the act came to the to do so only when satisfied that he
knowledge of the employer. And it had committed some specific act of
required immediate notification on the fraud or dishonesty likely to involve
employer becoming aware of the em- loss to the companv. American Surety
ploj'ee being engaged in speculation or Co. V. Pauly, 170 U. S. 160, 42 L. Ed.
gambling. The words, 'becoming 987. 18 S. Ct. 563.
aware,' were manifestly used as ex- The provision in the bond in these
pressive of a different meaning from words: "Now, therefore, in considera-
having 'knowledge.' " Guarantee Co. v. tion." etc. "It is hereby declared and
Mechanics' Sav. Bank, etc., Co., 183 U. agreed, that subject to the provision
S. 402, 46 L. Ed. 253, 22 S. Ct. 124, re- herein contained, the company shall,
affirmed in Cherry v. Fidelity, etc., within three months next after notice,
Co., 205 U. S. 537, 51 L. Ed. 930. accompanied by satisfactory proof of
66. —
Same Mere suspicion without a loss, as hereinafter mentioned, has
—
knowledge. American Surety Co. v. been given to the company, make good
§ 54 (9e) OFFICERS AND AGENTS. 317
a reasonable time under the circumstances.^'^
§ —
54 (9e) Piling Claim for Loss. A requirement in a bank offi-
cer's bond that claim of loss be filed "as soon as practicable" after written
notice, means that a full statement thereof shall be filed as soon as it can
be prepared with reasonable diligence.** The period of six months from
"the death or dismissal or retirement" of the officer from employment,
and reimburse to the employer all and a default, but that what was meant
any pecuniary loss sustained by the was that notice should be given within
employer of moneys, securities or a reasonable time, having in view all
other personal property in the posses- the circumstances of the case. Fidel-
sion of the employee, or for the pos- ity, etc., Co. V. Courtney, 186 U. S. 342,
session of which he is responsible, by 46 L. Ed. 1193, 22 S. Ct. 833.
any act of fraud, or dishonesty, on the The trial court was right in refusing
part of the employee, in connection to instruct, as a matter of lav.', that the
with the duties of the office or position notice was not given as soon as rea-
hereinbefore referred to, or the duties sonably practicable under the circum-
to which in the employer's service he stances of the case, or without unnec-
may be subsequently appointed, and essary delay, and in leaving the jury
occurring during the continuance of to determine the question whether the
this bond, and discovered during said receiver had acted with reasonable
continuance, or within six months promptness in giving the notice, as he
thereafter, and within six months from did, from ten to seventeen days after
the death or dismissal or retirement of the first discovery of a default. Fidel-
the employee from the service of the ity, etc., Co. V. Courtney, 186 U. S. 342,
employer. It being understood that 46 L. Ed. 1193, 22 S. Ct. 833, reaffirmed
a written statement of such loss, cer- in Cherrv v. Fidelitv, etc.. Co., 205 U.
tified by the duly authorized officer or S. 537, 51 L. Ed. 920.
representative of the employer, and It was not error to leave it to the
based upon the accounts of the em- jury to say whether, under the proof,
ployee, shall be prima facie evidence and looking at all the circumstances,
thereof" —
is so drawn as to leave room a notice given May 23d, of a loss dis-
for two constructions of its provisions, covered after May 1st, was given with
either of which, it may be conceded, reasonable promptness. American
is reasonable, one favorable to the Surety Co. v. Paulv, 170 U. S. 160, 42
company, and the other favorable to L. Ed. 987, 18 S. Ct. 563.
the bank and most likely to subserve 68. Time for filing claim. — Fidelity,
the purposes for which the bond was etc.. Co. V. Courtney, 186 U.
S. 342, 46
given. In such a case the terms used L. Ed. 1193, 23 S. Ct. 833, reaffirmed in
must interpreted most
be strongly Cherry v. Fidelity, etc., Co., 205 U. S.
against the party who prepared the 537. 51 E. Ed. 920.
bond and delivered it to the party for Where the requirement of the bond
whose protection it was executed. was that the employer "shall file with
American Surety Co. v. Pauly, No. 2, the company his or her claim hereun-
]70 U. S. 160, 42 L. Ed. 987, 18 S. Ct. der, with full particulars thereof, as
56.S. soon as practicable" after the giving
67. "Immediately" not necessarily of written notice of a default or loss,
instantly. — Fidelity, etc., Co. v. Court- what was required was not a partial,
ney. 180 U. S. 342. 46 L. Ed. 1]9.3, 22 but a full statement of all the items
S. Ct. 833; American Surety Co. v. of claimed misappropriation on which
Paulv, 170 U. S. 160, 42 L. Ed. 987, 18 the right to recover upon the bond
S. Ct. 563. reaffirmed in Cherry v. V\- was based. The investigation to ac-
delity. etc., Co., 205 U. S. 537, 51 L. certain the various defaults continued
Ed. 920. after the giving of the preliminary no-
A reauirement in the bond of a bank tice of default, and the evidence in the
officer "that the employer shall imme- record fails to give any support to the
diately give the company notice in contention that the proof of claim was
writing' of the discovery of any default unreasonably delayed, and was not
or lo.'is" ought not to receive the con- made as soon as practicable after the
struction that it was intended bv the full particulars thereof were ascer-
parties that notice of a default should tained. Fidelitv. etc Co. v. Courtney,
.
be given instantly on the discovery of 186 U. S. 342, 46 L. Ed. 1193, 22 S. Ct.

within which a bond required that the default be discovered and notice
given, did not begin with the suspension of the bank, but only ran from
either the officer's death or actual retirement or dismissal, or possibly from
his taking service under the receiver.**
833, reaffirmed in Cherry v. Fidelity, Of course the cashier's death would

etc., Co., 205 U. S. 537, 51 L. Ed. 920. have terminated his employment as
Evidence of knowledge of defaults. cashier. But he was never dismissed,
— The court did not err in instructing for his dismissal could only have oc-
curred by the act of the bank or of
the jury that the averments contained
in a petition filed by the receiver in an some one who represented it before
action in attachment against the de- or after it suspended- business. His
faulting, officer brought to recover va- "retirement," which would arise from
rious items of alleged indebtedness to his voluntary act, occurred either
the bank, should be given no effect in when he took service under the re-
their deliberations, as but one of said ceiver, or when he voluntarily left that
items was embraced in the present ac- service on the 2nd day of March, 1892.
tion. The petition referred to was pre- Whether within the meaning of the
sumably introduced in evidence on be- bond he was in "the service of the
half of the defendant, as tending to es- employer" while he was in the service
tablish that the proof of claim was not of the receiver, or not, it is sufficient
made by the receiver as soon as prac- for this case to hold that he was in the
ticable after the giving of notice that service of the employer at least up to
the officer had been guilty of a default. the time of the receiver's appointment
The petition counted upon various and qualification, which occurred
items, a portion only of which were within six months prior to the discov-
embraced in the petition in the action ery of his fraud and dishonesty and the
on trial, and the fact Ihat the oetition giving of notice thereof. American
in the attachment action showed that Surety Co. v. Pauly, 170 U. S. 133, 42
when filed the receiver knew of some L. Ed. 977, 18 S. Ct. 552.
of the misappropriations of the officer, It is sufficient in this case to ad-
did not tend to prove that he then had judge that the officer, within the mean-
knowledge of all of his defaults. Fi- ing of the bond, was in the service of
delity, etc., Co. V. Courtney, 186 U. S. the_ bank up at least to the date on
342,4,6 L. Ed. 1193, 22 S. Ct. 833, reaf-
which the receiver took possession, and
firmed in Cherry v. Fidelity, etc., Co., that' his fraudulent acts were discov-
205 U. S. 537, 51 L. Ed. 920. ered and notice thereof given within
six months after that dale. The acts
69. —
Termination of liability. Amer-
ican Surety Co. v. Paulv, 170 U. S. 133,
of fraud and dishonesty complained of
were discovered a few days prior to
42 L. Ed. 977, 18 S. Ct. 552.
May 23, 1892, and notice thereof to
When the bank suspended the busi- the company was given on that day,
ness, and the investigation by the ex- and was followed by a claim or proof
aminer commenced, the cashier ceased of loss mailed June 24, 1892, and re-
to perform the ordinary duties of a reived by the company July 1, 1892.
cashier, but within the meaning of the Such are the facts which the verdict
bond, didnot retire from, but re- of the jury must be taken to have es-
mained the service of the employer
in,
tablished. And if it be further true,
during at least the investigation of the as the verdict imports, that the notice
bank's affairs and the custody of its of May 23, 1892, was given as soon as
assets by the national bank examiner, practicable after the occurrence of the
which lasted until the appointment of alleged fraudulent acts came to the
a receiver and his qualification on the knowledge of the receiver, then the
29th day of December, 1891. Certainly, loss was discovered during the contin-
the six,months from "the death or dis- iiance of the bond and "within six
missal or retirement of the employee months from the * * * retirement of
from the service of the employer," the employee from the service of the
within which his fraud or dishone.<!ty employer." And if the bond is to be
must have been discovered in order regarded as having expired upon his
to hold the company liable, did not death, it also results that the claim of
commence to run prior to the date last loss was made within the time re-
named. American Surety Co. v. Pauly, quired. American Surety Co. v. Pauly,
170 U. S. 133, 42 L. Ed. 977, 18 S. Ct. 1'70 U. S. 160, 42 L. Ed. 987. 18 S. Ct.
552. 563.
§ 54 (9f) Actions on Bonds — See post, "Actions and Proceedings

to Enforce Liability," § 55.
§ 55. Actions and Proceedings to Enforce Liability § 55 (1) —

— —
Nature and Form Jurisdiction. The directors of a bank having been
guilty of malfeasance, misfeasance or negligence, an action at law lies in
favor of the corporation, while a going concern, for the losses so sustained,
or to the assignee, trustee, or whatever officers are charged with winding
up its affairs, after it has ceased to be a going concern. ''''
Upon the re-
fusal of the corporation or its liquidating officers to sue, the stockholders
have their remedy by a suit in equity to compel them to make good the
loss, but can not sue at law.''^ To enable the stockholders to sue, it must
appear either that proper effort has been made to get the corporation to sue,
or that efforts of that kind would have been perfunctory and useless, as
would be the case where so many of the directors were involved in guilt
that it would be idle to expect them to prosecute themselves.'' ^ The cash-
ier of a bank, intrusted with the control and custody of its funds, will,
in a court of equity be held as a trustee for the bank and may be sued by
it in such court, and compelled to account for and pay any loss sustained
by it, which was caused by any negligence or wrongful conversion or by

any misapplication or use of any of its funds by such cashier in violation
of the duties of his trust. The relation of cestui and trustee is sufficient to
confer jurisdiction.'^^ And even a private unchartered company, associated
for the purpose of carrying on business as a bank, though such associa-
tions are contrary to law, will be entertained in a court of chancery, in
a suit against its cashier, for an account of his agency.''* The cashier of a
bank who has sold its assets, and converted them into cash, must be deemed
70. Nature and form of action—Juris- Bank, 89 Tenn. 630, 15 S. W. 448, 24

—
diction. Union Nat. Bank v. Hill, 148 Am. St. Rep. 625; Deaderick v. Bank,
Mo. 380, 49 S. W. 1012, 71 Am. St. Rep. 100 Tenn. 457, 45 S. W. 786; Shea v.
615; S. C, 155 Mo. 279, 55 S. W. 1133; Maxville, etc., R. Co.. 65 Tenn. (6
Higgins V. Tefft, 4 App. Div. 62, 38 X. Baxt.) 277; Moses v. Ocoee Bank, 69
Y. S. 716, 74 N. St. Rep. 100; Paine v. Tenn. (1 Lea) 398; Hume v. Commer-
Barnum (N. Y.), 59 How. Prac. 303; cial Bank. 77 Tenn. (9 Lea) 728; Zinn
Wright z/. Davenport,- 66 Pa. 148; Wal- v. Mendel, 9 W. Va. 580. See, also,
lace V. Lincoln Sav. Bank, 89 Tenn. ante, "Right of Stockholders to En-
030, 15 S. W. 448, 24 Am. St. Rep. 625; force Liability." § 54 (5).
Deaderick v. Bank, 100 Tenn. 457, 45 72. Same —Demand and refusal of
S. W. 786; Hume
XK Commercial Bank, corporation to sue. — Hersey Veazie, v.
77 Tenn. (9 Lea) 728. 24 Me. 9, 41 Am. Dec. 364; Smith v.
71. Same —
Stockholders may sue in Poor, 40 Me. 415, 63 Am. Dec. 672;
—
equity. Allen v. Curtis, 26 Conn. 456; Robinson Smith (N. Y.), 3 Paige
v.
Smith V. Hurd (Mass.), 12 Mete. 371, 222, 34 Am.
Dec. 212; Ctmningham v.
46 Am. Dec. 690; Smith v. Poor, 40 Pitts, 5 Paige (N. Y.) 607; Wallace v.
Me. 415, 63 Am. Dec. 672; Union Nat. Lincoln Sav. Bank, 89 Tenn. 630, 15 S.
Bank v. Hill, 148 Mo. 380, 49 S. W. 1013, W. 448, 24 Am. St. Rep. 625.
71 Am. St. Rep. 615: S. C, 155 Mo. 279, 73. Cashier may be sued in equity.
55 S. W. 1133; Winter v. Baker (N. Merchants' Bank v. Jeffries, 21 W. Va.
Y.), 34 How. Prac. 183; Taylor v. Mi- 504.
ami Exporting Co., 5 O. 162, 22 Am. 74. Same— Suit by unincorporated
Dec. 785; Meisse v. Loren, 4 N. P. 100, company. — Berkshire v. Evans, 31 Va.
6 O. Dec. 358; Wallace v. Lincoln Sav. (4 Leigh) 223.
the agent of the board of directors for the purpose of dividing the balance
in his hands after paying all claims against the bank among its stockhold-
ers ; and he can not be charged as trustee by an individual stockholder as
holding a portion of such balance for his beneiitJ^ And in so far as a bill
by a bank against the administrator of its deceased cashier seeks an ac-
counting against the agent, it contains equityJ® The president of a bank
is not such a trustee of its funds as to give equity jurisdiction of a suit
against him for their misappropriation.'^'''

Duty to Exhaust Remedy against Parties Primarily Liable. — An
action may be maintained against trustees of a bank for making a loan
v/ithout authority of law to borrowfers alleged to be worthless and insol-
vent, without first suing such borrowers, and exhausting all remedies
against them.''^
Statutory Requirement as to Report Finding Insolvency to Have
Been Fraudulent. —Where a statute requires the appointment of auditors
and authorizes an investigation and by the court only upon the report
trial
of such auditors that the insolvency was caused by the fraudulent conduct
of the directors, there can be no procedure under that provision of the act
where the auditors do not report that the insolvency is fraudulent.'^®
Asserting Rights by Means of Set-Off, Counterclaim, etc. The —
cause of action which a bank has against its cashier for wrongfully per-
mitting a depositor to overdraw his account is a cause of action arising
on contract, within the meaning of the statute regulating counterclaims.^"
But the liability of a director of a bank for misfeasance can not be pleaded
as a set-off to an action by him to foreclose a mortgage given by the bank
to secure money actually loaned to it.^^
§ 55 (2) Limitations and Laches. —While the directors are some-
75. Cashier not chargeable by indi- tions 43 and 44 provide that the court
vidual stockholder, when. — Brown v. shall thereupon appoint auditors to in-
Adams, Fed. Cas. No. 1986, 5 Biss. 181. vestigate and report, and, in case they
76. Accounting against estate of report that the insolvency was fraudu-
cashier. —Wynn v. Tallapoosa County lent, it shall be their duty to ascertain
Bank, 168 Ala. 469, 53 So. 2'2%. and report the amount due from the
77. Suit against president as trustee. several directors. Section 45 provides
— In re McMullins' Appeal, 131 Pa. 370, that the court shall thereupon investi-
18 Atl 1056. gate the report, and shall determine
78. Duty to exhaust remedies against whether the insolvency was fraudulent
parties primarily liable. —
Paine v. or otherwise; or they may direct an
Barnum (N. Y.l, 59 How. Prac. 303. issue to try the fact of fraudulent in-
79. Statutory requirement as to re- solvency. Held that, where the audit-
port finding insolvency to have been ors do not report that the insolvency
—
fraudulent. Wright v. Davenport, 66 is fraudulent, and the amount due from
Pa. 148. the directors, the court has no power
Act April 16, 1850, § 40, provides to proceed under § 45. Wright v.
that, if the insolvency of a bank be oc- Davenport, 66 Pa. 148.
casioned by the fraudulent conduct of 80. Asserting rights by means of
the directors, they shall be liable to counterclaim or set-off. — Board v. Es-
the stockholders. Section 43 provides tate, 12 Mo. App. 104.
that upon assignment the directors 81. Using director's liability for
mis-
shall file with the prothonotary a state- feasance as an off-set against him.
ment of the affairs of the bank. Sec- Ahl v. Rhoads, 84 Pa. 319.
§ SS (2) o]?fici;rs and agents. 321
times said to be trustees, so far as the statute of limitations is concerned

they can not be held to be more than implied trustees, and the statutes of
limitation run in their favor, the limitation applicable to the suit of the
corporation at law being equally applicable to the suit of the stockholder
upon the corporate right of action in equity.^^ In Ohio, however, it is
held that the managers of a savings bank stand in the relationship of
trustees to the depositors, so that the statute of limitations will not be a
bar against a charge of mismanagement on their part.^^ In the case of
fraud, the cause of action accrues and limitations and laches begin to run
only from the time of its discovery.** Where a stockholder of a bank
82.Limitations and laches. God- — An

instruction that it is a construct-
bold Branch Bank, 11 Ala. 191, 46
V. ive fraudon a bank for its cashier,
Am. Dec. 211; Neal v. Moultrie, 12 Ga. president, or any director having
104; Williams v. Halliard, 38 N. J. Eq. knowledge of a cause of action or a
373; Brinckerhoff v. Bostwick, 99 N. Y. demand in its favor, against himself,
185, 1 N. E. 663; In re Spering's Appeal, not to make known the existence of
71 Pa. 11, 10 Am. Rep. 684; Hughes such cause of action to the governing
V.Brown, 88 Tenn. 578, 13 S. W. 286, 8 body of the bank, and that the duty of
L. R. A. 480; Wallace v. Lincoln Sav. such bank officer requires, in the pres-
Bank, 89 Tenn. 630, 15 S. W. 448, 24 ent case, that he communicate to such
Am. St. Rep. 625. body the facts relating to the demand
An action by a shareholder of a or cause of action, and, if he fails to do
bank a.ijainst its directors, to recover so, the right of action of. the bank does
for inattention and mismanagement, not accrue, so as to start limitations
resulting in alleged losses from loans in motion, until sucii information is
made by the cashier to a firm of which obtained by the governing body, while
he is a member, though brought in perhaps too broad as an abstract prop-
equity, is to enforce a legal right, and osition of law, is correct as applied to
is subject to the operation of the stat- a case where the president and the
ute of limitations. Wallace v. Lincoln cashier of a national bank were jointly
Sav. Bank, 89 Tenn. 630, 15 S. W. 448, liable to the bank on a firm note
24 Am. St. Rep. 625. which, it was understood between
The liabilities of the directors of the themselves, the cashier should take
Commercial Bank at Macon, created care of, where the only way it was paid
by the eighth rule of the bank charter, was by the
individual note of the
which limits the amount of indebted- cashier, of which the president did not
ness the incorporation may incur, be- notify the board of directors, the gov-
ing statutory, are not barred until after erning body. First Nat. Bank v.
Strait, 75 Minn. 396, 78 N. W. 101.
20 years. Neal v. Moultrie, 12 Ga. 104.
A complaint for the benefit of the Where the president of a bank, who
has been in the habit of helping the
stockholders of an insolvent bank,
bank to make loans, knowing that it
against the directors, charging .them '
relied on his advise, sold it a note with

with liability for property of the bank
knowledge that the maker was embar-
lost and stolen through their miscon-
rassed, if not insolvent, and that the
duct, is in the nature of an equitable
indorsers were not financially strong,
action, calling them to account as
but representing to the bank that he
trustees, and the limitation of such an
believed both maker and indorsers to
action is ten years, under Code N. Y.,
have the best of credit, the bank is not
S 388. Brinckerhoff v. Bostwick, 99 N.
guilty of laches in not tendering a re-
Y. 185, 1 N. E. 663.
turn of the note for one and one-half
83. Same —In —
Ohio. Meisse v. years after it was due and unpaid,
Loren, 4 N. P. 100, 6 O. Dec. 258. where it did not know of the insol-
84. When statute begins to run vency of the maker and indorsers, or
Accrual of action. — McGregor v. Wit- have reason to suppose that defendant
ham, 126 Ga. 702, 56 S. E. 55; First knew of it, until shortly before the
Nat. Bank v. Strait, 75 Minn. 396, 78 lender was made. Hicks v. Steel, 126
N. W. 101. Mich. 408, 85 N. W. 1121.
1 B & B—21
sues to set aside a sale of mining stock by the bank's trustee to some of
its on the part of the plaintiff in not discovering'
directors, for fraud, laches
the fraud by examination of the bank's books can not be set up by the di-
rectors, who have purchased the stock and received the dividends there-
from equal to the purchase price, since they occupy a fiduciary relation
towards the plaintiff, and are in no way injured by his delay in discover-
ing such facts.*' And where there is a conspiracy upon the part of a presi-
dent and a cashier to defraud the bank and misappropriate its funds, an
action instituted within the statutory period from the time of the actual
misappropriation of the funds and carrying out of the conspiracy is well
brought, notwithstanding it would be barred counting the time elapsed since
the conspiracy was formed.^® Where in an action to recover the penalty
of an official bond given by the cashier the question arises as to which of
two statutes of limitation is applicable, such question becomes immaterial
upon its being made to appear that the misappropriation occurred within
less than the shorter period next preceding the institution of the suit.*'^
§ 55 (3) Parties. —Parties Plaintiff. —The bank is a proper party

to bringan action against its president for damages resulting from his
making an illegal loan of its funds. *^ Where loss has resulted from the
negligence of the directors of a bank, the bank or its assignee, and not the
depositors, is the proper party plaintiff, unless it plainly appears that a
cause of action exists and that the bank refuses to bring the action. ^^ For
losses resulting from the malfeasance, misfeasance, or negligence of di-
rectors, it has been seen that the bank or its assignee may maintain an
action at law, and that upon the refusal of the bank or its assignee to sue,.,
the stockholders have their remedy by suit in equity;^"' and in such a bill
they may join individual stockholders with the corporation, may pray for
an account of stock and funds, and for restoration of whatever may have
been fraudulently withdrawn from the common stock.î
—
Parties Defendant. Where several officers of a bank wrongfully per-
mit certain overdrafts, the bank may maintain an action for loss so sus-
tained against all of them, or against one or more.^^ fhe president of a.
bank is not a necessary party defendant to an action against two of its
directors to recover damages for the misappropriation of the bank's funds-
85. Laches not available to directors sue. — Savings Bank v. Caperton, 87

making fraudulent purchase of stock. — Ky. 306, 10 Ky. L. Rep. 201, 8 S. W.
Morgan v. King, 27 Colo. 539, 63 Pac. 885, 12 Am. St. Rep. 488.
416.
86. Running of time against action
90. Stockholders sue in equity.
ante, "Nature and Form," § 55 (l).
— See
for conspiracy. — McGregor v. Witham, See, also, Deaderick v. Bank, 100 Tenn
126 Ga. 702, 56 E. 55.
S. 457, 45 S. W. 786.
87. Which of two statutes applicable. 91. Same —Joinder of other parties.
— Elam V. Commercial Bank, 86 Va. —^Taylor Miami Exporting
v. Co., 15
92, 9 S. E. 498. O. 162, 22 Am. Dec. 785.
88. Bank the proper party plaintiff. 92. Joint and several liability of par-
Seventeenth Ward Bank v. Smith, 51 ties defendant. —
Western Bank v. Cold-
App. Div. 259, 64 N. Y. S. 888. ewey, 120 Ky. 776, 26 Ky. L. Rep. 1247„
89. Same —Where bank refuses to 83 S. W. 629.
by the president, of which such directors had knowledge, and might have
prevented, but which they negligently permitted, aided, and assisted, con-
cealing the same from the stockholders.^s Upon a bill by a stockholder
the corporation itself should in all cases be made a party defendant, to-
gether with the delinquent and any objecting or nonconsenting

officials
stockholders.^* Where a director of an insolvent bank has been appointed

receiver, and stockholders obtain leave to sue the directors for miscon-
duct, it is proper to allow such action to be brought, joining the receiver
and the corporation a^ parties defendant.^^
§ 55 (4) Pleadings. —Action for Conversion of Funds. —In a suit
by a bank against its cashiers for conversion of its funds, the allegation
that the money was converted to the use of the defendants is sufficient to
warrant the introduction of evidence showing the purpose for which the
money was It is immaterial to whom the cashier and assistant
used.®**
cashier of a bank gave money belonging to it, which they are sued for con-
verting to their own use, or for what they spent it, or whether they loaned
it to an insolvent or a going corporation or to a private person, and allega-
^'^
tions of that character are subject to be stricken from the complaint.
—
Failure to Safely Keep Funds. A petition in an action by a banking
corporation against its officers, the vice president and cashier, setting forth
the character of the plaintifif and its business, that it made ample provisions
for the safe keeping of its funds, by vault and safe locks and time locks,
of approved strength and pattern, the official character and employment
of defendants, and the acceptance of the duties and responsibilities by each
of his respective office, that it was their duty, and the duty of each of them,
to have charge of and keep the money of the bank, and to see to it that
at proper times it was kept in the safe and vault and behind the locks and
bolts and bars provided for its reception, and averring that they failed in
this, that they did not use the equipment provided for the safety of the
money and by the use of which it would have been preserved, and that by
reason of this neglect to do so the money disappeared, and has never been
returned or its loss made good, states a cause of action against such officers.®^
93. President actually misappropri- Liability," § 54 (5).

ating funds need not be joined in ac- joinder of receiver and corpora-
95,
tion against directors.— Smith v. Rath- tion.— Weslosky v. Quarterman, 133
bun (N. Y.), 32 Hun 150.
'
Ga. 313, 51 S. E. 436.

94. Corporation should be made de-
fendant upon in equity.-Hersey
bill
p ^^ j ; ^
funds.-First Nat. Bank v. Gad-
V. Veazie, 24 Me. 9, 41 Am. Dec. 364 ,. „, !» ,1, Kn« ~n u.,.. Am
p ..,
Smith .n i\/r tie: at
V. Poor, 40 Me. 415, 63 Am. Dec.
-r, "n A™ Qis, 31 W' ash. 596,
„ .
i2 rac. 460.
, . ,
672; Robinson v. Smith (N. Y.), 3 ?7. Allegations as to use to. which
Paige 222, 24 Am. Dec. 212; Cunning- misappropriated funds applied.— First
ham V. Pitts (N. Y.), 5 Paige 607; Tay- Nat. Bank v. Gaddis, 31 Wash. 596, 72
lor V. Miami Exportitig Co., 5 O. P^^. 460.
163, 23 Am. Dec. 785; Wallace v. Lin- 98. Alleging failure to safely keep
coin Sav. Bank, 89 Tenn. 630, 15 S. W. —
funds. Kalb v. American Nat. Bank,
448, 34 Am. St. Rep. 635. See ante, 11 O. C. D. 437, 21 O. C. C. 1, affirmed
"Right of Stockholders to Enforce in 65 O. St. 566, 63 N. E. 1139.
' For Making Loans on Insufficient Security. —An allegation, in an

action against directors of a bank, that, contrary to the statute requiring
them not to make loans on realty for over half its value, they loaned money
on land which, on foreclosure, brought less than half the loan, is insuffi-
cient. It should state the land was worth less than twice the loan when
the loan was made.^*
Refusing to Permit Revenue Agent to Examine Checks. The dec- —
an action against a cashier for refusing to allow a collector to
laration, in
examine its paid bank checks, must allege that the checks were not duly
stamped when made, signed and issued.
—
Action on Official Bond. In actions to recover the penalty of official
bonds given by bank officers to secure the faithful performance of their
duties, where there has been a misappropriation or misapplication of the
funds of the bank, the evidence must of necessity be general; therefore,
an attempt to state the breaches of the condition contained in the bond with
exactness of detail would lead to great prolixity of pleading, and so some
generality of statement, in the interest of justice, must be permitted.^ A
demurrer to the declaration will not be sustained on the ground that the
assignment of breaches is not specific enough, where it appears that most
of the books and papers which could shed light upon the transactions under
investigation have been destroyed, and whatever information existed out-
side of these sources is in the possession of the adverse party. In such
case the assignment of breaches is as specific as practicable under the cir-
cumstances.3 The declaration need not set forth the particular persons
from whom money was received, nor the sums received from each, nor
the time when the breaches were committed, if it appears that they occurred
during the continuance of the defendant in his office.*
99. Alleging loan on insufficient se- the time they were made, signed, and
curity. —
Colorado Sav. Bank v. Evans, issued. United States v. Mann, 95 U.
12 Colo. App. 334, 56 Pac. 981. S. 580, 24 L. Ed. 531.
1. Refusal to permit revenue agent 2. Alleging breaches of bond. AUi- —
to —
examine books. United States v. son v. Farmers' Bank, 27 Va. (6 Rand.)
Mann, 95 U. S. 580, 24 L. Ed. 531. 204; Caldwell v. Farmers' Bank, 27 Va.
Under § 3177 of the Revised Stat- (6 Rand.) 241; Elam v. Commercial
utes, authorizing any collector, deputy Bank, 86 Va. 92, 9 S. E. 498. See, also,
collector, or inspector, to enter, in the Durkin v. Exchange Bank (Va.), 2
daytime, any building or place where Pat. & H- 277.
any articles or objects subject to tax 3. Same —Where books destroyed —
are made, produced, or kept, within Evidence in possessionadverse
of
his district, so far as it may be neces- —
party. Elam v. Commercial Bank, 86
sary for the purpose of examining said Va. 92, 9 S. E. 498; Allison v. Farm-
articlesor objects, the United States crs' Bank, 27 Va. (6 Rand.) 204; Cald-
brought suit against the cashier of a well v. Farmers' Bank, 27 Va. (6 Rand.)
national bank, having charge of its 241.
place of business, where were kept 4. Averments as to time, amount of
checks drawn upon and paid by it, who —
funds received, etc. Allison v. Farm-
refused to permit the collector of the ers' Bank, 27 Va. (6 Rand.) 204.
proper district to examine said bank In an action of debt upon an official
checks. Held, that the declaration was bond of a bank accountant, a demur-
bad in not alleging that the paid rer declaration was overruled
to the
checks on the bank remaining in its although did not state in a single
it
possession were not duly stamped at instance the .time or place, names or
Same —Allegation of Damage. — In an action for the penalty of afi
official bond of a bank accountant conditioned for the faithful discharge

of the duties of his office, it is not necessary to state that in consequence
of the refusal of the defendant to pay, the plaintiff sustained damages.
In actions of debt, and particularly for the penalty of a bond, the damages
are, in general, nominal, and none need be stated unless the plaintiff goes
for damages beyond the penalty. It is sufficient if it is stated that an ac-
tion has accrued to the plaintiffs to demand and have the penalty of the
bond. The declaration, in stating the bond, the condition, and the breaches,
states all that is necessary to entitle them to their action for the penalty.
For the law implies damage from the breach ; and it is not incumbent on
the party to statewhat the law implies.
Bill for Accounting. —A bill filed by a bank against its cashier for a
settlement of his accounts as such which only alleges that the defendant
was such cashier; "that during his term as cashier he lent sundry sums ot
money to sundry irresponsible persons without the consent of the board
of directors of said bank, for which he is liable personally and that the ;
books and papers and cash items show a large deficiency in the assets of
said bank during the said cashier's term" of office; but which contains no
averments that the bank sustained any loss by such unauthorized loans
or that the moneys so lent have not been repaid or that said deficiency ;
in its assets was caused by any act or negligence of such cashier, is clearly
insufficient; and a demurrer thereto ought to be sustained, because it pre-
sents no cause of action against said defendant.^ A bill by a bank against
an administrator of a deceased cashier for an accounting which avers va-
rious claims and demands covering transactions extending over more than
seven years, but which does not inform the court or respondent as to the
time a liability it was within such period, and which,
accrued, except that
as to many no other description of the liability or de-
transactions, gives
mand than that it was for allowing an overdraft, or for taking insufficient
security for a loan, or for making a loan in violation of the by-laws, or
without consulting the board of directors, is not sufficiently specific.'^
Stockholder's Bill. —An action brought by a stockholder of a bank on
behalf of himself and other stockholders against his directors, to call them
to account for losses and damages sustained by the bank because of mis-
conduct and negligence on their part in the discharge of their duties, is
an equitable action wherein the defendants are not entitled, as matter of

right, to a trial of the whole issues by jury, and plaintiff need not sepa-
sums of the money which had been 204, followed Caldwell v. Farmers'
in
misappropriated. Allison v. Farmers' Bank, 27 Va. Rand.) 241.
(6
Bank, 27 Va. (6 Rand.) 204, cited with 6. Bill for an accounting. Mer- —
approval in Elam v. Commercial Bank, chants' Bank v. Jeffries, 21 W. Va. 504.
86 Va. 92, 9 S. E. 498. 7. Same—Description of claims and
5. Averments as to damage. Allison — —
demands. Wynn v. Tallapoosa County
V. Farmers' Bank, 27 Va. (6 Rand.) Bank, 168 Ala. 469, 53 So. 228.
rately state and number his causes of action. ^ And in a suit against the
president and directors of a bank for negligence in conducting the busi-
ness of the bank, it is not necessary to allege what particular loss was oc-
casioned by the negligence of a particular officer, or to state who were on
the managing board at the time of the particular loss, or to allege all the
losses complained of.®
Same —Amendments. —While bank can not main-

a stockholder of a
tain an action in his own name against its and
directors for negligence
malfeasance, without alleging that the bank had refused to bring it, yet an
amended complaint, in an action so brought, making the bank a party plain-
tiiif, and alleging that it had been ordered and allowed by the court to be
so joined, is not subject to demurrer; since, by demurring, defendant ad-

mitted the making of the order, the validity of which could not be deter-
mined on demurrer. 1° Where a petition by stockholders against the officers
of a bank charges the defendants with embezzlement of the funds of the
bank, an amendment, which describes the transaction as a loan, and alleges
that it was fraudulent and illegal because one of the defendants left worth-
less and uncollectible paper in lieu of the money of the bank, and because
the loan to said officer exceeded half the capital stock of the bank, con-
trary to law, does not change the cause of action, but sets forth a cause of
action in favor of the receiver of the bank against such officers since the
defendants were liable to the bank for money fraudulently appropriated
to their own use, if the bank thereby sustained a loss.^^
—
Misjoinder of Causes. In a suit in equity against directors to recover
damages for the waste and loss of the corporate assets, caused by the neg-
ligence of the directors in the discharge of their official duties, a complaint
alleging, as the result of defendant's negligence, that plaintiff's stock be-
came worthless, and that they had also been obliged to pay an assessment
imposed by the comptroller of the currency under the national bank act,
8. Stockholders' bill — Separately one individual to the amount of $25,000

stating and numbering causes of ac- beyond the sum of $15,000, for which
tion.— Meisse v. Loren (O.), 4 N. P. sum. he was indebted to the bank at
100, 6 O. Dec. 258. _ the time, and that by reason thereof
9. Certainty of allegations as to the bank did advance to the individual
l?^^-~?'^'^^y ^"^ ^^"^' '^* *• O" his obligation $25,000 in excess of
T?- 109.
Car. 473, 55 S. E. ten per cent of the paid-in capital
In an action by a stockholder un- stock, which said indebtedness Vas
der Comp. St. 84, § 56, against direct- not for deposits made by the bank,
ors for losses sustained conse- m nor for the purchase of bills of ex-
quence of the violation of the banking change, is sufficient. Buell v. War-
laws providing that no individual shall jier 33 Vt -570
be indebted to the bank in a greater ^ Amendment of complaint-Al-
leging order permitting suit-Demur-
p'dTo stock eVoTfor dels! s
^^'^""^ ^N. Y.), 22
^-
^"d;"V the banl^'â'nd f^r indebted-
'^:;-!,f'''
ness arising from the purchase of bills '
.
of exchange, a declaration alleging H- Amendment chargmg fraudulent

that the capital stock of the bank l°an held not to state a new cause of
was $150,000, that the directors per- action.— McGregor v. Witham, 126 Ga.
mitted the bank to advance money to '^'^'^' ^^ S. E. 55.
in order to pay the debts of the bank, is not" demurrable on the ground that
several causes of action have been improperly united, as special elements
of damage are alleged, but only one cause of action. ^^ A complaint against
two directors to recover damages for the misappropriation of the funds
of a national bank by its president, which states that defendants knew of
the president's acts, and might have prevented them, but negligently per-
mitted, aided, and assisted him in doing them, is not subject to demurrer
on the ground that two causes of action are improperly joined, viz. one
for malfeasance, and one for negligence, but states only one cause of ac-
tion; since it is impracticable to clearly distinguish between the acts which
defendants permitted merely and those which aided the president in his
wrongdoing. 13
Motions and Objections to Pleadings. —Where an action by stock-
holders of a bank against the directors and the receivers, who was one of
them, for misconduct, is permitted by the court, and the petition is good
against a general demurrer, a motion to vacate permission to sue is prop-
erly refused, irrespective of the question whether plaintiff's pleadings are
open to objections where that question can be raised by special demurrer.^*
Where the claim upon the bond arises out of the wrongful act of the cash-
ier in certifying his personal check to pay his personal indebtedness to
another bank, and the refusal of the other bank to refund the money, the
complaint is it shows upon its face that the other bank,
demurrable, since
in accepting the check, was put upon inquiry as to the authority of the
cashier to certify his own check, and that it had no right to charge it against
the balance in its hands standing to the credit of the bank on which drawn,
and that the right of the drawee bank to recover such balance was not
thereby impaired. ^^
12. Misjoinder of causes. Hand v. — wrongfully certified the same as its

Atlantic Nat. Bank (N. Y.), 55 How. cashier, his account therein
deposit
Prac. 331, 9 Abb. N. C. 287. having been overdrawn; that the C.
13. Same —Alleging malfeasance and Bank charged the amount of the check
negligence. Smith— v. Rathbun (N. to the E. Bank's account, credited it
Y.), 22 Hun 150. to defendant, and had refused to re-
14. Motion to vacate permission to pay to the E. Bank the sum of $8,000
sue. —
Weslosky v. Quarterman, 133 thereof and interest. Held, that since,
Ga. 312, 51 S. E. 426. if such facts were true, the C. Bank,
_ _
15. Complaint showing rights of at the time of accepting the check,

bank to be unimpaired, demurrable. was put on inquiry as to defendant's
Rankin v. Bush, 93 App. Div. 18'l, 87 authority to certify the same, and his
N. Y. S. 539. act in so doing being wrongful and
Plaintiff's complaint alleged that he without authority, the E. Bank's title
was receiver of the E. Bank, which to the deposit against which the check
had a deposit account with the C. was charged was not impaired thereby,
Bank, to which defendant, who was and hence a demurrer to the com-
cashier of plaintiff's bank, was in- plaint against defendant and his sure-
debted on May 5, 1893, in the sum of ties on his bond for the faithful per-
$15,000 and interest; that on that day formance of his duties as cashier, for
defendant gave to the C. Bank his want of facts, was not frivolous. Ran-
personal check on the E. Bank for the kin v. Bush, 93 App. Div. 181, 87 N. Y.
amount of his indebtedness, and S. 539.
328 BANKS" AND BANKING. § 55 (5)
§ 55 (5) Evidence, Issues, etc. —Issues.^—Where negligence of di-

rectors in permitting a false and fraudulent statement of the condition of
a bank is the basis of an action against the directors, the plaintiff's right
to recover should not be restricted to one instance of negligence, where
many others in evidence. ^^
there are
Presumption and Burden of Proof. —A director, in a suit between
himself and the corporation, or those suing upon the corporate right of
action for losses resultingfrom his alleged negligence, is not presumed to
have knowledge of all that is shown by the books of the company. Such
presumption applies only to suits between the bank and a stranger.i'^ And
in an action by a shareholder of a bank against its directors, to recover
alleged losses caused by their inattention and mismanagement, the burden
is on complainant, not only to prove the losses, but that such losses were
the consequence of defendants' negligence. ^^ But willful waste or mis-

application may be presumed from a failure to pay over and account for
funds, rebuttable by evidence of loss by negligence or accident.^^ And
where it is conceded in an action on the bond of a bank cashier that certain
collateral was embezzled during the term covered by his bond, the burden
is on the sureties to show that any part of said collateral was subsequently
returned and placed in the files of the bank.^"

—
Competency of Witness. The teller of the bank is competent to tes-
tify concerning the handwriting of the president or cashier of such bank.î
Admissibility. — In an action against a defaulting president, his ledger
account and proof of alleged prior frauds, as well as evidence showing the
16. Issues, restricting grounds of 19. Waste and loss presumed from
—
recovery. Houston v. Thornton, 122 failure to account. — Minor v. Mechan-
N. C. 365, 29 S. E. 837, 65 Am. St. Rep. Bank (U. S.), 1
ics' Pet. 46, 7 L. Ed. 47.
699.
17. Presumption of notice or knowl-
The presumption of a willful waste
edge. —Wallace v. Lincoln Sav. Bank,
or misapplication of the funds of the
bank by the cashier, was a natural
89 Tenn. 630, 15 S. W. 448, 24 Am. St.
conclusion from his failure to pay
Rep. 625.
over or account for the same, and
The presumption of knowledge at-
an instruction to that effect is proper,
taching to a director which is referred
if it is not put to the jury as a pre-
to in the case of Lane & Co. tj. Bank,
sumption incapable of being rebutted
56 Tenn. (9 Heisk.) 419, applies only in
by evidence showing a loss by negli-
suits between the bank and a stranger.
gence or accident. If such a loss ac-
The doctrine has never been extended
tually occurred, it was incumbent on
to suits between the bank and its di-
the cashier to prove it, and his total
rectors. Savings Bank v. Caperton, 87
omission to offer any such proof,
Ky. 10 Ky. L. Rep. 201, 8 S. W.
306,
which, from the nature of the case,
885, 12 Am.
St. Rep. 488; Clews v.
must be more within his own power,
Bardon, 36 Fed. 617; In re Dunham,
than that of the bank, ought to lead
25 Ch. Div. 735. The doctrine of the
the jury to the presumption of the
Lane case is carefully limited in Mar-
nonexistence of any such negligence,
tin V. Webb, 110 U. S. 7, 28 L. Ed.
or accidental loss. Minor v. Mechanics'
49, 3 S. Wallace v. Lincoln
Ct. 428.
Tenn. 630, 15 S. W.
Bank, 89
Bank (U. S.), 1 Pet. 46, 7 L. Ed. 47.
Sav.
448, 28 Am. St. Rep. 625. 20. Burden of proving return of em-
18. Burden of proving loss to be bezzled —
funds. Fancher v. Kaneen
due to negligence. Wallace v. Lin- — (O.), 5 N. P., N. S., 614.
coln Sav. Bank, 89 Tenn. 630, 15 S. 21. Competency of witness. — Hess v.
W. 448, 34 Am. St. Rep. 625. State, 5 O. 5, 22 Am. Dec. 767.
extent of his indebtedness to the bank, are all admissible, and objections
based upon their admission are not well taken. 22 And where, in an action
by a bank against its president to recover damages resulting from his mak-
ing a loan of bank funds without the collateral required by law, the neg-
ligence of the president in making the loan is in issue, and it is error to
refuse to admit testimony showing the standing of the securities taken.-''
Where the action is against the estate of the president for negligence in
making the loan on worthless collateral, evidence that such collateral, to-
gether with other securities, had been accepted by various other bankers as
security for loans to the same person, is inadmissible, in the absence of proof
as to what estimate was placed on the questionable collaterals, apart frora
the other securities, in such transactions. 2* Neither is it permissible to
show that other banks had made loans
same party where it is notto the
apparent that any of the collaterals in question were accepted as security
for such loans. 25 Where the action is by the bank against a former pres-
ident and director to recover for moneys lost by his negligence in permitting
the cashier to borrow money on inadequate security, the admission of tes-
timony that the loans to the cashier were not read off at meetings of
directors subsequent to the loans, and to show that the notes given by the
cashier were not reported to the committee on such matters, is proper.ê
It is competent, however, in order to establish a lack of ratification, or to
establish negligence on the part of the directors, to show that when they
learned of the loan they relied on a statement in the note given by the cash-
ier to the effect that the collateral securing the notewas in the hands of
defendant.^'' Testimony that the cashier informed the president that he
wanted the money to invest in a mining venture is also competent as bearing
on the question of the defendant's good faith. ^^ Where the charge is that
the president or cashier has been guilty of a conversion or misappropria-
tion of the funds, and the issue is whether the transaction whereby the
funds werp obtained amounted to a conversion or misappropriation, it is
error to instruct the jury to consider the fact that the defendant's indebted-
ness to the bank exceeded ten per cent of its capital ;29 neither is it per-
missible to show that the corporation to which the defendants loaned the
22. Admissibility of evidence.— 26. As to improper loans permitted

American Surety Co. v. Pauly, 170 U. by president to cashier.— Commercial
S. 160, 42 L. Ed. 987, 18 S. Ct. 563. Bank v. Chatfield, 137 Mich. 407, 86
23. As to standing of securities taken V.iJ'ô xt v r ,•
for loans.-Seventeenth Ward Bankz/.
Same-Neghgence on ,
part of di-
Jl'
rectors.- Commercial Bank Chat-
Ann Div ^ N Y v.
SI App.
Smi'th 51
bmith, Uiv. B'SQ
359, 64 JN. Y. t>. ^^,j_ ^^^ j^j^j^ ^^^^ gg ^ ^ ^^_^^
„ _,. ^ . .
24. That securities were accepted by
^ , . 28. Same — Statements by cashier as
to purpose for which money wanted.—
other banks.— Seventeenth Ward Bank Commercial Bank v. Chatfield, 121
V. Smith, 83 App. Div. 64, 82 N. Y. S. Mich. 641, 80 N. W. 712.
^^9- 29. Amount of defendant's indebted-
• 25. Loans by other banks to the ness to bank as evidence of conversion,
same —
party. Seventeenth Ward Bank bad faith, misappropriation, etc. Moh- —
V. Smith, 83 App. Div. 64, 82 N. Y. S. renstecher v. Westervelt, 30 C. C. A.
529. • 584, 87 Fed. 157.
money which they are charged with converting to their own use was of a
speculative character and without property and unworthy of credit.^"
Weight and Sufficiency —To Show Mismanagement, Negligence in
—
Supervision and Inspection. Evidence that a bank's directors, through
their committee, examined it twice a year, in the way in which such banks
are usually examined, in addition to the examinations by the bank ex-
aminer, without discovering the cashier's defalcations, extending over ten
years, during all of which time he had an excellent reputation for honesty,
was sufficient to sustain a finding that they exercised due care in the man-
agement of the bank, though they knew he lost $4,000 in stock speculations
four years before they elected him.^^ Nor can the directors of a bank be
held liable at the suit of a shareholder for losses alleged to have been caused
by and mismanagement, on proof merely of a large deficit
their inattention
—the bank including capital stock
difference between the liabilities of the
and the nominal value of all assets, good and bad; especially where it ap-
pears that large dividends were paid by carrying large amounts of papei
which subsequently turned out as worthless, and real estate taken for debts,
which had depreciated in value.^^
—
Same To Prove Negligence in Care and Keeping of Funds. —
Where the evidence showed that money disappeared from the vaults of a
bank on a certain date, and it appears that the combinations and time locks
were not broken or disturbed, and it was also shown that if said locks and
combinations had been set, as it was the duty of the officers to set them,
it would have been a physical impossibility to secure the money without
destroying or breaking the lock, was sufficient, as against the mere asser-
tion of the officers that the doors were closed and the locks adjusted, to
sustain a verdict based upon the conclusion that the officers negligently
failed to perform that duty.^^ And evidence that the books of a bank
kept by the cashier and subordinates showed that a specified amount had
been received and had not been accounted for was, in the absence of ex-
piration, prima facie proof that the money to that amount was missing,
making the cashier liable therefor under a by-law making him responsible
for the moneys of the bank.^*
Same— Fraud or Negligence with Respect to Loans, Discounts
—
and Overdrafts. In an action by a bank against one who, when vice
president and director, made false representations as to a certain note dis-
counted for his benefit, evidence that defendant represented the maker of
30. Same — Character of corporation lace v.Lincoln Sav. Bank, 89 Tenn.

to which funds —
loaned. First Nat. 630, 15 S. W. 448, 34 Am. St. Rep. 625.
Bank v. Gaddis, 31 Wash. 596, 72 33. Xo show negligence in care and
Pac. 460. _
31. Sufficiency to show due care m

_ —
handling of funds. Kalb v. American
jsât. Bank, 11 O. C. D. 437, 21 O. C. C.
selection and supervision of cashier.— 1 affirmed in 65 O. St. 566, 63 N. E.
Ricker v. Hall, 69 N. H. 592, 45 Atl. ngg.
^^00 ^„A negligence 34. Same.— Rlo State Bank I/. Afflond-
32. T„o*4.=v,*i«« and
Inattention
shown by mere proof
„„!•
r,«,ri;,r..,^« not
of deficit. Wal-
^. ^33 j^ ^ ^
the note to be good and the indorser worth $75,000, whereas correspond-
ence between the indorser and defendant tended to show the financial em-
barrassment of both maker and indorser, was sufficient to call for the sub-
mission of plaintifl"s case to the jury.^^
Same — To Show Misappropriation or Conversion. — In an action by
a bank to recover money fraudulently paid out by its president by means
of drafts, a finding that the president was not a depositor, and that such
wrongful appropriation constituted embezzlement, was not nullified by the
fact that it was also found that the entries on the bank's books tended to
show that the bank was paid for the drafts so drawn. ^^ And in an action
by a stockholder of a bank to compel an accounting of money received by
defendant's intestate, as cashier and liquidator of the bank, the mere fact
that a note discounted by the bank appears on its bills receivable book is
wholly insufficient to create a personal liability upon intestate, especially

s'''
after a lapse of ten years from the last payment to the stockholders.
Same — False and Fraudulent Reports and Statements. —Alleged
fraud of bank directors in their report of the financial condition of the
bank, inducing a sale of the stock thereof, is not proved by the appearance
in such report, placed there for the purpose of making it balance, of such
items as "unadjusted errors in stocks," etc., "unadjusted errors in loans,"
etc., "unadjusted errors in cash paid," etc., "unadjusted errors in real es-
tate,"which items the commissioner of banking mistakenly treated as as-
setsand reported the bank sound, when in fact the statement of the directors
showed that its capital was impaired."*
Variance. — In a suit for an accounting against the administrator of a
deceased cashier, based on wrongful acts as to loans, discounts, and over-
drafts, it was number were made or allowed by him to
alleged that a great
certain parties named, for certain amounts, without fixing any dates or
otherwise identifying them, while the proof showed losses, discounts, over-
drafts, etc., of dififerent amounts, and several times to different parlies,
and in a number of instances the wrongful act alleged was the making of a
loan to a certain person, and the taking of notes therefor without sufficient
security, while the proof showed that the transactions alleged were not a
35. False representations as to se- 37. Bills receivable as evidence of

curities for —
loans. St. Johns Nat. —
misappropriation. Kelley v. Foster, 55
Bank v. Steel, 135 Mich. 165, 97 N. W. Hun 611, 8 N. Y. S. 901, 30 N. Y. St.
704. Rep. 353, 5 Silvermail 476, affirmed in
Evidence held to conclusively show 133 N. Y. 546, 30 N. E. 370.
that a loss to a bank on account of Evidence examined, and held insuffi-
overdrafts allowed by its deceased cient to show either a wrongful tak-
cashier, whose administrator was sued ing or a conversion of the funds of a
therefor, was the fault of the bank or bank by its cashier and assistant cash-
its officers after his death. v.Wynn ier. First Nat. Bank v. Gaddis, 31
Tallapoosa County Bank, 168 Ala. 469, Wash. 596, 72 Pac. 460.
53 So. 328. _ 38. Sufficiency to show false and
36. To show misappropriation and —
fraudulent report. Penfold v. Charle-
embezzlement.^Lamson v. Beard, 36 voix Sav. Bank, 140 Mich. 136, 103 N.
C. C. A. 56, 94 Fed. 30, 45 L. R. A. 833. W. 572.
loan, but the closing up of a previous indebtedness of such person to the

bank, by notes and security, or making a past-due and existing indebted-
ness more by extending the time of payment and taking notes and
secure,
It was held, that the variances were material, though a
collateral security.
mere difference in the amount in any transaction would not be if it was
shown to be the same.^^
§ 55 (6) Trial. —Province of Court and Jury. —In an action against

a bank president for negligence in verifying a false report to the superin-
tendent of banking, it is a question for the jury whether he was negligent
in failing to see for himself the securities list^ therein at the time he
made the verification.*** And where a bank president, who, while in general
charge of the bank business, has permitted moneys to be drawn from the
bank without security by a person known by him to be irresponsible, and
with whom the president was interested in the business for which the
money was obtained, is sought to be held personally responsible to the bank
for such moneys on the ground of a breach of trust, the question as to the
effect to be given the long silence of the directors of the bank after the entry
upon the bank books of a charge to the nominal borrower is one of rat-
ification, which should be submitted to the jury.*^
Instructions. —Instructions in this class of cases are subject to the prin-

ciples applicable to instructions in general. They should be applicable to
the pleadings and evidence, and in addition to stating the applicable prin-
ciples in a correct manner they should present the issues and the contentions
of each party based thereon fairly and without omitting any that may be
material to the cause of. either party.*^
39. Variance, as to amounts of loans, not, in the exercise of ordinary judg-

discounts and overdrafts. Wynn v. — ment, believed by the president to be
Tallapoosa County Bank, 168 Ala. good security for the amount of the
469, 53 So. 228. loan, then they should find a verdict
40. Province of court and jury. for plaintiff, is properly refused, as it
Davenport v. Prentice, 126 App. Div. ignores defendant's claim that the loan
451, 110 N. Y. S. 1056. was made in the usual course of busi-
41. Same — Knowledge of directors ness, and that the other directors also
— Ratification.— First Nat. Bank v. knew of the loan, and were as negli-
Reed, 36 Mich. 263. gent as defendant. Commercial Bank
Instructions. — Commercial Bank
42. v. Chatfield, 131 Mich. 641, 80 N. W.
V. Chatfield, 121 Mich. 641, 80 N. W. 712.
712; S. C, 127 Mich. 407, 86 N. W. In an action by a bank against a
1015. former president and director to re-
Where defendant, in an action by a cover for moneys lost by his negli-
bank against one who had been its gence in permitting the cashier to bor-
president to recover for money lost by row on inadequate security, the court
reason of loans negligently made to charged that the facts, that the notes
the cashier, claims that the loans were were read off at meetings of the di-
made-in the usual course of business, rectors, and the statement made that
and were known to the other directors, defendant held the collateral, and de-
and that they made no dissent, and fendant sat by, and said nothing, did
that he acted in good faith, a requested not render him liable for the money
instruction that, if the president con- taken on the loan, but that, if defend-
sented to the cashier's taking the ant had no valid security, or none at
money on his note, with certain col- all, and gave the board no information
lateral, and that such collateral was in regard to it, but allowed them to
§ 57 (la) OFFICERS AND AGFNTS. 333
Judgment —Amount —On a cashier's bond, the recovery

of Recovery.
against the sureties limited the penalty.*^
is to
Same —Application of Payments —Interest. — Partial payment hav-
ing been made by the sureties (subject to all questions), the appHcation of
these payments was made by deducting them from the penalty of the bond,
and allowing interest on the balance thus relating from the commencement
of the suit, there having been no previous demand of the penalty, or ac-
knowledgment that the whole was due. But interest was refused to the
sureties on the payment.**
§ and Officers to Third Persons § 57.

56. Liability of Directors —
Nature and Extent— § 57 (1) In General— § 57 (la) Affirm-
ative View. —Appointment of receiver to enforce liability, see post, "Ap-
pointment and Removal of Receiver," § 77 (1). As to stockholders in gen-
eral, see ante, "Liability for Debts and Acts of Bank," § 46, et seq.
Fiduciary Relation of Directors —Quasi Trustees. —Upon the ques-
tion of the personal liability of the directors of a bank to depositors and
creditors for losses resulting from their negligence and mismanagement of
the bank's affairs, there is a direct conflict, not to say confusion, of author-
ity. According to the one view the relation of the directors of a bank to
its depositors and creditors is confidential and fiduciary,*^ or that of trus-
tees to cestuis que trustent.^ât least, in the sense that every agent entrusted
believe he had collateral, which they 725; Marshall v. Farmers', etc., Sav.
had a right from the statement made Bank, 85 Va. 676, 8 S. E. 586, 2 L. R.
in the board to believe proper col- A. 534, 17 Am. St. Rep. 84; Elliott v.
lateral, then he might be liable; that Farmers' Bank, 61 W. Va. 641, 57 S.
when the statement was made to the E. 242; Lamb v. Laughlin, 25 W. Va.
board by the cashier that the collateral 300; Lamb v. Cecil, 28 W. Va. 653;
was in the hands of the president, and Lamb V. Pannell, 28 W. Va. 663.
the president assented, it was not un- "Bank directors are not mere agents
reasonable for the members to assume like cashiers, tellers and clerks. They
that he held proper collateral. Held, are trustees for the stockholders, and
that the instruction was proper. Com- as to their dealings with the bank,
mercial Bank v. Chatfield, 137 Mich. they not only act for it and in its
407, 86 N. W. 1015. name, but in a qualified sense, are the
43. Recovery limited to penalty. — bank itself. It is the duty of the board
to exercise a general supervision over
McGill V. Bank (U. S.), 13 Wheat. 511,
6 L. Ed. 711; Farrar v. United States
the affairs of the bank, and to direct
(U. S.), 5 Pet. 373, 8 L. Ed. 159; Leg-
and control the action of its subordi-
nate officers in all important transac-
gett V. Humphreys (U. S.), 21 How.
66, 16 L. Ed. 50.
tions. The community have the right
to assume that the directory does its
44. Application of payments In- — duty, and to hold them personally li-
terest.— McGill V. Bank (U. S.), 12 able for neglecting it. Their contract
Wheat. 511, 6 L. Ed. 711. is not alone with the bank. They in-
45. Fiduciary relation of directors. — vite the public to deal with the cor-
Cassidy v- Uhlmann, 27 App. Div. 80, poration, and when any one accepts
50 N. Y. S. 318, judgment reversed in their invitation he has the right to ex-
163 N. Y. 380, 57 N. E. 620, 79 Am. St. pect reasonable diligence and good
Rep. 596. faith at their hands; and if they fail
46. Same. —Trustees v. Bosseiux, in 4 in either, they violate a duty they owe
Hughes 387, 3 Fed. 817; Delano v. not only to the stockholders, but to
Case, 121 111. 247, 12 N. E. 676, 2 Am. the creditors and patrons of the cor-
St. Rep. 81; Solomon v. Bates, 118 N. poration." Seale v. Baker, 70 Tex. 283,
C. 311, 24 S. E. 478. 54 Am. St. Rep. 7 S. W. 743, 8' Am. St. Rep. 592.
with the management of the affairs of another is a mandatory or trustee for

such other.* '^
Errors of Judgment and Mistakes of Fact. —As such agents or trus-

tees, directors are not chargeable with losses resulting from any mere
errors of judgment or mistakes of fact, committed in good faith while in
the performance of their duties, unless such errors and mistakes result
from the want of reasonable and ordinary care in forming their judgment,
or from ignorance of facts of which they could not have been ignorant had
they exercised ordinary care in discharging the functions of their office.*^
—
Held to Reasonable Capacity Ordinary Care and Diligence. But —
while directors are not responsible for losses resulting from mistakes of
fact and mere errors of judgment, they owe to the corporation reasonable
capacity, scrupulous good faith, and the exercise of their best judgment;
and in accepting positions as directors they must be taken as holding them-
selves out as possessed in a fair degree of the knowledge requisite for the
performance of the duties which they have assumed, and as undertaking to
discharge those duties with ordinary care and diligence. They are not mere
figure heads but must attend to the duties incident to their position, and for
a failure to do so, they may render themselves personally liable to third
persons, not only for acts and omissions so grossly wrong as to evidence a
want of the necessary knowledge for the performance of their duties, or to
warrant the imputation of fraud and deceit or gross negligence, but for
losses resulting from the failure to exercise that degree of care and diligence
which men of ordinary prudence would exercise in like concerns of their
own.* 8 In some few cases it has been held that inasmuch as directors ren-
47. Same. —Williams v. McDonald, sponsible for losses on loans and dis-
42 N. J. Eq. 392, 7 Atl. 866; In re counts made in good faith simply be-
Spering's Appeal, 71 Pa. llj 10 Am. cause in the light of subsequent events
Rep. 684. what then seemed to be a good loan
Errors of judgment and mistakes ^"
48. ^T' "".^
ixr.?^'"'^ H."", of
J^^S'"^"*' fitters v. Sowjes, 31 Fed.
^"'^ °/
1.
of fact.-Briggs v. Spaulding, 141 U. S.
^9. Reasonable capacity-Ordinary
133, 35 L. Ed 662, 11 S. Ct 924; Wit-
ters V. Sowles, 31 Fed. 1; Godbold v. "".^^t
"^ U- .^^^"•-^t"^!',
S- 35 Ed. L \.^^^f^
662, 11 S.
Branch Bank, 11 Ala. 191, 46 Am. Dec. l?f ' If.
211; Smith V. Prattville Mfg. Co., 29
^t. 924; Corbett ^ Woodward, Fed.
Ala. 503; Neall v. Hill, 16 Cal. 146;
âs. No. 3223, 5 Sawy^ 403; Trustees
Percy v. Millaudon (La.), 8 Mart. (N. 'Viir?°f \ P""^''^' ^^!' ^ ^^^- Sav
""""'
l^^'
S.) 68; Solomon v. Bates, 118 N. C. ^^f 7'L w /',«? County, etc., gank, 88
311, 24 S. E. 478, 54 Am. St. Rep. 725; l^'f^H ^%^^'
^^''^J^.V
604; Godbold Branch\ Bank, 11
z/.
Caldwell V. Bates, 118 N. C. 323, 24 {f^'
^l^'
S. E. 481; Williams v. McDonald, 42 ^"' t1? o^?"--,, m^V .J. ^î^"°e''-
N. J. Eq. 392, 7 Atl. 866; Hodges v. ^"c^^J^ ^^^•
S=^'^' '«^^ ^"^5
New England Screw Co., 1 R I 312, g^P' ^^^ \ C., 17 î,^^\^
111. App. 531;
53 Am. Dec. 624; Marshall v. Farm^ ?''^""'",?, L°vmg, 82 Ky. 370, 6 Ky.
Sav. Bank, 85 Va. 676, 8 S. ^p^"""
ers', etc., ^; |?-if
K^; '.î?'"^/
306, 10 Ky. L. Rep_ on-,^^/l''w'
201, 8 a W.
E. 586, 2 L. R. A. 534, 17 Am. St. Rep. ^'
84; North Hudson, etc., Ass'n v. Childs, ^f V ^J^^ % ^^l ^H' °""" ^- ^7
82 Wis. 460, 52 N. W. 600; Killen v. ÎJtL n^l\^
\%^^^^\:'- ^'\f,
<;tatp Bank
btate 106 Wis
Bank, 10b Wis. 54b,
546 8. N W. Sdb.
S-) JN. 5^6 W 'audon (La.), 8 Mart.
^ jjjjj^ ^g j^^ ^g^^
(N. S.) 68; Bank
gg ^^ ^^^ ^^^_
The officers of an insolvent national Baxter v. Coughlan, 70 Minn. 1,72 n'.
bank can not be held personally re- E. 797; Wolf v. Simmons, 75 Miss!
§ 57 (la) OFPICBRS AND AGENTS. 335
der their services gratuitously, they are not to be held to that degree of
responsibility which is exacted of bailees for hire; in other words, that
they are held to the exercise of only slight care, and are responsible for
only gross negligence. s° On principle as well as authority, however, there
can be no doubt that directors are held to the exercise of ordinary care
and and that they are responsible for losses resulting from their
diligence,
which may be defined to be such dili-
failure to exercise that degree of care,
gence as ordinarily prudent men would exercise in conducting the affairs of
a moneyed institution of like character ;Si and even in some of the cases
holding that they are responsible only for fraud or gross negligence, it is
539, 23 So. 586; Solomon v. Bates, 118 rectors to exercise ordinary care in
N. C. 311, 24 S. E. 478, 54 Am. St. managing the bank's affairs, whereby
Rep. 725; Caldwell v. Bates, 118 N. C. the bank sustains loss and becomes
323, 24 S. E. 481; Williams v. Halliard, insolvent, such directors are not liable
38 N. J. Eq. 373; Williams v. McKay, to general creditors of the bank in a
40 N. J. Eq. 189, 53 Am. Rep. 775; suit by them. Union Nat. Bank v.
Williams v. McDonald, 42 N. J. Eq. Hill, 148 Mo. 380, 71 Am. St. Rep.
392, 7 Atl. 866; Cassidy v. Uhlmann, 615, 49 S. W. 1012; S. C, 155 Mo. 279,
170 N. Y. 505, 63 N. E. 554; Hun v. 55 S. W. 1133.
Carey, 82 N. Y. 65, 59 How. Prac. 439, Adirector of a bank, whose serv-
37 Am. Rep. 546; Brinckerhoff v. Bost- ices are gratuitous, and whose duties
wick, 88 N. Y. 52; Scott) v. Depeyster are to attend the bank once or twice
(N. Y.), 1 Edw. Ch. 513; Robinson v. a week to assist in discounting paper,
Smith (N. Y.), 3 Paige 232, 24 Am. to see how much money there is to
Dec. 213; Conant, etc., Co. v. Reed, 1 loan, and once or twice a year to count
O. St. 298; In re Spering's Appeal, 71 the cash on hand, and examine the
Pa. 11, 10 Am. Rep. 684; Swentzel v. bills receivable and securities to see
Penn Bank, 147 Pa. 140, 23 Atl. 405, whether they correspond with the
15 L. R. A. 305; 30 Am. St. Rep. 718; statement furnished by the officers,
In re Warner's Appeal (Pa.), 7 Atl. does not owe the creditors of the bank
216, 1 Sad. 310; Shea v. Mabry, 69 such care as a reasonably prudent
Tenn. (1 Lea) 319; Vance v. Phcenix man exercises in his own business, but
Ins. Co., 73 Tenn. (4 Lea) 385; Scale is amenable only for fraud, or for such
V. Baker, 70 Tex. 383, 7 S. W. 742, gross negligence as amounts to fraud.

8 Am. St. Rep. 592; Marshall v. Swentzel v. Penn Bank, 147 Pa. 140,
Farmers', etc., Sav. Bank, 85 Va. 676, 33 Atl. 405, 15 L. R. A. 305, 30 Am.
8 S. E. 586, 2 L. R. A. 534, 17 Am. St. Rep. 718.
St. Rep. 84; Elliott v. Farmers' Bank, Directors of banks and other mon-
61 V/. Va. 641, 57 S. E. 242. eyed corporations hold the relation to
50. Cases holding directors to exer- stockholders, depositors, and creditors
cise of only slight care. —
Briggs v. of trustees to cestuis que trustent, and
Spaulding, 141 U. S. 132, 35 L. Ed. 662, as such are personally responsible for
11 S. Ct. 934; Union Nat. Bank v. Hill, frauds and losses resulting from gross
148 Mo. 380, 49 S. W. 1012, 71 Am. St. negligence and inattention to the du-
Rep. 615; S. C, 155 Mo. 279, 55 S. W. ties of their trust. Mutual, etc., Sav.
1133; Swentzel v. Penn Bank, 147 Pa. Bank v. Bosseiux, 4 Hughes 387, 3 Fed.
140, 23 Atl. 405, 15 L. R. A. 305, 30 Am. 817.
St. Rep. 718; In re Warner's Appeal, 51. On principle and authority. —
147 Pa. 140, 23 Atl. 405, 15 L. R. A. 305, Briggs V. Spaulding, 141 U. S. 133, 35
30 Am. St. Rep. 718; North Hudson, L. Ed. 663, 11 S. Ct. Savings
924;
etc., Ass'n v. Childs, 83 Wis. 460, 53 Bank v. Caperton, 87 Ky. 306, 10 Ky.
N. W. 600; Killen v. State Bank, 106 L. Rep, 301, 8 S. W. 885, 13 Am. St.
Wis. 546, 83 N. W. 536. Rep. 488; Percy v. Millaudon (La.), 8
There is no doubt that trustees are Mart. (N. S.) 68; BanV v. Hill, 56 Me.
liable for gross negligence and inat- 385, 96 Am. Dec. 470; Williams v.
tention of their duties. Williams v. Halliard, 38 N. J. Eq. 373; Hun v. Carey,.
Halliard, 38 N. J. Eq. 373; Robinson 82 N. Y. 65, 59 How. Prac. 439, 37 Am.
V. Smith (N. Y.), 3 Paige 323, 34 Am. Rep. 546; Scott v. Depeyster (N. Y.), 1
Dec. 212. Edw. Ch. 513; Robinson v. Smith (N.
For the mere failure of bank di- Y.), 3 Paige 333, 24 Am. Dec. 213.
stated that gross negligence consists in the failure to exercise ordinary care
and diligence, or the absence of that diligence which ordinarily prudent men
would exercise in the conduct of a like business. ^^
—
Same What Constitutes Ordinary Care and Diligence, or the
—
Want Thereof. As to what constitutes ordinary care and diligence or
the want thereof depends upon the subject to which the doctrine is applied,
and each case must, generally, be determined in view of all the circum-
stances, ^^ and a few illustrations are given in the footnotes. s* Still there
52. Failure to exercise ordinary care almost all the funds of the bank, and
—
held to be gross negligence. Savings concealeds the fraud by false entries
Bank v. Caperton, 87 Ky. 306, 10 Ky. in the books. His statements to the
L. Rep. 201, 8 S. W. 885, 12 Am. St. directors from time to time showed the
Rep. 488; Dunn v. Kyle, 77 Ky. (14 bank to be in good condition. No
Bush) 134; Hun v. Carey, 82 N. Y. fraud was discoverable in any of the
65, 59 How. Prac. 439, 37 Am. Rep. 546. books except the individual ledger,
53. Want of ordinary care and dili- which, by a rule of the bank conform-
— —
gence How determined. Briggs v. ing to a custom largely prevalent, the
Spaulding, 141 U. S. 132, 35 L. Ed. directors were not allowed to see. The
662, 11 S. Ct. 924; Percy v. Millaudon directors were among the heaviest
(La.), 8 Mart. (N. S.) 68; Solomon v. stockholders, and at the first suspen-
Bates, 118 N. C. 311, 24 S. E. 478, 54 sion they raised nearly $300,000 on
Am. St. Rep. 725. their individual credit to enable the
54. —
Illustrations. Where the bank bank to resume payment. Held, that
was run in two departments, as a sav- the directors were not guilty of gross
ings bank and a commercial bank, the negligence. Swentzel v. Penn Bank,
directors- were not guilty of negligence 147 Pa. 140, 23 Atl. 405, 15 L. R. A.
in placing certain bonds belonging to 305, 30 Am. St. Rep. 718.
the savings side with a New York The president of a bank misappro-
bank to enable the bank to draw on priated its funds, and overdrew his ac-
New York when necessary, which counts, and a brother of the presi-
bonds the defaulting cashier afterwards dent, and corporations of which the
pledged to raise money. Savings officers and directors were also offi-
Bank v. Caperton, 87 Ky. 306, 10 Ky. cers, largely overdrew their accounts,
L. Rep. 201, 8 S. W. 885, 12 Am. St. and were loaned large sums by the
Rep. 488. bank with little or no security, though
In an action by depositors against such Jiorrowers were irresponsible,
the directors personally for loss occa- and another borrower was permitted
sioned by a defaulting cashier, who to withdraw his security. The direct-
owned a one-fifth interest, and was the ors, though required to meet weekly,
leading spirit, of recognized ability, met but two or three times a year, and
and as was supposed of the highest in- never caused the books to be ex-
tegrity, it appeared that for nine years amined, nor called for statements of
he had been making false entries, and accounts with other banks. The cap-
had embezzled a large amount; that ital of the bank was small, and much
the services of the directors were of it was not paid up, and the paid-up
gratuitous; that, at the merger of an portion was treated as a loan. The
old bank in a new one, no new books bank, on suspension, was able to pay
had been opened, so that the cashier but ten per cent on the deposits. Held,
was able to conceal his former defal- that thousfh the directors were igno-
cations: but there was nothing to ex- rant of the affairs of the bank, and
cite suspicion, the frauds being perpe- were not guilty of bad faith, they
trated by false entries, which made the were guilty of such negligence as ren-
weekly statements apparently correct: dered them liable to the depositors.
that the duties of cashier, bookkeeper, Marshall v. Farmers', etc Sav. Bank,
.
and teller were all performed by the 85 Va. 676, 8 S. E. 586, 2 L. R. A. 534,
cashier. Held, that the directors were 17 Am. St. Rep. 84.
not Savings Bank v. Caperton,
liable. An insolvent bank's charter directed
87 Kv. 10 Ky. L Rep. 201, 8 S.
306, that- its affairs be managed by direct-
W. 885, 12 Am. St. Rep. 488. ors, who should make quarterly state-
A bank president, abetted by the ments of the bank's actual condition;
cashier and several clerks, embezzled and the by-laws required them to ex-
§ 57 (la) OPFlCgRS AND AGENTS. 337
are a few general principles particularly applicable to cases of this char-

acter. Thus it may be quite true that since directors receive no compen-
sation for their services, and since the benefits derived by them from the
profits of the bank them only in their capacity as stockholders, their
benefit
liability is not to be measured by that iriiposed upon the president and cash-
ier or other salaried officers who receive compensation for their services
and who are charged with conducting the actual details of the business.
The degree of care is the same in each case, but ordinary care does not
lequire a director to give as much time and attention to the business of the
hank as the same degree of care would require of the president and other
salaried officers. ^^ The customs and methods of the community in which
a banking business is done may be, for such community, a standard of pru-
dence and diligence by which the responsibility of the bank officers and
directors at common law is to be tested and if there has been a reason-
;
able conformity to these, and absolute good faith and honesty of purpose,
it would be unjust to hold them to a personal accountability for losses sus-
tained through loans and investments which time has shown to have been
imprudent and ill-advised. ^^
Same — Same —Leaving Management to Officers and Agents
Knowledge of Irregularities. — Directors can not, however, escape re-
by negligently entrusting to others matters which it is their duty
sponsibility
to perform in person, or concerning which it is their duty to be informed.
Ordinary care and prudence in the administration of the affairs of the bank
includes something more than officiating as mere figure heads and while ;
under the law they are entitled to commit the banking business to duly
amine the bank every three months. under the control of a board of trus-
The msolvent bank had correspond-
a tees, who pledged themselves to an
ent bank, from which the former's upright discharge of their duties with-
cashier abstracted large sums by out being responsible for any loss, ex-
drawmg checks, and entenng them on cept from willful misconduct, and re-
the msolvent's books for less amounts, quiring the investment of deposits, par-
Dy drafts which were never credited, take more of the character of ordinary
and by overcharges and false charges trustees than of bank directors, and
against the correspondent bank. Such where they for over two years paid no
peculations continued for several attention to the business, and failed
years without detection. The direct- to invest the deposits, but deposited
ors trusted the correctness of the cor- them with a banking firm, known by a
respondent's accounts entirely to the trustee to have gone into the stock
cashier, and no inquiry was made as brokerage business, and the depositors
to any possible discrepancy. An ex- sustained a loss in consequence, the
amination and comparison of the ac- trustees were liable. Holmes v. Mc-
counts with the correspondent would Donald, 226 111. 169, 80 N. E. 714, re-
have revealed the defalcations. Held, versing' judgment in McDonald v.
sufficient to show that the perpetration Holmes 128 111 App 560
of such frauds was the consequence of
gg_ Applicable principles.-Savings
the directors neglect, rendering them
^^^^ ^ Caperton, 87 Ky. 306, 10 Ky.
liable man action by the bank s re- ^ ^ ^^ g ^ ^ g
ceiver. Campbell v. Watson, 63 N. J. p„„
^^P- ,a„
Eq. 396, 50 Atl. 120. *f , '
u .
The duties of trustees of an unin- „56- Local custoins and methods.—
.,
corporated bank organized under an Wheeler v. Aiken C.-unty, etc.. Bank,

'^^ rta.. 781.
agreement that the afiairs should be
1 B & B—32
authorized and salaried officers, this does not absolve them from the exer-
cise of due care in the selection of such officers, nor from the duty of
reasonable supervision after their selection, and if a loss is sustained
through their negligence in failing to select competent oiificials or because
of want of knovpledge of wrong doing, such ignorance being the result of
negligence and inattention, such loss should fall upon them and not upon
confiding creditors and depositors. ^'^
57. Leaving management to officers sponsible for the malfeasance of the

—
and agents Knowledge of irregulari- managing officer, when it appears that
ties. — Briggs V. Spaulding, 141 U. S. they were so negligent as to make
133, 35 L. Ed. 663, 11 S. Ct, 924; Cor- practically no examination of its books
bett V. Woodward,
Fed. Cas. No. 3,223, or affairs, and held meetings only at
5 Sawy. 403; Trustees v. Bosseiux, 4 rare intervals, and then limited their
Hughes 387, 3 Fed. 817; Robinson v. business almost wholly to the election
Hall, 13 C. C. A. 674, 63 Fed. 323; of directors and the declaration of divi-
Wheeler v. Aiken County, etc., Sav. dends. In such case, their liability
Bank, 75 Fed. 781; Gibbons v. Anderson, for losses should begin at a time when
80 Fed. 345; Delano v. Case, 17 111. App. they ceased to discharge the duty of
531; Savings Bank v. Caperton, 87 Ky. giving proper supervision to the con-
306, 10 Ky. L. Rep. 201, 8 S. W. 885, duct of the bank's affairs. In the cir-
12 Am. St. Rep. 488; Bank v. Hill, 56 cumstances of the present case, they
Me. 385, 96 Am. Dec. 470; Ackerman were held liable from the time when,
V. Halsey, 37 N. J. Eq. 356; Williams by reason of the failure to earn divi-
V. McKay, 40 N. J. Eq. 189, 53 Am. dends- for more than a year, their at-
Rep. 775; Williams v. McDonald, 42 tention should have been drawn to
N. J. Eq. 392, 7 Atl. 866; Hun v. Carey, the necessity of making a thorough ex-
83 N. Y. 65, 59 How. Prac. 439, 37 Am. amination. Gibbons v. Anderson, 80
Rep. 546; Elliott v. Farmers' Bank, 61 Fed. 345.
W. Va. 641, 57 S. E. 243; Land -Credit Directors of a national bank left its
Co. V. Lord Fermary, L. R. A. Ch. 768. management for more than three years
A director can not excuse himself almost wholly to its cashier, who had
on the ground that a loan made upon but little property, and of whom they
property not worth at least double the required no bond; and they knowingly
amount of the loan was made at the permitted loans to be made to indi-
solicitation of the president and for viduals and firms largely in excess of
the alleged benefit of the bank, when, the amounts allowed by law. They also
as a manager, director, and member failed to record mortgages given to
of the finance committee he was secure large debts due the bank, even
charged with the duty of ascertaining after they were aware of its insolvency,
the facts himself. Williams v. Mc- and erroneously advised an examiner
Donald, 42 N. J. Eq. 393, 7 Atl. 866. who had taken charge of the bank
The duty of the board of directors that it was not necessary to record
is not discharged by merely selecting them. Held, that the directors were
officers of good reputation for ability personally liable for the losses caused
and integrity, and then leaving the af- by such neglect and mismanagement,
fairs of the bank in their hands, with- and the fraud and defalcations of the
out any other supervision or examina- cashier. Briggs v. Spaulding, 141 U.
tion than mere inquiry of such officers, S. 133, 35 L. Ed. 663, 11 S. Ct. 934, dis-
and relying upon their statements until tinguished. Robinsonv. Hall, 59 Fed.
some cause for suspicion attracts their 648, reversed in 12C. C. A. 674, 63
attention. The board is bound to main- Fed. 222.
tain a supervision of the bank's affairs, In an action by a bank's receiver
to have a general knowledge of the against its directors for losses alleged
character of the business and the man- to have been occasioned by their neg-
ner in which it is conducted, and to ligence in examining the cashier's ac-
know at least on what security its counts, a defendant can not urge his
large lines of credit are given. Gib- personal ignorance that the accounts
bons V. Anderson, 80 Fed. 345. were incorrect, arising from his re-
A receiver of a national bank may liance on statements made by the offi-
sue the directors to hold them re- cers, and examinations made from
§ 57 (la) OFFICERS AND AGENTS. 339
Actual Knowledge Not Essential to Liability. —Actual knowledge of

irregularities, however, is not necessary, since it is the duty of bank direct-
ors to use ordinary diligence in acquiring knowledge of the business of the
bank, and they can not be heard to say that they were not apprised of facts
the existence of which is shown by the books, accounts and correspondence
of the bank, and which the use of ordinary diligence in the supervision of
the bank's affairs would have made known to them.s®
Doctrine Dependent upon Negligence. This principle, however, is —
dependent upon negligence, or the want of ordinary diligence in the selec-
tion of officers and in the supervision of the affairs of the bank. Direct-
ors are not insurers of the fidelity of the agents whom they appoint, nor
can they be held responsible for losses resulting from the wrongful acts
or omissions of other directors or agents, unless the loss is a consequence
of their own neglect of duty.^^ Neither are they held as a matter of law
time to time by the state officials. Directors can not absolve them-
Campbell v. Watson, 63 N. J. Eq. 396, selves from liability by committing
50 Atl. 120. the management of the affairs of the
In an action by a bank's receiver bank to the cashier or president, or
against the directors for losses caused other officer, or to a committee of the
by the cashier's abstractions during directors, and thereafter take no steps
several years, which it was alleged they to keep themselves informed of what
negligently failed to sooner discover, is being done with the assets of the
defendants can not claim that to hold corporation and the money of the de-
them responsible for failure to discover positors, and in such case they are
such defalcations would require of them liable for loss sustained through the
too high a degree of care and attention, fraud or misconduct of such officers
where the examination necessary to and which reasonable care and attention
discover the frauds required merely an on the part of the directors would have
adjustment of accounts. Campbell v. prevented. Williams v. McKay, 40 N.
Watson, 62 N. J. Eq. 396, 50 Atl. 120. J. Eq. 189, 53 Am. Rep. 775; Hun v.
Actual knowledge not essential.
58. Carey, 82 N. Y. 65, 59 How. Prac. 439,
—Martin v. Webb, 110 U. S. 7, 28 L. 37 Am. Rep. 546; Ackerman v. Hal-
Ed. 49, 3 S. Ct. 428; Trustees v. Bos- sey, 37 N. J. Eq. 356; Trustees v. Bos-
seiux, 4 Hughes 387, 3 Fed. 817; seiux, 4 Hughes 387, 3 Fed. 817.
Wheeler Aiken County, etc., Sav.
v. 59. Doctrine dependent upon negli-
Bank, 75 Fed. 781; Gibbons v. Ander- —
gence. Briggs V. Spaulding, 141 U. S.
son, 80 Fed. 345; United Society v. Un- 133, 35 L. Ed. 662, 11 S. Ct. 924; Cor-
derwood (Ky.), 9 Bush 609, 15 Am. bett V. Woodward, Fed. Cas. No. 3,233,
Rep. 731; McDaniel v. Harvey, 51 Mo. 5 Sawy. 403; Delano v. Case. 17 111.
App. 198; Ackerman v. Halsey, 37 N. App. 531; Savings Bank v. Caperton,
J. Eq. 356; Williams v. McKay, 40 N. 87 Ky. 306, 10 Ky. L. Rep. 301, 8 S.
J. Eq. 189, 53 Am. Rep. 775; Campbell
W. 885, 13 Am. St. Rep. 488; Bank v.
V. Watson, 62 N. J. Eq. 396, 50 Atl. Hill, 56 Me. 385, 96 Am. Dec. 470;
120; Hun
v. Carey, 82 N. Y. 65, 59 Solomon V. Bates, 118 N. C. 311, 24
How. Prac. 439, 37 Am. Rep. 546; Em- S. E. 478, 54 Am. St. Rep. 725; Wil-
pire State Sav. Bank v. Beard, 81 Hun liams V. McKay, 40 N. J. Eq. 189, 53
184, 30 N. y. S. 756, 62 N. Y. St. Rep. Am. Rep. 775; Wheeler v. Aiken
roi; Roberts v. Washington Nat. County, etc., Sav. Bank, 75 Fed. 781;
Bank, 11 Wash. 550, 40 Pac. 235; El- Land Credit Co. v. Lord Fermory, L.
liott V. Farmers' Bank, 61 W. Va. ,641, R. A. Ch. 768.
57 S. E. 242. The directors of a bank who serve
Where the books and papers of the without compensation are not liable,
bank show that special deposits were personally for the defalcation of the
being wrongfully disposed of by the person chosen as cashier, teller, and
bank, actual knowledge on the part of bookkeeper, in the absence of any rea-
the directors must be presumed. United son for suspecting his honesty, or any
Society v. Underwood (Ky.), 9 Bush gross neglect on their part, and when
609, 15 Am. Rep. 731. they have exercised such reasonable
to a knowledge of all the affairs of the bank, nor all that its books and
papers would show, and such knowledge can not be imputed to them ab-
solutely and as a matter of law for the purpose of charging them with
liability.*" A bank director is not required to be an expert nor even a
competent bookkeeper, nor to do more in the general management of the
bank, with reference to its cashier and bookkeeper, than to see, in the ab-
sence of any reason for doubting his fidelity to the trust confided to him,
that the weekly, daily, or monthly statements made to the board correspond
with the general balances upon the books ;*i nor can directors be charged
with gross negligence merely because of a single act of the president, not
brought to their actual knowledge, in incurring liabilities in excess of those
authorized.fi^
Frauds Committed during Director's Sickness or Absence. — If a
director of a bank is seriously ill, it is within the power of the other di-
rectors 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 re-
sponsible for them.8-5 A mere plea of ill-health, however, is no sufficient
defense.*^
Defendants Not Directors at Time of Acts of Mismanagement. —
That certain of the defendants were not directors at the time some of the
acts of mismanagement occurred will not exempt them from liability to
depositors for the wrongful practices of which they were guilty after they
became directors.*^
diligence and ordinary care with and diligence in conducting the affairs
reference to the affairs of the bank as of the bank, or such diligence as ordi-
ordinarily prudent men would exer- narily prudent men would have exer-
cise in reference to such business af- cised with reference to the conduct of
fairs. Savings Bank v. Caperton, 87 such a moneyed institution. It is not
Ky. 306, 10 Ky. L. Rep. 201, 8 S. W. a question as to how the frauds of the
885, 12 ,A.m. St. Rep. 488. cashier might have been discovered,
The fact that bonds belonging to but were these directors guilty of gross
a director were used, in his absence, neglect, which means an absence of
by the cashier, in his statement, as that diligence that ordinarily prudent
bank assets, the bank being accus- men in the conduct of such business
tomed to invest in like bonds, does not would have exercised. Savings Bank
z'- Caperton, 87 Ky. 306, 10 Ky. L. Rep.
indicate negligence of the directors in
failing to examine the books to see 201, 8 S. W. 885, 12 Am. St. Rep. 488.
to whom the bonds had been charged, 61- Directors not required to be ex-
there being no suspicion of the cash- Pert accountants.— Savings Bank v.
ier's integrity.Savings Bank v. Caper- Caperton, 87 Ky. 306, 10 Ky. L. Rep.
ton, 87 Ky. Ky. L. Rep. 201, 8
306, 10 301, 8 S. W. 885, 12 Am. St. Rep. 488.
S. W. 885, 12 Am. St. Rep. 488. 62. Single act not brought to knowl-
60. Not held to knowledge as a mat- f^ê of directors.— Branninj; Loving,

ter of law.-Savings Bank v. Caper- ^^ Ky. 370, 6 Ky. L. Rep. 328.
ton, 87 Ky. 306, 10 Ky. L. Rep. 201, 8 63. Frauds dunng director's sickness
o"" absence.— Briggs v. Spaulding, 141
S. W. 885, 12 Am. St. Rep. 488; Mason
V. Moore, 73 O. St. 275, 4 L. R. A., N.
U. S. 132, 35 L. Ed. 662, 11 S. Ct. 924.
S., 597, 76 N. E. 932. 64. Plea of ill health.— German Sav.
The only question presented in such Bank %>. Wulfekuhler, 19 Kan. 60.
a case is, whether the directors acted 65. Defendants not directors at time
in good faith and with ordinary care —
of acts of mismanagement. Boyd v.
§ 57 (la) OFFICERS AND AGENTS. 34l
Assignment of Liability. — It is almost unnecessary to state that di-

rectors and stockholders can not, by making an assignment to which the
creditors of the bank are not parties, and to which they have not consented,
deprive such creditors of their remedies against them for a breach of
duties.^^
Distinction as to Action against Bank and Action against Direct-
ors. —Where the action is against the bank, it will not be heard to say that
it was ignorant of frauds and thefts committed by the cashier, for in such
a case the law presumes that the directors know every entry made by its
subordinate officers in the bank books, and the misappropriation of funds,

by the cashier, unknown to the directors, constitutes no defense to the
bank; but in an action against the bank to make them personally liable, no
such presumption exists, and the burden is on the creditor of the bank to
show want of diligence on the part of the directors in discovering or pre-
venting the fraud.®'^
Violation of Law or Charter. —Where a statute prohibits the doing
of an act, or imposes a duty for the benefit and protection of individuals,
persons who disobey the prohibition or neglect to perform the duty ren-
der themselves liable to those for whose protection the statute was enacted
for any damage or loss proximately resulting from such disobedience or
neglect.®^ Restrictions contained in statutes regulating the business of
banking are, generally, of this character, and for violations of the charter
or general statutes, directors may render themselves personally responsible
to creditors and depositors who sustain loss thereby ;«9 as, for example,
for waste of the corporate funds and property by loaning money without
security in cases where security is required to be taken, or investing the
money of the bank in speculative enterprises forbidden by law, or accept-
ing securities in payment of subscriptions to the capital stock when it is
required by law that such payments shall be in cash, or who otherwise
commit violations of the charter or general law whereby the money or
Schneider, fi5 C. C. A. 209, 131 Fed. v. Pratt, 33 Minn. 333, 23 N. W. 237;

223. Osborne v. McMasters, 40 Minn. 103,
That certain of the defendants sued 41 N. W. 543, 12 Am. St. Rep. 698;
were not directors of an insolvent bank Baxter v. Coughlan, 70 Minn. 1, 72 N.
at the time acts of mismanagement W. 797.
complained of occurred, did not exempt 69. Same. v. — Baxter
Coughlan, 70
them from liability to depositors, Minn. 1, 72 N. W.
797; Solomon v.
where it appeared that during their Bates, 118 N. C. 311, 34 S. E. 478, 54
term of office dividend? were paid from Am. St. Rep. 725; Citizens' Loan Ass'n
the capital, which was also alleged as v. Lyon, 39 N. J. Eq. 110; Williams v.
a ground of action. Bovd v. Schneider, McKay, 40 N. J. Eq. 189, 53 Am. Rep.
65 C. C. A. 309, 131 Fed. 323. 775; Hun v. Carey, 82 N. Y. 65, 59
66. Assignment of liability.— Schley How. Prac. 439, 37 Am. Rep. 546;
V. Dixon, 24 Ga. 273, 71 'Am. Dec. 121. Brinckerhofif v. Bostwick, 88 X. Y. 53;
67. Distinction between action against Robinson v. Smith (N. Y.), 3 Paige
bank and action against directors. 223, 24 Am. Dec. 312; Conant, etc., Co.
Savings Bank v. Caperton, 87 Ky. 306, v. Reed, 1 O. St. 298; Hodges v. New
10 Ky. L. Rep. 201, 8 S. W. 885, 13 England Screw Co., 1 R. I. 313, 53 Am.
Am. St. Rep. 488. Dec. 634; Moses v. Ocoee Bank, 69
68. Violation of law or charter. Bott — Tenn. (1 Lea) 398.
property of the corporation is lost or wasted.'^" But while directors are

bound to exercise ordinary skill, and to possess reasonable capacity, they
are not held to a technical or special knowledge of the law, such as could
be expected only from persons learned in the profession; and for mis-
takes concerning the law with regard to matters involving special or tech-
nical knowledge thereof, they are liable, if at all, not for their mistakes,
but for negligence in failing to seek competent legal adviceJ^
Violation of By-Laws of Bank.
Failure to comply with the by-laws —
of the bank is and directors can not excuse themselves
negligence in itself,
for losses resulting from such failure upon the plea that they were ignorant
of their existence ;'^2 and in a suit by a bank's receiver against its directors
for losses occasioned by alleged neglect of duty, the fact that a by-law
relied on by the receiver, failure to comply with which probably led to the
loss, had been disregarded for so long a time that its repeal might be pre-
,
sumed, can not avail the defendants as a defense.'^-^

Good Faith as a Defense Liability of Bank Fraud or Negligence ; —
Proximate Cause of Loss. Where fraud or culpable negligence is shown,—
the directors can not excuse themselves by pleading mere honesty of in-
tention. Good faith alone will not excuse them when there has been
that lack of care, attention, and circumspection in their management of
the affairs of the corporation which is exacted of them as quasi trustees 'J*
nor is it any defense that their principal is also liable,''' ° though in order
that the creditors may hold them personally responsible, the fraud or neg-
ligence of the directors must have been the proximate cause of their
loss.'^^
70. Same. —
Citizens' Loan Ass'n v. Where a bank's by-laws require its
Lyon, 39 N. J. Eq. 110; Williams v. directors to appoint a committee every
McKay, Eq. 189, 53 Am. Rep.
40 N. J. three months for an examination of
775; Robinson
Smith (N. Y.), 3 v. the bank's condition, the fact that ex-
Paige 222, 24 Am. Dec. 212; Hun v. aminations were occasionally made by
Carey, 82 N. Y. 65, 59 How. Prac. 439, the state examiner can not relieve the
37 Am. Rep. 546; Brinckerhoff v. Bost- directors from loss occasioned by their
wick, 88 N. Y. 52; Hodges v. New failure to comply with such require-
England Screw Co., 1 R. I. 312, 53 Am. ment. Campbell v. Watson, 62 N. J..
Dec. 624; Moses v. Ocoee Bank, 69 Eq. 396, 50 Atl. 120.
Tenn. (1 Lea) 398. 74. Good faith and honesty of inten-
71. —
Same Ignorance or mistake of —
tion as a defense. Townsend v. Wil-
law. — Solomon v. Bates, 118 N. C. 311, liams, 117 N. C. 330, 23 S. E. 461; Solo-
24 S. E. 478, 54 Am. St. Rep. 725; mon v. Bates, 118 N. C. 311, 24 S. E.
Marshall v. Farmers', etc., Sav. Bank, 478, 54 Am. St. Rep. 725; Shea v.
85 Va. 676, 8 S. E. 586, 2 L. R. A. 534, ]\Iabry, 69 Tenn. (1 Lea) 319; Wil-
17 Am. St. Rep. 84. Hams v. McDonald, 42 N. J. Eq. 392, 7
72. 'Violation of by-laws of bank. — Atl. 866; Mason v. Moore, 73 O. St.
Campbell v. Watson, 63 N. J. Eq. 396, 275, 76 N. E. 932, 4 L. R. A., N. S., 597.
50 Atl. 120. 75. That principal is also liable.—
Personal liability of directors who Delano z: Case, 131 111. 247, 12 N. E.
sanction violations of the charter or 676, 2 Am. St. Rep. 81; 'Solomon v.
by-laws of the bank may be provided Bates, 118 N. C. 311, 24 S. E. 478, 54
by statute or Johnson v.
charter. Am. St. Rep. 725.
Churchwell, 38 Tenn. Head) 146. (1 Fraud or negligence must have
76.
73. Same. — Campbell v. Watson, 62 been proximate cause of loss. Delano —
N. J. Eq. 396, 50 Atl. 120. r. Case, 121 111. 247, 12 N. E. 676, 2
§ 57 (lb) OFFICT^RS AND AGENTS. 343
Liability of President and Other Officers. —The same liability at-

taches to the president or other officers as to the directors in like cases.''"''
A president serving upon only a nominal salary is held to the exercise of

only ordinary care in managing the affairs of the bank.''^
Misappropriation, Embezzlement or Theft. —All officers are per-
sonally liable to creditors or to a receiver for funds which they have mis-
appropriated, embezzled, or stolen. ''^
§ —
57 (lb) Negative View. According to the negative view of the
liability of directors and officers to third persons, the directors are the
agents of the bank, and the only trust or fiduciary relation which they
sustain is to the bank, and not to depositors or creditors while as be- ;
tween the bank and third persons, the relation is said to be merely that
of debtor and creditor dealing at arms length. In these jurisdictions what
is known as the "trust fund" doctrine does not prevail hence, no action ;
as for a breach of trust will lie; there is no contractual relation between

the directors and third persons, hence, no action ex contractu can be
maintained; while as agents of the bank they are, in so far as loss or
damage resulting from mere nonfeasance or ordinary negligence is con-
cerned, amenable only to the bank as their principal, and liable to third
persons in an action ex delicto only when, as regards such third persons,
they have been guilty of actionable f;'aud or deceit. ^"^ Under this view it
Am. St. Rep. 81; United Society v. vate undertaking in which they were
Underwood (Ky.), 9 Bush 609, 1,5 engaged, and signed a contract oblig-
Am. Rep. 731; Percy v. Millaudon, 3 ing the bank to pay for the same, and
La. 568; Hart v. Evanson, 14 N. S. 570, then took money from the bank to
105 N. W. 943, 3 L. R. A., N. S., 438; fulfill such engagement, it was held
Hodges V. New England Screw Co., 1 that they were liable for the money so
R. 312,
I. 53 Am. Dec. 634; Zinn v. taken to the receiver appointed to
Mendel, 9 W. Va. 580 close up the concerns of the bank.
77. Liability of president and other Austin v. Daniels (N. Y.), 4 Denio
officers. —
Solomon v. Bates, 118 N. C. 299.
311, 24 S. E. 478, 54 Am. St. Rep. 735; gO. Negative view of liability of di-
Caldwell V. Bates, 118 N. C. 323, 24 S. rectors and officers to third persons.
E. 481. Briggs V. Spaulding, 141 U. S. 133, 35
The habihty of the president and l. Ed. 662, 11 S. Ct. 924; Hollins v.
vice president to depositors and other Brierfield, etc.. Iron Co., 150 U. S. 371,
creditors for losses sustained by them 37 L, Ed. 1113, 14 S. Ct. 137; National
in dealing with the corporation on the Exch. Bank v. Peters, 44 Fed. 13;
faith of misrepresentations by such offi- Howe v. Barney, 45 Fed. 668; Bailey
cers as to its financial condition, or ^, Mosher, 11 C. C. A. 304, 63 Fed. 488;
other facts forming a material induce- Andrews v. Foster, 76 Iowa 535, 41 N.
ment to the deposit or contract, is the W. 212; Savings Bank v. Caperton, 87
same as that of directors. Solomon v. Ky. 306, 10 Ky. L. Rep 201 8 S W.
Bates, 118 N. C. 311, 34 S. E. 478, 54 885, 12 Am. St. Rep. 488;'Vose v.
Am. St. Rep. 735. Grant, 15 Mass. 505; Abbott v. Mer-
78. Where president receives only riam (Mass.), 8 Cush 588; Fusz v.
nominal salary.— Dunn v. Kyle, 77 Ky. Spaunhorst, 67 Mo. 356; Union Nat.
(14 Bush) 134. Bank?'. Hill, 148 Mo. 380, 49 S. W. 1013,
79. Misappropriation, embezzlement 71 Am. St. Rep. 615; Mabey v. Adams,
or theft.— Austin v. Daniels (N. Y.), 4 16 N. Y. Super. Ct. 346; Hart v. Evan-
Denio 399. son, 14 N. D. 570, 105 N. W. 943, 3 L.
Where the officers of a bank pur- R. A., N. S., 438; Minton v. Stahlman,
chased state stocks, to carry on a pri- 96 Tenn. 98, 34 S. W. 232; Deaderick
344 BANKS AND BANKING. § 57 (lb)
has been held that nothing short of intentional, willful and affirmative
wrongdoing will suffice to confer a right of action upon third persons, and
that it is a contradiction in terms to say that negligence may be so gross
as to amount to willful fraud and intentional injury, since negligence,
whether slight, ordinary or gross, consists of the want of care, and im-
plies the absence of intentional wrongdoing.®^ There must not only be a
loss, it is said, but the loss must be proximately traceable to the defend-
ant's breach of a legal obligation owing to the plaintiff, which obligation,
as here defined, from willful and intentional wrongdoing.®^
is to refrain
Other authorities, while upholding, in the main, the doctrine that no right
of action will lie in favor of third persons for 'losses resulting from tho
want of ordinary care and diligence, hold that negligence may be so gross
as to amount to fraud, and that recovery may be had for losses so sus-
tained.®8 In still other cases it is held that whatever the plaintiff's rights
against the delinquent directors may be, they can not be enforced in an
action at law, it being variously objected that the directors owe no duty
in a legal sense to the creditors or to the public, that an action at law
must be brought by the person having the title or right to the thing de-
manded, or to the damages sought to be recovered, that there is no legal
privity between creditors and directors, that creditors have no right or
power to intermeddle with the property or concerns of the bank, or to call
V. Bank, 100 Tenn. 457, 45 S. W. 786; bill was demurred to,and the demur-
Zinn V. Mendel, 9 W. Va. 580; Slack rer sustained. C. J. Shaw, in deliver-
V. Northwestern Nat. Bank, 103 Wis. ing the opinion of the court, says:
57, 79 N. W. 51, 74 Am. St. Rep. 841; "They (the plaintiffs) have no right,
Killen v. State Bank, 106 Wis. 546, 82 by any direct suit, legal or equitable, to
N. W. 536. call the directors, or other officers of
"The officers of a corporation act the corporation, to an account for- mis-
in a fiduciary capacity in respect to its management. * * * The directors, and
property in their hands, and may be other officers, and. agents, are amen-
called to account for fraud, or some- able only to the corporation; and tO'
times even mere mismanagement, in give every individual stockholder a
respect thereto; but, a§ between itself right of action would lead to a multi-
and its creditors, the corporation is plicity of suits." Zinn v. Mendel, 9 W.
simply a debtor, and does not hold its Va. 580.
property in trust or subject to a lien 81. Fraud
must be willful and inten-
in their favor in any other sense than tional. —
Briggs V. Spaulding, 141 U. S.
does an individual debtor." Hollins 132, 35 L. Ed. 662,' 11 S. Ct. 924; Hart
V. Brierfield, etc., Iron Co 150 U. S. ,
V. Evanson, 14 N. D. 570, 105 N.
371, 37 L. Ed. 1113, 14 S. Ct. 127. W. 942, 3 E. R. A., N. S., 438; Min-
Directors of such institutions may ton V. Stahlraan, 96 Tenn. 98, 34 S. W.
make themselves liable in an action at 222; Deaderick v. Bank, 100 Tenn. 457,
law for loss and damages for false 45 S. W. 786.
representations made or caused to be 82. Loss must result from breach of
made by them, with intent thereby to
deceive and defraud the plaintiff, and
legal obligation. — Hart v. Evanson, 14
N. D., 570, 105 N. W. 942, 3 L. R. A., N.
which had the designed effect and S., 438.
caused loss and damage to the plain- Liability in case of gross negli-
83.
tiff.
The
Zinn V. Mendel,
Abbott
9 W. Va. 580.
Merriam
gence. —
Union Nat. Bank v. Hill, 148
case of v. Mo. 380, 49 S. W. 1012, 71 Am. St.
(Mass.), 8 Cush. 588, was a bill in Rep. 615; S. C, 155 Mo. 279, 55 S. W.
chancery against the treasurer and 1133; Swentzel v. Penn Bank, 147 Pa.
secretary of a corporation, charging 140, 23 Atl. 405, 15 L. R. A. 305, 30 Am_
mismanagement of its affairs. The St. Rep. 718.
§ 57 (lb) OFFICERS AND AGENTS. 345
any officer, agent, or servant to account, and that to permit them to do io

would result in a multiplicity of actions, since if one creditor may sue all
may sue.^* It will be noticed that the authorities opposed to the right
of depositors and creditors to hold the directors personally responsible for
losses resulting from their negligence and mismanagement not only admit
of various exceptions to their position, such as the right to sue where
the directors have been guilty of actionable fraud or deceit,^^ qj- vvhere
been so gross as to amount to fraud,*^ but that the
their negligence has
reasons advanced in support of most of the objections urged by them
go not so much to the existence of the right as to the difficulty of en-
forcing it. Not only so, but to hold, as some of the cases do, that the
directors are amenable solely to the bank, and that whatever right of
action exists is bank as a separate corporate and legal entity, is
in the
to overlook the fact that, however it may be in theory and in contempla-
tion of law, the directors are in fact the moving and life-giving spirits of the
bank, and that as a separate legal entity, it remains inert and inanimate
until they act, and that to say to the creditors who have plac'ed their
confidence in the bank upon the strength of the names appearing in the
list of the directory, and who have suffered loss through their inattention
and mismanagement of the affairs of the corporation, that their dealing is

with the bank, and that they must depend upon the bank to call the guilty
directors to account, is, in its practical effect, to tell them that they must
depend upon the guilty parties bringing themselves to account. The
mere statement of such a proposition demonstrates its absurdity and car-
ries with it its own refutation. Accordingly, it has been stated in some of
the strongest cases opposing the right of the creditor to hold the directors
84. Cases holding no action at law. corporation was wholly wasted, lost
—Allen V. Curtis, 26 Conn. 456; Smith and embezzled, and the corporation
V. Hurd (Miss.), 12 Mete. 371, 46 Am. rendered wholly insolvent, and the
Dec. 690; Smith v. Poor, 40 Me. 415, plaintiff's claims against the corpora-
63 Am. Dec. 672; Fusz v. Spaunhorst, tion rendered wholly worthless. Win-
67 Mo. 256; Hart v. Evanson, 14 N. D. jgr v. Baker (N. Y.), 34 How Prac
570, 105 N. W. 942, 3 L. R. A., N. S., 183; Affirming Gardiner v. Pollard, 33
438; Winter v. Baker (N. Y.), 34 How. n. Y. Super. Ct. 674; Smith v. Poor,
Prac. 183; Gardiner v. Pollard, 23 N. 40 Maine 415, 63 Am. Dec. 672; Smith
Y. Super. Ct. 674; Deadenck v. Bank, j,. Hurd (Mass.), 12 Mete. 371, 46 Am.
100 Tenn. 457, 45 S. W. 786; Zinn v. Dec. 690; Allen v. Curtis, 26 Conn.
Mendel, 9 W. Va. 580. 456
Except under statutory or constitu- ^^ Exception in case of actionable
tional provisions, .a director or officer ^^^^^ ^^^ deceit.-Hart v. Evanson, 14
of a bank is not individually, responsi-
ble in an action at law for injury re-
^^ ^ ^ 3 E R A ^
suiting to a creditor or depositor -from
^ g înn v. Mendel, 9 W. Va
•
j^;,,^^ ^ g^^^^ ^s. 546

the management of the bank, unless
the injury is occasioned by his mali-
ga N
„„
W
t-.
536
•
'
cious or fraudulent act. Fusz v. Spaun- 86. Exception as to gross neghgence.

horst, 67 Mo. 256. ^^"^ "' ^'"' i*^ ^°-
^^"'""c^'^?,*;
Acreditor of a corporation can not 380, S.49 W.
1012, 71 Am. St. Rep.
maintain an action at law against the 615; S. C., 155 Mo. 279, 55 S. W. 1133;
director of a corporation for willful
Swentzel tj. Penn Bank, 147 Pa. 140,
and fraudulent mismanagement of its |3 Atl. 405, 15 L. R. A, 305, 30 Am.
^*- '^^^-
affairs, whereby the property of the ^^^P-
346 BANKS AND BANKING. § 57 (Ic)
personally responsible, that where the necessities of the case so require

the creditor may enforce his claim in the right of the corporation or its
representative; that is, through the agency of an assignee or a receiver.*'^
§ 57 (Ic) Constitutional and Statutory Provisions. —By statutes

enacted in various states it is provided that directors may be held per-
sonally responsible for losses resulting from their negligence and mis-
management. The language of these statutes is not always harmonious,
but they usually provide that personal liability shall follow gross negli-
gence or willful or fraudulent misconduct. Thus, under the Indiana
statutes,*^ defining the powers and duties of directors, they are held to
be the agents of the corporation, having the general custody, control and
management of its property and affairs, and, as such, liable for losses
and waste of money and property occurring through their gross inatten-
tion to the business of the bank, or their willful violation-of their duties.^*
In Tennessee it is provided^" that, if directors of any bank in the state
shall be guilty of any fraud or willful mismanagement of its affairs, by
which loss is occasioned to creditors, they shall be individually liable for
such loss. Under this statute the directors are not personally liable upon
the insolvency of the bank resulting from inattention, imprudence and
want of care in making loans and managing the business of the bank, but
the evidence must show intentional fraud or willful mismanagement, and
this must be distinctly alleged in the pleadings.'^ In Arkansas, under a
statute declaring that if the directors intentionally neglect their statutory
duties they shall be liable for all debts contracted during such neglect,^^ it
87. Enforcement of claim through as- circumstances, as this is a case at law,

—
signee or receiver. Hart v. Evanson, and not a case on the equity side of
14 N. Dak. 570, 105 N. W. 942, 3 L. R. the courts."
A., N. S., 438; Killen v. State 88. Indiana statute.— Burns Rev.
Bank, lOfi Wis. 54G, 82 N. W. 536. See, Stats. 1894, §§ 2922, 2925, 2927, 2929,
also. Savings Bank v. Caperton, 87 Ky. 2934.
306, 10 Ky. L. Rep. 201, 8 S. W. 885, 12
Am. St. Rep. 438; South Bend Chilled
89.
°''- Same —Liable for gross negli-
T11 r^ r^ it, o r.., iir- mn gence and mattention. nlÂ^ZJ^^
"TT^Z'^jrZ,^^ Coddington .,
v.—
72 N. w-
F,°M W. ^"ô^r''^
749; Gores
^°-'
v.
^
Day,ôo-w-
99 Wis.
'
Canaday, 157 Ind. 243, 61 N. E 567.
l; c, .
276, 74 N. W. 787; Gager v. Bank, 101 9°- Tennessee statute.— Shannon s

Wis. 593, 77 N. W.
920; Gager v. Mars- Code, § 3242.
den, 101 Wis. 598, 77 N. 922. W. 91. Same —Must show intentional
In Hart v. Evanson, 14 N. Dak. 570, fraud or willful mismanagement.— Min-
105 N. W.
942, 3 L. R. A., N. S., 438, ton v. Stahlman, 96 Tenn. 98, 34 S. W.
the court says: "If he violated his obli- 222; Deaderick v. Bank, 100 Tenn. 457,
gation to the bank, or neglected his 45 S. W. 786; Hume v. Commercial
duty to it, redress must be sought by Bank, 77 Tenn. Lea.) 728.(9
the corporation itself or its repre- By the charter of the Bank of East
sentatives for the common benefit of Tennessee, the directors of the insti-
all creditors and stockhoHers." tution, who might sanction certain vio-
And even in Zinn v. Mendel, 9 W. lations of the charter specified therein,
Va. 580, it is said (p. 599) "It is unnec- could be held liable in their individual
essary to ascertain in this case what property, for any loss or damage
remedy, or remedies, creditors of an thereby, to the creditors of the bank.
incorporated moneyed institution may Johnson v. Churchwell, 38 Tenn. (1
have against the bank and its direct- Head) 146.
ors, or stockholders, in a court of 92. Arkansas statute. —Kirby's Dig.,
equity, in any given state of facts or § 863.
is no defense to an action brought under the, statute, for loss caused by the
president's mismanagement, that the directors had good reason to believe
and did believe the president to be honest and competent, and so com-
mitted the management of the bank to him.^^ Under the Wisconsin statute,^*
the creditor has not the absolute right to maintain such an action, and where
the title to the claim for damages is in an assignee for the benefit of cred-
itors, he is the person who should invoke the jurisdiction of the court,
and a creditor can not take his place in the matter unless the necessities of
the case so require or the court so direct; and the facts in that regard,
according to the settled practice, must be made to appear on the face of
the complaint.^s Under the Maine statute,^^ authorizing a creditor who
has suffered loss through the official mismanagement of directors to main-
tain a bill in equity against them, directors are only personally responsible
for the official mismanagement which occurred during the year for which
they were chosen, and during which they acted. ^'^
Same — Stipulation in Articles against Personal Liability. —A pro-
vision in the articles of a banking association that any person dealing
with them disavows having recourse on any pretense whatever to the per-
son or separate property of any present or future member of the com-
pany, does not prevent the recovery of a judgment against the individual
members brought by a laborer employed by such members and with whom
he contracted. 9s
57 (2) Individual Liability upon Obligations of Bank. Offi-

§ —
cers and agents of corporations acting within the scope of their authority
are not individually liable upon the contracts and obligations of the bank
where, from the manner in which the instrument is executed, it is made
to appear that it is the obligation of the bank and that the bank is the con-
tracting party; but it is otherwise where the instrument is executed in the
names of the officers and agents of the bank; and it is not sufficient that
they describe themselves as officers or agents of the bank, since such
words will be taken to be merely descriptio personse, and are not sufficient
to relieve them from personal liability upon an agreement into which they
93. Same — Committing management showed that the person in whom the
to president. — Fletcher v. Eagle, 74 titleto the cause of action was vested
Ark. 585, 86 S. W. 810, 109 Am. St. was hostile to its enforcement, there-
Rep. 100. fore the creditor was permitted to
94. Wisconsin statute. — Rev. Stats. stand in the place of such hostile party
Wis., §§ 3237, 3339. and enforce the claim in his right.
95. Same —
Suit by assignee or cred- Killen v. State Bank, 106 Wis. 546, 83
itor.— Killen v. State Bank, 106 Wis. N. W. 536.
546, 83 N. W. 536. 96. Maine statute. — Rev. Stat. c. 47,
The right to maintain such an ac- §§ 43, 47.
tion was sustained in South Bend 97. Same —Duration of responsi-
Chilled Plow Co. V. Cribb Co., 97 Wis. bility.— Bank v. Hill, 56 Me. 385, 96
330, 73 N. W. 749, and Gores v. Day, Am. Dec. 470.
99 Wis. 376, 74 N. W. 787; Gager v. 98. Stipulation against individual lia-
Bank, 101 Wis. 593, 77 N. W. 930; bility of directors and officers. Davis —
Gager v. Marsden, 101 Wis. 598, 77 v. Beverly, 3 Cranch C. C. 35, Fed.
N. W. 923. The complaint in each case Cas. No. 3,637.
have entered over their own signature. In other words, if they wish to
escape personal HabiHty, they must make it appear, either expressly or by
necessary implication, that the obligation is that of the bank and not of
themselves.** Irrespective of the question as to the manner of form in
which an obligation was executed, directors may render themselves per-
sonally liable upon the obligations of the bank by reason of fraud, illegality
or gross negligence.^ And one contracting in the name of the bank, but
without authority to do so, thereby binds himself upon his implied war-
ranty of authority, unless the other party knows or is held to a knowledge
of his want of authority.^
—
Statutory Liability on Insolvency. By statutory provision in some
jurisdictions directors are made individually responsible for the debts of
the bank on its becoming insolvent, and it has been held under such a
statute that they are liable for debts contracted before the law took effect
where the bank became insolvent thereafter.^ It is no defense to an action
99. Personal liabUity upon obliga- Brannin v. Loving, 83 Ky. 370, 6 Ky.
tion of —
the bank. United States v. L. Rep. 328.
Where the directors of a bank, con-
Robertson (U. S.), 5 Pet. 641, 8 L. Ed.
257; Taylor v. Williams (Ky.) 17 B. trary to their charter, issue bills be-,
Mon. 489; Lawler v. Burt, 7 O. St. fore a certain portion of their capital
340; Medill v. Collier, 16 O. St. 599; is subscribed and paid in, they are
In re International Contract Co., L. liable for all the consequences to per-
R. Ch. 525. sons injured by their misconduct.
Schley v. Dixon, 24 Ga. 273, 71 Am.
An agreement executed by the Dec. 121.
president and directors of a bank as
such is the agreement of the bank
The directors of a bank falsely re-
ported that twenty-five per cent of its
alone. The president and directors
capital stock had been paid in, as re-
must have signed as individuals had
quired by law. After failure of the
they intended to bind themselves in-
bank, suit was brought against the di-
dividually by that agreement for a
rectors, to charge them personally
bond. As an official act, it was suffi-
with the debts of the bank. Held, that
cient that it be entered on their
the fact that certain directors having
journals; as an undertaking of indi-
viduals, it ought to be signed by them.
knowledge of the fraud were not the
original incorporators did not relieve
It is referred to in the recital of
them. Schley v. Dixon, 24 Ga. 273, 71
the condition, in these words: "and
Am. Dec. 121.
whereas, an agreement has this day
been entered into between the United
2. — m
Same I p 1 i e d warranty of
States on the one part, and the presi-
—
authority. Frost Mfg. Co. v. Foster,
76 Iowa 535, 41 N. W. S12; Watson v.
dent and directors of the said Bank
Bennett (N. Y.), 12 Barb. 196; Baltzen
of Somerset of the other part, in these
V. Nicolay, 53 N. Y. (8 Sickles) 467;
words," etc. This language indicates
an agreement by the president and di-
Dung V. Parker, 52 N. Y. 494; White
V Madison, 26 N. Y. 117, 26 How. Prac.
rectors, in the corporate character in
481.
which they are mentioned, rather than
in their individual characters in which
A cashier executing an indemnity
they are not mentioned. United States
bond to the sheriff, and directing a
sale of property levied on under an
V. Robertson (U. S.), 5 Pet. 641. 8
execution in favor of the bank, is not
L. Ed. 257.
personally liable when he acted under
1. —
Same By reason of fraud, ille- special direction of the directors,
gality or gross negligence. —
Schley v. though otherwise if acting merely
Dixon, 24 Ga. 273, 71 Am. Dec. 121; within his general authority. Watson
Brannin v. Loving, 82 Ky. 370, 6 Ky. L. V. Bennett (N. Y.), 12 Barb. 196.
Rep. 328. 3. Statutory liability on insolvency
Directors can not be held personally Debts contracted before law took ef-
liable for debts of the bank, unless fect.—White V. How, Fed. Cas. No.
they are guilty of gross negligence. 17,548, 3 McLean 111.
brought under such a statute that there has been a judgment of forfeiture
against the bank. Such a judgment does not discharge the hability of the
directors.* Neither are the directors released from liabiUty by reason of
the waste or destruction of the assets of the bank in the hands of the
assignee.^ And it is immaterial that the notes upon which the action is
brought were fraudulently put into circulation. A plea setting up such

fact constitutes no answer to the declaration.®
§ 57 (3) Liability for Ultra Vires Acts. — It is not disputed that the
officersand agents of corporations are protected from private liability while
acting within the scope of corporate powers but how far such protection
;
is extended when they transcend the corporate authority is not clearly
defined. The existence of a personal liability in such case has been recog-
nized in many cases.'' It is not always true that directors who fail to bind
the bank, because of the ultra vires character of their contract, bind them-
selves, since there are exceptions to the rule that an agent who goes be-
yond his authority binds himself. Thus if the directors make no repre-
sentations as to the powers of themselves or of the bank, and are guilty
of no fraud, and the other party's means and sources of knowledge are
equivalent to their own, and both believe the contract to be a valid agree-
ment of the bank, the directors can not be held personally liable thereon,
since the credit was extended and the contract made in the belief that the
bank would be responsible therefor, and the parties having thus made
their own contract, the law will not create a new and different one holding
the directors personally liable.^ Where, however, the officer or agent con-
4. Directors not discharged by judg- 17 Mass. 1, 29; Kearny v. Buttles, 1 O.

ment of forfeiture against bank. Har- — St. 362; Lawler v. Burt, 7 O. St. 340;
grove V. Chambers, 30 Ga. 580. Medill v. Collier, 16 O. <8t. 599; Lawler
5. Waste or destruction of assets in v. Walker, 18 O. 151.
hands of assignee no defense. Har- — 8. Same —When not liable for ultra
groves V. Chambers, 30 Ga. 580. vires contracts. — Frost Mfg. Co. v.
6. No defense that notes were fraud- Foster, 76 Iowa 535, 41 N. W. 212;
ulently put into circulation.— White v. Abeles v. Cochran, 32 Kan. 405, 31
How, Fed. Cas. No. 17,549, 3 McLean, Am. Rep. 194; Sandford v. McAuthur
291. (Ky.), 18 B. Mon. 411; Fidelity, etc..
In a suit by the receiver of a bank Co. v. National Bank, 48 Tex. Civ.
against an ex-president and director, the App. 301, 106 S. W. 782, citing First
complainant averred that the defendant Nat. Bank v. Commercial Nat. Bank,
used fictitious notes in lieu of money 99 Tex. 118, 87 S. W. 1032.
of the bank, which was fraudulently Thus, where the directors made an
used and disposed of by the bank; ultra vires contract for the purchase
that such notes were among the assets of stock from a third person which
of the bank. Held, that these facts, was of no value to the bank, and from
if proven, would be sufficient to put which the bank received no benefit and
the defendant on his defense; that the lepudiated ihe purchase and both di-
claim was one which would belong to rectors and the seller of the stock be-
the receiver, and might be collected lieved the contract to be good, and
bv him. Butterworth v. O'Brien (N. the seller's means of knowledge were
Y.), 39 Barb. 192, 24 How. Prac. equal with that of the directors, it was
§ 438. held they could not be held personally
7. Liability for ultra vires acts. liable on the contract. Abeles v. Coch-
Taylor v. Williams (Ky.), 17 B. Mon. ran, 22 Kan. 405, 31 Am. Rep. 194.
489; Salem Bank v. Gloucester Bank, Where the directors ordered an
350 BAXKS AND BANKING. § 57 (3)
tracts or undertakes personally to do that which is beyond the powers of

his bank, he will be held to be personally bound on his undertaking;* and
if the bank receives and retains the benefit of an ultra vires contract, it
may be compelled to account or make restitution.^" Where the directors

or trustees, after their election and qualification, do nothing whatever in
the execution of corporate power, the mere fact of the existence of the
corporate agency will not shield them from individual liability in an action
based solely on a contract entered into by them in conducting a business
wholly foreign to the objects and purposes of the incorporation, though
such business was conducted and such contract entered into in an asso-
ciatename which could properly be used in corporate as well as private
business. 11 Where a charter makes the individual directors personally re-
sponsible for all or any particular debts contracted by the corporation, in
violation of the charter, the inhibited contracts of the corporation become,
in general, by force of the charter, the contracts of such directors; and the
creditors may sue the latter andrecover from them as if the contracts
were in fact made by them. Theliability in such case, and the action, is
upon the contract, and the creditor is limited by the terms of the contract,
and recovers the amount of the debt remaining unpaid. ^^
Liability for Torts. —
The liability of directors, officers and agents for
torts rests upon dififerent principles. Torts are always ultra vires and
personal, in the sense that the perpetration of fraud or deceit or othei
actionable wrong is never within the legitimate corporate powers, and in
the sense that every person is liable in an action ex delicto for his action-
able wrongs, no defense that he was acting as the agent of another
and it is
or in a representative capacity.!^ The liability of the bank for the tortious

acts of its directors, officers and agents is a question depending upon other
principles not now under consideration, which will be fully treated else-
where, i*
issue of notes in excess of the amount 12.Personal liability under charter.

authorized by the law of the bank's in- — Sturges v. Burton, 8 O. St. 215, 73
corporation, they were not personally Am. Dec. 582.
responsible therefor, since persons 13- Personal liability for torts.—
dealing with the bank were bound to National Bank v. Graham, 100 U. S.
take knowledge of the limitations con- 699, 25 L. Ed. 750; First Nat. Bank v.
tained in its charter and of the powers Anderson, 172 U. S. 573, 43 L,. Ed. 558,
granted by law to its agents. Sand- 19 S. Ct. 284; Salmon v. Richardson,
ford V. McArthur (Ky.), 18 B. Mon. 3° Conn. 360, 79 Am. Dec. 255; Phelps
41X 'V- Wait, 30 N. Y. 78; New York, etc.,
9: Same-Where officer or agent ^- S°rî'M"^l"'in ^. Mn'°' ?rf
contracts personally.-Abeles v. Coch-
_„„ Of) f„„ xnc 51
ran, 22 Kan. 405, A™ -D.,
31 Am. Kep. in,
194.
Y'^^^'
338;
td
a
Suydam
u .i=-o tr -c
'
(N. V?
v.
i ,
T'
Moore
Y.), «
8
t->„i,
m
358; Hart v. Evanson, 14 N. Dak.
-^.^
, .
'
,. , Barb. i.
10. Same— Liability

of bank retain-
, , .
570, 105 N. W. 942, 3 L. R. A., N. S.,

ing benefit of ultra vires contract.— 433; zinn v. Mendel, 9 W. Va. 580;
Abeles v. Cochran, 22 Kan. 405, 31 Killen v. State Bank, 106 Wis. 546,
Am. Rep. 194. 82 n. W. 536.
Personal liability in ultra vires
11. 14. Liabilityof bank for torts of offi-
business carried on by directors. cers, —
agents, etc. See post, "Torts,"
Ridenour v. Mayo, 40 O. St. 9. § 100; "Wrongful Acts," § 113.
Fraud of Third Person. —Where the president or director of a bank

undertakes, at the request of another bank or of a third party, to perform
a service which is confessedly not within the powers of his bank, such as
effecting the execution of a certain obligation, and in performing such serv-
icehe acts in entire good faith and uses ordinary care, neither he nor his
bank can be held responsible for a loss which results from the fraudulent
act of the maker in forging the name of a third person as surety. i''
§ 57 (4) For Incurring Excessive Indebtedness. — It is a common

provision found in the charters of banking corporations and in the statutes
of many states that such institutions shall not become indebted in excess
of a certain sum, such sum usually being fixed at a certain ratio to the
amount of the capital stock; and for a violation of such inhibition it is
usually provided that the directorsand officers guilty thereof shall be
personally liable, either for the excess above the statutory limit, or for
some specified proportion thereof. The first question that naturally pre-
sents itself in this connection is, how far a director must have participated
in bringing about the excessive indebtedness in order to incur personal lia-
bility, and upon this point the decisions are not in harmony. In Georgia,
it is held that the personal liability of the directors created by the statute
of that state is joint, and that no one director can defend an action to
enforce the same by showing that he was absent at the time the indebted-
15. Neither officer nor bank liable -for pleaded by oath and proved that the
—
fraud of third person. First Nat. Bank note as to him was a forgery, judg-
V. Commercial Nat. Bank, 99 Tex. 118, ment was returned in his favor. In an
,87 S. W. 1033, reversing 97 Tex. 639, action by the First National Bank of
77 S._ W. 339, no op. See, also, Com- Cuero against the Commercial Na-
mercial Nat. Bank v. First Nat. Bank, tional Bank of Beeville, and its presi-
97 Tex. 536, 80 S. W. 601, 89 S. W. dent personally, to recover the
418. amount, it was held that these facts
S., desiring to borrow $3,000 from established conclusively that there
appellant. First National Bank of was no relation of principal and agent
Cuero, Texas, offered as his security between F. and the Cuero Bank and
therefor, R., one of the vice-presidents no liability could be predicated upon
of the Commercial National Bank of the fact of agency. F., as president
Beeville. The appellant, having upon of the Beeville Bank, performed an act
inquiry become satisfied as to R.'s which the corporation had no power
financial standing, mailed to the Com- to perform; he did not bind the bank
mercial National Bank of Beeville, a and there being nothing to show that
letter asking them to hand the en- his statement made to the bank with
closed note to Mr. R. for signature of reference to the note was made with-
himself and S. R. was not then in out belief in its truth, or was made
Beeville and F., the president of the recklessly and without regard to
Commercial National Bank, mailed whether it was true or not and having
the note to S., who after he had made no representations with regard
signed it and also forged the name of to the authority of the bank to per-
R. thereto, returned the same. F. re- form the acts, or with regard to the
turned the note to the First National genuineness of R.'s signature, he did
Bank of Cuero in a letter signed as not bind himself. First Nat. Bank v.
president in which he said the note Commercial Nat. Bank, 99 Tex. 118,
was "properly signed up." When the 87 S. W. 1033, reversing 97 Tex. 639,
note became due appellant sued S. and 77 S. W. 339, no op. See, also, Com-
R. thereon and recovered judgment mercial Nat. Bank v. First Nat. Bank,
against the former, but R., having 97 Tex. 536, 80 S. W. 601, 89 S. W. 418.
ness was created, nor by showing that he dissented from the action of the
other directors in creating the indebtedness. ^^ In Michigan, a director who
objects to the action of the board in incurring the debt is not subject to
the personal liability imposed by statute; at least, it was so held in the
;i^
federal court sitting in that state while under the Pennsylvania statute
directors are held to be personally liable only when they participate in or
assent to the wrong.^* And was held that directors who
in Kentucky it
did not participate in creating the excessive debt and who had no knowl-
edge that one of their number, who was also president of the bank, was
endorsing the bank's name upon business paper to such an extent as to
involve it beyond the legal limit of its indebtedness, could not be held
liable therefor unless they were negligent in not discovering and prevent-
ing such action, and that as the transaction was isolated the exercise of
ordinary care on their part did not afford them notice, and it would not be
presumed that they had notice simply because they were directors but that ;
it was otherwise as to the president and director who indorsed the bank's
name upon the paper, since as to him it was not a question of negligence
but an actual breach of trust and violation of duty.^^ In Ohio, the statute
makes special provision whereby absent or dissenting directors may ex-
onerate themselves by having their dissent or absence entered upon the
records of the bank and by giving notice to the stockholders and to the
auditor of the state.^**
Effect of Insolvency, Loss of Assets, etc. —Under the Michigan

act,2^ providing that the debts of the bank shall not exceed three times
the amount of the capital stock actually paid in and possessed, and that
the directors shall be individually liable for all excess and for all deficits
occasioned by the insolvency of such bank, the directors are liable for all
excess of debts above the amount authorized without regard to the in-
solvency of the bank, and they are responsible for all deficits, in case of
insolvency, without reference to excess of debts incurred.^^ Under the
Georgia statute making the directors liable for the excess of the bank's
debts above a certain amount, they can not escape liability because of the
loss of the assets of the bank in the hands of the assignee, and because ot
his neglect and waste. Such loss is the loss of the bank, and not of the
creditors. 23
16. under Georgîa statute.

Liability Loving, 83 Ky. 370, 6 Ky. L. Rep. 328.
— Banks Darden, 18 Ga. 318.
v. 20. Special provisions under Ohio
17. —
Michigan statute Objection of statute. —
Sturges v. Burton, 8 O. St.
director to incurring of debt. White — 215, 73 .Am. Dec. 582.
V. Howe, Fed. Cas. No. 17,548, 3 Mc- 21. Effect of insolvency and loss of
Leon 111. assets. —Act Mich. March 1837, 15, § 35.
18. Pennsylvania statute. — Stephens 22. Same—Michigan statute.—^White
V. Monongahela Nat. Bank, 88 Pa. 157, v. How, Fed. Cas. No. 17,548, 3 Mc-
33 Am. Rep. 438. Lean 111.
19. Kentucky statute —Participation 83. Same —Georgia statute. Har-
— Negligence Notice.— Brannin v. groves v. Chambers, 30 Ga. 580.
Nature of Liability as Joint or Several, Penal or Remedial. —

Under the Georgia statute declaring that the directors shall be liable in
their private and individual capacities for the excess of debts over and
above the statutory limit, it is held that their liability is not penal but
remedial, joint and not several; and that neither absence at the time the
debt was created nor dissent from its creation will relieve a director from
liability.^* Under the Ohio statute it is held: 1. The section does not make
the directors personally liable on the contracts of indebtedness which
created the excess, but solely for the excess itself. 2. The liability of the
directors for the amount of this excess is not to persons who hold the con-
tracts of indebtedness created in excess of the limitation, but to any cred-
itor or creditors of the bank. Hence the ground of the action is not the
original contracts with the creditors ; those contracts simply give any of
them the right or title to sue as plaintiff. 3. The amount of the recovery
by any creditor does not depend upon the amount the bank owes him,
nor upon the nature of the debt due to him; under the statute the cred-
itor who sues recovers the amount of the excess, and that, too, whether
the debt due the plaintiff forms a part of the excess or not. 4. The lia-
bility of the directors is provided for as in penal statutes, to vindicate a

violation of law. 5. The action provided is the usual action prescribed by
penal statutes to recover a penalty. 6. The action of the creditor must
be debt, whether his contracts with the bank be such as to authorize such
a form of action or not.^^ In other words, it is held that the statute pro-
vides for a penal action, and not an action ex contractu ; and that since
all creditors are equally injured by a violation of the statute, it is given
to any creditor for the benefit of all and to create a fund for the indemnity
of all, and that the amount of the recovery is measured by the amount
of excess of liability created by the directors. ^^
Obligations within the Inhibition. Certificates of deposit are debts, —
within the meaning of an act which makes the directors liable when the
amount of debts which the corporation shall at any time owe, whether by
bond, bill, note, or other security, shall exceed three times the amount of
^'^
their capital stock.
Duration of Liability. —In Georgia it has been held that since the obli-
gation of the director is statutory, the limitation with respect to penalties
and forfeitures has no application and that such obligation is not barred
until after the lapse oftwenty years ;^^ also that it is not extinguished by
the expiration of the charter of the bank by its own limitation. ^^
24. —Penal
Liability joint or several 27. Obligations within the inhibi-
or remedial. — Banks Darden, 18 Ga.
v. tion. — Hargroves v. Chambers, 30 .Ga.
318; Robinson Bealle, 20 Ga.
v. 275. 580.
25. Same—Under the Ohio statute. 28. Duration of liability. — Neal v.
— Sturges V. Burton, 8 O. St. 215, 72 Moultrie, 12 Ga. 104.
Am. Dec. 582. 29. —
Same Effect of expiration of
26. Same Same. — — Sturges v. Bur- —
charter. Hargroves v. Chambers, 30
ton, 8 O. St. 215, 73 Am. Dec. 582. Ga. 580. But see contra, under the
1 B & B— 23
Fraud as a Defense. —Ûnder the Michigan Act of March 15, 1837,

§ 25, making bank directors personally liable for the bank's debts if at
any time such debts exceeded three times its capital paid in, directors can
not escape liability in an action on the bank's bills on the ground that such
bills were fraudulently put în circulation, unless the plaintiff was con-
nected with or had notice of the fraud.^^
Release. —Under a
charter provision making the directors liable to the
stockholders for redeemed by the stockholders if they be bills issued
bills
in "excess" of the quantity of bills which the charter authorizes to be issued,

a release of the directors by the holders of such bills is a release of the
stockholders also.^^
§ 57 (5) Liability with Respect to Reports, Statements, and

—
Representations. Failure to Make and Publish Statements. Under —
a statute, providing that if any banking association neglects to make a semi-
annual statement, within a certain time, of the condition of the bank to
the state treasurer, "the directors shall be personally liable for all debts of
said association contracted previous to and during the period of such neg-
lect," the liability of the directors is primarily and directly imposed on
failure to comply with the law, and may be enforced regardless of any pro-
ceeding against the corporation.^^
—
False Reports and Statements. If the common-law liability of di-
rectors be looked to, it is found that actions for damages against them
founded on a published false report of the bank, which they attested, are
actions for deceit, and they are controlled by the law governing actions of
that character.*^ In other words, in order to hold them to a personal ac-
countability, it is not necessary that they should have known such statement
to be false, nor even that they should have made it without knowledge
of its truth or falsity, yet believing it to be true. They are conclusively
presumed to know the condition of the bank, and it is their duty
to know under their authority are true, and they
that statements put forth
are liable for damages sustained by any one dealing with the corporation
relying upon the truth of such official reports.^* If this were not so, the
charter of the C, IMoultrie v. Hoge, 21 U. S. 56, 35' L. Ed. 936, 12 S. Ct. 136;
Ga. 513. Hubbard Weare, 79 Iowa 678, 44 N.
v.
30. Fraud as a defense. White v — ^^^- 915; United Society r'. Underwood
(Ky.), 9 Bush 609, 15 Am. Rep. 731;
How, Fed. Cas. No. 17,549, 3 McLean
291 Huntington z: Attrill, 118 N. Y. 365,
31. Effect of release.— Robinson v. 23 N. E. 544; S. C, 42 Hun. 459, 4 N. Y.
Bealle, 20 Ga. 275. St. Rep. 869; Hauser v. Tate, 85 N. C.
''
32. Failure to make and publish f-^'
^^ ^™\?^& "itn' T,° c"^,?"^ '^'l"
statements—Larsen r. James, 1 Colo. ^'^'^^' ^^^^^- C- 330, 23 S. E. 461; Sol-
App. 313. 29 Pac. 183. °™°" '• Bates, 118 N. C. 311, 24 S E.
-^"8. 54 Am. St. Rep. 725; Caldwell v.
,,
33.
Tj ,
False reports^ J statements.-
and . ^ .
gates, 118 N. C. 323, 24 S. E. 481; Shea
Mason .. Moore, 73 O^ St^ 2,5, 76 X^ E ,.. âbry. 69 Tenn. (1 Lea) 319;' Seale
932 4 L. R. A N. b 597, Killen !. j,_ g^^ker, 70 Tex. 283, 7 S. W. 742, 8
State Bank, 106 Wis. 546, 82 N. W. 536. Am. St. Rep. 592; Bolles Banks, § 4;
34. Duty to know truth of state- Killen v. State Bank, 106 Wis. 546, 82
—
ments put forth. Finn v. Brown, 142 X. W. 536.
directors of a bank would be privileged to be negligent, and, the more

ignorant they could manage to be about its condition, the more secure they
would be from any liability .^^
Misrepresentation. — It is not necessary that the false and fraudulent

statements here spoken of as rendering the directors personally liable should
be contained in the formal published reports of the bank's condition. If
the officers of a banking corporation misrepresent its condition when they
know or ought to know the truth and a person is thereby led to deposit
his money therein and lose it, by reason of the unsafe condition of such
bank, they are liable to such depositor directly to make good such loss,
upon the ground of deceit.^^
False Statements Knowingly Made. —There is no question, of course,

as to the personal liability of the directors or other officers who, for the
purpose of obtaining or retaining deposits, or for the purpose of collect-
ing individual loans and securing unjust preferences for themselves, make
statements as to the bank's condition which they know to be actually false.
^''
35. Same.—Tate v. Bates, 118 N. C. insolvency, went to withdraw his de-

287, 24 S. E. 482, 54 Am. St. Rep. 719. posits, but was informed by the vice
36. Misrepresentation in other than president and director that the bank
formal reports and statements. Ste- — was perfectly solvent, and that "we
phens V. Overstolz, 43 Fed. 465; Ger- have got all the money you want. You
ner v. Mosher, 58 Neb. 135, 78 N. W. need never have any fears of! this
384, 46 \,. R. A. 244; Tate v. Bates, 118 bank as long as I am in it." Such de-
N. C. 287, 24 S. E. 482, 54 Am. St. Rep. positor, relying on such representa-
719; Seale v. Baker, 70 Tex. 283, 7 S. tions, permitted his deposits to remain.
W. 743, 8 Am. St. Rep. 592; Baker v. The bank was in fact insolvent when
Ashe, 80 Tex. 356, 16 S. W. 36; Gid- the representations were made. Held,
dings V. Baker, 80 Tex. 308, 16 S. W. that such vice president and director
33: Kinkier v. Junica, 84 Tex. 116, 19 S. was personally liable to such depositor
W. 359; Zinn v. Mendel, 9 W. Va. 580; for the money lost by the failure of
Killen v. State Bank, 106 Wis. 546, 82 the bank. Townsend v. Williams, 117
N. W. 536. N. C. 330, 33 S. E. 461.
37. False statements knowingly Having heard a rumor that a bank
made.—Tate v. Bates, 118 N. C. 287, 24 was not sound, one of its correspond-
S. E. 482. 54 Am. St. Rep. 719; Town- ents told its president that he had
send 7j. Williams, 117 N. C. 330. 23 S. deposits in the bank, and wanted to
E. 461 Miller v. Howard, 95 Tenn.
:
know its financial condition. The
407, 32 S. W. 305; Seale v. Baker, 70 president replied that there was no
Tex. 283, 7 S. W. 742, 8 Am. St. Rep. question of the ability of the bank to
592: Kinkier v. Junica, 84 Tex. 116. 19 meet all liabilities, and the correspond-
S. W. 359: Giddings v. Baker, 80 Tex, ent was thereby induced to continue
308, 16 S. W. 33; Baker v. Ashe, 80 Tex. his deposits, which were lost by rea-
356. 16 S. W. 36. son of the insolvency of the bank.
Bank directors who, by false and Held that, thou.ffh the representation
fraudulent statements to the state was not made \n\.h intent to deceive,
treasurer as to the condition of the the president was personally liable, if,
bank, in order to conceal its insolvency, by the exercise of ordinary diligence,
induce him not only to make new de- he could have known that his state-
posits of the state's money, but also ment was not true. Giddings v. Baker,
to permit a portion of the money de- 80 Tex. 308, 16 S. W. 33.
posited by his predecessor in office to Directors who, on the bank's suspen-
remain, are liable to such treasurer for sion, issue a circular declaring the
any loss, either of the old or new solvency of the bank, and that they
deposits, Tate v. Bates, 118 N. C. 287, hooe to reopen within sixty days, and
24 S. E. 483, 54 Am. St. Rep. 719. authorize the bank officers to receive
Abank depositor, on rumors of its money on special deposit, and keep it
False Representation by President. —A bank president does not oc-

cupy the position of an indifferent third person. He is the principal offi-
cer and manager of his bank. It is his duty to use reasonable diligence to
acquaint himself with the affairs of the bank. If by due diligence he could
ascertain the condition of the bank and fails to do so, he is responsible for
any false representation in regard to that condition acted upon, although
made in good faith. If, however, by the use of such diligence he had not
been able to ascertain the true condition of the bank, and so made a state-
ment as to its condition which he believed to be true but which in fact was
false, he would not be personally liable for that statement.^*
Permitting Bank to Be Held Out as Solvent. — In jurisdictions where

the doctrine that directors are trustees for depositors obtains, it is held
that they are liable for losses resulting from their nonobservance of or-
dinary care and diligence in permitting the bank to be held out to the
public as solvent when in fact it is insolvent.^^ When the directors as-
certain that the bank is hopelessly insolvent, so that individually they are
unwilling longer to aid it, their manifest duty is to close the doors at once,
for a continuance of business under such circumstances, especially the re-
ceiving of deposits, is a fraud upon the public, and they should not receive
any more deposits nor pay any more checks, but should proceed to execute
their trust, either by making a general assignment for the benefit of cred-
itors or by making a pro rata payment of the debts.*** It is a gross fraud
upon the public for directors to keep a hopelessly insolvent bank open and
receive deposits until they have succeeded in drawing out their own funds
or deposits. Such action is an unlawful preference of themselves, and
the funds so withdrawn may be recovered for all the creditors by an as-
signee or receiver. *i It is equally a fraud and a breach of his duty for a
director, having knowledge that the bank is probably insolvent and that
it will not be able to continue business or pay its depositors, to obtain
from the cashier, without authority from the board of directors, discounted
bills and notes of the bank equal to the amount of his deposits, and thus
avoid the loss of his deposits.*^ In other states directors permitting an

insolvent bank to continue business and to be held out to the public as
in the vaults of the bank, subject only Lamb Laughlin, 25 W. Va. 300;
v.
to the check of the depositor, and sub- Lamb v. W. Va. 653; Lamb v.
Cecil, 38
sequently, on the appointment of a re- Pannell, 38 W. Va. 663.
ceiver for the bank, turn over to him 40. —
Same Duty to close insolvent
deposits made pursuant to the cir-
cular, are personally liable to the de-
—
bank. Lamb v. Laughlin, 25 W. Va.
300.
positors for the amount of such de- 41. —
Same Withdrawal of deposits
posits. Miller v. Howard, 95 Tenn. by directors from insolvent bank. —
407, 32 S. W. 305. Lamb v. Laughlin, 25 W. Va. 300. See,
38. False representation by presi- also. Lamb v.W. Va. 653;
Cecil, 28
dent.— Giddings v. Baker, 80 Tex. 308, Lamb v. Pannell, 28Va. 663. W.
16 S. W. 33. 42. Same— Directors obtaining funds
39. Permitting bank to be held out and securities in lieu of
deposits.
—
as solvent. Delano v. Case, 121 111. Lamb v. Cecil. 28 W. Va. 653. See,
247, 12 N. E. 676, 2 Am. St. Rep. 81; also. Lamb v. Pannell, 28 W. Va 663 "
worthy of confidence are liable for the resulting losses only where they
have been guilty of gross negligence in that respect f^ while in jurisdictions
where the trust fund doctrine does not obtain it is held that the mere
fact that a director, who knows the bank is insolvent, takes no action to
close its doors, or announce its insolvency, does not make him liable for
deceit to persons who have extended credit after the bank became insolvent
on the assumption that it was solvent.**
Erroneous Information as to Individual Accounts. No action will —
lie against an officer of a bank to recover for expenses incurred in conse-
quence of erroneous information given by him in good faith to the plaintiff

in regard to the amount of money which had been deposited to plaintiff's
credit by a third person.* ^
As to Credit and Standing of Third Persons. Where the cashier —
of a bank is applied to for information as to the solvency of a party and
gives that information truly, he does not thereby undertake to watch over
the interests of such party in the future nor to be responsible if he
; fails
to give notice of change of circumstances or reverses in trade that may

befall the party about whom he has given information. The cashier may
assume that if any future information is wanted he will again be applied
to under such circumstances, and if no application is made he may well
assume that the party whose interest is at stake, like other business men,
is able to take care of himself and is guarding his investment with the
watchfulness of one most concerned in the result. A party can not be held
in such a case to have given a continuing guaranty against future con-
tingencies, nor to have bound himself to notify the other of what he may
well be assumed to be able to find out for himself.*^ A charge that if the
cashier "knew plaintiff was buying T. & Co.'s paper on the faith of the
representations made by him, and their circumstances had changed so
that, as he says, 'these representations 'had become false,' it was the cash-
ier's duty to have notified plaintiff and put him on his guard, otherwise he
would be liable, is sound morally, and under some circumstances might be

sound law where the party trusting to the representations lived at a dif-
ferent point, and might be assumed to rely entirely on the statements of his
correspondent, yet it is very questionable whether the principal could be
fairly applied to the case of parties all residing in the same town or city
where the party buying paper might be expected, as a man engaged in such
business, to look after his own interest, and had equal means of informa-
tion or opportunities to acc[uire knowledge with any one else as to the
43. Same — Cases holding liable only N. S., 438.

for gross negligence. Solomon — v. 45. Erroneous
informations as to
Bates, 118 N. C. 311, 24 S. E. 478, 54 —
individual accounts. Herrin v. Frank-
Am. Rep. 735.
St. lin County Bank, 33 Vt. 374, ,
44. Same —
Directors held not liable 46. As to credit and standing of
—
for inaction. Hart v. Evanson, 14 N. —
third persons. Horrigan v. First Nat.
Dak, 570, 105 N. W. 943, 3 L. R. A., Bank, 68 Tenn. (9 Baxt.) 137.
changes in the situation of his debtor."*'^

Same —Effect of Release, Extension of Time, etc. —When the holder
of paper has given credit to a third party upon the recommendation of a
cashier of a bank, and the debtor is ready and offers to pay the note at
maturity, and the holder instructs the cashier to give the debtor an ex-
tension of time, which the debtor accepts, and then fails, the cashier, though
he had rendered himself liable by the recommendation, is discharged by the
release of the holder.**
Judgment of Forfeiture against Bank No Defense to Directors. —
It is no defense to an action against directors under a statute making them
personally liable for the debts of the bank where they have made false
reports of its condition, that judgment of forfeiture has been pronounced
against the bank. Such judgment does not discharge the liability of the
directors.*^
§ 57 (6) Receiving Deposits after Insolvency. — See, also, ante,

"Liability with Respect to Reports, Statements, and Representations," § 57
(5) ;
post, "Receiving Deposits after Knowledge of Insolvency," § 61 (3b).
Mere Fact of Deposit and Loss No Ground for Action. —The mere
fact that a man deposits money in an insolvent bank, believing it to be
solvent, and thereby money, gives him no cause of action, at
loses his
common law, against the directors. Aside from statutory provisions, di-
rectors are not liable in an action at law for losses so sustained, unless the
deposit was induced by the fraudulent conduct of the directors, officers or
agents of the bank.^" If it was so induced, then an action will lie against
them personally upon the ground of fraud and deceit independently of
any statute. ^^
What Constitutes Fraud and Deceit. As to what constitutes fraud —
and deceit in such a case, there can be no question that it is not only
a gross breach of their duty as trustees for creditors, but a fraud upon the
public rendering them personally liable for the loss sustained, for directors
to permit a bank which they know to be hopelessly insolvent to continue
47. Same —Duty to keep customer the treasurer of the corporation, and
—
informed. Horrigan i: First Nat. deposited the funds in bank as such
Bank, 68 Tenn. (9 Baxt.) 137. treasurer. Sprague v. Steam Nav. Co.,
48. —
Same Effect of release, exten- 52 Me. 592.
—
sion of time, etc. Horrigan z'. First 51. Same —Liability
for fraud and
Nat. Bank, 68 Tenn. (9 Baxt.) 137. deceit.— Tate Bates, 118 X. C. 287,
v.
49. Judgment of forfeiture against 24 S. E. 482, 54 Am. St. Rep. 719; Solo-
bank no defense to directors. Har- — mon v. Bates, 118 N. C. 311, 24 S. E.
groves V. Chambers, 30 Ga. 580. 478, 54 Am. St. Rep. 725; Caldwell v.
50. Mere fact of deposit and loss no Bates, 118 N. C. 323, 24 S. E. 481;
—
ground for action. Duffy v. Byrne, 7 Seale z'. Baker, 70 Tex. 283, 7 S. W.
Mo. App. 417; Fusz V. Spaunhorst, 67 742. 8 Am. St. Rep. 592; Giddings v.
Mo. 256; Minton v. Stahlman, 96 Tenn Baker. 80 Tex. 308, 16 S. W. 33; Baker
98. 34 S. W. 222, v. Ashe, 80 Tex. 356, 16 S. W. 36;
The cashier of a bank in which are Kinkier v. Junica, 84 Tex. 116, 19 S. W.
deposited the funds of a corporation 359: Zinn v. Mendel, 9 W. Va. 580;
can not be held therefor in his in- Killen v. State Bank, 106 Wis. 546, 82
dividual capacity, although he is also X. W. 536.
to do business and receive money on deposit until they have succeeded in

withdrawing their own deposits and thus obtained a fraudulent and un-
lawful preference for themselves. ^^
Same —Duty of Director upon Discovering Insolvency of Bank.—
The obtaining of some fraudulent or unfair advantage for himself, how-
ever, is not an essential element of liability. When a director discovers
that the bank is insolvent and fails to take such steps as lie in his power
to close the bank for business, and takes part in any arrangement which
permits the bank to be kept open, and deposits to be received, he is per-
sonally liable for damages to a depositor who is ignorant of the insolvency,
and whose deposits were thereafter received. His plain duty, upon dis-
covering the insolvency of the bank, is to call a meeting of the board of
directors, or communicate with the superintendent of the banking depart-
ment, or direct the cashier to discontinue the taking of deposits, or warn
individual depositors of such insolvency, and for a failure to perform such
duty, an action will lie against him personally. ^3 And it is no defense that
the director has expressed an opinion that deposits should not be received
and has entered into an arrangement with other directors for their receipt
under proper restrictions, where such arrangement is subsequently aban-
doned and never carried into effect. ^^
—
Constitutional and Statutory Provisions. Provisions forbidding the
receipt of deposits in banks after knowledge of their insolvency on the
part of directors and officers are common in the banking laws of most
states, and it is generally provided that the guilty officers or directors shall
be personally liable for such deposits but even where the statute contains
;
no such provision, the applicable principle is, that where a statute prohibits
the doing of an act, or imposes a duty on one for the benefit and protec-
tion of individuals, and the one upon whom the duty is so imposed neglects
to perform the same, or disobeys the prohibition, he is liable to those for
whose protection the statute was enacted for any damages proximately re-
sulting from such neglect or disobedience. ^^
52. What
constitutes fraud in such hopelessly insolvent, in keeping it
case. —Lamb
v. Laughlin, 25 W. Va. open for business, without notifying
300;Lamb v. Cecil, 28 W. Va. 653; subsequent depositors of the facts.
Lamb v. Pannell, 28 W. Va. 663. Held, that defendant was guilty of
Same— Duty of director upon fraud, and was liable for the damage
53
discovering insolvency.— Cassidy v. thus mflicted upon subsequent de-
Uhlmann 170 N. Y. 505, 63 N. E. 554, positors. Cassidy v. Uhlmann, 27 App.
affirmed in 54 App. Div. 205, 66 N. Y. Div. 80, 50 N. Y. S. 318, judgment re-
S. 670, affirmed in Nathan v. Uhlman,
versed, 163 N. Y. 380, 79 Am. St. Rep.
101 App. Div. 388, 92 N. Y. S. 13; 596, 57 N. E. 620.
affirmed in 184 N. Y. 606, 77 N. E. 54. — —
Same Same. Cassidy v. Uhl-
1192. mann, 170 N. Y. 505, 63 N. E. 554, judg-
At a critical period in the affairs of ment affirmed, 54 App. Div. 205, 66
a bank, two of its directors, of whom N. Y. S. 670.
defendant was one, who were in prac- 55. Constitutional and statutory
tical control during the absence of the —
provisions. Bott v. Pratt, 33 Minn,
president, actively participated, with 323, 23 N. W.
237; Osborne v. McMas-
full knowledge that the bank was ters, 40 Minn. 103, 41 N. W. 543, 12
Same—Bank Operating under Special Charter —Effect of Crim-

inal Provision, etc. —The individual liability of a director under a gen-
eral constitutional or statutory provision of this character is not affected
by the fact that the bank is operating under a special charter,^® nor by the
fact that a preceding clause refers to such conduct as a crime, and author-
izes the legislature to prescribe the punishment. ^'^
Same —Whether Constitutional Provision Self-Executing. —
constitutional provision making officers of banks individually liable for re-
ceiving deposits after knowledge of the bank's insolvency has been held
to be self-executing in the federal circuit court sitting in the state of ,
Washington ;5^ while the contrary has been held with reference to a some-
what similar provision by the supreme court of Missouri.s^
When Bank Deemed to Be Insolvent. —Under a statute, making the
managing banking corporation individually Hable to depositors
officers -of a
for money received on deposit, when they knew, or had good reason to be-
lieve, the bank insolvent, a bank is treated as insolvent when it becomes
unable to meet its liabilities as they become due in the ordinary course of
its business. It is not insolvent, within the meaning of such a statute, so
long as it is meeting its liabilities as they become due, and there is a reason-
Am. St. Rep. 698; Baxter v. Coughlan, for deposits received or debts created
70 Minn. 1,797.72 N. W. with his assent when knowing the
Complaint held to state a cause of bank to be insolvent, held not to be
action, within the rule stated, under self-enforcing. The Expression "such
'
laws Minn. 1895, ch. 219. Baxter v. deposits" does not refer to the clause,
Coughlan, 70 Minn. 1, 72 N. 797. W. "it shall be a crime, the nature and
The Missouri Act April 23, 1877, punishment of which shall be pre-
which provided that all bank officers scribed by law." Fusz v. Spaunhorst,
who had assented to the receiving of 67 Mo. 256.
deposits after knowledge of its in- 58. Provision self -executing. al- —M
solvency might be proceeded against ien V. Hyde, 76 Fed. 388.
severally or jointly, was held to give
no right of action to the depositor.
59. Contra. —Prunty v. Spaunhorst,
6 Mo. App. 579; Fusz v. Spaunhorst,
Fischer v. Tamm, 13 Mo. App. 108. 67 Mo. 256.
But under the Act of 1879, Rev, Const. 1875, art. 12, § 37, provides
Stat. Mo. providing that
1879, § 918, that it shall be a crime, the nature and
no director should assent to the re- punishment of which shall be pre-
ception of deposits after he should scribed by law, for any president, di-
have knowledge that the bank was in- rector, manager, cashier, or other of-
solvent, and that every person violat- ficer of any banking institution to as-
ing the provisions of that section sent to the reception of deposits or
should be individually responsible for the creation of debts by such banking
deposits so received, it was held that institution after he shall have had
a depositor might maintain an action knowledge of the fact that it is in-
against a director who assented to re- solvent or in failing circumstances;
ceiving a deposit with knowledge of and any such officer, agent or man-
the bank's insolvency. Cummings v. ager shall be individually responsible
Winn, 89 Mo. 51, 14 S. W. 512. for such deposits so received. Held,
56. Same — Bank operating under spe- that the provision is not self-execut-
cial charter. — Cummings v. Spaun- ing, notwithstanding 2 Wag. St., p.
horst, 5 Mo. App. 21. 1013, § 3, prescribing what a petition
'57. Effect criminal provision in
of shall contain, and page 999, § 1, de-
statute. — Cummings v. Spaunhorst, 5 nominating every action for the en-
Mo. App. 21. forcement or protection of private
The provision of Const., art. 12, rights or prevention of private wrongs
§ 27, declaring, in effect, that any bank a "civil action." Prunty v. Spaun-
officer shall be individually responsible horst, 6 Mo. App. 579.
able expectation on the part of its officers familiar with its business affairs
of continuing to do so. Whether good faith and upon
the officers acted in
a reasonable expectation of continuing the business must be determined
from the consideration of all the attendant circumstances.®**
Phrase "in Failing Circumstances" Construed. The phrase "in fail- —
ing circumstances," when used in a constitution or statute relating to receipt
of deposits when insolvent, must be taken to mean a state of uncertainty
whether the bank will be able to sustain itself, depending on favor-
able or unfavorable contingencies, which in the course of business may
occur,and over which its officers have no control.^^
—
Knowledge of Insolvency Actual Knowledge Unnecessary. —
Actual knowledge of insolvency is not essential to personal liability, unless
made so by statute. It is the duty of officers of a banking institution re-
ceiving or assenting to the reception of deposits to know the financial con-
dition of the bank, and the law presumes they do know it,®^ and directors
are liable if they receive deposits when they know, or with proper atten-
tion may learn, that the bank is insolvent. ^^ On the other hand, although
the officers of a bank know it to be in embarrassed circumstances, yet, if
they believe honestly, and upon reasonable grounds, that it will eventually
maintain its credit, they are not bound to disclose its condition to would-be
depositors before accepting deposits, nor are they liable to such depositors
should the bank ultimately fail.**
— —
Same Statutory Provisions. Knowledge of insolvency, under the
Missouri statute,*^ was held to mean actual knowledge, and not innocent,
bona fide ignorance arising from neglect to inform themselves;®* hence,
directors sued upon their personal liability under that act were not estopped
to plead ignorance of insolvency because of their duty to manage the bank's
affairs. ^'^ On the other hand, under a somewhat similar statute in Kansas,®^
60. When bank deemed to be in- Louis, R. Co. v. Johnston, 133 U.

etc.,
—
solvent. Minton v. Stahlman, 96 Tenn. S. 566, 33 L. Ed. 683, 10 S. Ct. 390.
—
98, 34 S. W. 222; Marr v. Bank, 44 65. Knowledge under statutes Mis-
Tenn. (4 Coldw.) 471; Eads v. .Orcutt, souri statute.— Rev. Stats. Mo. 1889,
79 Mo. App. 511. § 2760.
The insolvency of a bank can not 66. Same — Same.—Utley v. Hill, 155
be assumed from the simple fact of its Mo. 232, 49 L. R. A. 323, 78 Am. St.
having closed its doors for a few days, Rep. 569, 55 S. W. 1091; Union Nat.
when there have been no steps taken Bank v. Hill, 155 Mo. 279, 55 S. W.
to determine whether it is solvent or 1133; Haas v. Garnett. 155 Mo. 568, 35
insolvent. Moseby v. Williamson, 52 S. W.1132; Boatmen's Bank v. Gar-
Tenn. (5 Heisk.) 278. nett, 155 Mo. 569, 55 S. W. 1132.
Phrase "in failing circumstances"
61. 67. Same— Same—Directors not es-
construed.— Dodge v. Mastin, 17 Fed. t?PPe<^ *° P^^^"^ ignorance.— Utley v.
Hill, 155 Mo. 232, 49 I.. R. A. 323, 78
660, 5 McCrary 404.
Am. St^ Rep 569 55 S^ W. 1091; Union
62. Knowledge of insolvency-Offi-
cers presumed to know financial con- " "p ^^^ }^°;I'lk \t
^^î^,^"'^"-
W. 1133 -Haas z;. Garnett, 155 Mo 568,
dition of bank.-Eads v. Orcutt, 79
M^
mo. A„„ 511.
App. kh
'
55 S. W. 1133; Boatmen s Bank v.
Garnett, 155 Mo. 569, 55 S. W. 1132.
63. Actual knowledge unnecessary. es. Same— Knowledge under the
—Delano v. Case, 17 111. App. 531. Kansas statute.— Gen. Stat. Kans.
64. Knowledge of embarrassed cir- J901, §§ 471, 472, Banking Law,
—
cumstances Belief in solvency. St. — §§ 65, 66.
making it unlawful for an officer of the bank to assent to the reception of

deposits or to the creation of debts after knowledge of the bank's insolvency,
and making it the duty of directors and officers to examine into the affairs
of the bank, and, if possible, to know its conditions, it was held that di-
rectors were required to examine into its affairs with reasonable frequency
and thoroughness, and that, failing to do so, they would be liable for the
loss of deposits received after insolvency even though it should appear
that such an examination as the law required would not have revealed the
bank's insolvent condition.^^ In other words, not having exercised the
diligence requiredby law, he would not be heard to say that it would
have been unavailing to discover fraudulent and corrupt practices of the
cashier or other officer resulting in the insolvency of the bank.''*
Determining Knowledge of Insolvency —Duty of Jury. —In de-
termining the question of the knowledge of the insolvency on the part
of the president or cashier, the jury should consider their conduct and de-
meanor in reference to the affairs of the bank, whether or not they were
operating in good faith, and whether or not they had a reasonable expecta-
tion of redeeming all of the deposits. In short, the jury should take all
the circumstances in the case, weigh them fairly and impartially, and de-
termine, in case they find that the bank was insolvent, whether the presi-
dent and cashier knew of such insolvency, or had good reason to believe
it was insolvent at that time.'^^
§ 57 (7) Sale of Drafts of Insolvent Bank.— The fact that the de-
fendant was the assistant cashier of a bank which was insolvent when the
plaintiffs purchased certain drafts from
would not render such assistant
it,
was bound
cashier liable to the plaintiffs for a fraud, on the ground that he
to know that the bank was insolvent and to communicate that fact to the
plaintiffs. '^2
§ 57 (8) Liability with Respect to Special Deposits. —When

money has been deposited with a bank, and there has been no contract
that a different rule shall prevail, the bank
which the deposit is made,
in
ordinarily, becomes the owner of the money and consequently a debtor for
the amount, and under obligation to pay on demand, not the identical money
received, but a sum equal in legal value.'^^ fjîs rule does not apply, how-
69. Same—Same.— Forbes v. ilohr, mercial Bank, 77 Tenn. (9 Lea) 728;

69 Kan. 342, 76 Pac. 827. Minton v. Stahlman, 96 Tenn. 98, 34 S.
70. Same — Same. — Forbes v. Mohr, W. 222.
69 Kan. 342, 76 Pac. 827. 72. Sale of drafts of insolvent bank.
Determining knowledge of in-
71. — Dickey & Co. v. Leonard, 77 Ga. 151,
—
solvency Duty of jury. Minton v. — 152.
Stahlman, 96 Tenn. 98, 34 S. W. 222. 73. General deposit becomes a debt.
A different rule prevails in suits by — Marine Bank v. Fulton Bank, 2 Wall,
or for the corporation brought in a 252, 17 L. Ed. 785; Keene v. Collier
court of equity. Wallace v. Lincoln (Ky.), 1 Mete. 4] 5; Downes v. Phoenix
Sav. Bank, 89 Tenn. 630, 15 S. W. 448, Bank (N. Y.), 6 Hill 297; Matter of
24 Am. St. Rep. 625; Shea v. Mabry, Patterson (N. Y.), 18 Hun 221, affirmed
69 Tenn. (1 Lea) 319; Hume v. Com- in 78 N. Y. 608; Franklin Fire Ins.
§ 57 (9a) oifpiCERS and agents. 363
ever, in the case of special deposits either of money or commodities, where

the property in the thing deposited remains in the depositor and the bank
becomes the simple baileeJ* Directors of the bank are personally re-
sponsible to the depositors for the loss or conversion of special deposits
in the bank whenever they knew of such conversion or might have known
of it by the exercise of such care and diligence as the law requires of
such officers in supervising the affairs of the bankJ^ They are not mere
figureheads, with no duties to perform, and with the liberty of leaving mat-
ters of this character to their president and relieving them- and cashier,
selves of liability and duty by placing which they are under
special funds,
obligations to deliver to special depositors, in the hands of third persons,
and then leaving it to their depositors to litigate their claims and rights with
such third persons J ^
§ 57 (9) Personal Liability with Respect to Loans, Discounts

—
and Investments § 57 (9a) At Common Law.^ Mere Errors of —
—
Judgment. The officers of an insolvent bank can not be held personally
responsible to creditors for losses on loans and discounts made by them in
good faith, and, as they thought at the time, for the best interests of the
bank, merely because such loans and discounts appear to have been unwise
and hazardous when looked back uponJ'' The customs and methods of
the community in which a banking business is done are, for such com-
munity, a standard of prudence and diligence by which the responsibility
of the bank officers and directors at common law is to be tested; afid if
there has been a reasonable conformity to these, and absolute good faith
and honesty of purpose, it would be unjust to hold them to a personal ac-
Co. V. Jenkins (N. Y.), 3 Wend. 130; depositor's orders, in the vaults of the
Commercial Nat. Bank v. Henninger, bank, where they allow the receiver for
105 Pa. 496. the bank, subsequently appointed, to
74.Bailee as to special deposit.— take possession of the same. Miller v.
Marine Bank v. Fulton, 2 Wall. 252, 17 Howard, 95 Tenn. 407, 32 S. -W. 305.
L. Ed. 785; Thompson v. Riggs, 5 In the case of United Society w. Un-
Wall. 663, 18 L. Ed. 704; Bank v. Mil- derwood (Ky.), 9 Bush. 609, 15 Am. Rep.
lard, 10 Wall. 152, 19 L. Ed. 897; 731, the deposit m
question was a special
Franklin Fire Ins. Co. v. Jenkins (N. fjeposit of bonds, and not an ordinary
Y.), 3 Wend. 130; Zinn v. Mendel, 9 deposit of money. The petition sub-
W Va 580 stantially alleged that the defendants
*^'' "^"^ "'^
75. Same-Personal liability for loss ^r'^^^h'^li^l^ '^°.'i'^^-°
directors were per-
or conversion.-SavinffS Bank v. Caper- '
r,?,!,^''!*^^,:^!"
sonally responsible to the depositors
<.^.M an v„ Qfifi in v-.r T T?,>r> 9ni
TiS-
? W 885
885, 12 Am St
St. Reo
Rep. 488
488
•' ^°^ '"^^ °' conversion by the bank of
j^, deposits in such bank when-
o'li^î
9 L°o"'i7a^-
Bush^609 P
15 Am^Rep. v'^ru;
731; Miller v. W« ^^" they knew of such conversion, or
^-^^ ^^^^ ^^^^^ ^^ .^ ^
Howard, 95 Tenn. 407, 32 S. 305. W. ^-^^ ^f ^^,^^ ^^^^ ^^^ diligence as the
76. Same—Where deposit delivered law requires of such officers in su-
to third persons.— Miller v. Howard, pervising the affairs of the bank and
95 Tenn. 407, 32 S. W. 305. that the directors must be considered
The directors of a bank are person- as affected with the knowledge of
ally liable for a- deposit made during such facts as appeared upon the books
a suspension of payment upon faith of of the bank.
a circular issued by them that such de- 77. Liability for errors of judg-
posits would be kept, subject to the —
ment. Witters v. Bowles, 31 Fed. 1.
countability to stockholders for loans which subsequent events prove to

have been unwise J*
Excessive Loans to One Individual. —Whether the making of an ex-
cessive loan to an individual is, in the absence of statute fixing a limit to
the sum that may be loaned to any one person, negligence, and what con-
stitutes an excessive loan, depends upon the circumstances. While the
lending of an amount equal to about one-third of the capital stock of a bank
to a single person would seem to be unwise and hazardous, yet, where such
a loan was made to one of the directors, who was the chief merchant of
the town, largely while his business and financial standing were good, and
afterwards to preserve his credit, and with an entirely honest purpose on
the part of the bank officials to enable him to continue business, in the
hope that he would finally be able to pay, was held, that this was not suffi-
it
cient, at common law, in the absence of any trace of fraud, to render the
directors of the bank personally liable to the stockholders (depositors and
creditors having been fully paid) for the resulting loss.^^
Loans to Officers and Stockholders.- — In the absence of statute pro-
hibiting it, loans to officers and stockholders of the bank are not unlawful
nor fraudulent per se.^*' But if a bank allows its stockholders to withdraw
its funds to the amount of their subscriptions, and to use them, without se-
curity, in their private business, such conduct is a fraud on its creditors,
which renders the directors liable in equity for the amount so withdrawn,
and each agent who participated in the fraud individually responsible for
the amount traced to his hands and all profits made from its use.*^
Investments in Realty to Save Debt. The fact that large amounts —
of assets of a bank were invested in realty, causing great losses from
depreciation, will not render the directors liable for mismanagement and
negligence where it appears that the realty was bought under foreclosure
of mortgages held by the bank, to prevent a sacrifice.^^
§ 57 (9b) Loans and Investments in Violation of Statute. —Di-

rectors render themselves personally liable for waste of the corporate prop-
erty and assets by doing acts forbidden by the charter or general law, such
as lending the money of the bank without exacting security as required by
law, or investing the money of the bank in speculative enterprises for-
bidden by law. ^3 It is not essential in such cases to allege and prove that
78.Standard of diligence and care. 82. Investments to save debt and

—Wheeler v. Aiken County, etc., —
prevent sacrifice. Wallace v. Lincoln
Sav. Bank, 75 Fed. 781. Sav. Bank. 89 Tenn. 630, 15 S. W. 448,
79. Excessive loans to individuals. 24 Am. St. Rep. 635.
— Wheeler v. Aiken County, etc., 83. Loans and investments forbid-
Sav. Bank, 75 Fed. 781. —
den by law. Citizens' Loan Ass'n v.
80. Loans to officers and stockhold- Lyon, 29 N. J. Eq. 110; Williams v.
ers. —
Wheeler v. Aiken County, etc., McKay, 40 N. J. Eq. 189, 53 Am. Rep.
Sav. Bank, 75 Fed. 781. 775; Hun v. Carey, 82 N. Y. 65, 59
81. Allowing stockholders to with- How. Prac. 439, 37 Am. Rep. 546;
draw funds to amount of subscriptions. Brinckerhofif v. Bostwick, 88 N. Y. 52;
— Bank v. St. John, etc., Co., 25 Ala. Robinson v. Smith CX. Y.), 3 Paige
566. 222, 24 Am. Dec. 212; Hodges v. New
§ 57 (9b) OFPlCfiRS AND AGENTS. 365
the director acted fraudulently, or that he derived any benefit from the
loan; it is sufficient to show that there was a culpable violation of duty as
quasi trustee of the funds of the bank, by which loss was sustained.^* How-
ever,on the ground that directors are not liable for errors of judgments
and mistakes of law committed in good faith, it has been decided that
where a director acts in entire good faith he is not liable for making a loan
for a greater amount than the law allowed to be advanced on the security
taken.85 not chargeable for any mere error of judgment, or mistake
fje is
in estimating the value of property, using reasonable and ordinary care.^^

Loans to Directors and Officers. ^Directors who knowingly partici-
pate in or assent to the making of loans to one of the members, in viola-
tion of the state banking laws, render themselves individually liable for all
damages which the corporation, its shareholders or any other persons may
sustain in consequence thereof and to recover such losses the persons
;
sustaining the same may maintain an action at law against the directors
individually.^^
Responsibility of Borrowing Director. —Under Rev. Stat., U. S.,
§ 5200, directors of a national bank, who make or assent to the making

of a loan to any one person of a sum exceeding one-tenth of the capital
stock of the bank, become personally and individually liable for all losses
sustained thereby; but where the borrower, in such a case, is also one of
the directors, he is not so liable, but simply as a debtor to the bank.^* A
state statute merely forbidding the directors and other officers of a state
bank from borrowing any money from the bank, on pain of criminal prose-
cution, affects only the officer so borrowing, and does not make other di-
rectors personally liable to the stockholders for losses resulting there-
from. ^^ In Ohio, however, under the "act to incorporate the State Bank
England Screw Co., 1 R. I. 312, 53 Am. 86. Same.—Williams v. McDonald,

Dec. 624; Moses v. Ocoee Bank, 69 43 N. J. Eq. 3S2 7 Atl. 866.
Loans to directors and officers.
Tenn.
„,,,,.,
Lea) (1 398.
j-i_
The defendant who was a director
— Witters
^^„
^J;.
^^
Sowles, 31 Fed. 1; Camp-
V.
Watson, 62 N. J. Eq. 396, 50
and member of the finance committee ^^j ^^^^^ ^^ ^ ^ ^
of a sayings bank, which afterwards
q_ g^ ^^ Attorney-General v. Seneca
became insolvent, and a receiver was ^
q
^ ^'^^^ g g^ ^^^^,^ ^,
appointed, having acted with the presi- j^^j^ | q ^^^ -q'^^
dent in investing its funds on mort- ^.^^ directors of 'an insolvent bank
Faffe on real estate not worth at least ^^^ ,;^^,jg j^^. j^^^^^ occasioned by
Qouble the amount of the sum _in- j^^^^^ ^^^^ ^^ .^^ ^^^^^^^ ^^ .^^^^£
vested above all incumbrances, against ^j^^^ ^^^^^. ^^ ^^^^^ ^.^^ ^^
M 7^7=^'^' o" T " XT T «n s ^^^^^
'^ drawn accounts, where the overdrafts
\ ^-
chargeable the loss on î^'-
^;v,^,.^
^K?^' with 1^-
the in-
' ^"^ continued after the bank ex-
^^^j^^^ ^^^ directed their attention to
'^,«^'^°°"^'<^' ^^ such objectionable practice. Camp-
l^^TT-
N. J. Eq. ,aY 3'Th
392. 7 Atl. 866. .^^„ ^^ Watson, 62 N. J. Eq. 396, 50
84. Same —
Necessity to show fraud aÎ. 120.
or orofit.— Williams v. McDonald, 42 gS. Responsibility of borrowing di-
N. J. Eq. 392, 7 Atl. 866. rector.— Witters Sowles, 31 Fed. 1.
v.
85. —
Same Mistakes and errors 89. —
Same Liability of other di-
Good faith. —Williams v. McDonald, rectors. Wheeler — v. Aiken Countv,
37 N. J. Eq. 409. etc., Sav. Bank, 75 Fed. 781.
of Ohio and other banking companies," and providing that the directors
of any bank incorporated thereunder shall not be liable to the bank except
to such amount and in such manner as shall be prescribed by the by-laws
of such bank, adopted by its stockholders to regulate its liabilities, a di-
rector who borrows money from the bank without the authority of a by-
law, and his associate directors who consent to such loan, are liable per-
sonally for all damages which any other person may sustain in consequence
of such loan.^*>
57 (9c) Liability for Acts of Associates and Subordinates.

§ —
Directors guilty of gross negligence in permitting the cashier to make loans
in violation of statute and without security are personally liable for the loss
sustained and no excuse that they had no benefit from their neglect and
it is
that their services were gratuitous. ^^ But, before the directors of a bank
can be held liable, in case of almost total inattention to its management, for
losses from loans made by the cashier without their knowledge or consent,
itmust be shown that the cashier did not exercise reasonable skill, diligence,
and prudence in making the loans. ^^ jt jg not negligence per se in a cash-
ier of a bank to pay the overdraft of a responsible customer of character
and business integrity and therefore the directors can not be made liable in
;
an action against them for negligence and mismanagement on mere proof

that an account was overdrawn, and a loss thereby sustained. ^^ Directors
of a national bank can not be held to the common-law liability for inatten-
tion to duty as directors in not preventing a hazardous, imprudent and
disastrous loan, if such loan was made by their associates, without their
knowledge, connivance, or participation. ^^
§ 57 (10) Individual Liability with Respect to Collections and

—
Payments. The mere failure to sue on notes held by a bank, thus permit-
ting them to become barred, will not render the directors liable for negli-
gence and mismanagement, unless it is shown that the makers were solvent,
and that payment might have been enforced.^^ where a bank cashier who
has received a note for collection, fails to present it on the proper day,
and to have it protested, if not paid, so that the indorsee is discharged, he
will be liable to the owner of the note.^^
Same— Same.—Attorney-General
90. 93. Same— Same—What constitutes.
V. Senaca County Bank, 5 O. St. 171; —Wallace v. Lincoln Sav. Bank, 89
Conant, etc., Co. v. Reed, 1 O. St. 298; Tenn. 630, 15 S. W. 448, 34 Am. St.
Arnold v. Reid, 1 O. D. 347. Rep. 635.
91. Liability for acts of associates 94. Common-law liability for failure
—
and subordinates. Union Nat. Bank to prevent hazardous loan. —-Witters v.
V. Hill, 148 Mo. 380, 49 S. W. 1013, 71 Sowles, 31 Fed. 1.
Am St Rep. 615; S. C, 155 Mo. 379, 95. Liability with respect to coUec-
55 S. W. 1133.
Same^Necessity for negligence
—
tions and payments. Wallace v. Lin-
92. coin Sav, Bank, 89 Tenn. 630, 15 S. W.
or fraud on part of subordinate.- Wal- 448, 34 Am. St. Rep. 635.
lace V. Lincoln Sav. Bank, 89 Tenn. 96. Same —
Failure to bind indorsers,
630, 15 S. W. 448, 34 Am. St. Rep. 625. etc.— Hough v. Young, 1 O. 504.
§ 57 (12) OPPICERS AND AGENTS. 367
—
Payments. ^^The cashier of a bank, who, on purchasing for himself
property from a debtor of the bank, agrees that the price shall be applied
in a certain manner on the indebtedness to a bank, acts, in making such
agreement, in his official capacity, and is not individually liable for a breach
thereof ;^'^
and if he volunteers to arrange for the application of the price
to the indebtedness of the bank in a particular manner, he is to that extent
the agent of the debtor, and is not individually liable if the bank refuses
to make the arrangement. ^^
§ 57 (11) Individual Liability with Respect to Sale, Transfer or

—
Purchase of Stock. Where the directors of a bank take notes, judg-
ments, and the like in the payment of subscriptions to stock,it is incumbent
on them to show that such notes, etc., were of the value for which they
were transferred, or that they exercised ordinary care in ascertaining their
value, and had reason to believe them to be worth the amounts for which
they were taken, in order to escape liability therefor, as such transactions
are a deviation from the usual course of business. ^^ For accepting such
unauthorized securities in payment for stock the directors may, in case of
loss, be held personally liable for the full amount of the stock so paid.^ Di-
rectors are not responsible, however, to one from whom, in the name of
the bank, they have made an unauthorized purchase of its stock, and which
the bank had repudiated. ^ And the unauthorized action of the directors of
a bank in withholding assent to the transfer of stock to a purchaser thereof,
preventing the purchaser from reselling the stock before the insolvency of
the bank, is not in itself evidence of fraud on the purchaser.^
Liability for Signing Invalid Certificates of Stock. —Where the offi-
cers of the bank sign certificates of stock which are invalid because the
were not taken, they will be liable in
steps necessary to validate their issue
an action of deceit to another bank which takes such stock as collateral,
the measure of damages being the difference between the face value of
the stock and its actual value.*
§ 57 (12) Wrongfully Declaring Dividends. Both as to third per- —

sons and stockholders alike it is a good cause of action against directors
that they declare dividends . out of the capital stock or deposits of the
bank, and not out of its earnings. ^ A general statute making the directors
97. Payments breach of agreement —

purchase of stock. Abeles v. Cochran,
as to application. Pease — v. Francis, 25 22 Kan. 405, 31 Am. Rep. 194.
R. I. 326, 55 Atl. 680. 3. Liability for refusing to transfer
98. Same — Same.— Pease v. Francis, —
stock. Penfold v. Charlevoix Sav.
25 R. I. 326, 55 Atl. 686. Bank, 140 Mich. 126, 103 N. W. 573.
99. Accepting unauthorized securi- 4.Liability for signing invalid cer-
ties in payment of stock subscription. tificate of stock.— Lloyd v. Western
— Coddington v. Canaday, 157 Ind. 343, Nat. Bank, 30 Wkly. L. Bull. 165, 11
61 N. E. 567. O. Dec. 851, affirmed in 54 O. St. 681,
Same. — Moses
1. v. Ocoee Bank, 69 47 N. E. 1113.
Tenn. (1 Lea) 398. 5. Liability for wrongfully declaring
3. Responsibility for unauthorized
_
—
dividends. Solomon v. Bates, 118 N.
of any corporation jointly and severally liable for paying dividends before
the capital stock is fully paid in or when the corporation is insolvent or
unable to pay dividends without impairing or diminishing the capital, is
applicable to banking corporations.^ Bank directors can not be held per-

sccnally liable, however, for money paid out for dividends "to a greater
amount than net profits after deducting losses and bad debts" (Rev. Stat.
U. S., § 5204), because there 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 condition of the assets, without bad faith,
does not make them individually liable.''' Nor can there be any recovery
by or on behalf of shareholders for dividends improperly declared and
paid out to the shareholders themselves.* Where the stockholders of a
bank, upon the expiration of their charter, make dividends of their capital
stock among themselves, so that there are not corporate funds left suffi-
cient to redeem their outstanding notes or bills, a holder of such bills can
not maintain an action at law as for. a tort against an individual stock-
holder who has received his portion of such dividends, even though the
declaration allege fraud against the defendant. Whatever remedy there
may be in such a case must be in equity and for the benefit of all the
creditors.^
§ 57 (13) Oflcers of Fraudulent and Illegal Banks.—The liability

of the ostensible president of a spurious bank for debts contracted by his
assistanceis not collateral, but direct and original; and he must respond
in damages to the same extent as the bank, if legally constituted, would

have been liable.^** The directors and stockholders of a bank organized
under an act which is subsequently declared unconstitutional are not liable
for the paj^ment of the bills or other indebtedness of the bank, neither as
C. 311, 24 S. E. 478, 54 Am. St. Rep. the law relating to banks, the directors
725; Dykman v. Keeney, 10 App. Div. so offending shall be jointly and
610, 42 N. Y. S. 488; Gaffney v. Col- severally individually liable to the
vill (N. Y.), 6 Hill 567; In re Gunkle's creditors and stockholders for any loss
Appeal, 48 Pa. 13. or damage not made good within a
6. —
Same Âpplicability of statute. — reasonable time. Held, that where the
Williams v. Brewster, 117 Wis. 370, 93 directors of a bank innocently de-
N. W. 479. clared a dividend while the bank was
7. Same —Errors
_
of judgment Ig- — insolvent, such directors were not li-

norance of bank's condition. Witters
V. Sowles, 31 Fed. 1.
— able under § 548 for all existing and
subsequent debts of the bank but were
Ky. St. 1903, § 548, declares that if only liable under § 598 for the amount
the directors of any corporation shall of the dividend so declared. Franklin
declare and pay any dividend when the v. Caldwell, 123 Ky. 528, 29 Ky. L. Rep.
corporation is insolvent, they shall be 935, 96 S. W. 605.
individually liable for all debts of the
corporation existing or thereafter in-
8. —
Liability to shareholders. Wal-
lace v. Lincoln Sav. Bank, 89 Tenn.
curred. Section 596 declares that the 630, 15 S. W. 448, 24 Am. St. Rep. 625.
directors of a hank may declare a divi- 9. Stockholders dividing assets of
dend after deducting expenses, losses. suspended bank among themselves.^
bad and suspended debts, interest and Vose v. Grant, 15 Mass. 505.
taxes, etc.. and § 598 provides that if 10. Liability of officers of fraudu-
the directors of a bank shall "know-
ingly" violate any of the provisions of
—
lent and illegal banks. Hauser f. Tate,
85 N. C. 81, 39 Am. Rep. 689.
§ 57 (14) OifFlCERS AND AGENTS. 369
stockholders and directors, nor as partners. î Where the statute provides

that the holders of notes and bills issued by an unauthorized bank may
recover from those personally interested in the company without proof
of demand and notice, the payee and first indorser of a bill drawn by such
company is liable without demand upon the drawee. ^^ Where the officers
and directors are personally liable for the notes and bills issued by an un-
authorized banking association the enactment, in an act to regulate judicial
proceedings, of a provision declaring that such notes and bills shall be taken
to be absolutely void in all courts in proceedings where banks and bankers
are parties, does not render such notes absolutely void, but merely suspends
the remedy upon them so long as it continues in force, and upon its repeal
the officers of such illegal association again become liable for notes issued
before its repeal. ^^
§ 57 (14) Nominal Directors and Persons Held Out as Direct-

ors. —Where the owners of the charter and stock of a state bank, men of
good character and having the confidence of the community, published in
the newspapers of the city in which the bank was located, a business card
of the bank, with their own names as officers, and with the name of one
of themselves as a director, and the names of four other persons as direct-
ors, who were not stockholders, who had neven been notified that they
were elected directors, nor accepted the office, nor acted as such, and con-
tinued the publication for over four years with the knowledge of such
persons, but without their active participation, the creditors, upon the failure
of the bank, had no right of action, either through or independent of the
corporation, against such persons for failing to discharge the duties of
directors, it not appearing that they, or either of them, had done or said
anything tending to lead any of the creditors to believe that they were di-
rectors, i* Neither were creditors entitled to sue such directors under a
statute giving a right of action where the directors were shown to be guilty
of intentional fraud and willful mismanagement, the testimony in the case
11.Where bank organized under in an action against directors of such

act subsequently declared unconstitu- bank by a creditor, that the word "as-
tional. —
State v. How, 1 Mich. 512. sociations," used in § 21, has the same
Act March 5, 1837, provides that all effect as if the word "corporations"
such persons as shall become stock- were used, and, such associations be-
holders of a banking- association shall ing illegal, there can be no directors,
constitute a body corporate in fact and and therefore no right of action exists
in name. Section 31 provides that, if by virtue of said section. Brooks v.
such banking association shall become Hill, 1 Mich. 118.
— — Fixing
insolvent, the directors shall be liable 12. Rights of bill holders
in their individual capacity for its of indorsers, etc. ^Watson v.
liability
debts. Subsequently so much of the Brown, 14 O. 473.
act as purports to confer corporate 13. Operation of statute declaring
rights on such association was held —
notes void. Johnson it. Bentley, 16
by the supreme court to be uncon- O. 97.
stitutional. By a prior law, associa- Liability of persons held out as
14.
tions for banking were prohibited un- directors. —
Hume v. Commercial Bank,
less specially authorized by law. Held, 77 Tenn. (9 Lea) 728.
1 B & B—84
entirely exonerating the defendants from all participation and knowledge

or even suspicion of the acts of which plaintiffs complained.^^ A secret
agreement among defendants that they would take over a bank from an-
other whose sureties they were, upon his giving a note signed by certain
persons, does not affect defendants' liability to plaintiff, if, notwithstanding
such agreement, they took charge of and operated the bank and incurred
the liability upon which suit was brought.^®
§ 58. Actions and Proceedings to Enforce § 58 (1) Time —

to Sue and Limitations.—A suit of this character, whether brought at
law by the corporation itself, or in equity by a ^creditor or shareholder for
its benefit is alike subject to the bar of the statute of limitations. ^^ Though
brought in equity, such suit is to enforce a legal right, not for injury to or
conversion of property, but upon the director's implied contract that they
will exercise ordinary diligence in the discharge of the duties of their ofBce
hence, the suit is barred only by the lapse of time prescribed for actions
of the latter character, or for suits in equity, and not by the lapse of the
period prescribed for the enforcement of rights arising ex delicto. ^^ Where
the action is at law and to enforce a statutory liability, it is ex contractu,
ex delicto, penal or remedial, according as the statute may provide or the
courts, in construing it, may hold, and will be held subject to the statute
barring actions ex contractu or the statute barring actions ex delicto ac-
cordingly.18 Where the cause of action is fraudulently and effectively
15. Same — Statutory liability. —Hume demurrer should be overruled. Wil-

V. Commercial Bank, 77 Tenn. (9 liams v. Reilly, 41 N. J. Eq. 137, 3 Atl.
Lea) 728. 692.
16. Where
defendants had agreed to In an action by a receiver of an in-
take over bank and operate same. — solvent bank against its managers to
Curtis V. First Nat. Bank (Tex. Civ. recover for losses by their alleged mis-
App.), 138 S. W. 795. management, defendants could set up
17. Applicability of statutes of limi- the statute of limitations as to illegal
—
tation. Wallace v. Lincoln Sav. Bank, investments or overdrafts by the
89 Tenn. 630, 15 S. W. 448, 24 Am. St. president, made more than six years
Rep. 625. previously. Williams v. Halliard, 38
18. —
Same Nature of suit as being N. J. Eq. 373.
ex contractu or ex delicto. Wallace v. — 19. Same —
Action at law to enforce
Lincoln Sav. Bank, 89 Tenn. 630, 15 S. —
statutory liability. An action under
W. 448, 24 Am. St. Rep. 625; Williams Rev. St., § 301, to enforce against the
V. Reilly, 41 X. T. Eq. 137, 3 Atl. 692; directors of a bank liability for hav-
Williams v. Halliard, 38 N. J. Eq. 373. ing furnislied false statements of the
Defendant was treasurer and man- affairs of the bank to the state treas-
ager of a bank which required all Its urer, is ex delicto, and prescribed by
officers to be members of the board of one year. Knoop v. Blaflfer, 39 La.
managers. Moneys were drawn out Ann. 23. 6 So. 9.
of the bank, for illegal loans, on checks Gen. St., providing that if any
§ 278,
siened in blank by the treasurer, but banking association neglects to make
which he says were never authorized a semiannual statement, within a cer-
to be used for that purpose. The retain time, of the condition of the bank
ceiver asks for a decree holding him to the state treasurer, "the directors
responsible therefor. Defendant de- shall be personally liable for all debts
murs. claiming that the suit is barred of said association contracted previous
by the statute of limitations. HeH, to and during the period of ûch neg-
that the liability being one cogni- lect," is a penal statute; and a cause
zable by a court of equity alone, the of action against a director accruing
§ 58 (1) OFFICERS AND -AGENTS. 371
concealed from the party entitled to sue thereon, the statute of limitations
does not run during such concealment. 2** Hence, in an action against a
delinquent official to recover for his peculations or mismanagement, the
statute, as a rule, begins to run only from the discovery of his wrongdoing,
and the bank is not chargeable with notice by reason of the knowledge of
the president, director, or other officer who is guilty of collusion with the
principal offender, either in the commission or concealment of his crime. ^^
under is barred in one year, under

it The liability of directors of a bank,
§ 2170, limiting to one year "all actions under Hill's Ann. Laws Or., § 3231,
for any penalty or forfeiture of any which makes such directors who vote
penal statute." Gregory v. German for the declaration of a dividend when
Bank, 3 Colo. 332, 25 Am. Rep. 760; the bank is insolvent "jointly and
Larsen v. James, 1 Colo. App. 313, 29 severally liable for the debts of the
Pac. 183. corporation then existing or incurred
The charter of a bank, providing while they remain in office," is penal
that, when the debts of such bank shall in its nature, and the directors are not,
exceed three times the amount of its as to such liability, "joint contractors
capital stock the "directors * * * or united in interest," within the
shall be liable for the same, * * * and meaning of § 14 of such Laws, pro-
may be sued" therefor, creates an obli- viding that an action shall be deemed
gation quasi ex contractu; and there- commenced as to each defendant when
fore the statute of limitations applying the complaint is filed and the sum-
to penal liability affords no defense mons served on him or on a co-defend-
in an action against the directors. ant, who is a joint contractor or united
Banks v. Darden, 18 Ga. 318; Har- in interest with him; hence an action to
groves TJ. Chambers, 30 Ga. 580. See, enforce such liability is not com-
also, Neal v. Moultrie, 12 Ga. 104. menced as to a particular defendant
until the service of summons on him.
Under the statute in the preceding
Patterson v. Thompson, 90 Fed. 647.
paragraph, it was held that the right
of action was barred only 20. Effect of concealment of cause
after a
period of twenty years Hargroves V: —
of action. Vance v. Mottley, 92 Tenn.
Chambers, 30 Ga. 580. 310, 21 W. 593.
S.
An action under La. Rev. St., §§ 300, 21. Same Notice —

or knowledge. —
301, to enforce the liability of the di- Vance Mottley, 93 Tenn. 310, 21 S.
-j.
rectors of a banking corporation for W. 593; Lawrence v. Stearns, 79 Fed.

the debts of the bank, on the ground 878;Lamb v. Cecil, 25 W. Va. 288;
that they had participated in or as- Lamb V. Pannell, 25 W. Va. 298;
sented to the bank's making loans and Lamb v. Laughlin, 25 W. Va. 300.
discounts while in an insolvent condi- And, in such case, the bank is not
tion, is one ex quasi delicto, and pre- chargeable with the knowledge of the
scribed bv one year. Knoop v. embezzlement by one of its directors
Blaffer, 39 La. Ann. S3, 6 So. 9. who colludes with the delinquent cash-
An action by a depositor against the ier in fraudulently concealing the facts"
officers of an insolvent banking cor- from the officers and the other di-
poration, who, it is alleged, received rectors of the corporation. Vance v.
a deposit, knowing the bank to be in- Mottley, 92 Tenn. 310, 21 S. W. 593.
solvent, brought under Gen. St. 1889, In a suit by the receiver of a bank
par. 406, providing that it shall be un- to charge its president with losses
lawful for any officer of a banking in- arising from his negligent manage-
stitution to consent to the acceptance ment, where it is fairly inferable from
of deposits after the bank is known to the evidence that the acts constituting
be insolvent, and that every person such negligence were not disclosed by
violating the act shall be individually the president to the directors until
responsible for deposits received in long after their occurrence, and until
violation of it, is one upon a statute disclosed by the bringing of a suit by
for a penalty, within paragraph 4095, a third -party, and the judgment
subd. 4, and hence barred in one year. therein, the lapse of more than the
Ashley v. Frame, 4 Kan. App. 265, 45 statutory period of limitation since the
Pac. 927; Frame v. Ashley, 57 Kan. actual occurrence of the negligence
477, 53 Pac. 474. can not be imputed to the receiver as
372 BANKS AND BANKING. § 58 (1^)
§ 58 (1|) Nature and Porm of Proceeding. In General. In — —

quite a number of jurisdictions it is held that, independently of statute,
no action at law will lie against the directors or other officers of a bank,
in favor of depositors or creditors, for any mere negligence or nonfeasance,
however gross such negligence or nonfeasance may be, but that such an
action may be maintained for acts of positive fraud and misfeasance pro-
vided the facts are sufficient to support an action for fraud and deceit;
that for whatever remedy there may be aside from this, resort must be had
to a court of equity. ^^ In other states it is held that for any breach of duty
toward them, the depositors and creditors may sue the directors directly
either at law or in equity, according to the nature of the injury, and that it
will be no defense that their principal is also liable. ^^ As to national banks,
this may be otherwise when a receiver has been appointed, since the man-
ner of enforcing the personal liability of the directors is prescribed by
Rev. Stats. U. §§ 5234, 5239. 2* Where the misfeasance consists in the
S.,
conversion or misappropriation of special deposits, directors may be pro-

ceeded against personally by the owner of the deposit.^^
—
Under Statutes. Where the individual liability of directors has been
made a matter of statutory regulation, the nature of the proceeding, if not
prescribed by the statute in terms, depends upon a just construction of the
statute with reference to the nature of the liability charged upon the di-
rectors and the corresponding rights conferred upon the creditors and de-
positors. In Georgia, under a statute declaring the directors liable in their
private and individual capacities for the excess of debts over and above the
statutory limit, it was held that their liability was not penal, but remedial;
laches. Lawrence v. Stearns, 79 Fed. Bank, 106 Wis. 546, 82 N. W. 536.

S'J'S. In Massachusetts it is held, inde-
Where a director of an insolvent pendently of statute, that no action at
banking corporation, by collusion with law will lie against directors for ap-
the cashier, receives discounted bills propriating the capital of the bank to
and notes for his deposits, without the themselves in the form of dividends,
authority of the directors, and suit is and that the remedy, if any, must be
not brought therefor until nearly five in a court of equity in which the rights
years after such transaction, the dec- and liabilities of all parties can be
trine of laches does not apply. Lamb adjusted. Vose v. Grant, 15 Mass. 505.
"• ' 23. Same.-DeLano v. Case, 121 111.
uV}\l^^-
"ell. 25 W. Va. ya«
298; f^'
Lambi^^^^T M^""
v. Laughlin,
^^^^ ^^ j^ ^ g^g_ 3 ^^
g^ ^^^ g^.
00 f„.^ .,f .
ivf'l'ir ,„H A„ Solomon v. Bates, 118 N. C. 311, 24
J'^'^Z.ri
,^!: V.
^°™ l/.Tf±- S. E. 478,54 Am. St. Rep. 725; Con-
Allen Curtis, 26 Conn. 456; Savings
ant, etc., Co. v. Reed, 1 O. St. 298.
Bank v. Caperton, 87 Ky. 306, 10 Ky. „ , .
L. Reo. 201, 8 S. W. 885, 12 Am. St. 2.f-

Same— As to national, ,banks.—
,
Rep. 488; United Society v. Under- gailey v. Mosher, 11 C. C. A. 304 63

wood (Ky.), 9 Bush 609, 15 Am. Rep. Fed. 488; Solomon v. Bates, US N. C.
731; Vose v.Grant, 15 Mass. 505; 311, 24 S. E. 478, 54 Am. St. Rep. 725.
Smith V. Poor, 40 Me. 415, 63 Am. 25. Remedy for conversion or mis-
Dec. 672; Fusz V. Spaunhorst, 67 Mo. appropriation of special deposits.
256; Hart v. Evanson, 14 N. D. 570, Savings Bank v. Caperton, 87 Ky. 306,
105 N. W. 942, 3 L. R. A., N. S., 438; 10 Ky. L. Rep. 201, 8 S. W. 885, 12
Minton v. Stahlman. 96 Tenn. 98, 34 Am. St. Rep. 488; United Society v.
S. W. 222; Deaderick v. Bank, 100 Underwood CKy.), 9 Bush 609, 15 Am.
Tenn. 457, 45 S. W. 786; Zinn v. Men- Rep. 731; Miller t\ Howard, 95 Tenn.
del. 9 W. Va. 580; Killen v. State 407, 32 S. W. 305.
§ 58 (1J4) OFFICERS AND AGENTS. 373
joint and not several, a statutory liability enforceable at law.^® In Ohio,

directors who knowingly participate in or assent to the making of loans
to one of their members, in violation of the state's banking laws, render
themselves individually liable for all damages which the corporation, its
shareholders or any other persons may sustain in consequence thereof, and

to recover such losses, the persons sustaining the same may maintain an
action at law against the directors individually. ^'^ In that state, under a
charter provision making the directors personally liable for the excess of
debts over and above the statutory limit, it was held that the statute con-
templated an action of debt to recover such amount as a penalty and to
vindicate a violation of the law; in other words, that the remedy provided
by the charter was a penal action, given to any creditor, but for the benefit
of all.^* Under the Massachusetts statute no action at law will lie for a
creditor of a bank against official mismanagement of
a stockholder for the
the directors, but only a bill in equity. ^^ In Pennsylvania, the remedy af-
forded by statute was held to be exclusive, and that no bill in equity could
be maintained. ^^ It was also held in that state, under an act providing for
an investigation and report by auditors, and an investigation by the court
of the matters contained in the report in case they should report the in-
solvency to have been fraudulent, that where the report stated that the
insolvency was not fraudulent there could be no further investigation, and
the whole proceeding was at an end.^^ In Tennessee, upon the refusal of
the corporation or the directors to sue, creditors and stockholders may have
26. Proceedings under statutes — strued to apply to a bank when it is

—
Georgia statute. Banks v. Darden, 18 compelled to make an assignment ac-
Ga. 318; Robinson v. Bealle, 20 Ga. cording to the provisions of the act,
375. and that upon making such assign-
27. Same—In Ohio.— Conant, etc., ment the directors shall file a full
Co V. Reed, O.
1 St. 398. statement of its affairs, etc.; (§ 43) that
28. Same— Same—A penal action. — vipon the filing of such statement the
Sturges V. Burton, S O. St. 315, 72 Am. court shall appoint three auditors to
Dec. 582. make an investigation of the afifairs of
29. Bill in equity in Massachusetts. the bank, etc.; (§ 44) that the auditors
— Harris v. Dorchester, 40 Mass. (23 shall report to the court the result 'of
Pick.) 112. their investigation, and, in case they
30. In Pennsylvania. — In re Texter's report that the insolvency was fraudu-
Appeal (Pa.), 4 Walk. 316 (arising un- lent, it shall be their duty to report
der Act May 11, 1855, P. L. 632). the amount due from the several di-
31. Same —Investigation upon re- rectors, according to the liabilities im-
port of auditors. —Wright v. Daven- posed by the act; and (§ 45) that the
port, 66 Pa. 148. court shall thereupon proceed to an
The .let of April 16, 1S50, provides investigation of the matlers contained
(§ 40) that, if the insolvency of a in such report, and shall determine
bank be occasioned by the fraudulent whether the insolvency of such bank
conduct of its directors, they shall be was fraudulent or otherwise, or it
liable to the stockholders and credit- may direct an issue to try the fact of
ors, etc.; (§ 41) that the insolvency of fraudulent insolvency. Held, that § 45
every bank hereafter incorporated has no application except where the
shall be deemed fraudulent unless its auditors report a fraudulent insolvency,
afifairs shall appear, upon investigation, and, where the report is that the in-
to have been fairly and legally admin- solvency is not fraudulent, the whole
istered; (§ 43) that 'the term "insol- proceeding is at an end. Wright v.
vency," used in the act, shall be con- Davenport, 60 Pa. 14S.
374 BANKS AND BANKING. § 58 (1>4)
relief equity for losses resulting both from misfeasance and nonfea-
in
sance,^^ and under a charter providing that the directors should be indi-
vidually liable for any loss or damage sustained by creditors because of
certain violations of the charter, it was held that, under the statutes of
the state, a court of chancery was invested with jurisdiction to inquire into
and determine whether there had in fact been a violation of the charter
rendering the directors liable, and that they might be proceeded against by
original bill, or, to save circuity, they might be brought in by a supple-
mental bill filed in a pending suit against the corporation ;3^ but even under
the statute no proceeding at law will lie in favor of third persons for mere
negligence or nonfeasance, but only for intentional fraud or willful mis-
management.s*
As Ex Contractu or Ex Delicto Penal, etc. A breach of a duty — —
imposed by statute or by express contract is ex contractu, but the breach
of a duty imposed by law arising upon a given state of facts is a tort.^^
An action for damages for breach of duty in the latter case is an action
for a tort.^^ A cause of action against directors for th~e loss of a deposit,
caused by their neglect and mismanagement, for example, is in tort, not
in contract, the contract of deposit being with the corporation and-not with
the directors;^'' and even if there had been a special contract or a statu-
tory provision, the plaintiff might sue for the negligence in tort.^^ Where
the directors transfer stock of the bank to the cashier, to the end that he
may borrow money thereon, ostensibly for himself but in reality for the
bank, and agree to protect him and save him harmless in the transaction,
and the money so borrowed is turned over to the bank, the remedy, if any,
of the persons lending money on knowing that the loan
the stock without
was for the benefit of the bank, is against the directors by individual suit
for tort, and their claim can not be joined with a suit by stockholders to
32. Tennessee —
Refusal of corpora- 917; Solomon v. Bates, 118 N. C. 311,
tion or directors to sue.—Wallace v. 24 S. E. 478, 54 Am. St. Rep. 725.
Lincoln Sav. Bank, 89 Tenn. 630, 15 36. Same.—Williamson v. Dickens,
S. W. 448, 24 Am. St. Rep. 625; Dead- 37 n, q
259; Bond v. Hilton, 44 N. C.
erick V. Bank, 100 Tenn. 457, 45 S. W. 308, 59 Am. Dec. 552; Solomon v.
786; Shea v. Knoxvdle, etc., R. Co., 65 Bates, 118 N. C. 311, 24 S. E. 478, 54
Tenn. (6 Baxt.) 277; Moses v. Ocoee Am St Rep 725
Bank, 69 Tenn. (1 Lea) 398; Hume v Same-Action
^^ for loss of a de-
Commercial Bank, 77 lenn. (9 Lea) posit.-Solomon Bates, 118 N. C.
v.
'"**•
„ „ „ , , . 311, 24 S. E. 478, 54 Am. St. Rep. 725;
33. Same—Same— Practice.—John- Caldwell v. Bates, 118 N. C. 323, 24 S.
son V. Churchwell, 38 Tenn. (1 Head) £. 431. followed Tate v. Bate5, 118 N.
146. C. 287, 24 S. E. 482, 54 Am. St. Rep.
34. Same —Remedy at law. — Hume 719.
V. Commercial Bank, 77 Tenn (9 Lea) sg. Same—Effect of contract or
728; Minton v. Stahlman, 96 Tenn. 98, statutory provision.— Robinson v.
34 S. W. 222; Deadenck v. Bank, 100 Threadgill, 35 N. C. 39; Purcell v.
Tenn. 457, 45 S. W. 786. Richmond, etc., R. Co., 108 N. C. 414,
Nature of action as ex contractu
35. 12 S. E. 954; Solomon v. Bates, 118 N.
—
or ex delicto. Hodges v. Wilmington, C. 311, 24 S. E. 478, 54 Am. St. Rep.
etc., R. Co., 105 N. C. 170, 10 S. E. 725.
§ 58 (1>4) OFFICERS AND AGBNTS. 375
'settle the assets of the bank, or by creditors to enforce their contracts.^^

In Georgia, the action given by statute against directors for incurring an
indebtedness beyond the statutory limit has been held to be not penal, but
under a somewhat similar provision in Ohio it was held
remedial;**' while
that the statute was penal
in character and that the creditors and depositors,
or any of them, suing to recover such penalty, must bring an action of
debt for the recovery of the penalty.*^ It has also been held in the federal
courts that debt lies in favor of a holder of a dishonored bank note,
against a stockholder in the bank, to recover the amount of the note, under
the provisions of a bank charter making the stockholders personally liable
in such cases. *^
Same —Whether Action for Individual or Collective Benefit. —

depositor or creditor who has sustained individual loss through the mis-
representations and fraud of a director or directors may, independently
of statute, maintain in his own behalf alone an action of fraud and deceit
just as any person may sue another for actionable fraud and deceit when-
ever the facts are sufficient to support an action of that character. That
the defendants happened to be directors of a bank and committed the fraud
In their official or representative capacity does not alter the case, since an
agent can not plead his representative capacity or the liability of his prin-
cipal- as a defense to his individual liability for his torts.* ^ Thus a single
depositor may maintain in his own behalf alone an action against the di-
rectors of a bank for the loss of a special deposit caused by their fraud,
neglect and mismanagement.** Where the suit is under the authority of
some statute the construction of the statute must control. Thus, it has
been seen that under a statute making directors personally liable for the
excess of debts over and above the statutory limit and giving a right of
action to any creditor, that it was held that it was given for the benefit of
all and to create a fund for the indemnity of all.*^
—
Equitable Proceedings Right to Proceed in Equity. A proceeding —
to recover damages against the directors of a bank may be brought in equity
only when some equitable relief is sought, as an accounting or a discovery,
or when there exists some ground of equitable jurisdiction, as fraud or
39. Action for transferring stock to 43. Action for individual or collect-
cashier to enable him to obtain loan, ive —
United Society v. Un-
benefit.
ostensibly for himself, but in reality derwood (Ky.), 9 Bush. 609, 15 Am.
—
for the bank. Jones v. Johnson, 86 Rep. 731; Hart v. Hanson, 14 N. Dak.
570, 105 N. W. 942; Killen v.
Ky. 530, 6 S. W. 582, 9 Ky. L. Rep. State
789. Bank, 106 Wis. 546, 82 N. W. 536;
40. —
Penal or remedial Georgia stat- Zinn v. Mendel, 9 W. Va. 580.
ute. — Banks
v. Darden, 18 Ga. 313; 44. —
Same. United Society v. Un-
Robinson v. Bealle, 20 Ga. 275. derwood (Ky.), 9 Bush 609, 15 Am.
41. Same— Ohio statute.— Sturges Rep. 731; Tate v. Bates, 118 N. C. 287,
V. Burton, 8 O. St. 215, 72 Am. Dec. 24 S. E. 482, 54 Am. St. Rep. 719.
582. 45. Same —Proceeding under statute.
42. Remedy of holder of dishonored —Sturges v. Burton, 8 O. St. 215, 72
bank notes. — Bullard v. Bell, Fed. Cas. p^^n Dec 582.
No. 2,121, 1 Mason 243.
376 BANKS AND BANKING. § 58 (I/2)
breach of trust.**
Same—Individual or Collective Benefit —Demand of Suit as a Con-
dition Precedent. —In those jurisdictions where it is held that the
46. Right to proceed in equity. — their negligence and improper conduct

Higgins V. Tefft, 4 App. Div. 62, 38 as directors. Higgins v. Tefft, 4 App.
N. Y. 716, 74 N. Y. St. Rep. 100; Dyk- Div. 63, 38 N. Y. S. 716, 74 N. Y. St.
man v. Keeney, 154 N. Y. 483, 48 N. Rep. 100.
E. 894, reversing 31 App. Div. 114, 47 The receiver of an insolvent bank
N. Y. S. 353; Bridgens v. Dollar Sav. brought an action against several per-
Bank, 66 Fed. 9; Merchants', etc., Nat. sons who had been directors of the
Bank v. Masonic Hall, 65 Ga. 603. bank for various lengths of time,
In an action by a receiver against within a period of years, alleging that
the directors and personal representa- the defendants, as directors, had been
tives of deceased directors of a bank negligent and wasteful, and that
for misfeasance, where none of the various irregular and unlawful prac-
allegations of the complaint shows rea- tices had been pursued by the bank
son for interposition of a court of under their management, in conse-
equity, a prayer demanding judgment quence of which the bank had been
that the damages which the bank, its ruined; that the plaintiff could not
depositors, stockholders, and other prove the acts complained of without
creditors, had sustained by reason of a discovery and account by the de-
the matters and things before stated fendants; that without relief in the ac
and set forth, may be ascertained and tion a multiplicity of suits would be
determined; that defendants, as the necessary; and there was no adequate
representatives of those who were di- —
remedy at law and demanded judg-
rectors of such bank, may be adjudged ment that an account be taken, and dis-
to pay such damages; and that plain- covery required from the defendants,
tifif may recover the amount so ascer- and that, upon the accounting, the
tained, for the benefit of the creditors amounts due be ascertained, and judg-
—
and stockholders of the bank can not ment given for the plaintiff therefor.
be said to claim any relief which would Held, that this complaint did not state
require a resort to such court. Higgins a cause of action in equity, but only
V. Tefft, 4 App. Div. 63, 38 N. Y. S. several causes of action at law for
716, 74 N. Y. St. Rep. 100. damages against the directors. Judg-
Where a receiver is appointed in a ment (1897), 47 N. Y. S. 353, 21 App.
proceeding for dissolution of the bank, Div. 114, reversed. Dykman v. Kee-
in which a final judgment has been ney, 154 N. Y. 483, 48 N. E. 894.
entered, dissolving the bank and ap- Where a creditor has obtained ex-
pointing him permanent receiver of its ecution against a bank which has been
property and effects, in an action by returned unsatisfied, an amendment to
him against certain persons to recover a pending bill against the bank to
damages for the misfeasance or non- reach equitable assets, which sought
feasance of defendants as directors of to require the president to account for
such bank, a petition which is other- assets in his hands so far as to pay
wise insufficient does not entitle plain- the debt, was not without equity, and
tiff to equitable relief, and constitute was properly supplemental to the
the action one in equity, because it original bill against the bank. Mer-
alleges that plaintiff has, since his ap- chants', etc., Nat. Bank v. Masonic
pointment, disposed of and realized Hall, 65 Ga. 603.
on the assets of the bank, paid sixty The C. Bank, which was in failing
per cent of the claims of creditors, circumstances, had money on deposit
and realized all that can be realized in the D. Bank, which owned a> large
from its assets; that the deficiency of amount of the C. Bank's stock. K.,
assets to pay such creditors arises the managing director of both banks,
from the nealisjence and improper con- with knowledge of the C. Bank's in-
duct of defendants and others named, solvency, caused that bank to purchase
directors and trustees of the bank; its stock from the D. Bank, and to
that plaintiff has been authorized by pay for it with the cash on deposit in
the court to bring such action; and the D. Bank. Held, that this made a
that some of the creditors have re- case of breach of trust by the agent
quested plaintiff to commence an ac- of the two corporations, within the iu-
tion against the directors and trustees risdiction of a court of equitv. Bridg-
of the bank to hold them liable for ens V. Dollar Sav. Bank, 66 Fed. 9.
§ 58 (1>4) OFFICERS AND AGENTS. 377
duty of the director is to the corporation and not to the depositor or

creditor, it is held that such a bill can not be maintained by complainant for
his peculiar and personal benefit ; that the wrongs complained of do not es-
pecially affect his stock or his demands as a creditor; that the negligence of
the defendants is in the discharge of duties to the corporation as such, and
that the corporation, for such negligence, has a right of action. Primarily,
therefore, such suit should be brought by the corporation in its corporate
name, and only under peculiar circumstances will a creditor or stockholder
be permitted, by courts of equity, to bring the suit which the corporation
has failed to bring. But where the corporation is disabled from suing, as
where the managing agents of the corporation (its officers and directors)
are themselves to be the defendants, or where the corporation wrongfully
and willfully refuses to sue, then, in either case, a court of equity will
entertain a suit by a creditor or shareholder, substituting him to the collective
or corporate right of action. In either case, the recovery must be for the
benefit of the corporation, and all its creditors and shareholders.*'' This
right of action in the corporation passes to an assignee or receiver, and after
the appointment of such assignee or receiver, the suit should be brought in
his name, and only in the name of a depositor or creditor where the assignee
or receiver refuses to bring suit after demand that he do so.** In other
jurisdictions the principle embodied in the old ninety-fourth equity rule
(now the twenty-seventh), that a demand upon the corporation and a
refusal must first be had, is held to apply only to stockholders and not
to depositors and creditors, and that the latter may maintain a suit directly
against the bank and the guilty directors without such precedent demand
and refusal ;*9 and under the practice prevailing in some jurisdictions, the
requirement of a precedent demand and refusal is held to be unnecessary
even in the case of stockholders. ô
47.Same—Individual or collective Williams Halliard, 38 N. J. Eq. 373;

v.
benefit—Demand of suit as condition Brinckerhoff v. Bostwick, 88 N. Y. 52;
precedent. — Savings Bank v. Caper- Robinson v. Smith (N. Y.), 3 Paige
ton, 87 Ky. 306, 10 Ky. L. Rep. 201, 223, 24 Am. Dec. 212; Wallace v. Lin-
8 S. W. 885, 12 Am. St. Rep. 488; coin Sav. Bank, 89 Tenn. "630, 15 S. W.
Cunningham v. Pell (N. Y.), 5 Paige 448, 34 Am. St. Rep. 625; Hume v.
607; Wallace v. Wncoln Sav. Bank, 89 Commercial Bank, 77 Tenn. (9 Lea)
Tenn. 630, 15 S. W. 448, 34 Am. St. 728.
Rep. 625; Deaderick v. Bank, 100 Tenn. 49. Ninety-fourth equity rule held
457, 45 S. W. 786; Shea v. Knoxville, not to apply to creditors and deposi-
etc, R. Co., 65 Tenn. (6 Baxt.) 277; tors.—Marshall v. Farmers', etc., Sav.
Shea V. Mabry, 69 Tenn. (1 Lea) 319; Bank, 85 Va. 676, 8 S. E. 586, 2 L. R.
Moses V. Ocoee Bank, 69 Tenn. (1 Lea) A. 534, 17 Am. St. Rep. 84; Foster v.
398; Hume v. Commercial Bank, 77 Bank, 88 Fed. 604.
Tenn. (9 Lea) 728; Killen v. State 50. Nor to stockholders in some
Bank, 106 Wis. 546, 82 N. W. 536. cases. —
Solomon v. Bates, 118 N. C.
48. Right passes to assignee or re- 311, 24 S. E. 478, 54 Am. St. Rep. 725;
—
ceiver Refusal of assignee to sue.— Caldwell v. Bates, 118 N. C. 323, 24
Jones V. Johnson, 86 Ky. 530, 6 S. W. S. E. 481.
582, 9 Ky. L. Rep. 789; Savings Bank While
it is quite well settled that an
V. Caperton, 87 Ky. 306, 10 Ky. L. Rep. action can be brought against the di-
201, 8 S. W. 885, 12 Am. St. Rep. 488; lectors by the depositors and other
Ackerman v. Halsey, 37 N. J. Eq. 356; creditors for damages caused by their
378 BANKS AND BANKING. § 58 (VA)
Same —Duty to Exhaust Remedies against Corporation. —In order

to charge the directors personally in accordance with a charter provision in
case of certain violations of said charter, "voted for," or "sanctioned" by
them, it is indispensable — First, that such violations should be established
in a direct proceeding in a court of record against the corporation, though
it is not necessary that a forfeiture should have been first actually declared;
and, secondly, that the assets legal and equitable of the bank should have
been exhausted. ^^ But where it is admitted by demurrer or otherwise that
the corporation is insolvent, it is not necessary to exhaust remedies against
it before suing the directors for wrongs caused by their negligence, fraud,
or deceit. ^2
Previous Recovery at Law, —
An action by a bank receiver against
directors, for losses alleged to have been caused by their negligence, is not
premature because the total losses have not been ascertained and the exact
limit of the directors' liability fixed. ^^
Rescission of Fraudulent Contract or Transaction. —In an action by
assignees of an insolvent bank against a director for fraudulently selling to
the bank a portion of its own stock, where recovery is sought merely for the
loss suffered, no rescission of the sale is necessary.^*
Effect of Pending Proceeding to Close Bank. —A proceeding by state
bank commissioners to close the affairs of an insolvent bank is no bar to an
gross mismanagement, neglect, and of garnishment. Bank v. St. John, etc.,

false representations, and this without Co., 25 Ala. 566.
first applying to the corporation it-
While the liability of the officers and
self, or to the receiver to bring such
directors of a bank, under paragraph
action, there have been authorities
406, Gen. St. 1889, for receiving de-
that a stockholder could not maintain
posits or contracting debts while the
such action without such prior demand
bank is insolvent, is in the nature of a
and refusal; but it is made clear that
penalty, and may be immediately en-
this was only at law, and that' in
forced against such bank officers with-
equity, upon proper allegations, a
out first proceeding against the bank
stockholder, as well as a creditor, may
itself, it does not authorize an attach-
now maintain the action directly, and, ment action against a director on a
in the first instance, against the di-
contingent liability of the bank grow-
rectors. Solomon V. Bates, 118 N. C. ing out of its having indorsed and
311, 24 S. E. 478, 54 Am. St. Rep. 725.
guarantied the payment of notes of a
51. Exhausting remedies against
third party which have not yet ma-
—
corporation. Johnson v. Churchwell,
tured, notwithstanding an allegation in
38 Tenn. (1 Head) 146.
52. Same —Where corporation in-
the petition that the maker of the note
solvent. —
Solomon V. Bates, 118 N. C.
"is insolvent," and that the bank was
insolvent, and known to the director
311, 24 S. E. 478, 54 Am. St. Rep. 725;
Caldwell v. Bates, 118 N. C. 323, 24 S.
who is sued to have been insolvent,
when the notes were so indorsed and
E. 481.
guarantied, and the money for them paid
If a bank, on the eve of insolvency,
bv plaintiff to the indorser. Wichita
having notes out which it can not re-
Nat. Bank v. Weeks, 5 Kan. App. 694,
deem, and a large claim on a solvent
49 Pac. 105.
stockholder for money lent, extends
his debt by taking his notes, payable 53. Previous recovery at law. —
at two and three years, with its presi- Campbell t. Watson, 62 N. J. Eq. 396,
dent as sole surety, this is a fraud on 50 Atl. 120.
its creditors, and they may proceed in 54. Rescission of fraudulent contract
equity directly against such debtor, —
or transaction. Shultz v. Christman, 6
without a judgment at law or process Mo. App. 338.
§ 58 (3a) oFificERS and agents. 379
action by a creditor against its directors to enforce their personal liability

for its debts, as provided by a statute forbidding that they shall exceed three
times its paid-up capital, since, in the proceeding by the commissioners, all
that the creditors could claim would be their pro rata share of the bank's
assets.^''
Concurrent Remedies. —The fact that the depositor has proved up his
claim before the assignee of an insolvent bank will not preclude his pursuing
the offending officer with an action under the statute making the officers of
the bank personally liable for deposits received when the bankwas insolvent
(Rev. St. 1889, § 2760). The two remedies, not being inconsistent, may be
pursued at the same time but plaintiff can have but one satisf action. ^^
;
§ 58 (2) Set-Off. —A director of a bank can not so buy up claims

against it at a discount as to entitle himself to credit therefor at full face
value, in settlement with creditors on his personal liability as stockholder,
and thus defeat the suit of a creditor who commenced his action before the
bought-up claims were actually so But where, before the improper
applied.^''
declarations of a dividend by the defendants, and after consultation with the
superintendent of the banking department, they deliver to the bank their
individual notes, together with a memorandum reciting that the notes are
given for the purpose of removing a doubt as to the character of some of
the receivables of the bank, and to make said bank unquestionably solvent,
and these notes are paid to the receiver after the failure of the bank, the
defendants are entitled to have the money so paid, in excess of the amount
necessary to make good the impairment of the capital, existing when the
notes were given, applied on their liability arising out of the improper decla-
ration of the dividend. 5^
—
58 (3) Parties § 58 (3a) In General. As has been seen, it is
§ —
held in some states, following the strict equity practice, that the right of action
is in the corporation, its assignee or receiver, and that creditors and depos-
itors can maintain a bill in their own name only upon showing that the cor-
poration or its assignee has refused to sue, or that owing to the directors
being the guilty parties, the corporation is in no position to sue.^^ jf ^ ]-g_
ceiver has been appointed, the cause of action is in him, and he may sue
55. Effect of pending proceeding to to Ky. L. Rep. 201, 8 S. W. 88,5, 12 Am.

—
close bank. White v. How, Fed. Cas. St. Rep. 488; Cunningham v. Pell (N.
No. 17,549, 3 McLean 291. Y.), 5 Paige 607; Shea z;. Knoxville, etc.,
56.Concurrent remedies. Eads v. — R. Co., 65 Tenn. (6 Baxt.) 237; Shea
Orcutt, 79 Mo. App. 511. v. Mabry, 69 Tenn. (1 Lea) 319; Moses
57. Set-Off— Buying up claims.— v. Ocoee Bank, 69 Tenn. fl Lea)
398;
Holland v. Heyman & Bro., 60 Ga. 174. Hume v. Commercial Bank, 77 Tenn.
58. Same— Setting off excess of pay- (9 Lea) 728; Wallace v. Lincoln Sav.
ments. — Dykman Keeney, 160 N. Y.
v. Bank, 89 Tenn. 630, 15 S. W. 448, 24
677, 54 N. E. 1090, affirming 10 App. .
Am. St. Rep. 635; Deaderick v. Bank
Div. 610, 42 N. Y. S. 488. 100 Tenn. 457, 45 S. W. 786; Killen v.
59. Parties plaintiff Generally. — — State Bank, 106 Wis. 546, 83 N W
Savings Bank v. Caperton, 87 Ky. 306, 536.
own or the corporate name,*" and stockholders and creditors

either in his
can not demand that they be made parties plaintiff, as of right ;î though if
the receiver refuses to bring suit, a creditor and stockholder thereof may, for
the benefit of himself and such other creditors and stockholders as elect to
join him, maintain a suit against the president and directors for gross official
neglect and mismanagement, whereby the bank was financially ruined.^^ As
the officers sustain a fiduciary relation toward the corporation, such liability
survives as a part of the assets of the corporation and is assignable, and the
result of that doctrine is that all such liabilities pass to an assignee for the
benefit of creditors by a general assignment of its property for that purpose,
and such assignee may sue thereon.®^ In these jurisdictions it is held that
60. Where receiver has been ap- — Ackerman Halsey, 37 N.

to sue. v. J.
—
pointed. Van Dyck v. McQuade, 57 Eq. 356.
How. Prac. 52, 45 N. Y. Super. Ct. 620; 63.Same— Survival of action—Rights
Bank v. Johnson (N. Y.), 8 Wend. of assignee. — Movius Lee, 30 Fed.
v.
645. 298; Howe Barney, 45 Fed. 668;
v.
Rev. St., p. 601, tit. 4, § 2, makes

1 Jones V. Johnson, 86 Ky. 530, 6 S. W.
it unlawful for the directors of an in- 582, 9 Ky. L. Rep. 789; Savings Bank
V. Caperton, 87 Ky. 306, 10 Ky. L. Rep.
corporated company to make divi-
dends except from surplus profits, and 201, 8 S. W. 885, 12 Am. St. Rep. 488;
provides that in case of violation of Ackerman v. Halsey, 37 N. J. Eq. 356;
such provisions the directors, except Williams v. Halliard, 38 N. J. Eq. 373;
those who may cause their dissent to Campbell v. Watson, 62 N. J. Eq. 396,
be entered on the minutes of the di- 50 Atl. 120; Brinckerhoff v. Bostwick,
rectors at the time, or who were not 88 N. Y. 52; Robinson v. Smith (N.
Y.), 3 Paige 222, 24 Am. Dec. 212;
present, shall, in their individual and
private capacities, be liable "to the Wallace v. Lincoln Sav. Bank, 89 Tenn.
said corporation, and to the creditors 630, 15 S. W. 448, 24 Am. St. Rep. 625;
thereof, in the event of its dissolution," Hume V. Commercial Bank, 77 Tenn.
C9 Lea) 728; Killen v. State Bank, 106
to the amount of capital stock of such
company, so divided, etc. Act May 17, Wis. 546, 82 N. W. 536; Shultz v.
1875 (Laws 1875, c. 371), § 34, makes Christman, 6 Mo. App. 338.
the directors liable in such case "to A bank's creditors, on its insol-
the corporation," etc. Held, that both vency, have a direct interest in its af-
fairs, and are the cestuis que trustent
under the Revised Statutes and the
Act of 1875, the receiver of such cor- of the receiver, entitled to enforce all
poration is vested with the right of the corporation's rights, and to collect
its assets, including the right to claim
action on the liability of a director un-
der such statute. Van Dyck t', Mc- damages for the directors' negligence.
Quade, 57 How. Prac. 62, 45 N. Y. Campbell v. Watson, 62 N. J. Eq. 39G,
Super. Ct. 620. 50 Atl. 120.
An action by a receiver against the Where a bank has become insolvent,

and, under the general laws, it is
director of a bank to recover the pen-
sought to make the directors liable
alty provided by Act April 21, 1825,
for its debts, proceedings must be in
for paying a portion of the capital stock
the name of the assignee, and in the
to a stockholder, may be brought in
court of common pleas of the county
the name of the corporation, although
in which the bank is located. In re
the statute declares that any company
Mpans' Apoeal. 85 Pa. 75.
violating its provisions shall be Right of assignee to sue in foreign
deemed and adjudged to have surren-
dered its rights, and to be dissolved;
jurisdiction. — One who was made as-
signee of an insolvent bank in pur-
as such dissolution is but quasi, and
suance of a decree of an Illinois court
not absolute. Bank v. Johnson (N.
of equity of competent jurisdiction
Y.), 8 Wend. 645.
may intervene in an action in Massa-
61. —
Same Right of stockholders
and creditors to be made parties. — chusetts to claim funds of the in-
solvent attached by a creditor resident
Kimball v.Ives (N. Y.), 30 Hun 568. in Vermont. Witters v. Globe Sav.
62. —
Same Where receiver refuses Bank, 171 Mass. 425, 50 N. E. 932.
the complainant should file his bill not only in behalf of himself, but in be-
half of all others in like situation as himself, making the corporation it-
self a party defendant, together with all the creditors who refuse to join in
the bill, to the end that they may all come under the decree and the rights
of all parties be determined in the one proceeding.'^"' And where an action is
allowed to be brought by depositors to enforce the rights of a bank against

its officers because the proper officers thereof actually or virtually refuse to
bring it, the recovery becomes part of the assets of the bank, and goes to its
assignee, and both he in his official capacity and the bank are indispensable
parties defendant, unless the latter is, for all practical purposes, defunct, in
which case it need not be a party.^^ Under this view, if the corporation is
for any reason estopped from suing the suit of the stockholder or creditor
is likewise affected. ^^
Demand of Suit Not Required in Some Jurisdictions. —In other ju-
risdictions the practice permits the creditor or depositor to bring action or
suit directly in his name and without previous request to the corporation, its
assignee or receiver to sue;^'^ and under the practice prevailing in some of

these jurisdictions, neither the bank nor the receiver is a necessary party. ^^
—
Right of Pledgee of Stock to Sue. A pledgee of shares of stock in a
banking corporation has, merely by virtue of the pledge, no right of action
against the directors of the bank to recover damages for the negligence and
mismanagement of the directors,. whereby the assets of the corporation are
lost and the shares in the same rendered valueless. •'^
§ 58 (3b) Joinder of Parties and Causes. —Under the charter of a

64.
situation
Same —
Joinder of others in like
— Corporation
and others as
676, 8 S. E. 586, 3 L. R. A. 534, 17
St. Rep. 84.
Am.
defendants.— Savings Bank v. Caper- An action may be maintained by a
ton, 87 Ky. 306, 10 Ky. L. Rep. 301, 8 creditor against the directors in their
S. W. 885, 12 Am. St. Rep. 488; Ches- own name or under the corporate name
ter V. Halliard, 36 N. J. Eq. 313; Cun- on a claim disallowed by them. Arques
ningham v. Pell (N. Y.), 5 Paige 607. j,. Union Sav. Bank, 133 Cal. 139, 65
65. Assignee and bank indispensable pg^ 307
^^^'
ffxi'^^'^^.f/.^J-x^'w' \?-,
^''- A right of action accruing, under
^'t^^-^^f w'^L^- Const. Wash., art. 12, § 13, against a
li
Murphy Wis. ^;.o^-.^l^
109 \,r 408, 84 N W. 867 ^^^^ ^g^^g, ^ô received deposits with
% N. W
411; In re Texter s Appeal knowledge of the bank's insolvency,
^ V\ alk 316. jj^gg jjp|. jjjy^g ^p ^jjg bank, nor be-
h'' t^
Estoppel to sue^Wallace v
66.
^^^^ ^„ ^^^^^ ^f ^^^ ^^„k which a re-
Lmcoln Sav. Bank, 89 Tenn 630 15 ^^-^^^ j^ entitled to control, but is
S. W. 448, 24 Am. St. Rep^ 625. See,
^^^^^^ ;„ ^^^ depositors whose money
also, Brannm v. Loving, 83 Ky 370
^^jên. Mallon v. Hyde, 76 Fed.
6 Ky. L. Rep. 328; Dunn v. Kyle, 77 ggg '
Ky. (14 Bush) 134; Savings Bank v. „„ o j
Caperton, 87 Ky. 306, 10 Ky. L. Rep. .68- Same-Bank
r,
and 1
receiver as par-
301 8 S. W. 885, 13 Am. St Rep. 488. ^^
*'%~L\*^
S. E. 482,
J;
54 ?^'^'c"l
Am. St. Rep- .Sn^Î',^'*
719; Solo-
67. Suit without demand upon cor-
poration in other jurisdictions.— Fos- "1°" '' Bates 118 N. C. 311, 34 S. E.
ter V. Bank. 88 Fed. 604; Solomon v.
^^^'^^ ^.m. St. Rep. 725.
Bates, 118 N. C. 311, 24 S. E. 478, 54 Suit by pledgee
69. of stock.—
Am. St. Rep. 725; Caldwell v. Bates, Barnes v. Swift, 26 Wkly. L. Bull. 110,
118 N. C. 323, 24 S. E. 481; Marshall H O. Dec. 321; Barnes v. Pogue, 29
V. Farmers', etc., Sav. Bank, 85 Va. Wkly. L. Bull. 382, 11 O. Dec. 798.
bank providing that, when the debts of such bank shall exceed three times
the amount of its capital stock, the "directors under whose administration it
shall happen shall be liable for the same in their private and individual ca-
pacities, and may be sued for the same," an action can not be brought against
a single director, but must be against all jointly J" But in a suit under such
statute by a creditor of the bank against the two surviving directors, upon
the ground that all the directors became individually liable by violating the
charter, it is not necessary to join the representatives of the deceased di-
rectors,^! though it may be done where, under the law of the state, the
cause of action survives against the personal representative^^ Where the

directors are jointly liable under a statute for the debts of the bank, a
creditor need not join in his suit a director who, being a citizen of another
state, is not within the jurisdiction of the courtJ^ Where the object of the
suit is to charge the directors with liability for a breach of trust, the rule
is well settled that relief may be had against any or all those who concurred
in the wrong, the tort being treated as several as well as joint,'^* and the
corporation itself may be joined or not at the election of the plaintiff J^
Joinder of Causes. —A cause of action against bank directors for the
loss of a deposit, caused by their neglect and mismanagement, even if ex
contractu, may be joined with a cause of action for fraud and deceit, arising
out of the same subject matter.''* And in an action against the directors of
70. Joinder of parties and causes. transferred by bank officers need not
Banks v. Darden, 18 Ga. 318. be made defendants in a suit there-
——Hargroves Chambers, 30
71. Same Joinder of personal repre- for. Wilkinson v. Dodd, 40 N. J. -Eq.
sentatives. v. 123, 3 Atl. 360.
Ga. 580. 75. Election as to joinder of cor-
72. Same— Same.—Wilkinson v. —
poration. Solomon V. Bates, 118 N.
Dodd, 41 N. J. Eq. 566, 7 Atl. 337. C. 311, 24 S. E. 478, 54 Am. St. Rep.
Where one of the managers of a 725; Caldwell v. Bates, 118 N. C. 323,
bank died after an alleged misconduct 24 S. E. 481.
of himself and his colleagues, held, that 76. —
Joinder of actions. Tate v.
the receiver might make his executors Bates, 118 N. C. 287, 24 S. E. 482, 54
parties to a suit to enforce the man- Am. St. Rep. 719.
agers' liability, under Revision, p. 396, A cause of action for a tort arising
§ 5, relating to the survival of actions out of the defendant's failure to dis-
against personal representatives. Wilk- charge the duties required of them
inson V. Dodd, 41 N. J. Eq. 566, 7 Atl. by the by-laws is properly united in
337. the same action with a tort arising
73. Joinder of defendant residing in out of fraud and deceit charged in the
—
another state. White v. How, Fed. same complaint. Salmon v. Richard-
Cas. No. 17,548, 3 McLean 111. son, 30 Conn. 360, 79 Am. Dec. 255;
74. Torts joint and several. Solo- — Solomon v. Bates. 118 N. C. 311, 24
mon V. Bates, 118 N. C. 311, 24 S. E. S. E. 478, 54 Am. St. Rep. 725.
478, 54 Am. St. Rep. 725; Caldwell v. It is not a misjoinder of causes of
Bates, 118 N. C. 323, 24 S. E. 481. action to join in the same action,
Where directors of a bank have been brought against the bank directors in-
negligent in its management, in a suit dividually, a cause of action for gross
by a receiver appointed for such bank negligence in the discharge of their
to recover damages resulting from duties, whereby the plaintiff was in-
such negligence it not necessary to
is jured, with causes of action for the
join all the directors, as the action fraud and deceit of the directors in
arises ex delicto. Coddington v. Cana- making false statements and misrepre-
day, 157 Ind. 243, 61 N. E. 567. sentations of the condition of the
Recipients of moneys fraudulently bank, whereby the plaintiff was in-
§ 58 (4a) OFFICERS and agents. 383
a bank for damages arising from tHe grossly negligent management of the
bank's affairs, the various specifications of misconduct may properly be
combined in a single paragraph, as. constituting a single cause of actionJ'^
But a cause of action against the directors ex delicto can not be joined with
a suit in equity by the stockholdersJ®
—
Parties by Representation. Where the assets of an insolvent bank
are insufficient to meet all the claims of creditors and depositors, though
no preference is allowed, the allowance of preference to some creditors is
prejudicial to other creditors and depositors who have a common interest
in defeating the preference, and, where they are numerous, a few may ap-
pear and defend for the whole, under a statute providing that, when the
question is one of common interest to many persons, one or more may de-
fend for the benefit of the whole; and those appearing in the trial court,
contesting the right to a preference, are proper parties to the proceedings,
and may appeal from a judgment awarding a preferences^
§ 58 (4) Pleading —
§ 58 (4a) General Rules and Observations.
—Justice —
Claim; Disallowance. Where a creditor seeks to re-
of
cover a personal judgment against the directors, either in their individual
names or under the corporate name, on a claim alleged to have been wrong-
fully disallowed by them, it is essential to the sufficiency of the complaint
that they should allege specifically that the claim is just and the fact of its
presentation and disallowance.**'
Matters Required to Be Established by Judgment. Where it is re- —
quired that the violation of the charter shall be first established at law, it
is necessary that such fact should be alleged and shown.î
duced to deposit his money in the raise money for the bank, which
care of the bank. Solomon v. Bates, agreed to protect him. He deposited
118 N. C. 311, 24 S. E. 478, 54 Am. St. the money when obtained with the
Rep. 725; Caldwell v. Bates, 118 N. C. bank. Held, that the remedy of the
323, 24 S. E. 481. lenders, if any, was against the di-
Abill by depositors against the directors by individual suits for tort,
rectors of a bank for negligence in the and their claim could not be joined in
discharge of their duties resulting in a suit by stockholders to settle the as-
injury to plaintiffs and other deposi- sets of the insolvent bank, or by
tors is not rendered bad for misjoinder creditors to enforce their contract,
of causes of action by a further alle- Jones v. Johnson, 86 Ky. 530, 6 S. W.
gation that the president of the bank, 582, 91 Ky. L. Rep. 789.
by fraudulent representations, induced 79. Parties by representation. — Stil-
plaintiff to deposit money therein. Fos- son v. First State Bank (Iowa), 129
ter V. Bank, 88 Fed. 604. N. W. 70.
77. Same. — Coddington v. Canaday, 80. Justice and disallowance of
157 Ind. 243, 61 N. E. 567. claim.—Arques v. Union Sav. Bank,
78. Action ex delicto not to be 133 Cal. 139, 65 Pac. 307..
joined with suit in equity. Jones v.— 81. Matters required to be estab-
Johnson, 86 Ky. 530, 6 S. W. 582, 9 lished by judgment. Johnson
Churchwell, 38 Tenn. (l Head) 146.
v.—
Ky. L. Rep. 789.
Certain persons loaned money to a An allegation in the complaint, in
cashier on his notes, with stock of an action to recover of bank officers
the bank as security, not knowing that moneys of the bank negligently dissi-
the loan was for the benefit of the pated, "that the legal liability of stock-
bank. The bank records showed that holders to contribute to the loss of
the stock was sold to the cashier to said corporation, as plaintiffs are ad-
—
Negativing Matters of Defense. Matters of defense should generally
be left to the defendants to set up in their plea or answer, and need not
be negatived in the declaration or compaint.*^

Certainty of Allegations. —Where the action is to recover against the
directors personally for losses resulting from their negligence in the man-
agement of the affairs of the bank, and it appears that they permitted the
books and records to be so loosely and imperfectly kept that the trans-
actions complained of can not be specifically described, a motion to make
the complainant more certain is properly overruled. ^^
—
Complaint Bad on Its Face. A complaint apparently bad on its face
as showing matter going to defeat the cause of action set forth therein will
not be held subject to demurrer where it appears that the objectionable
matter is the result of a mistake or clerical error, and that upon a just con-
struction of the whole pleading it is not open to valid objection upon the
ground stated in the demurrer.^*
—
Duplicity and Misjoinder. A complaint to recover of bank officers
moneys of the bank negligently dissipated does not also join a cause of
action for damages suffered by a depositor who was induced to deposit by
deceitful representations as to solvency, because it alleges that false state-
ments as to solvency were given out and published by defendants, and that
plaintiffs relied thereon in making deposits, if, viewing the complaint as a
whole, the allegations appear to be historical in their nature, and intended
merely to fully state the acts of defendants in their mismanagement of the
bank's affairs.^'
vised and believed, has been enforced 33, 1893, and that did not
plaintiff
and paid," does not imply that any know the factsinventory of
till the
action to enforce the liability of stock- the bank was filed on 'June 21, 1899.
holders was ever brought. Gores v. The verification of the complaint was
Field, 109 Wis. 408, 84 N. W. 867, 85 njade on May 34, 1899, and the com-
N. W. 411. plaint besides showed that the assign-
82. Negativing matters of defense. ment was made June 1, 1893, within
— Coddington v. .Canaday, 157 Ind. twenty days after which date the as-
343, 61 N. E. 567. , signor was required, by Rev. St. 1898,
A complaint in an action by a re- § to file its inventory, certified
1697,
ceiver of a bank against the directors by the assignee. Held, that the of-
thereof for damages resulting from ficer's certificate to the verification
their gross negligence in management must be accepted as conclusive on de-
is not bad for want of an averment murrer as to its date, and that besides
that the receiver and parties repre- the complaint on its face shov/ed that
sented by him were without fault, as the date, June 31, 1899, therein, was a
in such case facts showing fault on clerical error, as it would not be pre-
their part should be set up in the an- sumed that the statutory duty was un-
swer. Coddington v. Canaday, 157 performed, there being no allegation to
Ind. 343, 61 N. E. 567. that eflfect; and hence a contention
83. Certainty of allegations. Cod- — that the complaint showed that ac-
dington v. Canaday, 157 Ind. 343, 61 tion was barred by the six-years limi-
N. E- 567. tation was unwarranted. Gores v.
84. Complaint bad on its face.— Field. 85 N. W. 411, 109 Wis. 408, 84
Gores V. Field, 109 Wis. 408, 84 N. W. N. W. 867.
867. 85 N. W. 411. 85. Duplicity and misjoinder.—
The complaint action by a
in an Gores v. Field. 109 Wis. N. W.
408, 84
depositor against bank director for
a 867, 85 N. W. 411. See. generally,
mismanagement alleged that defend- ante, "Toinder of Parties and Causes,"
ant ceased to be a director February § 58 (3b).
§ 58 (4b) OFFICERS AND AGFNTS. 385
58 (4b) Where Cause of Action Based upon Negligence, Fraud

§
or Deceit. —
Official Relation of Defendants and Participation in, or
—
Connection with. Wrongful Acts. Where the cause of action set forth
in the complaint is based upon the ground of loss sustained through the
defendant's negligent and fraudulent mismanagement of the bank's affairs,
it must be alleged as to each defendant that he was an officer of the bank
when the acts complained of occurred,^^ and, in addition thereto, his

participation in or guilty connection with the wrongful acts should be
shown.®''
False Representations and Intent to Defraud—Knowledge of

Falsity. —Where a creditor of the bank brings an action against the in-
dividual directors for fraud and deceit, the false representations made or
caused to made, done or caused to be done, by the defendants, and relied
be.
on by the plaintiff, and the intent thereby to deceive and defraud the plain-
tiff, must be averred or alleged in positive terms. ^® Thus a complaint in an
action to recover from a director damages for falsely and fraudulently rep-
resenting that the stock of a bank is worth par, by which the plaintiff's
intestate was induced to purchase stock from the bank, when, in truth,
the stock was worthless, and of no value, and was wholly lost, is bad when
it does not, aver that the defendant knew that the stock was not worth what
he represented it to be, nor that the defendant made the representations with
the intent to induce the plaintiff's intestate to become a purchaser.*®
86. Averment of official relation or bank to be published, is not sufficient

agency of defendants. Gores v. — El- to charge defendants for any loss sus-
liott, 108 Wis. 465, 84 N. W. 865. tained thereby, there being no allega-
87. Defendants' participation in or tion that the statements were signed
connection with wrongful acts.— Gores by the directors, or purported to be
V. Field, 109 Wis. 408, 84 N. W. 867, made by their authority. Pieratt v.
85 N. W. 411. Young, 20 Ky. L. Rep. 1815, 49 S. W.
In an action against the cashier and ti,.„ii„„ j ^ ^ . t
statute.-In a
other officers of an insolvent bank to
recover moneys of the bank negli-
J^T^^
^"'*
T^ T^^!
^^ ^ depositor to recover against
*"/ ^"'^ stockholders
gently dissipated, the complaint al-
°*^"''f' "^'l^^^"','.
eged that "by the negligence and °Lr;H? "°
l f*!!
'^^ avermentT^°,5^*'°'l^^
that they
want of ordinary care and diligence '"f'î^f,'' ^Lgent ly, and know-
on the part of (he defendants, and
each of them, on discharge of their du-
-^'^^f^
".^'^
W T^^
i/f I'lvi
f substantially
ties as direc ors and managers of the 'Ztdl. t^
" '
Kr
'"':°n) oration and
'"
said bank, and inattention to its affairs, ff," !" ,-^^= v ^"'" '^"""^^
'' ^
i^' '
permitted and allowed the funds and '° '

iV^J^/^^^'^^ ^T
JZl a! T\
^f'=^|'°"
deposits therein and belonging thereto
u J- J J 1 i'> xj ij i
to be squandered and lost. Held to in-
, •
TrZ
^ case under u- u°^
statute which J^^l^
subiects
^^^^ ^^ ^-^^-y ^ damages resulting
dude the cashier as one of the de- f,„„ ^^^-^ "intentional fraud in failing
linquent officers. Gores v. Field, 109 ^"""'i^
,.„ .,„^„i , „„i, ^ ^- n -X. A
-'"
Wis. 408, 84 N. W. 867, 85 N. W. 411.
,
88. False representations and intent
. .
Me^^^
cles n,-ornor.t-nn
ot incorporation
"^ ^-
or deceiving m }^
the public or individuals in relation to
to defraud.- Zmn v. Mendel, 9 W. Va. their liability." Minton v. Stahlman,
580- 96 Tenn. 98, 34 S. W. 223.
Same— Knowledge and intent
^
An allegation that defendants, as di- 89. to
rectors, "caused and permitted" false defraud. — Mabey Adams, 16 N. v. Y.
statements of the condition of the Super. Ct. 346.
1 B & B— 25
That Plaintiff Relied Thereon and Was Actually Deceived. — In ad-

dition to the foregoing, plaintiff should allege that he relied and acted
upon the false statement or representation and that he was deceived
thereby.9o
Averment of Loss or Injury. —The complaint must further show that
the plaintiff has actually suffered loss or injury by reason of the alleged
acts of misfeasance,^! or by reason of the fraudulent statements and repre-
sentations. ^^
Insufficiency of Assets to —
Pay Claims. Where an action is brought
by a receiver of a bank against the directors thereof for damages resulting
from their gross negligence in managênt, it is unnecessary to allege that
there are unpaid claims against the bank, and that the assets in the receiver's
hands are insufficient to meet them, as the injury results regardless of the
debts and assets.*^ However, if an averment of this kind could be deemed
necessary, it has been held that a general allegation of insolvency by the re-
ceiver is a sufficient averment that there are unpaid claims against the
bank, and that the assets in the hands of the receiver are insufficient to pay
them.8*
Receiving Deposits after Knowledge of Insolvency, Averment of In-
—
solvency. The bill in a suit against a bank and its receiver to recover a
deposit accepted by the bank after its insolvency is known to its officers,
must sufficiently aver the insolvency of the bank.^^
Same—Knowledge —
But a complaint charging bank
of Insolvency.
directors with fraud making false statements of the bank's
and deceit in
solvency need not allege that defendants knew or believed the bank to
be insolvent, sucb knowledge being conclusively presumed.^® And where
no false statements or representations, beyond the mere keeping the bank
90. That plaintiff relied thereon and mitted the president and cashier to
was deceived thereby. Brady v. Ev- — borrow large sums "upon inadequate
ans, 24 C. C. A. 336, 78 Fed. 558. security," and fraudulently suppressed
In an action of deceit against the such loans in making up the official re-
directors for making false statements ports, and that the directors knew of
as to the bank's condition, whereby such conduct, states no cause of action;
the plaintiff lost the amount of his de- there being no averment that the loans
posit, previously made, it is not suffi- were lost, or could not be collected, or
cient to allege that the plaintiff was that their loss in any way injured
induced to remain a depositor by the plaintiff. Tate v. Bates, 118 N. C. 287,
statements so made, but it must be di- 24 S. E. 482, 54 Am. St. Rep. 719.
rectly averred that, but for such state- 93. Insufficiency of assets to pay
ments, he would have withdrawn his claims.— Coddington v. Canaday, 157
deposits before the failure of the bank. jj^j 343 61 N E 567
Brady v. Evans. 24 C. C. A. 236, 78 Fed. q' '
ma. iD;..,-oft
558 Fieratt v. v^„.,„
Young, on
..,
20 i^,,
Ky. TL. "D »„
Rep.
„.
^^- Same.
'n aa- \
Coddington—
„,„ „, -kt t? ccw
..
v. n a,
Canaday,
lo j„j
,.„
Ind. 243, 61 N. E. 567.
1815, 49 S. W. 964. ,
91. Averment of injury and loss.— 95. Receiving deposits after knowl-
Butt V. Cameron (N, Y.), 53 Barb. 642. edge of insolvency--Averment of m-
92. Same.— Tate v. Bates, 118 N. C. solvency.— Western German Bank v.
287, 24 S. E. 482, 54 Am. St. Rep. 719.
Novell, 69 C. C. A. 330, 134 Fed. 724.
In an action by a depositor against 96. Averment of knowledge of in-
the directors of an insolvent bank, an —
solvency. Tate v. Bates, 118 N. C. 287,
allegation that the vice president per- 24 S. E. 482, 54 Am. St. Rep. 719.
§ 58 (4b) 0]?FICERS AND AGENTS. 387
open and receiving deposits, are alleged, an allegation that the bank was
insolvent and made so by the president and directors, is a sufficient aver-
ment of their knowledge of insolvency, since such knowledge will be im-
plied from the allegation that the insolvency was caused by the president and
directors.^''' So an averment that, at the time the deposit was received, the
bank was insolvent and known to be such, is sufficient under a statute mak-
ing it a penal offense for an officer of a bank to receive deposits when he
knows, or has reason to know, that the bank is unsafe or insolvent. ^^ But
an averment that defendants had "due notice and knowledge of such facts
and circumstances as, by ordinary diligence and business skill, would have
shown them" that the bank was insolvent, is insufficient to fix a liability
under a statute making bank directors who are guilty of "any fraud or
willful mismanagement" of the affairs of the bank individually liable to its
creditors for loss occasioned thereby. ^^
Same —Intent to Injure Plaintiff or Cause Loss of His Money.
It is not necessary in such an action to allege that, "when the plaintiff de-
posited his money, the directors knew or believed he would not get it back,
or intended by deceit to get from him, or cause him to lose it;" but it is
it
sufficient to allege that, the bank being insolvent, the defendants caused false
and fraudulent statements of the condition of the bank to be published, rep-
resenting it to be solvent and with capital stock unimpaired, and declaring
dividends, with a view to conceal its insolvent condition and procure de-
posits, and that the plaintiff was deceived thereby into making the deposit
which he is seeking to recover. ^
Same — Offer to Return Certificate of Deposit. —The complaint in an
action of this kind should offer to surrender the certificate of deposit.
97. Same.— Sommerville v. Seal, 49 118 N. C. 323, 24 S. E. 481.

Fed. 790. Under Laws 1895, c. 219, relating to
— Hyland
_
98. Same. Roe, 111 Wis.

v. receiving deposits in insolvent banks,
361, 87 N. W. 252, 87 Am. St. Rep. 873. a complaint which alleges that the de-
Rev. St. 1898, § 4541, makes it a penal fendants, as directors of an insolvent
offense for an officer of a bank to bank, received from the plaintiflf a de-
receive money on deposit when he posit of money therein, knowing the
knows, or has reason to know, that bank to be then insolvent, of which
the bank is unsafe or insolvent. Held, fact he was ignorant, whereby he lost
that where the depositor in a bank that the deposit, states a cause of action,
had passed into the hands of a re- Baxter v. Coughlan, 70 Minn. 1, 72 N.
ceiver presented a petition asking for W. 797.
an order requiring the receiver to pay 2. —
Same Offer to return certificate
over to him the deposit, which alleged of deposit. —
Hyland v. Roe, 111 Wis.
that when the deposit was made the 361. 87 N. W. 352, 87 Am. St. Rep. 873.
bank was insolvent, and known to be _
Where the payee of a check depos-
puch by its president, the petition suf- ited it in a bank, receiving in return a
ficientlv showed fraud on the Dart of certificate of deposit, and the next day
the bank. Hyland i/. Roe, 111 Wis. 361, the bank susoended. owing to insol-
87 N. W. 252, 87 Am. St. Reo. 873. vency. a petition bv the depositor that
99. — Minton
Same. v. Stahlman, 96 the receiver pay the proceeds of the
Tenn. 34
98. W. S. 222. check to him. but which did not offer
Same— Intent to
_
1. iniure plaintiff to surrender the certificate of deposit.

or cause loss of his money. Solomon — was insufficient to warrant the relief
r. Bates. 118 N. C. 311. 24 S E. 4'78. 54 asked. Hyland v. Roe. Ill Wis. 361,
Am. St. Rep. 725; Caldwell v. Bates, 87 N. W. 252, 87 Am. St Rep. 873.
—
58 (4c) Matters of Defense. Ratification and Estoppel. The
§ —
fact that the stockholders of a bank authorized the directors thereof to
accept certain judgments, notes, etc., in payment of subscriptions to stock,
will not estop the receiver thereof on its insolvency from asserting a claim
against such directors on that account on behalf of creditors.^ Neither is
the trustee in a deed of assignment estopped to sue to recover the amount

of discounted bills, fraudulently received from the cashier without authority
by a director, by reason of the fact that he has paid the director dividends
on the indebtedness of the bank to him as represented by such bills.* And
where the directors have made fraudulent transfers of the funds of the
bank to third persons, the fact that the receiver has made a compromise
with the persons receiving the funds does not release the guilty directors
from their liability nor estop the receiver from suing them for their part
in the transaction. ^
Estoppel of Directors to Deny Liability on Obligations Executed
—
to Maintain Credit of Bank. Where the directors of a bank execute
and deliver their notes to the bank to make up an impairment of its assets,
in order to satisfy the superintendent of banking, and secure his sanction
to continue the business of the bank, and to give it credit with the public
for the receiving of deposits and doing its general business, the makers
of the notes are estopped, as against the receiver, who represents the cred-
itors of the bank, from alleging want of consideration. They are also estopped
from contesting their liability, on the ground of an alleged agreement be-
tween them and the cashier of the bank that the notes were not to be en-
forceable until the deficiency upon the rejected securities should be
ascertained.*
§ 58 (5) Evidence —§ 58 (5a) Presumption and Burden of

Proof. —In
an action against the directors of a bank to make them per-
sonally liable for the misappropriation of funds by the cashier, the burden
of proof is on the plaintiff to prove not only the loss, but a want of dili-
gence on the part of the directors in discovering or preventing the defalca-
tion.'^But where the action is against the bank it will not be heard to say
that directors were ignorant of such frauds, for in such case the law
its
presumes that the directors know every entry made by its subordinate ofifi-
3. Ratification and estoppel—Re- îlity on obligations executed to main-

ceiver not estopped by acts of stock- t^^" credit of bank.— Sickels v. Herold,
holders.— Coddington v. Canaday, 157 \^ Misc. Rep. 116, 36 N. Y. S. 488, af-
Ind. 243, 61 N. E. 567. firming 11 Misc. Rep. 583, 32 N. Y. S.
rui.jrj^T
°fbank
trdrnt'înSeX\ss'
divîdf^dTo^n
defendant.-Lamb
to
/-'M i_
v. Cecil, ^g
— Martin v." Â^^rT/o
Ze'^'TaTif
gence. U. ''f^
Webb, 110 °/l b. 7,
^ ^^_ ^g^ 3 g ^^ ^^g.' ^,^^,^ ^ ^^^'_
35 W. Va. 388. _
^^^^ 3g p^^j g^,.. -^^^^ Dunham, 25 Ch.
_
5. Effect of compromise with

third Div. 725; Savings Bank v. Caperton,
persons to whom
directors have fraud- 37 Ky. 306, 10 Ky. L. Rep. 301, 8 S. W.
ulently transferred funds.— Wilkinson ggs^ 12 Am. St. Rep. 488; Wallace v.
V. Dodd, 40 N. J. Eq. 133, 3 Atl. 360. Lincoln Sav. Bank, 89 Tenn. 630, 15 S.
6. Estoppel of directors to deny lia- W. 448, 24 Am. St. Rep. 625.
§ 58 (5b) OETICEES AND AGENTS. 389
cers in the bank books, and therefore the misappropriation of funds by a

cashier, unknown to the directors, constitutes no defense to the bank.*
Where the action is against the president, directors, cashier, or agent of the
bank for fraud in receiving deposits, knowing the bank to be insolvent or
in failing circumstances, the plaintiff, by making out a prima facie case of
fraud, shifts the burden of explanation to the defendant,^ and so far as
the defendant's knowledge of the insolvency is concerned the plaintiff has
only to prove to the satisfaction of the jury that the bank was insolvent in
order to place upon the defendant the burden of proving want of knowl-
edge, i"
§ 58 (5b) Competency and Admissibility of Evidence. —Appoint-

ment of Receiver and Authority to Sue. Where want of — jurisdiction
of the subject or of the parties in proceedings for the appointment of a re-
ceiver for an insolvent bank is not apparent, entries of the record therein
are competent evidence of the appointment of the receiver, and of the order
of the court authorizing him to sue in his own name for the debts of the
bank, in an action against the bank directors for damages arising from their
negligence, though defendants were not directors or stockholders when the
application for a receiverwas made.^^
Official Relation of Defendants to Bank. —
Parol evidence is admissible
to show who were the officers of the bank without requiring proof of their
legal appointment.^^
Negligence, Fraud or Misfeasance. —The official relation of the de-
8. Same—Where action is against etc.; (§ 44) that the auditors shall re-
bank.— Savings Bank v. Caperton, 87 port to the court the result of their in-
Ky. 306, 10 Ky. L. Rep. 201, 8 S. W. vestigation, and, in case they report
885. 12 Am. St. Rep. 488; Lane Sz Co. that the insolvency was fraudulent, it
V. Bank, 56 Tenn. (9 Heisk.) 419. shall be their duty to report the
9. As to fraudulent insolvency.— amount due from the several directors,
Cassidy v. Uhlmann, 170 N. Y. 505, 63 •
according to the liabilities imposed by
N. E. 554, affirmmg 54 App. Div. 205, the act; and (§ 45) that the court shall
66 N. Y. S. 670. thereupon proceed to an investigation
Pennsylvania statutes.— The Act of of the matters contained in such re-
Apnl 16, 1850, provides (§ 40) that if port, and shall determine whether the
the insolvency of a bank be occasioned insolvency of such bank was fraudulent
by the fraudulent conduct of its direct- or otherwise, or it may direct an issue
ors, they shall be liable to the stock- to try the fact of fraudulent insolvency,
holders and creditors, etc.; (§ 41) that Held, that upon the trial of such issue
the insolvency of every bank hereafter the question of fraudulent insolvency
incorporated shall be deemed fraudu- jg to be tried without any prima facie
lent unless its affairs shall appear, upon imputation of fraud. Wright v. Dav-
investigation, to have been fairly and enport 66 Pa 148
legally administered; (§ 42) that the
^^ Same-Knowledge of insolvency.
term insolvency, used in the act, shall _Dodge v. Mastin, 17 Fed. 660, 5 Mc-
be construed to apply to a bank when Crarv
it is compelled to make an assignment
' 404 '
.
according to the provisions of the act, .

Appointment of receiver and au-
l^;
and that upon making such assignment, tnority to sue— Docket entries.— Cod-
the directors shall file a full statement dington v. Canaday, 157 Ind. 243, 61 N.
of its affairs, etc.; (§ 43) that upon the E. 567. _
filing- of such statement the court shall 12. Admissibility of parol evidence
appoint three auditor'; to make an i^^- as to who were officers, etc. — State v.
vestigation of the affairs of the bank. Bourne, 86 Minn. 432, 90 N. W. 1108.
390 BANKS AND BANKING. § 58 (Sc)
fendarits to the bank having been established, evidence of their negligence

and fraud in the management of its aflfairs is admissible in an action by a
depositor or creditor claiming to have been damaged thereby.i^ As bearing
on the issue of the liability of directors for acts of their associates done irt
their absence, it is competent to consider the illegal course of conduct in

which such directors had engaged, when present, with their associates. i*
And where the issue is whether purported loans in extending a depositor's
paper and taking up its overdrafts were loans in the regular course of busi-
ness and in good faith, evidence of the custom of extending discounts in
other banks is inadmissible.^^
Receiving Deposits While Insolvent. In an action against the director—
of a bank for fraudulently receiving deposits, knowing the bank to be insol-
vent, the director may testify to his belief as to the solvency of the bank
after information obtained from different .sources, since his knowledge
thereof is the material issue. ^^ But the record in a suit by the receiver
of the bank against its president to set aside a deed of trust made by the
bank to secure the defendant, is not competent evidence against the de-
fendants in a suit to hold the officers and directors personally responsible
for misrepresentations as to the solvency of the bank whereby plaintiffs
were induced to deposit their money therein. i'^ Neither is it admissible in
such action to prove the declarations of the president of the bank, touch-
ing its financial condition, made to a third person but never made known to
the plaintiff.i^ And bank that it will receive on deposit the de-
notice by a
preciated bills of another bank, is no evidence of the insolvency of the
bank making such offer.^^
—
Variance. Where, in an action by the receiver of a bank against the di-
rectors for negligence in managing the bank, certain specific charges of neg-
ligence are made in the petition, plaintiff is confined to them. 20 But where,
in a suitby the receiver against the directors, the pleadings allege that cer-
tain overdrafts were "negligently" permitted, the allegation is sustained by
proof of illegal overdrafts. ^^
§ 58 (5c) Weight and Sufficiency of Evidence. Evasion of
13. Evidence of negligence and fraud. reversing 37 App. Div. 80, 50 N. Y. S.

—Wolf V. Simmons, 75 Miss. 539, 23 318.
So. 586. 17. Record in former suit against
14. Liability for acts of associates— president not admissible against di-
Previous course of conduct.— Wilkin- rectors.— Giddings v. Baker, 80 Tex.
son V. Dodd, 42 N. J. Eq. 234, 7 Atl. 308, 16 S. W. 33.
327; Williams v. McDonald, 42 N. J. 18. Same— Declarations of president.
Eq. 392, 7 Atl. 866; Dodd v. Wilkinson, —Baker v. Ashe, 80 Tex. 356, 16 S.
42 N. J. Eq. 647, 9 Atl. 685. W. 36. _
_
15. Evidence of custom in other ../,^- r ^^tZ^Jl'lT^'n .^fP'"'^*?''

ânk.-Dan.els v. Kyle,
banks.-Dykman v. Keeney, 34 App.
g^c^ 245
Div. 45, 54 N_. Y. S. 1.
_
,
_
20.'Variance.-Stone '•. Rottman, 183
16. Receivmg deposits while msol- Mo. 552, 82 S. W. 76.
vent.— Cassiday v. Uhlmann, 163 N. Y. 21. Same.— Stone v. Rottman, 183
380, 57 N. E. 620, 79 Am. St. Rep. 596, Mo. 552, 82 S. W. 76.
§ 58 (Sc) OPFICgRS AND AGENTS. 391
Statute Requiring Overdue Debts to Be Computed as Losses.

Where the law requires that all debts owing a bank which have remained
overdue a year without prosecution or payment of interest shall be com-
puted as losses, and it is shown that the bank, being creditor of a depositor
for overdrafts, took his notes for the principal and interest, and marked the
overdraft "Paid," and before a year marked two of the notes "Paid," and
charged the amount to the depositors account as an overdraft, and that
this overdraft was marked "Paid," and taken up by new notes, and that
there were other transmutations of the form of such indebtedness, but that
no money was ever paid on the principal or interest, such evidence was
sufficient to require the court to submit to the jury whether such trans-
actions were merely the taking up of defaulted notes, in evasion of the
statutes, or were loans in the regular course of business. ^^
Receipt of Deposits with Knowledge of Insolvency. Generally —
speaking, evidence that the defendant director was in the bank from day to
day, that he attended board meetings regularly, examined statements show-
ing the condition of the bank, and discussed with other directors the ad-
visability of continuing business and receiving deposits, is sufficient to show
knowledge of insolvency at the time the deposit was received -p but since
in the nature of things there is no end to the variety of circumstances under
which such cases may arise, each one must, in the end, be determined upon
its own facts. A few illustrations are given in the notes. 2*
22. Evasion of statute requiring over- ing with other directors, and caused a
due debts to be computed as losses. statement of its affairs to be made,
Dykman v. Keeney, 34 App. Div. 45, and, on examination of such gtate-
54 N. Y. S. 1. ment, became aware of the bank's in-
Receipt of deposits with knowl-
23. solvency, and, after a discussion of the
—
edge of insolvency. Cassidy v. Uhl- propriety of receiving deposits in view
mann, 54 App. Div. 205, 66 N. Y. S. 670, of the insolvency, agreed on such
affirmed in 170 N. Y. 505, 63 N. E. 554; course, proof of these facts was suffi-
Jernberg v. Mix, 100 111. App. 264; Hoi- cient to warrant a finding that when
lingsworth v. Howard, 113 Ga. 1099, certain deposits were received just
39 S. E. 465. prior to the bank's failure such director
— —
Same Illustrations. Proof in a
24. knew of the insolvency, and actually
civil case of the reception of deposits took part in directing their receipt,
by a banker when insolvent, and one Cassidy v. Uhlmann, 54 App. Div. 205,
day before suspension, makes a prima 66 N. Y. S. 670, affirmed in 170 N. Y.
facie case of fraud. Jernberg v. Mix, 505, 63 N. E. 554.
100 Til. App. 264. In an action for damages alleged to
Where, at a meeting of the direct- have been sustained on account of
ors of a bank, the books are examined, false representations made by the offi-
and it is apparent that the surplus is cers of a banking corporation as to its
gone and that the capital is impaired, solvency, which induced plaintiff to de-
and, in the language of a director at posit his mone}' in a branch bank be-
the time, that "the bank is busted," it longing to such company, evidence
is sufficient to establish knowlede'e on that the bank collapsed very soon
the part of such director of the insol- after the deposit was made, with facts
vency of the bank, so as to render him warranting the inference that one of
liable for deposits thereafter received. such officers knew the parent bank was
Judgment 66 N. Y. S. 670. 54 Aop. Div. in an insolvent condition when he rep-
SOS, affirmed. Ca-s-iidv v. Uhlmann, 170 resented to plaintiff that it was finan-
N. Y. 505, 63 N. E. 554. cially sound, is sufficient to sustain a
Where a bank director, for a week finding that such official knew the bank
preceding its failure, was at the bank was insolvent. Hollingsworth v. How-
during business hours and in the even- ard, 113 Ga. 1099, 39 S. E. 465.
§ 58 — —
(6) Trial. Instructions Defining Insolvency. Under a —
statute which makes it a felony to receive deposits, knowing, or having
reason to believe, that the bank is insolvent, an instruction that a bank is
not insolvent as long as it is meeting its liabilities as they become due in
the ordinary course of business, and there is reasonable expectation on the
part of the officers familiar with its affairs of continuing to do so, is
correct. ^8
Same—Liability for Receiving Deposits after Insolvency.^ In an —
action against bank directors to recover deposits alleged to have been re-
ceived with knowledge of the bank's insolvency, an instruction that plaintiff
can not recover unless the jury finds that defendant was guilty of bad faith
"amounting to fraud," is erroneous where the court refuses to further
charge that it was a fraud for the officers of the bank to permit a deposit
when they knew that the bank was insolvent.^^ And in an action against
the directors of an insolvent bank for false representations whereby plaintiff
was induced to deposit his money in said bank, which money he lost by
reason of the insolvency of the bank, an instruction that defendants were
liable "if they knowingly made, with intent to defraud the public generally,
false representations of the solvency of the bank, without regard to whether
plaintiff ever relied or acted upon such representations;'' and that, if de-
fendants made representations of the solvency of the bank while in a posi-
tion to know the facts on which plaintiff relied, they were liable, whether
such representations were false or not, was not a correct statement of the
principles of the law governing the defendants' liability, and the error in
such instruction was not cured by a statement in other instructions that
plaintiff could not recover unless the representations were false, and were
relied on by plaintiff; such instructions, taken as a whole, being contra-
dictory.^'^
Defining Individual Bankers as a Partnership. In an action against—
individuals who conducted a bank, on an indebtedness arising from trans-
actions with the bank, an instruction that if defendants operated a bank
themselves or through officers or agents, and they or their officers or agents,
in the usual course of banking business, drew drafts against plaintiff bank,
and plaintiff paid the amounts thereof, etc., defendants would be liable, was
not objectionable as authorizing recovery upon the theory of a partnership
among defendants.^*
—
Judgment Personal Service of Process. —Under an act providing
that the president and directors shall be liable to every creditor of the bank,
25. Instruction defining insolvency. 27. Same — Erroneous instruction de-

Minton v. Stahlman, 96 Tenn. 98, 34 S. fining liability not cured by contradict-
W. 232. —
ory instruction. -Baker v. Ashe, 80
26. Same —Liability for receiving de- Tex. 356, 16 S. W. 36.
posits after insolvency. — Nathan v. 28. Defining individual bankers as a
Uhlmann, 101 App. Div. 388, 92 N. Y. —
partnership. Curtis v. First Nat.
S. 13, affirmed in 184 N. Y. 606, 77 N. Bank (Civ. App.), 138 S. W. 795.
E. 1193.
a judgment against such officers iudividually is not authorized, unless proc-

ess be issued against and served upon them personally; process sued out
against the corporation only is not sufficient. ^^
Damages and Amount of Recovery. —Where the fact of violation of
the charter has been previously established, the measure of the liability of
the directors will be the amount which the effects of the corporation may
fall short of discharging its liabilities, in consequence of such violation of
the charter.^" A depositor induced by the misrepresentations of officers of
an insolvent bank to deposit money with upon the failure of the bank is
it,
amount of his deposit with

entitled to recover of the officers so guilty the
interest less the value of his claim against the bank after it had failed.^^
For example, where a recovery has been had by a depositor and he has
also proved up his claim against the bank and has been paid a dividend by
the receiver, and other assets remain from which further payments may
be expected, the measure of damages is the amount of the deposit less the
dividend paid and less the value of the claim against the bank at the time
of the action against the directors. Interest upon the deposits should also
be allowed. ^2
§ 60. Criminal Responsibility § 60 —

(1) Constitutional and
—
Statutory Provisions. Officers of national banks, see post, "Criminal Re-
sponsibility of Officers or of Persons Aiding or Abetting Them," § 255
"Prosecution and Punishment," § 257. On insolvency, see, also, post,
"Criminal Responsibility on Insolvency," § 83.
—
Constitutionality of Statutes. The "law of the land," as that term is
used in a constitutional provision declaring, that "no man shall be taken
or imprisoned, or disseized of his freehold, liberties or privileges, or out-
lawed, or exiled, or in any manner destroyed or deprived of his life, liberty
or property, but by the judgment of his peers or the law of the land," im-
plies a rule embracing alike and affecting equally all persons in general, or all
persons who exist or who may come into the like state and circumstances.
Therefore, an act creating a new felony in relation to the officers, agents
and servants of a particular bank is not a law of the land within the mean-
ing of such constitutional provision, and is unconstitutional. Such a law,
says the court, inserted as one of the provisions in the charter of a bank and
applicable solely to the officers, agents, and servants of that bank, is of no
more validity than a statute enacted with regard to the clerks, servants and
agents of some private individual and applicable solely to the clerks, serv-
ants and agents of that individual.^'
29. Judgment —
Personal service of 32. Same. —Baker v. Ashe, 80 Tex.
process.— Cunningham v. Pell (N. Y.), 356, 16 S. W.
36.
5 Paige 607. 33. Constitutionality of statutes.—
30. Damages—Amount of recovery. Budd v. State, 22 Tenn. (3 Humph.)
— Johnson v. Churchwell, 38 Tenn. (!' 483, 39 Am. Dec. 189. See also, in this
connection Hazen v. Union Bank, 33
Head) 146.
31. Same. — Baker v. Ashe, 80 Tex. Tenn. (1 Sneed) 115.
356, 16 S. W. 36.
Construction of Statutes. —While it is true that care must be taken

not to weaken the wholesome provisions of the statutes designed to protect
depositors and stockholders against the wrongdoing of bank officials,
it is of equal importance that they should not be so construed as to make

transactions of such officials, carried on with the utmost honesty and in a
sincere belief that no wrong was being done, criminal offenses, and sub-
ject them to the severe punishments which may be imposed under those
statutes.^* A court can not create a penalty by construction, but must
avoid by construction, unless it is brought within the letter and the neces-
it
sary meaning of the act creating it. And where a statute may be so con-
strued as to give a penalty, and also, and as well so,' as to withhold the penalty,
it will be given the latter construction.^^ If there be any reasonable doubt,
therefore, as to whether the offense charged be an offense punishable by
law, that doubt should be resolved in favor of the accused. No man
should be guessed or construed into prison.^^
Officers and Agents Comprehended within Statute. —A statute
which enacts that if any cashier, agent, or servant or any other officer of
the corporation shall do particular things which are by the statute forbidden,
then they shall be punished in the manner prescribed by the statute, must,
under a reasonable construction, be held to include clerks employed by the
bank, notwithstanding clerks are not mentioned by name; and there is no
merit in a contention that a clerk employed in the bank can not be punished
under the statute because not comprehended and described by the terms
"^'^
"officers, servants or agents.
"Incorporated Banks." —The words "incorporated bank," used in a
general statute, include banks chartered since the passage of the act as
well as those then existing, and include banking corporations organized
under the laws of the United States and situated in the state as well as
like corporations created by the laws of the state. ^^ The same words in a
CoHstruction of statutes.— Pot-

34. D. N. P. 694); State v. Laning, 18 O.
ter V. United States, 155 U. S. 438, 39 D. N. P. 681.
h ^'^; r?^*' ^® ^Vt^ o ^**' Spurr w. Violation of oath not construed as a
United States, 174 U. S. 728, 43 L. Ed. crime.—Violation by a director of a
1150, 19 b. Ct. 312. trust company of his oath of office pre-
35 Same—As to psnaUy .—State v. scribed by Banking Law, § 195, held
G.bbs (O.), 7 N. P., N S 345,. 360. not a violation of Penal Law, § 297,
'"^'^'^ punishing directors of moneyed corpo-
w.
5vr^°J^ N. P., \t
Gibbs (p.), 7 I?"?? c?^
N. S., 345 360. rations willfully doing any act forbid-
Scope of the penal section of the den by law. People f. Knapp (N. Y.),
Ohio Free Banking Act. Section 30 of — 99 jj- £ 341
the act entitled "An
act to authorize „_ '
An;„J,„ „j o„=„..„ -^r^^^
compre-
^T- O^cf « and agents
free banking," passed March 21, 1851, ,
and amended in 76 O. L, 72, enumer- ^^'''^^•^,^yxl*^*T^-':?,'"*l''-A^*^*n

ating and defining certain acls of offi- ^^ Humph.) 483, 39 Am. Dec.
J/""'
cers and others "of any banking com-
pany," as penal, although worded in A
director of a trust company is not
general language is limited in its op- a "public officer" within Penal Law, §
eration to banks organized under that 1857. punishing omission of public duty
act. State v. Gibbs (O.), 7 N. P., N. by a public officer. People v. Knapp
S., 345 (see 82 O. St. 456, 457, 462, 7 N.
(N. Y.), 99 N. E. 841.
P., N. S., 371, 9 N. P., N. S., 129, 18 O. 38. "Incorporated banks."— Com-
§ 60 (3) OFlflCERS AND AGENTS. 395
Statute treating as guilty of larceny any officer of an "incorporated bank"

who does certain specified acts, applies to savings banks, and, therefore,'
under such a statute an officer of a savings bank may be indicted.^^
—
Repeal of Statutes. A special statute prescribing punishment for offi-
cers guilty of fraudulently wrecking a bank, and filling a place peculiarly its
own, is not repealed by implication by subsequent general legislation.*'' But
where the later of two acts covers the whole subject matter of the earlier
one,, not purporting to amend it, and plainly shows that it was intended to
be a substitute for the earlier act, such later act will operate as a repeal of
the earlier one, though the two are not repugnant.* ^
§60 (2) Accessories, Aiders and Abettors. A section of a gen- —

eral banking law, providing for the punishment of all who knowingly aid or
assist in a violation of any of its provisions, is designed to provide a punish-
ment for all offenders, principals as well as aiders and abettors, except
such as are within other sections of the act which sections themselves pre-
scribe the punishment for specific offenses.*^
§ 60 (3) Officers of De Facto Banking Corporations. —Where

several persons associate themselves together with a view- of organizing a
bank, and duly file a charter as a state banking corporation, the existence of
the corporation dates from the filing of the charter and if such bank is there- ;
after conducted under the supervision and control of the bank commissioner,
and is recognized and treated by him as one having authority, the mere
omission or neglect of the commissioner to formally issue a written certifi-
cate of authority will not exempt the officers of the bank from an observance
of the requirements of the banking law, or excuse them for violations of the
same.*^ Where a state bank is duly chartered, and holds itself out to the
public as a banking institution, receiving money on deposit, and otherwise
transacting a banking business, and where the officers, having knowledge
of the manner in which the bank is doing business, make reports to the bank
commissioner on demand, showing the character of the business done, they
monwealth v. Tenney, 97 Mass. 50. (Acts 1898, p. 73), since it fills a place
See, also, Commonwealth v. Hall, 97 peculiarly its own. Youmans v. State,
Mass. 570. 7 Ga. App. 101, 66 S. E. 383.
39. Commonwealth z-, Warner, 173 41, Same.—Thornton v. State, 5 Ga.
Mass. 541, 54 N. E. 353, disapprovmg f^^^ 397^ gS S. E. 301.
dictum in Commonwealth v. Pratt, 137
°
^ ^3 providing
^^11- ^\ .ff' .''?' A^^'^'^ZT fo^ the incorporation of trust compa-
tv Shepard (Mass.) 1 Allen 575. ^.
expressly repealed by Rev.
40. Repeal of statutes.-Youmans ^..
^^^^ ^^^ ^^^ provisions of § 11
State, 7 Ga. App. 101, 66 S. E. 383.
re-enacted in Rev. Laws 1905, §
Pen. Code 1895, § 206, deeming every
_
3^^^ g^^^^ ^ ^^ ^^^ ^^.^^ ^30!
insolvency of a bank or refusa or
^^^ ^^ ^ g ^ ^^^ ^.^^ ^^ ^^3
failure to redeem its bills,
but providing that such presumption
fraudulent,
N '
W '
12
. '
. ., , ,
of fraud may be repelled by showing 42. Accessories, aiders and abettors.

that the bank has been fairly adminis- " P,^°PJ!^
^- Comstock, 115 Mich. 305,
tered, was not repealed even by im- '^^ ^- W. 245.

plication, by Act Dec. 20, 1893 (Acts 43. Officers of de facto banks. — State
1893, p. 66), or by Act Dec. 15, 189S v. Mason, 61 Kan. 102, 58 Pac. 078.
t
can not deny that the bank is duly organized and doing business under the
laws of the state; and such officers become liable to punishment for a vio-
lation of any of the penal provisions of the banking law, the same as though
a formal certificate of authority had been issued to it by the bank commis-
sioner.**
§ 61. —
Offenses § 61 (1) Illegal and Unauthorized Banking.
—Where an unauthorized bank issues notes payable to order, in similitude
and appearance like bank notes, struck upon an engraved plate, signed by
the president and secretary of the company, and intended, designed and cal-
culated, by the company and those concerned in paying them out and put-
ting them in circulation, to circulate as money, under an agreement with
those to whom the notes are paid by the company that, as soon as they
should receive them, they should indorse them and circulate them as money,
the creditors of the company, to whom the notes are paid, are as much con-
cerned in the transaction as the company itself, and by indorsing the notes
they, as well as the officers proper of the company, make themselves liable
for the penalty of the law, under a provision of the statute that every per-
son whose handwriting shall appear on the notes, shall be taken to be an
officer of the bank; and the fact that the notes are not indorsed until after
they are paid out by the company will not relieve the parties concerned
from the penalty provided by the act.'*^
§ 61 (2) Criminal Liability for Fraud, Negligence, Fraudulent

—
Insolvency, etc. Statutes making directors and officers criminally re-
sponsible for fraud, negligence, mismanagement and failure to comply
with the articles of incorporation are usually construed to refer only to
active intentional fraud and willful mismanagement, and not to mere negli-
gence and acts of omission.** The same construction has been applied to
a statute making" the officers criminally liable for the fraudulent insolvency
of the bank. Under such a statute the president and directors are not
punishable merely for the insolvency of the bank, but are criminally liable
if the insolvency of the bank has been caused by their intentional fraudu-
lent acts. Under such a statute it has been held that it is not mere mis-
management, resulting in the insolvency of the bank, which is punishable,
but insolvency which indicates intentional fraud and dishonesty on the
44. —
Same. State v. Mason, 61 Kan. Thus under the Tennessee
statute
103, 58 Pac. 978. there is no for negligence or
liability
45. Offenses, illegal and unauthorized mere acts of omission, as where cer-
—
banking. Bonsai v. State, 11 O. 72. tain persons who owned no stock,
See, also, Myers v. Manhatten Bank, 20 never accepted positions as directors,
O. 283; Lawler v. Walker, 18 O. 151; and who took no part in the manage-
Steedman v. State, 11 O. S3. ment of the bank, suffered themselves
46. Criminal responsibility for fraud, to be advertised and held out as di-
negligence, etc. — Hume v. Commer- rectors of the bank. Hume v. Com-
cial Bank, 77 Tenn. (9 Lea) 728; Min- mercial Bank, 77 Tenn. (9 Lea) 728.
ton V. Stahlman, 96 Tenn. 98, 34 S. W.
223.
§ 61 (3a) OKFICBRS AND AGENTS. 397
part of those officers charged with the management of the bank, and which
can not otherwise be explained after full opportunity for explanation has
been given ;*^ and that the mere bank to redeem its bills
failure of the
is not sufficient to show guilt.* ^ On
where the insolvency-
the other hand,
is due to the intentional fraud of an officer of the bank the penalties pre-
scribed by the statute may be imposed upon him without regard to whether
the bank has issued bills or not.*^ Such an act is not unconstitutional as
violating the constitutional prohibition against imprisonment for debt. The
punishment imposed for wrecking the bank is not imprisonment for debt,
but fraudulent conduct. The fact that, in perpetrating a fraudulent practice
upon another, the perpetrator may become a debtor, does not bring him
within the protection of the constitutional inhibition and prevent the legisla-
ture from prescribing punishment for his fraudulent practice; and it is
immaterial that he is at the time a debtor to him who was defrauded. s**
Presumption and Burden of Proof. — It is entirely competent for the
legislature, from a constitutional standpoint, to make the fact of insol-
vency and failure to redeem its bills, either or both, presumptive evidence
of fraud sufficient to place upon the defendant the burden of rebutting the
presumption that the insolvency was due to his fraudulent conduct.^^
§ 61 (3) Doing Business While Insolvent Receiving Deposits, —

etc. —§ 61 (3a) In General. —
While the criminal responsibility of bank
officials for keeping the bank open and continuing to do business after knowl-
edge of its insolvency generally arises under provisions relating to the re-
ceipt of deposits after knowledge of insolvency, such is not always the case.
For example, the statute may make it a penal offense for any bank officer
to create or assent to the creation of any indebtedness by the bank, after
knowledge of its insolvency,^^ and the receipt of a deposit after knowledge
of insolvency will be a violation of such a statute. ^^ So the obtaining of a
deposit or loan by means of false representations as to the bank's solvency
may amount to the crime of obtaining money or property under false pre-
tenses under the general criminal statute of the state defining that offense ;S*
47. Same —
Fraudulent insolvency. 53. Same. — State v. Sattley, 131 Mo.
Youmans v. State, 7 Ga. App. 101, 66 464, 33 S. W. 41.
S. E. 383. 54. False —
pretenses Obtaining loan
48. Mere failure to redeem bills not or deposit by means of false representa-
sufficient to show guilt. — Youmans v. t i o n s.— Commonwealth v. Schwartz,
State, 7 Ga. App. 101, 66 S. E. 383. 93 Ky. 510, 18 S. W. 775; People v.
49. Same — Issuance of bills not a Moore, 37 Hun 84, 3 N. Y. Cr. R. 458.
prerequisite to guilt. Youmans v. — A banker who, after collecting
State, 7 Ga. App. 101, 66 S. E. 383. money for a customer, induces the
50. Same — —
Same Constitutionality
_
customer, while it is still in his pos-

—
of statute. Youmans v. State, 7 Ga. session, to loan it to the bank, by
falsely pretending that the bank is sol-
App. 101, 66 S. E. 383.
Same — Same—Presumption and
51. vent, when he knows or has reason to
burden of proof. —Youmans State, v. believe that it is not, is guilty of "ob-
7 Ga. App. 101, 66 S. E. 383. taining'' money under false pretenses,
52. Creation of indebtedness after within the meaning of Gen. St. art. 13,
knowledge of insolvency. —
Rev. Stat. c. 39, § 3, since it is only in cases where
Mo., 1889, § 3581. the delivery of property is necessary

and selling a draft and accepting the money therefor after knowledge that
the bank is hopelessly insolvent, and that the amount standing to its credit
in the bank upon which the draft is drawn has been, or will be, exhausted
by prior drafts before the draft so sold can be presented, may render the
banker subject to arrest for fraudulent practices under the general laws
of the state.^s
§ 61 (3b) Receiving Deposits after Knowledge of Insolvency.

—
General Purpose of Statutes. The purpose of statutes making it a
crime to receive deposits when a bank is known to be insolvent is not only to
protect innocent depositors, but to deter bank officers from so conducting a
bank as to endanger its solvency. ^^
—
Constitutionality of Statutes. Statutes making it a criminal oflfenseto
receive, deposits after knowledge of the bank's insolvency are not unconsti-
tutional, either as depriving personsengaged in the business of banking of
any property or vested right, liberty or privilege without due process of
law,^'^ or as denying the equal protection of the laws.^^ Neither are they
in order to deprive the owner of it N. E. 991, 35 L. R. A. 176, 54 Am. St.

that the false pretense must relate to Rep. 447.
such delivery. Commonwealth v. Act of Illinois of June 4, 1879, mak-
Schwartz, 92 Ky. 510, 18 S. W. 775. ing it criminal for any person doing
A banker who, for the purpose of a banking business, or officer of any
securing a deposit, falsely pretends bank, to receive deposits, knowing that
that his bank is solvent when he the bank is insolvent, whereby the de-
knows or has reason to believe that it posit IS lost to the depositor, is not un-
was not, and who represents to the constitutional, as a deprivation of
depositor that he has a safe place to property without due process of law,
invest the money so as to enable him in that it curtails inherent right to
to pay the depositor six per cent in- contract. Meadowcroft v. People, 163
terest thereon, is guilty of obtaining III. 56, 45 N. E. 991, 35 L. R. A. 176, 54
money under false pretenses, though Am. St. Rep. 447.

he intended to repay the money, within Rev. 1878, § 4541, providing that
St.
Gen. St., art. 13, c. 29, § 2, which de- any officer or agent of any bank or in-
fines that offense to be the obtaining stitution, or of any person, company,
of money or property from another or corporation engaged in whole or in
by means of any false pretense, state- part in banking, or any person en-
ment, or token, with intent to commit gaged in such business in whole or in
a fraud. Commonwealth v. Schwartz, part, who shall accept on deposit, or
13 Ky. L. Rep. 929, 18 S. W. 358; S. C, for safe-keeping, or to loan, any
19 S. W. 189. money, or any paper for collection,
A banker, by obtaining possession of when he knows, or has good reason
a draft in the usual course of business, to know, that such bank, company,
without disclosing the fact of his incorporation, or person is unsafe or in-
,=olvency, does not necessarily render solvent, shall be punished, etc., does
himself criminally liable for obtaining not impair any banking right, and is
property on false pretenses. People v. therefore within the enacting power of.
Moore, 37 Hun 84, 3 N. Y. Cr. "R. 458. the legislature, and does not require
the vote of the people provided by
55. Sale of draft after knowledge of
Const, art. 11. § 5. In re Koetting, 90
—
insolvency. Anonymous, 67 N. Y. 598.
Wis. 166. 63 N
W. 622.
56. General purpose of statutes. — 58. —
Same Equal protection of the
Ex parte Pittman, 31 Nev. 43,99 Pac. laws.— Baker v. State. 54 Wis. 368. 13
700. N. W. 12; Ex parte Pittman, 31 Nev.
57. Constitutionality of statutes 43. 99 Pac. 700.
Vested rights and privileges. In re — Rev. St.. § 4541, inflicting a punish-
Koetting, 90 Wis. 166, 62 N. W. 623; ment on any banker or employee of a
Meadowcroft v. People, 163 111. 56, 45 bank who shall receive money, etc., on
obnoxious to a constitutional prohibition against imprisonment for debt,^^

or to the constitutional guaranty of a jury trial because of a provision mak-
ing the failure of the bank within thirty days from the receipt of the deposit
prima facie evidence or intent to defraud.*" The existence of a con-
stitutional provision imposing individual civil responsibility upon bank offi-
cers for receiving deposits under such circumstances is not an implied

prohibition to the legislature against making the same act a crime.* ^ And
under a constitutional requirement that criminal acts shall prescribe the na-
ture and punishment of the crime which they undertake to define, an act
providing that any bank officer who shall receive or assent to the reception
of a deposit, or who shall create or assent to the creation of any indebted-
ness by the bank, knowing that it is in a failing condition, shall be guilty
of larceny and punished, etc., is sufficient.*^
Essentials of the Offense. —Under a statute of this character, the essen-

tials of the offense defined thereby are, generally speaking : a person, bank,
or other institution engaged in a business answering to the description of
the business defined in the statute; second, actual insolvency at the time
the money was received; third; knowledge of insolvency; and, fourth, the
receipt of money as a deposit or the obtaining of a loan or incurring of
an indebtedness in violation of the prohibition contained in the statute.*^
Individual, Bank, or Institution Coming within Condemnation of
Statute. —A trust company, though it has and exercises some of the func-
tions of a bank, is not a bank in such sense as will render its officers amen-
able to a statute of this character where, under its charter, it has no right
to receive deposits subject to check; and the fact that it has engaged in the
deposit when he knows

that he or the sumption not a denial of right to trial
bank "unsafe or insolvent," is not
is —
by jury. Meadowcroft v. People, 163
in conflict with Const. U. S. Amend. 111. N. E. 991, 35 L. R. A. 176, 54
56, 45
14, which declares that "no state shall Am. Rep. 447-.
St.
deny to any person within its jurisdic- 61. Not forbidden by constitutional
tion the equal protection of the law." provision imposing civil liability.—
Baker v. State, 54 Wis. 368, 12 N. W. IS. State v. Oleson, 35 Wash. 149, 76 Pac.
Act March 29, 1907 (St. 1907, p. 414, 686.
c. 189), making
a crime to receive
it
g Ballinger's Ann. Codes & St., §
bank deposits knowmg the bank to be ^^^^ making banking officers crimi-
insolvent, is^ not unconstitutional, as „^jj j;^^jg ^^^ receiving deposits after
being a special law for the punishment knowledge of insolvency of the bank,
P Pittman, 31 Nev.
?, "n^^'^'"- .^^ ^^ „^j ;„ violation of Const, art. 12, §
L„ o
'^^
T • ..
r J u.. 12, providing that any officer of a
59.Same-Imprisonment for debt.
banking institution who shall receive
'"' ^P""''^"' ^ ^^ ox assent to the reception of deposits
rS°'N"fii"'^^
a' ;, ,„„„ .u after he shall have knowledge of the
Act May „9 1889, providing
-J' r
for the
j^^^ ^j^^^ ^^^^ banking institution is
punishment of bankers receiving money -.^^^^^^^^ ^, ;„ failing circumstances
from a depositor, knowing that the ^j^^,, ^^ individually responsible for
bank IS '"solvent, does not violate j jj, 3^ received. State v. Oleson,
Const art. 1, § 16 which provides that 35 ^y^^j^ ^^ ^^ p^^ ggg
a debtor, where there is a strong pre- ._ _ _ , . , j- .
sumption of fraud, shall not be con- ^62. Sufficiently definmg crime.—

State v. Sattley, 131 Mo. 464, 33 S.
fined in prison after giving up his es-
**• '*'
tate to his creditors. Commonwealth
V. ,'^ponsler. 1 Lack. Leg. N, 61. 63. Essentials of the offense. Com-
60. Statute creating prima facie pre- monwealth v. Sm.ith, 4 Pa. Super. Ct. 1.
business of receiving such deposits in violation of its charter does not bring
it or the offending officials within the purview of the act.** Whether such
a statute includes within purview private and unchartered banks and their
its
officers is a question of legislative intent and statutdry construction in each
case.®^ A statute which does include private banks and bankers applies
to attorneys at law, partners in business, held forth to the public by their
letter heads, notes, checks, etc., as the bank of a certain county.*® Where
the statute makes it a felony for any one connected with a banking concern,
either public or private, to receive deposits while such institution is insolvent,
it is not material in what capacity the interested or guilty party is connected
with the bank, whether as an ostensible partner, or as a secret conspirator
with the actual operator of the same, if any substantial aid is given by him
tending to violate the statute; and hence a formal dissolution of a banking
firm can not exonerate the retiring partner from full accountability for sub-
sequent acts in an unlawful plan to receive deposits during the insolvency
of the bank.*'^
64. Persons and institutions coming art. 13, is entitled, "Corporations other
within purview of statute —
Trust com- than and § 13 is almost
municipal,"
pany.— State V. Reid, 125 Mo. 4.3, 28 S. identical in language with the statute,
W. 172. which was passed with reference
65. and unchartered banks.
Private thereto. Acts 1907, c. 235, § 33, incor-
— Section Rev. St., of Mo. de-
1350, porated the word "owner" into the
claring that "if any president, director, law, while Acts 1909, c. 349, § 388, in-
manager, cashier, or other officer of cluded stockholders and employees as
any banking institution, shall receive well as owners, etc. Held, in view of
a deposit after he has knowledge that the title of the act, its language, and
the bank is insolvent, he shall be guilty the other statutes and constitutional
of larceny," was enacted to enforce § provisions, that section 1 did not ap-
Const. 1875, on banking cor-
37, art. 13, ply to private individual bankers. State
porations, and does not apply to pri- V. Youngbluth, 60 Wash. 383, 111 Pac.
vate banks and bankers. State v. Kel- 240.
sey, 89 Mo. 623, 1 S. W. 838; S. C, 1
Acts of Va. 1893-94, c. 210, making
S. W. 841.
itan offense for any private banker or
The proviso in Rev. St. of Mo. 1899, any employee of any private banker
§ 1945 (Ann. St. 1906, p. 1320), relat-
to accept a deposit with knowledge
ing to the offense of receiving depos-
that he or such institution is insolvent,
its when insolvent, stating that "the was not impliedly repealed by Acts
failure of any such bank, or banking
1902-3-4, c. 578 (Va. Code 1904, § 1171),
institution, or trust company, or insti-
creating the same offense with refer-
tution, shall be prima facie evidence
ence to banks, and defining the word
of knowledge on the part of any such
"bank" to include banks of deposit and
officer or person that the same was in-
discount, savings banks, savings so-
solvent, or in failing circumstances
cieties, savings institutions, and trust
when the money or property was re-
companies, or other corporation char-
ceived on deposit," applies to private
tered to receive deposits, or do a bank-
as well as incorporated banks. State
ing business, since repeals by implica-
V. Salmon, 316 Mo. 466, 115 S. W. 1106.
tion are not favored, and will not be
Laws of Wash. 1893, c. Ill, is en- presiimed unless the repugnancy is
titled "An act punishing bank officers
such that both can not be sustained
for receiving deposits knowing the
and construed together. Boyenton v.
bank to be insolvent," and section 1
makes any president, director, man- Commonwealth (Va.), 76 S. E. 945.
ager, cashier, or other officer of any 66. Attorneys at law operating un-
banking institution who shall receive —
der banking name. Commonwealth v.
deposits knowing the bank to be in- Sponsler, 1 Lack. Leg. N. 61.
solvent guilty of a felony. Section 2 67. Capacity in which guilty party
provides that "any person'' violating —
connected with bank. State v. Cle-
section 1 shall be punished, etc. Const., ments, 82 Minn. 434, 85 N. W. 339.
Same—Persons Engaged in Unauthorized or Illegal Banking.

Under an making it unlawful for the officers of any bank, "or the
act,
owner, agent, or manager of any private bank or banking institution," to

receive deposits knowing such bank to be insolvent, the owner of a private
bank is liable, though he had not complied with the provisions of the statute
in the organization of his bank, and consequently was doing an unauthorized
business.*^ But the contrary has been held with respect to a trust company
which had and exercised some of the functions of a bank, but which had
no authority under its charter to receive deposits subject to check.*^
—
Insolvency When Bank Deemed Insolvent or in Failing Circum-
—
stances. There are two doctrines upon this subject. According to one
line of decisions, a bank is insolvent within the purview of a statute forbid-
ding the receipt of deposits after knowledge of insolvency when there is a
present inability to pay depositors as banks usually do, and meet all liabilities
as they become due, in the ordinary course of business.'''*' According to the
other line of decisions, the terms "unsafe," "insolvent," "in failing circum-
stances," etc., do not mean insolvent in the limited sense of inability to pay
depositors and creditors in the ordinary course of business, but insolvent
in the broad sense of a deficiency of cash and assets convertible into cash
within a reasonable time to pay liabilities.'''^ Under this view, the words
68. —
Same Persons engaged in un- Ky. 377, 123 S. W. 339.
—
authorized or illegal banking. State v. A bank is "unsafe or insolvent"
Buck, 108 Mo. 622, 18 S. W. 1113; S. within St. 1898, § 4541, making a bank
C, 120 Mo. 25 S. "W. 573.
479, See, officer criminally responsible who shall
also, ante, "Officers of De Facto Bank- receive a deposit, knowing the bank
ing Corporations," § 60 (3); "Illegal to be unsafe or insolvent, when the
and Unauthorized Banking," .§ 61 (l). cash value of its assets realizable in a
69. —
Same Trust company receiving reasonable time in case of liquidation,
deposits in violation of charter. State — as ordinarily prudent person would
70.
—
V. Reid, 125 Mo. 43, 28 S. W. 172.
Insolvency 'When bank deemed
close up their business, is not equal to
its liabilities, exclusive of stock liabil-
insolvent or in failing circumstances. — ities. Ellis V. State, 138 Wis. 513, 119
State V. Stevens, 16 S. Dak. 309, 93 N. N. W. 1110, 20 E. R. A., N. S., 444.
W. 420; State v. Cadwell, 79 Iowa 432, Where liank officers largely indebted
44 N. W. 700; Eads v. Orcutt, 79 Mo. to it and possessing property interests
App. 511. in a corporation to a very significant
71. Same— Same —Contrary view. — amount as compared with such indebt-
Ellis V. State, 138 Wis. 513, 119 N. 'W. ediiess convey such property to the
1110, 20 L. R. A., N. S., 444; Fleming bank on account thereof, pursuant to
v. State, 62 Tex. Cr App. 653, 139 S. an under.'itanding, the fact that some
W. 598. of the officers equally interested in the
The term "insolvency" as used in bank and the outside property are not
Ky. St., § 597 CRussell's St., § 2186), debtors of the bank, but have never-
providing that, if any president of a theless agreed with their associates to
bank shall receive or assent to the re- join in conveying such property to
ceiving of deposits with knowledge strengthen the bank, which obligation
that the bank is insolvent, he shall be the other officers have reason to sup-
guilty of a felony, means that all of pose will be and which in fact is re-
the bank's property and assets are not deemed, does not militate against the
sufficient to satisfy its debts, and not outside interests of such nondebtor
that it may not have sufficient funds officers being considered by the oth-
in its vaults to satisfy all its deposi- ers, before the transfer, on the Ques-
tors, or any considerable number of tion of whether the bank is solvent.
them, on the same day, or in case of Ellis V. State, 138 Wis. 513, 119 N. W.
a run. Parrish v. Commonwealth, 136 niO, 20 L. R. A., N. S., 444.
1 B & B—26
"unsafe or insolvent" occurring in a statute are held to be legal equivalents.^ ^

And in balancing the assets against the liabilities, the capital stock and sur-
plus fund are to be classed as resources,''^ together with all the property, real
and personal, belonging to said bank, its bills receivable, notes, obligations
due the bank of any and every character, considering the solvency of the
makers, indorsers, and guarantors thereof, and the value of the securities
thereon, if any, also including all stocks and bonds held by the bank as
its property.'^* Considering the general purpose and policy of such statutes,
together with the fact that no reasonable man would make a general deposit in
a bank if he knew that it was not at that time able to pay depositors and cred-
itors in the usual course of business, and that his only hope of ever recovering
it again was dependent upon the assets of the bank panning out a sufficient
amount to pay dollar for dollar upon a general liquidation and winding up of
its affairs, there is no doubt but that the view first stated is correct, and that
under a proper construction of such an act it is the duty of the officers to

close the doors of the bank and refuse to receive further deposits as soon
as they discover that the bank is not able to pay depositors checks and meet
obligations as they arise in the ordinary course of business.''^
Uncertainty as to Bank's Real Oonditions —Reasonable Belief,

Good Faith, etc. —What is here said, however, is not intended to militate
against the doctrine that directors, knowing that the bank is getting into deep
water, financially, may yet have reasonable grounds to believe that through
judicious management, or the assistance of outside capital, it will be able
to tide over its temporary embarrassment and establish itself upon a firm
basis, and that so believing, they may in all good faith, and without subject-
ing themselves to criminal liability, keep it open and continue to receive
deposits so long as there is a reasonable ground for such belief and ability
to pay obligations as they arise in the ordinary course of business.'^®
Liability as Affected by Cause and Extent of Insolvency. On an —

issue as to whether a banker received deposits while insolvent, it is imma-
terial whether the bank became insolvent by his fault or by accident, and
whether the insolvency consisted in inability to pay depositors or other
creditor, or both.^'^
72. Same—"Unsafe or insolvent" Tenn. 98, 34 S. W. 222; Cassiday v.
used synonymously.— Ellis v. State, Uhlmann, 170 N. Y. 505, 63 N. E. 554;

138 Wis. 513, 119 N. W. 1110, 20 L. R. Nathan v. Uhlmann, 184 N. Y. 606, 77
A., N. S., 444. N.,E. 1192. _
Uncertainty as to banks condi-

„„
73.
o —
Same •an,„^ „„:j„.j assets.
What considered „„.4.„
..
76.
„ Reasonable
tion— t>.„„„„ ui. belief,
u^v.^c „j faith,
good r-jti,
— ^tatp V.
btate ?, Myers, 54 Kan
Mvers 20fi 38 Par
Kan. 206, if&c.
et^..— St. Louis, etc., R. Co. v. John-
''"°-
„ „ „, „ ston, 133 U. S. 566, 33 L. Ed. 683, 10
74. Same— Same.— Fleming .
v. State, s. Ct. 390, reversing 27 Fed. 243;

62 Tex. Cr. App. 653, 139 S. W. 598. Dodge v. Mastin, 17 Fed. 660, 5 Mc-
75. —
Same Better doctrine. See — Cjary 404; Fleming v. State, 62 Tex.
State V. Stevens, 16 S. Dak. 309, 92 N. Cr. App. 653, 139 S. W, 598.
W. 420; State v. Cadwell, 79 Iowa 432, 77. Liability as affected by cause
44 N. W. 700; Eads v. Orcutt, 79 Mo. and extent of insolvency. Carr v. —
App. 511; Minton v. Stahlman, 96 State, 104 Ala. 4,-16 So. 150.
§ 61 (3b) OFFICERS AND AGENTS. ^ 403
Knowledge of Insolvency. —While practically all statutes concerning

criminal liability for receipt of deposits after knowledge of insolvency pro-
ceed upon the same general idea or principle, yet in their exact wording as
to details they present such a variety of expression that it is well-nigh im-
possible to formulate any general statement as to the character or degree
of knowledge of insolvency necessary to guilt. But considering the dual
purpose of such statutes, namely, to protect depositors from fraud, after
insolvency, and to spur directors and other officials of banking institutions
up such a degree of diligence, prudence, and careful attention in the
to
management of the bank's affairs as will reduce the danger of insolvency
to a the reasonable and common sense doctrine would seem to be
minimum,
that actual knowledge of insolvency should not be held essential to guilt,
but that directors and other chief officers who are in a position to know, and
whose duty it is to know, the condition of the bank should be held guilty,
not only in cases of actual knowledge, but in every case in which their lack
of knowledge is due to their own negligence and fault since under the con- ;
trary doctrine the natural effect of the statute would be, not to encourage
diligence, careful attention, and an intimate knowledge of the bank's affairs,
but exactly the contrary course of conduct, for the simple reason that the
more ignorant an could show himself to be of the bank's condition,
official
the less danger there would be of his conviction under the statute. And,
accordingly, it has been so held.'^^ It must be admitted, however, that the
majority of the cases take the opposite view, and, giving the statutes a
strict construction in favor of the accused, hold that actual knowledge of
insolvency is essential to guilt." ^ On the other hand, it has been held in at
78. Knowledge of insolvency Ne- — he does not know its condition; but
cessity for actual knowledge. State v. — he must have received the deposits
Cadwallader, 154 Ind. 607, 57 N. E. knowing the bank to be insolvent.
512. State v. Tomblin, 57 Kan. 841, 48 Pac.
An officer of a bank who receives a 144.
deposit when the bank is insolvent. One may not be convicted under
in violation of Burns' Rev. St. 1894, Code, § making it a felony
1885, for
§ 2031, subjecting such officer to pun- any banker to knowingly receive de-
ishment as for embezzlement, is not posits when insolvent, unless actual
excusable for lack of knowledge as knowledge of the insolvency is shown,
to the insolvency of the bank, where and the fact of insolvency at the time
his ignorance of the insolvency was of receiving a deposit, together with
due to his own negligence or fault. ignorance of insolvency through negli-
State V. Cadwallader, 154 Ind. 607, 57 gence, is not sufficient. State v. Dun-
N. E. 512. ning, 130 Iowa 678, 107 N. W. 937.
79. Same— Cases
holding actual The word "knowledge" as used in
knowledge essential to guilt.— State v. Ky. St., § 597 (Russell's St., § 2186),
Tomblin, 57 Kan. 841, 48 Pac. 144; making it a felony for a bank presi-
State V. Dunning, 130 Iowa 678, 107 N. dent to receive deposits with knowl-
W. 927; Parrish v. Commonwealth, edge of the bank's insolvency, has no
136 Ky. 377, 123 S. W. 339; Stewart v. technical meaning, but meant that the
State, 95 Miss. 627, 49 So. 615. officer had knowledge of the existing
A
person charged with having re- condition by means of his relation to
ceived deposits, as an officer of a bank, the bank, his association with it, and
when it was insolvent, is not guilty his control over it; his direction
of a crime, under Laws 1891, c. 43, thereof being such as to give him ac-
§ 16, because through his negligence tual, personal information concerning
leastone jurisdiction that neither knowledge of insolvency nor intent to

defraud was an essential element of guilt under the statute in force therein
or, in otherwords, that the liability imposed by the statute was absolute.***
—
Receipt of Deposits What Constitutes a Deposit. A statute mak- —
ing a bank criminally responsible for receiving a deposit knowing the bank
to be insolvent, contemplates such a deposit as will create the relation of
debtor and creditor, or bailor and bailee, or principal and agent ;*i but
does not, unless the statute is expressly so worded, include a loan to the
bank while the latter is insolvent.*^ Incidentally it may be stated that a cer-
tificate of deposit, signed by the cashier of defendants' bank, certifying that
a certain person had deposited therein a named sum, payable to her own
order, in current funds, on return of the certificate properly indorsed, is
evidence of a deposit, within the meaning of such statute, and not of a loan.^^
The deposit of a check in a bank, it being treated by the depositor and the
bank as money, the former obtaining credit upon which he may draw
money, is a deposit of money within the purview of a statute of this kind,**
and it is immaterial that upon the presentation of the check it was paid
partly in cash and partly by a credit to the payee's account.* ^
—
Same Money, Notes, Bills, etc., within Purview of Statute. The —
word "draft," as used in an act, providing for the punishment of a banker
who receives deposits of money, drafts, etc., when the bank is known to be
insolvent, includes checks.*® And under a statute making it a felony for
it. Parrish v. Commonwealth, 136 Ky. vous, 73 111. App. 670, affirmed in 174
377, 123 S. W. 339. 111.459, 51 N. E. 805.

One may not be convicted, under 81. Receipt of deposits What con- —
Code 1906, 1169, making it a crime
§
stitutes a deposit. —
Ellis v. State, 138
for an employee of a bank to receive Wis. 513, 119 N. W.
1110, 20 L. R. A.,
a deposit, knowing or having good N. S., 144.
reason to believe the bank to be in- —
Same Loan not included. State
82. —
solvent, unless he actually knew or V. Cadwell, 79 lov/a 432, 44 N. W. 700.
had good reason to believe the bank 83. Same —
Certificate of deposit evi-
was insolvent; and the fact that the dence of deposit and not loan. State —
bank was insolvent, and accused was V. Cadwell, 79 Iowa 43£-, 44 N. W. 700;
ignorant of it through negligence, is State V. Shove, 96 Wis. j, 70 N. W.

not sufficient. Stewart v. State, 95 312.
Miss. 627, 49 So. 615. To receive money, giving a certifi-
cate of deposit therefor payable at a
Receipt of deposit by officers of an
certain time, with interest, is receiv-
insolvent bank does not constitute an
ing it "on deposit," within Rev. St.,
offense under Act March 13, 1909
§ 4541, declaring it an offense for an
(Laws X'ev. 1909, c. 92), unless they officer of a bank, when knowing it is
knew of such insolvency. Eureka insolvent, to receive money "on de-
County Bank Habeas Corpus Cases posit" or "for safe-keeping" or "to
(Nev.), 126 P. 655.
loan" or "for collection." State v.
80. Same —
Liability held to be abso- Shove, 96 Wis. 1, 70 N. W. 312.
lute. —
Murphy v. People, 19 111. App. 84. —
Same Deposit of check a de-
125; Lanterman v. Travous, 73 111.
App. 670, affirmed in 174 III. 459, 51

—
posit of money. Ellis v. State, 138
Wis. 513, 119 N. W. 1110, 20 L. R. A.,
N. E. 805. N. S., 444.
The act for the protection of bank 85. Same —
Check paid partly in cash
depositors (June 4, 1879) renders and partly by giving credit. State v. —
bankers liable to prosecution for re- Salmon, 216 Mo. 466, 115 S. W. 1106.
ceiving deposits when insolvent, 86. Same —Money, notes, bills, etc.,
whether they are aware of their in- within purview of statute. — State v.
solvency or not. Lanterman v. Tra- Warner, 60 Kan. 94, 55 Pac. 343.
§ 61 (3b) OFPICEES AND AGENTS. 405
a bank cashier to receive on deposit bank bills or notes, United States Treas-
ury notes, or "other notes, bills, or drafts, circulating as money or cur-
rency," the quoted phrase refers to notes, bills, or drafts, other than United
States Treasury notes and national bank notes, which pass from hand to
hand that ; is, such as are payable to bearer or are properly indorsed by the
payee so that the legal title may pass by delivery.®'^
—
Same What Constitutes "Receiving." It is not necessary, to con- —
stitute a violation of the statute, that the depositmust be received in the
bank building or rooms, but the receipt of money on deposit for the bank
outside of its rooms is sufficient.*®
— —
Same When Offense Complete. Under a statute, providing that, if
any banker shall receive any deposit when insolvent, whereby the deposit
so made "shall" be "lost" to the depositor, said banker "so receiving said
deposit" shall be deemed guilty of embezzlement, and on conviction fined in
a sum double the amount of the "sum so embezzled and fraudulently taken,"
the crime is consummated when the insolvent banker, having fraudulently
received the deposit, by his failure, suspension, or involuntary liquidation
deprives the depositor of the benefit of such part of the deposit as remains
to his credit. 8* It is not necessary that a demand be made for the return
of the deposit, where the day after the deposit a receiver was appointed for
the banker, who was hopelessly insolvent.^" And where the statute con-
tains a provision making insolvency and bank within thirty
failure of the
days after the receipt of the deposit prima facie evidence of knowledge and
intent to defraud, the offense is still complete whenever the deposits are
received by an insolvent bank, whether such receipt be within thirty days
of the closing of the bank or not, the thirty day limit being merely a rule
of evidence declaring what is prima facie evidence of an intent to defraud. ^^
—
Same When Deposit "Lost" to Depositor. Where the statute de- —
fines the offense as consisting of the fraudulent receipt of deposits with
knowledge of insolvency, "whereby the deposit so made shall be lost to the
depositor," the deposit is "lost" to the depositor when, by reason of such
insolvency, he is deprived of the use of the same or any part thereof .^^ And
this does not mean such loss or deprivation as may appear upon the ulti-
mate settlement of the bank's affairs, but simply inability by reason of
insolvency to repay the same upon demand, ^^ or in the usual course of
87. — Same.— State Smith, 91

Same v. 91. Same — Same— Effect of pro-
Ark. 1, W.
120 S. 156. vision making failure within thirty
88. Same—What constitutes "re- days prima facie evidence. Lanter- —
ceiving."— State Yetzer, 97 Iowa
v. man v. Travous, 73 111. App. 070, af-
423, 66 N. W. 737. firmed in 174 N. E. 805.
III. 459, 51
89. Same—When
offense complete. 93. Same— When deposit lost to de-
— Meadowcroft People, 163 111. 56,
i/ positor.— State v. Beach, 147 Ind. 74,
45 N. E. 991, 35 L. R. A. 176, 54 Am. 43 jj^ g 949 45 n. E. 145, 36 L R A
St. Rep. 447. 179.
90. Same — Same— Demand of re- <j,^„
™ ~ c,„. c* ^ n 1.
turn of deposit unnecessary.-Meadow- i.f V^h a^ tTqIo m

.«
^^ l^f.^
^^ ^^^
croft V. People, 163 111. 56, 45 N. E.
991, 35 L. R. A. 176, 54 Am. St. Rep.
^fiL. p'
36 R. t ^L^
A. 179.
^^ ^^^' ^^
447.
business as required by the implied contract arising out of the offer and
acceptance of the deposit;^* for it is held that the word "lost" includes the
loss of the use of thewhole or a part thereof even for a tirrte, and it is no de-
fense that the resources of the bank are ultimately found sufficient to pay
all the debts,*^ or that, pending the prosecution, the depositor is tendered
the full amount of his claim.^^
Same — Liability as Affected by Return, or Intent to Return De-

posit. —The banker receiving money on deposit, knowing the
fact that a
bank to be insolvent, intended at the time to return the same is immaterial.^^
It is different, however, in the case of a special deposit specifically set apart
with the owner's name and kept separate from the general funds of the bank,
and which identical money or bonds or other security is afterwards returned
to him unimpaired by reason of the bank's insolvency.^^
Same—Ability to Follow Deposit as a Trust Fund. It is no defense —

to a prosecution for knowingly receiving a deposit as a banker when insolvent
that the depositor could follow the money so received as a trust fund.^*
Same —Receiving Deposits from Persons Indebted to Bank. — Stat-

utes creating criminal liability for the receipt of deposits after knowledge
of insolvency do not contemplate, as coming within the condemnation of
the act, those transactions which, though they may be deposits in form, are,
payment of a present existing indebtedness, then
in practical effect, only the
due and owing, as upon an overdrawn account.^ In order to claim the
benefit of this exception, however, the indebtedness must have been such
that the bank had the legal right at the time the deposit was received to
apply it upon the debt, so that the depositor would have had no right to
have the deposit repaid on demand; in other words, the debt must have
94. — —
Same Same. State v. Beach, handed to him for deposit, placed it in
147 Ind. 74, 43 N. E. 949, 46 N. E. 145, an envelope marked with its owner's
36 L. R. A. 179. name, to be returned to him after the
95. Same — —
Same. State v. Krasher, bank closed, and who returned the
170 Ind. 43, 83 N. E. 498; State v. identical $20 to the depositor after the
Harter, 170 Ind. 703, 83 N. E. 1135. bank's failure, was not guilty ot em-
96. Same — Same.— Meadowcroft v. bezzlement. Commonwealth v. Jun-
People, 163 111. 56, 45 N. E. 991, 35 L. kin, 170 Pa. 194, 32 Atl. 617.
R. A. 176, 54 Am. St. Rep. 447. 99. Same —
Ability to follow deposit
97. Same —Liability
affected by
as
— —
as a trust fund. State v. Eifert, 103
return or intent to return deposit. Iowa 188, 65 N. W. 309, 71 N. W. 248,
Commonwealth v. Sponsler, 1 Lack. 38 L. R. A. 485, 63 Am. St. Rep. 433.
Leg. X. 61. 1. —
Same Receiving deposits from
98. Same — Special
deposits Return — — persons indebted to bank. Ellis v. —
of identical money or other thing. State, 138 Wis. 513, 119 N. W. 1110, 20
Commonwealth v. Junkin, 170 Pa. 194, L. R. A X. S., 444.
,
32 Atl. 617. A banker is not guilty of receiving

Under Act May 9, 1889, § 1, provid- deposits with knowledge of the bank's
ing that any officer of a bank who shall insolvency, within the meaning of Act
take money from a depositor with the May 9, 1889, making it a criminal of-
Icnowledge that the bank is at the fense so to do. when the depositor at
time insolvent shall be guilty of em- the time owes the bank a sum a^reater
bezzlement, an officer of a bank, than the amount of the deposit,
knowing the bank to be insolvent and Commonwealth v. Schall, 12 Pa. Co.
about to close, who received $20, Ct. R. 209.
§ 61 (3b) • OFFICERS AND AGENTS. 407
been then due and owing.^ Where a bank officer accepts a deposit and
places it to the credit of a depositor, his status, as regards guilt under such
a statute, is thereby fixed, and is not subject to change by maturity there-
after of an indebtedness by the depositor to the bank, before suspension
of the bank, absorbing a part or the whole of the deposit.^ And this is
true even where the statute contains an express exception as to deposits

received from persons indebted to the bank*
Guilty Knowledge or Participation in Receipt of Deposits Lia- —
bility for Acts of Another. —
Where once it is shown that the directors
or other managing officers of the bank had knowledge of its insolvency,
or were chargeable with such knowledge, in those jurisdictions where that
is held to be sufficient, it is not necessary, in order to fix their guilt under
the statute, to go further and show that they were the persons who actually
manually received the deposit, or that they had actual knowledge of its
receipt, or that they were even present in the bank or in the town at the
time it was received.^ In other words, the offense defined by the Statute
may be committed through agents and subordinates, as well as in person,
and if the directors or other chief officers having in charge the manage-
ment of the bank's affairs fail to take prompt steps to close the bank upon
discovering its insolvency and to prevent the receipt of further deposits,
they must be held responsible for the acts of their agents and subordinates
who do the actual receiving; and this, as stated, without regard to their
actual knowledge of the receipt of any particular deposit or deposits, or
their personal presence in the bank, or even in the town, at the time the
deposit was received,^ and without regard to whether the teller or other
2. —
Same Same, debt must have 359, 51 So. 4; State v. Saltley, ]31 Mo.
been then due and owing. Ellis v. — 464, 33 S. W. 41.
State, 138 Wis. 513, 119 N. W. 1110, 20 Under the Act (Acts 1893-93, p. 95)
L. R. A., N. S., 444. making guilty of a misdemeanor a
3. Same — Same— Same.— Ellis v. bank officer or agent who shall re-
State, 138 Wis. 513, 119 N. W. 1110, 30 ceive for deposit any money, knowing
L. R. A., N. S., 444. at the time that the bank is insolvent,
4. — —
Same Same Effect of express a manager who keeps his banic open
exception contained in statute. State — for business, knowing it to be in-
'J. Beach. 147 Ind. 74, 43 N. E. 949, 46 solvent, is guilty in respect to a de-
N. E. 145, 36 L. R. A. 179; State v. posit received by the teller in the
Cadwallader. 154 Ind. 607, 57 N. E. 513. course of business, though the man-
5. Guilty knowledge or participation ager himself be not present, or even
in receipt of deposits Liability — for in town, and the teller himself have no
acts of another. —
State v. Cadwell, 79 Lniilty knowledge. Carr v. State, 104
Iowa 433, 44 N. W. 700; Carr v. State, Ala. 4, 16 So. 150.
104 Ala. 4, 16 So. 150; Baker v. State, In a prosecution against a bank
54 Wis. 368, 13 N. W. 13; McClure v. president for receiving or assenting to
People, 37 Colo. 358, 61 Pac. 613; State the reception of deposits with knowl-
V. Mitchell, 96 Miss. 259. 51 So. 4. edee of the bank's insolvency, he need
6. Same — Managing affairs respon- not be shown to have assented to that
s'iblefor acts of subordinates. State — particular deposit, since his recogni-
V. Cadwell, 79 Iowa 432, 44 N. W. 700: tion of the eeneral authority of the
Cfirr V. State, 104 \la. 4. 16 So. 150; teller to receive deposits, without tak-
Baker v. State. Wis. 368. 12 N. W.
54 mg any steps to prevent such receipt,
12: McClure v People. 27 Colo. 358, after he knew, or in law was charged
61 Pac. 612; State v. Mitchell, 96 Miss. with knowledge, of the bank's in-
official who the money knew that the bank was then
actually received
insolventJ under such circumstances, to at once revoke
It is their duty,
the authority of subordinate employees in the matter of receiving deposits,

and failing to do so, they are criminally liable for the acts of those em-
ployees with respect to deposits thereafter received.*
Same — Officer Who Advises Keeping Bank Open.
Assists or —
Where an officer of a bank, knowing the bank to be insolvent, assists, ad-
vises_, etc., the keeping of the bank open for the receipt of deposits, and
while it is so kept open a particular deposit is received, such officer is guilty

of a violation of such statute, though the money is actually received by
another.®
solvency, was an assent to the recep- of its status, though he did not manu-
tion of a deposit by his employee. ally receive the deposit. State v.
McClure v. People, 27 Colo. 358, 61 Mitchell, 96 Miss. 259, 51 So. 4.
Pac. 612. Rev. St., § 4541, provides that any
An officer of a bank can not relieve employee of a bank, "or of any person
himself from criminal liability for re- engaged in banking, * * * or any per-
ceiving deposits when the bank was son engaged in such business," who re-
insolvent by intentionally absenting ceives money or commercial paper on
himself from the bank, and abstaining deposit, or for safe-keeping, etc., when
from participating in its management, he has good reason to know that he
and purposely neglecting to avail him- is "unsafe or insolvent," shall be pun-
self of means of information as to its ished as therein prescribed. Held, that
financial condition, or by showing that the banker himself may be punished
if he had given his attention to its as provided in that section, and it is
business, by reason of his lack of fit- not confined to officers, clerks, or
ness and ignorance of banking meth- agents of corporations, or individuals
ods, Ije could not have ascertained its engaged in such business. Baker v.
true condition. McCIure v. People, 27 State, 54 Wis. 368, 12 N. W. 12.
Colo. 358, 61 Pac. 612.
Acts 18th Gen. Assem., c. 153, pro-
7. —
Same Knowledge of insolvency
—
by person actually receiving deposit.
vides that no banking firm shall accept Carr v. State, 104 Ala. 4. 16 So. 150.
on deposit any money when insolvent,
and any member of such firm,- who re-
8. —
Same Duty to revoke authority
of subordinates upon knowledge of in-
ceives a deposit, knowing of such in-
solvency, shall be guilty of a felony,
—
solvency. State V. Sattley, 131 Mo.
464, 33 S. W. 41.
etc. An indictment alleged that de-
fendants, a firm engaged in banking, If a bank employee, by authority of
were, on a date specified, insolvent, his superior officer, given before the
and, being so, that they accepted and latter had knowledge that the bank
received on deposit a certain sum of was insolvent, receives a deposit after
money. Held, that evidence is admis- its insolvency, such officer, unless he
sible that the deposit was received by revoked the authority after he became
the cashier of defendants' bank during aware of the condition of the bank,
their absence; it being immaterial will be liable to prosecution under
whether they did the act constituting Rev. St. 1889, § 3581, making it a crime
the offense in person or by an agent. for a bank officer to assent to the re-
State V. Cadwell, 79 Iowa 432, 44 N. ceipt of a deposit, knowing that the
W. 700. bank is in failing circumstances. State
Under Code 1906, § 1169, declaring a V. Sattley, 131 Mo. 464, 33 S. W. 41.
punishment the president, manager,

if 9. —
Same Officer who assists or ad-
cashier, assistant,
teller, clerk, or vises keeping bank open. State —
v.
other employee, or agent of a bank Yetzer, 97 Iowa 423, 66 N. W. 737.
receive a deposit knowing, or having One who had complete and personal
good reason to believe, the establish- charge of the business of an unincor-
ment to be insolvent, without inform- porated bank, and knew of its insol-
ing the depositor of such condition, vent condition when money was re-
there may be a conviction of a di- ceived on deposit by its president, was
rector, the bank having been kept an accomplice to the crime. Brown v.
open by the directors with knowledge State (Tex. Cr. App.), 151 S. W. 561.
§ 61 (3b) OFFICE^RS AND AGENTS. 409
Same— Officer Who Permits or Connives at Receipt of Deposit.

An officer of an insolvent bank who, knowing of its insolvency, permits
or connives at the receiving of deposits, is guilty of the offense defined by
the statute, whether he is a managing party or not.i''
Same —Liability for Acts of Subordinates in Violation of Orders.

—An officer of an insolvent bank, who instructs the teller or other sub-
ordinate employee to receive no further deposits, whatever his civil lia-
bility may be, is not liable to a criminal prosecution for the act of such
employee in receiving deposits in violation of his orders. ^^ It is essential,
therefore, and generally sufficient, in a prosecution of this kind, for the

state to prove either the receipt of the deposit by the defendants, or one
of them, a direction to their subordinates to receive it, a participation in
its receipt, or a ratification thereof by the use of that particular money

or otherwise. 12
—
Same Distinction between Receipt and Assent to Receipt. In —
Nevada, under a statute penalizing every officer of any bank who "receives
any deposits" knowing the bank to be insolvent, the court drew a distinc-
tion between the receipt and the "assent" to the receipt of a deposit, hold-
ing that the statute did not penalize the act of "assent" to the reception
of a deposit, and that where the teller of an insolvent bank received a de-
posit, the president, though knowing of the insolvency, could not be pun-
ished on the theory that he assented to the reception of the deposit. ^^ At
its next session, the legislature amended the act, evidently for the purpose
of meeting the distinction made by the court, and made it a crime either
to receive or to assent to the receipt or deposits after knowledge of in-
solvency.i* Under this amended act the court held that an officer of an
incorporated bank could not be held criminally liable simply because he
was such officer and had knowledge of the bank's insolvency, or because
deposits were being received for the bank by some other officer, but that
only such officers as were present at the receipt of the deposits, or who
actually received the same, or who had authority to close the bank to pre-
vent the receipt of deposits could be guilty of the offense of "assenting"
to the receipt of deposits. ^^
10. —
Same Ôfficer who permits or — —
Same Same. Ex parte Smith,
15.
connives at receipt of deposit. State — .33 Nev. 466, 111 Pac. 930; Ex parte
V. Yetzer, 97 Iowa 423, 66 N'. W. 737. Griffin, 33 Nev. 490, 111 Pac. 939.
11. Same—Liability
for acts of sub- Act March 13, 1909 (Laws Nev. 1909,
ordinates in violation of orders. Com- — =• 93), which makes it an offense for a
ba"k officer or employee' to receive a
monwealth v. lunkin, 170 Pa. 194, 32
Atl 617 deposit, knowing that the bank is in-
solvent does not make directors, who
12. Same-Essential elements re-
quired to be proven.-Commonwealth ^^^.«, ^^s^"' ^'°'^. ^^5 =°"'?ty ^ên de-
Schall, 12 Pa. Co. Ct. R. 209. ^,^" received, punishable on a

V.
. .
l°f^
bare assumption that they assented
13. Same— Distinction between re- thereto; it being necessary to show af-
ceipt and assent to receipt.— Ex parte firmative assent. Eureka County Bank
Rickey, 31 Nev. 82, 100 Pac. 134. Habeas Corpus Cases (Nev.), 126 P.
14. Same — Same.— Acts Nev. March 655.
13, 1909, St. 1909, c. 92. A director or officer, when he is not
Under a Louisiana statute making it a crime for a bank officer to

assent to the reception of deposits after he knows that the bank is insolvent,
it was held that the statute did not require that the officer should have
charter authority for assenting to the deposit, but simply that he should
be an and should assent; and hence, in a prosecution of the cashier
officer
of a bank, the questionwas not as to who under the charter had authority,
but simply whether or not as matter of fact the defendant was cashier, and
as such assented to the deposit. ^^
Same —Joint —
Offenses. Two or more persons, partners as bankers,
may commit the crime of receiving deposits with knowledge that
jointly
they and the bank are insolvent.^'^
§ 61 (4) Embezzlement, Misappropriation, False Entries, etc. —

A statutory provision for the protection of incorporated banks, which
makes it penal for a cashier to convert any "money, bank bill, or note"
does not extend to promissory notes (other than bank notes) or commer-
cial paper.i* Where bonds are placed by the owner for safe-keeping in
a locked drawer of the bank safe of which he carries the key, such bonds
are still in the custody of the owner and subject to his immediate orders,
and a cashier who obtains the bonds by breaking the drawer and pledges
them to another bank as security for a debt of his bank, is not only guilty
of trespass, but of a larceny of the bonds. ^^ The liability of a private
banker, for fraudulently converting a special deposit of money, under a
statute which makes such conversion a crime,^*' is none the less that his
bank, which used the money, is a partnership, and such case is covered by
an allegation of conversion "to his own use."
—
False Entries. Check books, on the stubs of which false entries of
deposit are made, and which were issued by the bank and given away, are
books of entry within the meaning of an act making it an offense for the
officer of a.ny corporation to make a false entry in any book of the cor-
poration with intent to defraud.^^ And a cash book falsely stating the
amount of cash in the bank at the close of business on the day preceding
specially authorized by the board of 16. Same — Same—Louisiana statute.

directors or stockholders, is not em-
powered to prevent the reception of
— State v. Hoffman, 130 La. 949, 45 So.
951.
deposits, or to close a bank which has
long been doing business and its re-
17. —
Same Joint offenses. State v. —
Smith, 63 Minn. 540, 64 N. W. 1023.
ceiving deposits, merely because he is 18. Embezzlement, misappropriation,
Such officer. Eureka County Bank etc., securities included in statutory
Habeas Corpus Cases (Nev.), 126 P. offense.— State -v. Stimson, 34 N. J.
C55. L. 9.
Receipt in a private bank of a deposit 19. Bonds deposited for safe-keep-
hy the teller held a receipt by the ing.— Truslow v. State, 95 Tenn. 189,
banker; but receipt in an incorporated 31 S. W. 987.
bank by the teller held a receipt by 20. Liability of individual member
the corporation, as affecting criminal of private banking partnership. Carr —
responsibility for receipt of the deposit v. State, 104 Ala. 4, 16 Sp. 150.
while the bank was insolvent. Eureka 21. False entries —
On stub of check
County Bank
(Nev..). 126 P. 655.
Habeas Corpus Cases —
book. Commonwealth v. Dewhirst,
390 Mass. 393, 76 N. E. 1053.
an examination of the bank is a false book, notwithstanding the fact that

on the day of the examination the president of the bank borrowed for a
few hours and put into the bank sufficient cash to make up the amount
shown by the cash book.^^ Where the prosecution is for the fraudulent
alteration of entries under a statute declaring that persons committing such
offense with intent to defraud shall be punished as for forgery, it is im-
material, so far as the defendant's guilt or innocence is concerned, whether
or not the bank directors consented to the change.^^
Constitutionality of Statute. —As heretofore noticed, a charter pro-
vision, applicable solely to the employees of that particular bank, and pro-
viding that any officer, servant or agent making false entries in any of the
books of the bank shall be deemed guilty of a felony and punished as
therein prescribed, has been held to be unconstitutional within the purview
of the provision that no man shall be taken, or imprisoned, or disseized,
etc., except by the judgment of his peers or the law of the land. 2*
§ 61 (5) False Reports, Statements, and Returns, Exhibiting

—
False Books, etc. What Reports, etc.. Included in Statute. —
statutory provision making it a criminal offense for any officer of a cor-
poration to knowingly concur in making any false report or statement of
its pecuniary condition, includes false reports made to the state banking
department although such reports are not specifically mentioned therein. ^^

That the alleged false report is incomplete through the failure to observe
some statutory requirement as to its form or the manner of its execution
is no defense, where it is received by the public examiner without objec-
tion on that ground. ^^ The exhibiting of a false minute of an alleged

meeting of the board of directors of a trust company to an examiner ap-
pointed by the banking department, with the intent to deceive such ex-
aminer as to the financial condition of the company, is the exhibiting of
a false paper. ^^^ Likewise a cash book falsely stating the amount of cash
22. Obtaining temporary loan to For example, where a report of the

conceal falsity of showing made by condition of a bank, submitted to the
—
books. People v. Helmer, 13 App. public examiner and alleged to be
false, was received by him without ob-
Div. 426, 43 N. Y. S. 642, 12 N. Y. Cr.
R. 134, judgment reversed on other jection on the ground that it was not
points in 154 R
Y. 596, 49 N. E. 249. attested by the signature of at least
23 Fraudulent alterations— Consent two of the bank's directors, as re-
of directors as a defense.— Querter-
qmred by Laws 1903, p. 81, c. 79, § 2,
mous V State, 95 Ark. 48, 127 S. W. it.

was nevertheless sufficient sus- to
tarn an information against the officer,
ggj^
«'..
T^ 1 i _ r'^-î.-t,,*;^.,,!;*-,,
• verifying the same for making a false
24 False entnes-Constitutionality report. State v. Struble, 19 S. Dak.
of charter provision.— Budd v. State,
23 Tenn. (3 Humph.) 483, 39 Am. Dec.
646 104 N W 46";
^V. False minutes of board meeting.
^^^- —State V. Twining, 73 N. J. L. 3, 62
.
25. False reports— What reports m- Atl. 402, affirmed in 73 N. J. L. (44

—
eluded by statute. People v. Britton, Vn) 683, 64 Atl 1073
134 App. Div. 275, 118 N. Y. S. 989. A paper exhibited to a person au-
26. Incomplete or informal report. thorized to examine the condition of
— State V. Struble, 19 S. Dak. 646, 104 trust companies, as the unrecorded
X. W. 465 minutes of a meeting of directors, and
in the bank at the close of business on the day preceding an examination

of the bank is a "false book," notwithstanding that on the day of the ex-
amination the bank president borrowed for a few hours and put into the
bank enough cash to make up the amount shown in the cash book.^s
—
Persons Included, by Statute. A statute which provides that every
officer, agent or clerk of any corporation or of any persons proposing to
organize a corporation or to increase its capital stock who knowingly ex-

hibits any false, forged, or altered book, paper, voucher, security or other
instrument of evidence, to any public officer or board authorized by laW
to examine the organization of such corporation, or to investigate its af-
fairs, or to be allowed an increase of its capital stock, with intent to de-
ceive such officer or board in respect thereto, is punishable by imprisonment,
etc., is not limited to one proposing to organize a corporation, or to increase
the capital stock of any corporation, but extends to and covers the case of
an officer of a bank charged with exhibiting a false report of the bank's
affairs to the bank commissioners with intent to deceive them with respect
thereto.23
When False. —Where the report is substantially true, and gives a fair
exhibit of the condition of the bank at the time, though not as indicated
by the books, the cashier in swearing to such return is not guilty of per-
jury.^f* But the report to the state examiner must agree with the books
of the bank as to the names by which accounts are called hence, it is a ;
false report to report overdrafts as loans.^^

Exhibiting —What Constitutes. — It is a question of fact as to what
constitutes the exhibiting of the books of the bank to an examiner, and
it is reversible error for the court to instruct or intimate that the president
"exhibits" the books so as to be liable for knowingly exhibiting false books,
where he is in the bank when the examiner calls to examine the books, and
knows the object of his visit, although he does not personally show the
books.32 But where one of two officers of a trust company produces, a false
minute to the examiner, in the presence of the other, who by his silence
acquiesces in such exhibition although he knows of its falsity, both are
containing a resolution for the pur- other points in 154 N. Y. 596, 49 N.

chase of shares of stock which the ex- E. 249.
aminer had found among the assets of 29. Persons included by statute. —
the company, is a "paper" within the People v. Nash, 15 Cal. App. 320, 114
meaning of Trust Companies Act 1899 Pac. 784.
(P. L. 1899, p. 461), § 17, and if false 30. Report substantially true—
and exhibited to the examiner with in-
_
Cashier not guilty —

of perjury. Cora-
tent to deceive him, the officers ex- monwealth u. Dunham (Mass.), Thacher
hibiting it were guilty of- a crime under Cr. Cas. 538.
that section. Judgment (Sup. 1905), 31. Reporting overdrafts as loans. —
62 Atl. 402, affirmed. State v. Twining, State v.Jackson, 31 S. Dak. 494, 113 N.
73 N. J. L. (44 Vr.) 683, 64 Atl. 1073, W. 880.
1135. 32. "Exhibiting" —
What constitutes
28. Temporary loan to conceal fal- — Province of court and jury. People
sity of cash book. — People v. Helmer, v. Helmer, 154 N. Y. 596, 49 N. E. 249,
13 App. Div. 426, 43 N. Y. S. 642, 12 reversing 13 App. Div. 436, 13 N. Y.

N. Y. Cr. R. 134, judgment reversed on Cr. R. 134, 43 N. Y. S. 642.
guilty of making a false exhibit.^^

Motive or Intent. Where the — statute prescribes that every officer,
agent, or clerk of any bank, who makes any false statements or entries
in its books, or subscribes or exhibits any false paper, with the intent to
deceive any person authorized to examine as to the condition of such in-
stitution, or subscribes or makes false reports, shall be subject to imprison-
ment, etc., the prosecution is not obliged to show what particular motive
prompted the accused to make the report bank ex-made by him to the
aminer, but proof of its a conviction.^*
intentional falsity is essential to
On the other hand, where a report or statement of the condition of a bank
is false, and known to be such, and is made with intent to deceive the bank
commissioner or other persons as to the financial condition of the bank,

the person making it is guilty, although he may not have intended to injure
the bank or defraud its depositors. ^^
§ 61 (6) With Respect to Loans, Discounts, and Overdrafts.—

Statutes making it a penal offense for the officers charged with the man-
agement of banks to violate charter or statutory provisions requiring banks
to keep a certain percentage of the capital stock on deposit, or forbidding
them to loan their funds in excess of a prescribed limit to the officers of
the bank or to third persons may extend to all state banks within the ju- .
risdiction or may be applicable only to a certain class of banks, as, for ex-
ample, banks of issue. In any case, it is a question of the proper con-
struction of the statutes in force in the particular jurisdiction.^^
Loans to Firm of Which Director Is Member. — A state banking law
prohibiting loans in excess of a certain amount to any director prohibits a
loan to a firm of which a director is a member within the penal laws of the
state punishing a director violating his statutory duty.^^"
Overdrafts. —A bank president, not acting in good faith, has no right
to permit overdrafts when he does not believe and has no reasonable ground
to believe that the moneys can be repaid. And coupled with such wrong-
if,
ful act, the proof establishes that he intended by the transaction to injure
33. Liability of one officer for acts § 1934, requiring one-half of the cash
of associate done in his presence and paid in on the capital stock to be kept
with his knowledge and acquiescence. on deposit, or § 1948, making it unlaw-
— State V. Twining, 73 N. J. L. 3, 63 ful for a bank to loan more than S5
Atl. 402, affirmed in 73 N. J. L. (44 per cent of the amount of its capital
Vr.) 683, 64 Atl. 1073. stock to the officers and directors
34. Proof of intentional falsity^ thereof, of § 1949, making it unlawful
Specific motive or intent. State v. — for a bank to loan its funds to any
Jackson, 20 S. Dak. 305, 105 N. W. person on the indorsement of its of-
742. ficers or directors, is applicable only
35. — —
Same Same. State v. Mason, to officers, agents, and directors of
61 Kan. 102, 58 Pac. 978. banks of issue, provisions for which
36. Extent of statutes.^Thornton z/. are made by Civ. Code 1895, §§ 1929,
State, 5 Ga. App. 397, 63 S. E. 301. 1953. Thornton v. State, 5 Ga. App.
Pen. Code 1895, § 214, providing that 397, 63 S. E. 301.
any officer, agent, or director of a bank 36a. Loans to firm of which director
shall be punished as therein prescribed is member. —
People v. Knapp (N. Y.),
for violation of Civ. Code 1895, 99 N. E- 841.
and defraud the bank, the wrongful act becomes a crime.^^ But merely
overdrawing an account knowingly does not constitute the offense within
the meaning of a statute making it a misdemeanor for an officer of a bank
to knowingly overdraw his account and thereby wrongfully obtain the
money or funds of the bank. It must appear that the money was wrong-
fully obtained, and the transaction by which the overdraft was made must
be shown. It is not enough to show merely the bank's possession of the
officer's check.3* But where upon an examination of the whole statute
it appears that the mischief aimed at was the practice of bank officers to
knowingly overdraw their accounts, without regard to their intention in

so doing, the fraudulent intent constitutes no part of the offense, and need
not be charged in the indictment.^*
§ 61 (7) Purchase, Sale or Transfer of Stock.-În some jurisdic-

tions banks are prohibited by law from using any part of the capital stock
in the purchase of their own shares, and a president or director so using
the capital is indictable for felony.*"
§ 61 (8) Illegal Dividends. —In the absence of statute prohibiting

it, it is not a crime for the president and directors of a bank to declare
dividends, from funds other than the profits of the bank ;*i and where such
action on the part of the president and directors is declared to be a felony,
it is purely statutory and does not involve moral turpitude.*^ Such a stat-
ute may forbid the declaration of such dividends by banks of issue, or it
may extend the prohibition to all the state banks within the jurisdiction.
It is a question of construction in each case.*^ Under such a statute, the
president is where the evidence shows
guilty without respect to his motives
that during his incumbrance as president of the bank it suffered loss
through taking papers that proved worthless, and that these bad debts and
worthless paper were not charged off, but were allowed to accumulate until
they were sufficient not only to offset all surplus and undivided profits, but
37. Permitting overdraft as crime.

. State, 8 Ga. App. 129, 68 S. E. 849.
Coffin V. United States, 163 U. S. 664, The action of the president and di-
683. 40 L. Ed. 1109, 16 S. Ct. 943. rectors of a bank in declaring a divi-
38. Proof of wrongful overdraft. dend from funds other than profits
PeoDle V. Clements, 4S Hun 386, 5 N. would be criminal, whether the bank
Y. Cr. R. 377, 3 N. Y. St. R. 700. in question be a bank of issue or not,'
39. When fraudulent intent not either under Pen. Code 1895, § 210,
necessary to completion of offense. — providing that if any president and di-
State V. Stimson, 34 N. J. L. 478. rectors shall declare or pay a divi-
40. Purchase, sale or transfer of dend from funds of the bank other
stock. —
See Crawford v. Roney, 126 tljan net profits they shall be punished
Ga. 763, 55 S. E. 499; Robison v. by confinement in the penitentiary, or
Beall, 26 Ga. 17. under § 691 providing that any presi-
41. Wrongful dividend as a crime. dent, director, or other officer of any
Cabaness v. State, 8 Ga. App. 129, 68 ioint stock company or other associa-
S. E. 849. tion who shall declare a dividend out.
42. Statutory crime Moral turpi- — of funds not the legitimate proceeds of
tude.-^Cabaness v. State, 8 Ga. App. its investments shall be guilty of a mis-
129, 68 S. E. 849. demeanor. Cabaness- v. State, 8 Ga.
43. Scope of statutes. — Cabaness v. App. 139, 68 S. E. 849.
§ 62 (lb) OFFICERS AND AGFNTS. 415
also to seriously impair the original capital of the bank,, and that while
this state of affairs existed, and at a time when the defendant in all humaii
probability knew it existed, he joined with the board of directors in de-

claring a dividend.**
§ 62. Prosecution and Punishment— § 62 (1) Indictment

or Information —
§ 62 (la) Following Words of Statute. A differ- —
ence exists as between common-law crimes and statutory offenses in the
necessity for fullness of statement in the accusation. Many statutory
crimes may be sufficiently charged in the language of the statute; while
as to many common-law offenses, a description of what the defendant
actually did is necessary to make the charge plain and legally complete.
Where the offense is purely statutory, having no relation to the common
law, it is, as a general rule, sufficient to charge the defendant with acts
coming fully within the statutory description, in the substantial words of
the statute, without any further expansion of the matter, with this funda-
mental qualification, that the accused must be apprised with reasonable
certainty of the nature of the accusation against him, and that an indict-
ment not thus framed is defective, even though it follow the language of
the statute.* 5 In order to charge the crime defined by the statute, an in-
dictment for a statutory offense should follow the terms of the statute,
or use terms which show conclusively, or beyond a reasonable doubt, that
the accused is guilty of the offense described in the statute.*^ It is not
necessary that the indictment should literally pursue the terms of the stat-
ute on which it is based, and it will be good if it use words fully equiva-
lent in meaning to those of the statute, or more comprehensive.* '^ It should
be and definite in its statement to inform the defendant
sufficiently full
of the offense with which he is charged, and exact enough to protect him
from a second jeopardy.*^
§ 62 (lb) Existence and Operation of Bank —Defendant's Of-

ficial Relation. —Where the defendant is indicted under a statute appli-
cable solely to banking institutions and their officers and agents, an
indictment under such statute should allege the existence and operation of
44. Intent or motive in declaring ant, as president of a bank, knowingly

—
dividend. Cabaness v. State, 8 Ga. exhibited its cash book to an, officer
App. 129, 68 S. E. 849. duly authorized to investigate the af-
Following words of statute
45. — fairs of the bank, with intent to de-
Common law and statutory offenses.— ceive such officer, contrary to the
United States v. Simmons, 96 U. S. form of the statute, etc., is sufficient,
360. 24 L. Ed. 819; Youmans v. State, though it omits the words "in respect
7 Ga. App. 101, 66 S.- E. 383. thereto," used in the statute. Judg-
46. Necessity for following words of ment, 13 App. Div. 426, 43 N. Y. S.
statute.^-Boyenton v. Commonwealth 642, 12 N. Y. Cr. Rep. 134, reversed.
(Va.), 76 S. E. 945. People v. Helmer, 154 N. Y. 596, 49 N.
47. Budd V. State, 22 Tenn. (3 E. 249.
Humph) 483, 39 Am. Dec. 189. 48. Certainty and fullness required.
An indictment for knowingly ex- — Youmans v. State,7 Ga. App. 101,
hibiting.a.false book, under Pen. Code, 66 S. E. 383; State v. Stimson, 24 N.
§ 592, which alleges that the defend- J. L. 9.
the bank and the defendant's relation thereto as an officer or agent, describ-
ing and setting out the same.*^ Where the statute is not applicable to all
banks or to all officials, but makes classifications and distinctions, the in-
dictment must, of course, describe, distinguish and identify the accused and
the offense accordingly, and must contain averments bringing the bank by,
against or with respect to which the offensewas committed, within the class
to which the statute applies.^" Where the statute distinguishes between
private and incorporated banks, an indictment charging an offense against
the officers of a private bank should allege the fact that it was a private
institution and the names of the owners thereof f'^ and where the business
is owned and conducted by a partnership the names of the individual part-
ners should be given, even though it is conducted under a name that does
not disclose that it is a private bank or a partnership. -52
Averment of Official Relation. —Where the statute affects persons
49. Existence and operation of bank S. E. 301; State v. Piper, 73 N. H. 226,

—Defendant's ofiicial relation. — Quei- 60 Atl. 742; Roby v. State, 41 Tex. Cr.
termous v. State, 95 Ark. 48, 127 S. W. App. 152, 51 S. W. 1114.
951; State v. Piper, 73 N. H. 226, 60 Aspecial presentment charging of-
Atl. 742. ficers of a state bank with a violation
An indictment, charging that defend- of Civ. Code 1895, § 1948, making it
ant was the cashier of the Bank of H., unlawful for a bank to loan more than
a corporation organized and incor- 25 per cent of the amount of its capi-
porated under the laws of Arkansas, tal stock to the officers and directors
etc., and that as cashier aforesaid, and thereof, is fatally defective where it
having in his custody the book ac- fails to allege that such bank was a
counts of said bank, etc., he did felo- bank of issue. Thornton v. State, 5
niously alter the books of account of Ga. .App. 397, 63 S. E. 301.
said bank kept by said cvorporation, Under Kirby's Dig., §§ 1813, 18}4,
sufficiently alleged that the bank was punishing every officer of any b:ip.k
a banking corporation. Quertermous organized or doing business under the
V. State, 95 Ark. 48, 127 S. W. 951. law of the state who makes false re-
An indictment under such act alleg- ports or who receives a deposit when
ing that accused, "being persons then he knows that the bank is insolvent,
and there doing a banking business, an indictment alleging that an officer
* * * did receive" from one D. certain of a bank received a deposit after he
moneys, of the property of said D., knew that the bank was insolvent, and
the said D. then and there not being that the bank was a corporation doing
indebted to accused, sufficiently al- business under the laws of the state,
leges that accused was doing a banking need not allege that it was a. domestic
business, and that the moneys were re- banking corporation, sine, under the
ceived as a general deposit. ^leadow- law, foreign corporation may do
croft V. People, 163 111. 56, 45 N. E. business in '.he state under specified
991. 35 L. R. A. 176, 54 .\m. St. Rep. restrictions. Davey v. State, OQ Ark.
447. 547, 139 S. W. 629.
An indictment under Act May 9, An indictment nee'I not allege tliat
1891, relating to receiving deposits by a bank was not a national bank, since
insolvent bankers, charging that de- the inapplicability of the statute to na-
fendants "were engaged in the business tional banks is a matter of defense.
of carrying on a private bank," does Davey v. State, 99 Ark. 517, 139 S. W.
not sufficiently allege that defendants 629.
are "bankers." within the meaning of 51. Natnes of owners of private
the statute. Commonwealth v. Delama- bank —
to be alleged. Roby v. State, 41
ter (Quart. Sess.) 2 Pa. Dist. R. 118. Tex. Cr. App. 152, 51 S. W. 1114;
50. Where statute makes distinctions Boventon v. Commonwealth (Va.),76
—
and classifications. Boyenton v. Com- S. E. 945.
monwealth (Va.), 76 S. E. 946; Davey 52. —
Same Where business con-
V. State, 99 Ark. 547, 139 S. W. 629; —
ducted by partnership. Roby v. State,
Thornton v. State, 5 Ga. App. 397, 63 41 Tex. Cr. App. 152, 51 S. W. 1114.
§ 62 (Ic) OFFICERS AND AGENTS. 417
according to their particular office or relation to the bank the indictment

should specify just what office the accused held or what relation he sus-
tained to the bank.53 And although it is not necessary that an indictment
should literally pursue the terms of the statute on which it is based, and
although the indictment will be good if it use words fully equivalent in
meaning to those of the statute, or more comprehensive, yet this principle
will not apply to a case where a statute affects persons as connected with
specified offices; and, therefore, an indictment against a person as "clerk
of the individual ledger" of a bank is not sufficient under a statute which
authorizes the indictment, for the particular offense, of' "any of the officers,
agents, or servants" of said bank, since the term clerk is of such varied
import that it can not be assumed that "clerk," especially "clerk of the in-
dividual ledger," is equivalent to officer, agent or servant, but the facts in
that respect together with the fact of his employment by the bank must be
alleged.^*
§ 62 (Ic) Intent Willful or Intentional. — —Where the statute pen-

alizes the act only when done with the intent to deceive, the intent to de-
fraud, etc., it is necessary that the indictment should charge that it was
done with such intent; but otherwise where intent is not made an element
of the offense. ^5 And where the statute provides that proof of certain facts
shall be prima facie evidence of intent, as that the failure of the bank within
a certain time after the receipt of a deposit shall be prima facie evidence of
an intent to defraud, an indictment is sufficient without specifically alleging
that the deposit was received with intent to defraud. ^^ Where the indict-
ment is for exhibiting false books to the public examiner, an allegation that
the exhibition was made "with intent to deceive him" is sufficient without
the addition of the words of the statute "in regard thereto."'^
53. Averment of official relation. Humph.) 483, 39 Am. Dec. 189; State
Commonwealth v. Loving, 39 Ky. L. v. McElroy, 50 Tenn. (3 Heisk.) 69.
Rep. 175, 93 S. W. 575; Budd v. State, 55. Averment of intent.— State v.
22 Tenn. (3 Humph.) 483, 39 Am. Dec. Stimson, 24 N. J. L. 9; People v.
189. Helmer, 154 N. Y. 596, 49 N. E. 349,
Under Cr. Code Prac, § 123, requir- reversing 13 App. Div. 426, 43 N. Y. S.
ing an mdictment to contain a state- 642, 12 N. Y. Cr. Rep. 134; State v.
ment of the acts constituting the Piper, 73 N. H. 236, 60 Atl. 742.
offense in ordinary and concise Ian- t„ „„ ;„ j;„j.„„„j. 04.
, ^, • 1 . . • In an indictment under -o Kev. St., p.
1
guage, an indictment charging a viola- « ^

-,25 against a casnier
cashier ot a hanW
of a bank
tion of Ky. St. 1903, § 2223a, subsec. f^^ /„„ '
1 •
j " r tor conversion of its funds, it is not
11, making misdemeanor
it for any
a „„^„„„.,,„ V
necessary <.„to „],.,,
. ,.
ji i i cuaree an embezzlement,
officer or agent of an mvestment con.
.. i:
„^ ^^ j^^ ^^ ^^ ^ ^^
pany which has no license to transact ^, gtimson, 24 N. J. L. 9.
business for it, is defective, where it
fails to allege what office the accused _56. Same—Tir,
<,
Where statute makes cer-
held, or whether he was an ordinary ta^" "cts prima facie evidence of in-
agent of the company. Commonwealth tent.— Meadowcroft v. People, 163 111.
V. Loving, 39 Ky. L. Rep. 175, 93 S. 56, 45 N. E. 991, 35 L. R. A. 176, 54 Am.

St. Rep. 447.
W. 575.
54. Same —Where offense defined 57. Same — Following language of
with reference to certain specified of- statute. — People Helmer, 154 N.
v. Y.
ficers.— Budd v. State, 22 Tenn. (3 596, 49 N. E. 349, reversing- 13 .\pp.
1 B & B—27
418 BANKS AND .BANKING. § 62 (Id)
Intent of Person Aiding and Abetting. —An indictment for aiding an

officer of a bank in making false entries, etc., is not defective because it
charges the principal with having made the entries with intent to defraud
the bank, and also with intent to deceive examining agents, whereas it
merely charges the aider with an intent to deceive such agents ; for it is
immaterial that the principal may have had several intents, if both principal
and aider were actuated by the criminal intent to deceive such agents. ^^
"Willful or Intentional." —Where the penalty is prescribed only for

acts of willful and intentional fraud and mismanagement, and not for mere
negligence and acts of omfssion, the indictment should allege such willful
and fraudulent intent as will bring the case within the statute.^^
§ 62 (Id) Joinder of Parties and Offenses. The president and —

directors of a bank may be joined in an indictment for making a false
return. 8° But under statutes making it unlawful and punishable as a
crime for the president or directors to declare or pay over dividends except
out of the net profits of the bank, or for any corporation or association
to declare a dividend which is not the legitimate proceeds of its invest-
ments, and makes such act by a president, director or other officer punish-
able as a misdemeanor, the offense is several rather than joint, and in an
indictment against the president or one of the directors it is not necessary
to set out the names of other directors not indicted though they may have ,
participated in the declaration of the dividend.^ ^ Where the statute makes

it an offense for any banker, officer, or employee of any bank willfully and
knowingly to subscribe to or make any false statement or false entry in the

books of any bank or to make any false report or statement of such bank,
counts charging a bank cashier (1) with making false entries in the cer-
tificate register of the bank, (2) with making false entries in a ledger of
the amount due the bank from another bank, and (3) with making false
entries in the report of the bank to the state commissioner of banking,
as to the amount due from banks, and the amount due on time certificates
of deposit, are properly joined in one information, such matters all arising
out of acts of the accused in his administration of the bank's business, and
Div. 426, 43 N. Y. S. 642, 12 N. Y. Cr. making a false return of the condition

Rep. 134. of a bank, must allege that the false
58. Intent of aider and abettor. — return was made by them willfully;
Coffin V. United States, 162 U. S. 664, otherwise, the indictment will be
40 L. Ed. 1109, 16 S. Ct. 943. quashed, as settmg forth no offense
or imentional.-You-
constitutmg a misdemeanor at com-
59. Willful
mans v. State, 7 Ga. App. 101, 66 S. E. 7°" law. Commonwealth i,. Dunham
(Mass.), Thacher Cr. Cas. 538.
383; Commonwealth %. Dunham
(Mass), Thacher Cr Cas. .538; Hume v. 60- Joming defendants in indictment.
Commercial Bank, 77 Tenn. (9 Lea) —Commonwealth v. Dunham
(Mass.),
728; Minton v. Stahlman, 96 Tenn. 98, Thacher Cas. 538.
Cr.
34 S. W. 222. 61. Several offense Setting — out
An indictment against bank di- —
names of other officers. Cabaness v.
rectors, under Rev. St., c. 36, § 65, for State, 8 Ga. App. 129, 68 S. E. 849.
§ 62 (leb) OFFICERS AND AGENTS. 419
hence a motion to require the prosecuting attorney to elect on which count

he will prosecute is properly refused. ^^
§ 62 (le) Indictments for Particular Offenses Considered

§ 62 (lea) Illegal and Unauthorized Banking. Under a statute "to —
prohibit the issuing and circulating unauthorized bank paper," it is suffi-
cient to charge in the indictment, in general terms, that the defendant acted
as an officer of a bank not incorporated by law.®^ And it is no objection to
an information against the officers of an organized banking association,
under the act to suppress illegal banking associations, that it does not in
terms allege them to be such association, if it is apparent that they were
thus associated with a common interest, purpose, and action.*'*
§ 62 (leb) False Entries. —Under a statute providing that every

person who with intent to defraud shall make any false entry or shall falsely
alter any entry made in any book of account kept by any banking corpora-
tion within the state by which any pecuniary obligation, claim, or credit
shall be, or etc., or in any manner
purport to be, discharged, diminished,
affected, shall be punished as for forgery, an indictment alleging that there
was a certain sum on deposit and entry thereof on the bank's books, and
that said entry had been falsely altered and changed so as to purport to
diminish and discharge the creditor, was sufficient being equivalent to a ;
direct allegation that the credit had not in fact been diminished or dis-
But where the
charged. ^^ if any officer of a banking
statute provided that
company should make any any book of the institution, with
false entry in
intent to deceive any officer of the institution or the bank commissioners,
he should be fined, etc., it was held that an indictment for violating such
section should allege that defendant was an officer (describing his office) of
a loan and banking company, organized under the laws of that state and
engaged banking and loan business (describing the company and its
in the
place of business in the state)that, being such officer, he made, in a book
;
described, owned by the institution, and entry described; that the entry
was false (setting out the facts to establish its falsity) ; that it was made
with intent to deceive the officers of the institution (describing them) or the
bank officers (naming them) — and should contain averments of time and
place.*®
62. Joinder of offenses — Election of An indictment against a bank of-

counts. — Ruth v. State, 140 Wis. 373, ficer alleged that on a specified day
122 N. W. 733. _ he made a certain false entry in re-
63.Illegal and unauthorized bank- gard to the amount of money paid out
ing. —
Lougee v. State, 11 O. 68; Bonsai from the funds of the bank, etc., as
V. State, 11 O. 72; Steedman v. State, follows, to wit: "Thursday, Aug. 27,
11 O. 82. 1903 Checks, 5200;" meaning and in-
64. Same. —
Williams v. State, 23 Tex. tending to be understood that he (de-
264. fendant), in his capacity as 'assistant
65. —
False entries. Quertermous v.
State, 95 Ark. 48, 127 S. W. 951.
cashier, had on that date paid from
the bank's funds checks of deposi-
66. Same. —
State v. Piper, 73 N. H. tors to the sum of $3,200, whereas in
226, 60 Atl. 742. truth, defendant, in his said capacity,
420 BANKS AND BANKING. § 62 (lee)
§ 62 (lee) False Reports and Statements. An indictment under —

a statute, fixing a punishment for any officer or employee of a bank who
shall knowingly subscribe or make any false statements with intent to de-
ceive any person authorized to examine its condition, should describe the
statement mentioned in the statute and the person to whom made with such
particularity as to individuate the offense charged and enable the defendant
to know what is intended.^'^ It should specifically point out wherein the al-
leged statement was and that it was made to the commissioners,
false ;8*
examiners, or other official to whom by law it is required to be made, for
if made to other persons, it is not a violation of the statute and an indict-
ment charging that it was made to such other person or persons does not
state an offense under the statute.^ ^ Where the statute denounces a pen-
did not pay such sum, or any part St. 1903, c. 266, required the officers
thereof, as in the entry was falsely al- of a bank whenever so required by the
leged and stated, etc. Held, that the bank commissioners to make a written
allegation that defendant, as assistant verified report showing the bank's ac-
cashier, had not paid out the money, tual financial condition at the close of
did not negative the truth of the en- any past day specified by the com-
try, as not showing that the money missioners by stating, among other
had not been paid out by the bank, things, the total amount actually paid
and that the indictment was therefore "in money" by stockholders for capi-
insufficient. State v. Piper, 73 N. H. tal stock; and Pen. Code, § 558, de-
226, 60 Atl. 743. clares that every officer of a corpora-
Where an indictment charged that tion who knowingly exhibits a false
defendant made a false entry in the statement to any officer or board au-
books of a bank in regard to the thorized to examine the corporation
amount of money then and there with- with intent to deceive shall be pun-
drawn from the bank by one D., a de- 1 ishable, etc. Held, that an indictment
positor, and that D. did not withdraw of a bank officer alleging that he ex-
$500 on the day specified according to hibited to the bank commissioners a
the entry, such allegation sufficiently report which was false, in that it
charged that the money was not with- showed that the amount of capital of
drawn from D.'s account either by him the bank actually paid "in coin"
or on his order. State v. Piper, 73 N. amounted to $102,245, when in truth
H. 230, 60 Atl. 432. the amount of capital of the bank
67. False reports and statements. — theretofore paid "in coin" did not
State V. Henderson, 135 Iowa 499, 113 amount to more than $50,000, and that
N. W. 328. it was necessary and material for the
68. Same —Pointing out falsity. — bank commissioners to know from
State v: Henderson, 135 Iowa 499, 113 such report what amount of the capi-
N. W. 328. tal stock of the bank had been paid
An indictment under Code, § 1887, "in coin," was not fatally defective in
fixing a punishment for any officer or ihat the report stated the amount paid
employee of a bank who shall know- in coin instead of the amount paid "in
ingly subscribe or make any false money," since a statement that a cer-
statements with intent to deceive any tain amount had been paid "in coin"
person authorized to examine its con- was in effect a statement that at leasL
dition, charging defendant and an of- that amount had been paid in money.
ficer of the bank with making false People V. Nash, 15 Cal. App. 320, 114
statements of its financial condition, Pac. 784.
in which he reported the overdrafts of 69. Persons to whom made. State —
individuals to be only $466.28, while in V. Henderson, 135 Iowa 499, 113 X. W.
fact they exceeded $1,500. and that 328.
there was due from other banks a cer- Code, § 1845, relating to savings
tain sum which was $1,500 more than banks, authorizes a directorate of not
the true amount so due. sufficiently less than five nor rn'ore than nine per-
pointed out wherein the alleged state- sons. Section 1871 requires the board
ment was false. State v. Henderson, of directors to appoint from its num-
135 Iowa 499, 113 N. W. 328. ber an exam.ining committee to ex-
§ 62 (led) OFFICERS AND AGENTS. 421
alty for exhibiting a falsebook or report to an officer duly authorized to

investigate the affairs of the bank, an indictment which charges the de-
fendant with having exhibited a false book to such an officer with the intent
to deceive him, contrary to the form of the statute, is sufficient though it
omits the words "in respect thereto," used in the statute.'"
§ 62 (led) Conversion and Misappropriation of Funds. —Upon

an indictment for the conversion or misappropriation of the funds of the
bank by the cashier, it is not necessary to allege that he did it in his official
or fiduciary capacity or that the funds were intrusted to him in such capacity,
unless the statute makes these
an essential element of the offense.
facts '^'^
But an indictment under a statute which treats as guilty of larceny any of-
ficer of an incorporated bank who fraudulently converts to his own use any
bullion, money, note, bill, or other security for money belonging to and in
possession of such bank, whether intrusted with the custody thereof or not,
etc., rightly contains an averment that the money was in the possession of
the bank.''' 2 Generally it is sufficient in such case to charge the offense in
the words of the statute.''^ ^^d an indictment against a cashier which
amine the bank. Section 1873 empow- such bank, shall knowingly overdraw
ers the state auditor to direct an ex- his account with the bank of which
amination of a savings bank at any- he shall be director, cashier, book-
time, and under § 1875 he may appoint keeper, officer, or agent, for his own
bank examiners for this purpose. Held, private use or benefit, or shall pur-
that an indictment under Code, § 1887, loin, embezzle, or convert to his own
fixing, a punishment for any officers or use any money, bank bill or note the
employees of such a bank who shall property of the said corporation, with
knowingly subscribe or make any false intent to defraud the said corporation,
statements with intent to deceive any or wrongfully to make use of the same,
person authorized to examine its con- in every such case the person so of-
dition, which charged generally that fending shall be judged guilty of a
a false statement was made to the di- high misdemeanor," it is not neces-
rectors of the bank, was demurrable, sary that the indictment should charge
since the directors are not among the that defendant committed the act "as
persons authorized by statute to ex- cashier,'' or that the funds were en-
amine the bank's condition. State v. trusted to him in such capacit}"-, since
Henderson, 135 Iowa 499, 113 N. W. ihe commission of the' act in his
328. fiduciary capacity is not made essen-
—
Oral or in writing. Such an indict- tial to the completion of the crime.
State V. Stimson, 24 N. J. L. 9.
ment is not demurrable, however, be-
cause omitting to allege whether the 72. That money or funds in pos-
false statement was in writing or oral. —
session of bank. Commonwealth v.
State V. Henderson, 135 Towa 499, 113 Warner, 173 Mass. 541, 54 N. E. 353.
N. 'W. 328. 73. 'Words of statute sufficient.
State V. Stimson, 24 N. J. L. 9.
Following language of statute.
70.
An indictment charging that ac-
— People V. Helmer, 154 N. Y. 596, 49
cused, as president and director of a
N. E. 249, reversing 13 Apo. Div. 426,
trust company organized under Laws
43 N. Y. S. 642, 12 N. Y. Cr. Rep.
1883, p. 133, c. 107, and the laws amend-
134.
atory thereof (Laws 1885, p. 123, c.
71. Conversion and misappropria- 74), did feloniously become indebted
—
tion of funds In ofGcial capacity. in the sum named, which he appro-
State V. Stimson, 24 N. J. L. 9. priated to his own use states a cause
'Where the statute provides, "that if of action under Rev. Laws 1905,
any director of any incorporated bank § 3045. State v. Barnes. 108 Minn.
in this state, or any cashier, book- 230. 122 N. W. 11; S. C, 108 Minn. 527,
keeper, or other officer or agent of any 122 N. W. 12.
422 BANKS AND BANKING. § 62 (lee)
charges that defendant "converted the property of the bank," with intent
wrongfully to make use of it, is sufficient.''* Some degree of certainty and
individuality, however, must be given to the offense with which the defend-
ant is charged; It is difficult to state with precision just how far the indict-
ment should go in this respect, but it may be stated that the certainty should
be such as to identify the offense, so that the defendant may know what
crime he is called upon to answer, and may be able to plead the conviction
or acquittal as a bar to a future indictment for the same offense; but the
particularity required is not such to screen him from conviction, or to em-
barrass the prosecution with useless technicalities.'^^ It will not be suffi-
cient, for instance, for such an indictment to charge, in the words of the
statute, that the own use money and bank notes
defendant converted to his
the property of the bank. There must be some description either of number
or denomination or value by which the particular offense may be to some
extent at least identified.'^® Where the charge is that the defendant em-
bezzled or misappropriated so many dollars in coin or money, it is not nec-
essary to allege the value thereof, since the statement of the number of
amount of such coin is equivalent to an allegation of its value; but where
the averment is that the property converted consisted of notes or secu-
which may be worth more or
rities less than their face value, the indictment
should state what that value is.''"^
§ 62 (lee) Indictment for Aiding and Abetting. —Under the Re-

vised Statutes of the United States, § 5209, a third person, unconnected
with the bank in any official capacity, can not commit a violation of its pro-
visions without the concurring act of an officer or agent of the bank, and
under the statute the officer or agent must be prosecuted as the principal
and the outsider as an aider and abettor. The indictment in such case must
connect the acts charged against the aider and abettor with the offense
stated against the principal offender, and this is sufficiently done where the
indictment charges the principal offender with misappropriating or mis-
applying a specific sum in a certain manner, and then alleging that the de-
fendant charged with aiding and abetting did aid and abet the principal
offender, "as aforesaid," to misappropriate and misapply the funds of the
bank in a specific sum, identical in amount with that charged to have been
misapplied by the principal offender.'''*
74. Averment of conversion with under Rev. St., p. 125, § 1, against the
wrongful intent sufficient. — State v. cashier of a bank for converting its
Stimson, 24 X. L. 9. J. funds, which charges a conversion of
75. Degree
certainty and
of pre- "$19,000 of ôney and $19,000 of bank
cision in describing offense. State v. — notes," is bad for uncertainty. State
Stimson, 24 X. J. L. 9. v. Stimson, 24 X. J. L. 9.
76. Description of money or funds 78. Indictment for aiding and abet-
—
converted. State v. Stimson, 24 X"^. J. —
ting. Coffin z\ United States, 162 U.
L. 9. S. 664, 40 L. Ed. 1109, 16 S. Ct. 943.
77. Averment of value. — State -. An indictment for aiding and abet-
Stimson, 24 X. J. L. 9. ting one H., the president of a bank,
A count in an indictment brought in the criminal misapplication of its
§ 62 (leh) OFFICERS AND AGBNTS. 423
§ 62 (lef) Overdrawing Account. —Where the statute makes it a

criminal ofifense for a cashier, director or officer knowingly to overdraw his
account with the bank of which he is such officer, an indictment which states
that the defendant was the cashier of an incorporated bank; that he kept
an account of his dealings with the bank that at a certain day there was ;
no money due him from the bank, and that knowing the premises, he know-
ingly drew from the bank a certain sum of money for his own benefit, and
thereby overdrew his account, sufficiently describes the offense against the
statute ; it is not necessary to state the manner, or by whose checks, or in
how many checks he overdrew his account ; nor is it necessary to state in
what funds the overdraft was madeJ^
§ 62 (leg) Fraudulent Insolvency. —Upon an indictment for the

statutory offense of having brought about the fraudulent insolvency of the
bank, the material facts and circumstances embraced in the statutory defini-
tion of the offense must be stated, or the indictment will be defective, the
chief of said facts being that the insolvency was brought about by the
fraudulent acts and practices of the defendant, since it is only fraudulent
insolvency that is made criminal.*"
§ 62 (leh) Receiving Deposits after Knowledge of Insolvency.

Averment of Insolvency. —
As there can be no offense under a statute of
this kind unless the bank was insolvent at the time the deposit was received,
it is essential that the fact of insolvency should be specificall}' and affirm-
;*i and
atively alleged if the indictment is wanting in an averment of this
funds, charged that, on a specified nite to inform defendant of the ofifense

date, the said H. misapplied a named with which charged, and exact enough
sum, by causing the same to be paid to protect him from second jeopardy,
out on the checks of a company hav- Youmans v. State, 7 Ga. App. 101, 66
ing no moneys in the bank. The aid- S. E. 383.
ing and abetting clause charged that gl. Averment of insolvency.— Flem-
the accused did "on [specifying the jng State, 62 Tex. Cr. App. 653. 139
v.
same date] aid and abet said H., as s. W. 598; State v. Bardwell, 72 Miss.
aforesaid, to wrongfully, etc., mis- 535^ ig go. 377; Murphy v. People, 19
apply the moneys of the bank, "to ni. App. 125; Boyenton v. Common-
wit," specifying an identical sum. wealth (Va.), 76 S. E. 945
c"oi'«t\'d^'the'lctfcfa?f:d agtnltt^
-,,
, ., cc „j. Tir was
wa1"tiie'Srsa'nt^"of
the president of a"\^'k*
bank, that as
^^^^
cused with the offense against H. „,-ô;^.>„* i,„ ,„„„;J a v a
n ca TT •.. J ot .. „ fco TT c aai president he received
deposit as a
^^^"k check on another bank, payable
.n°^"pHînP
40 L. Ed. 1109, 16 q r/ol.
S. Ct. 943.
'
_
^^ ^^^ ^^^^^ ^j ^ ^^j^^ p^^^^^' ^^l^ ^^^
79. Indictment for overdrawing ac- check was deposited by the third per-
count.— State v. Stimson, 24 N. J. L. son, that the president received the de-
^'^'^-
_
posit after he knew that the bank was
80. Indictment for fraudulent in- in failing circumstances and in-
solvency. —Youmans v. State, 7 Ga. solvent, does not charge the offense
App. 101, 66 S. E. 383. denounced by Acts 25th Leg., c. 100,
Anindictment charging that de- punishing any officer of any bank who
fendant being the president of a bank, receives a deposit with knowledge that
and as such charged with the fair ad- the bank is insolvent, because it does
ministration of its affairs, such bank not allege affirmatively the insolvency
did then and there become fraudu- of the bank at the time of the deposit,
lently insolvent, was sufficiently defi- and because it does not show that the
424 BANKS AND BANKING. § 62 (leh)
fact, it is insufficient, even though it charge the offense in the words of the
statute. ^^ Where the bank was a owned and operated
private institution
either by individuals or by a copartnership, the indictment should aver the
ownership or agency and the insolvency of the individuals, especially the
insolvency of the individuals composing a copartnership, the partnership
itself not being a legal entity independent of the individuals composing it.*^
check was transferred as a deposit to Commonwealth (Va.), 76 S. E. 945;

the bank. Fleming v. State, 62 Tex. Meadowcroft People, 163 111. 56, 45
v.
Cr. App. 653, 139 S. W. 598. N. E. 991, 35 L. R. A. 176, 54 Am. St.
Act 1879, "for the protection of Rep. 447; Brown v. State (Tex. Cr.
bank depositors," makes it a criminal App.), 151 S. W. 561.
oflfense for a person doing a banking An indictment under such an act
business, when insolvent, to receive alleging that accused were doing a
a deposit, which is lost by reason of banking business under the name of
the insolvency. Held, that as knowl- "Meadowcroft Bros.," and that they
edge of the fact of insolvency and a were insolvent at the time they re-
fraudulent intent are not made ele- ceived the deposit, is sufficient, with-
ments of the offense, they need neither out alleging that the partnership of
be alleged nor proved, but that alle- Meadowcroft Bros, was insolvent, as
gation and proof of insolvency are es- a partnership is not a legal entity, in-
sential. Murphy v. People, 19 111. dependent of the persons composing
App. 125. it. Meadowcroft v. People, 163 111.
Act Feb. 12, 1894 (Acts 1893-94, c. 56, 45 N. E. 991, 35 L. R. A. 176, 54
210), makes it an oflfense for any pri- Am. St. Rep. 447.
vate banker or his employee to re- Burns' Ann. St. 1901, § 2031, pro-
ceive money from a depositor with vides that, if any banker or any officer
knowledge that such banker was in- of a banking company shall fraudu-
solvent. Held, that an indictment lently receive from any person not in-
against accused as a private banker, debted to it any money on deposit,
charging that the "Bank of Upper- when at the time of receiving such de-
ville" was a private bank of which ac- posit the banker or banking company
cused was cashier, and that he, know- is insolvent, whereby the deposit shall
ing that the "bank" was insolvent, be lost to the depositor, the banker or
feloniously accepted a deposit, etc., but officer so receiving the deposit shall
failing to allege the owner or owners be guilty of embezzlement. Held
of the bank, or that accused was a that, where an indictment for violat-
private banker, or an employee of a ing such section alleged that defend-
private banker, or to charge that "ac- ants who were doing a banking busi-
cused" was insolvent when he received ness as president and cashier of a
the deposit, or that the owner or own- banking company organized as a co-
ers of the bank, or the private banker partnership, etc., fraudulently received
or bankers, were then insolvent, was a deposit of money from prosecutor,
fatally defective. Boyenton v. Com- who was not indebted to the bank, its
monwealth CVa.\ 76 S. E. 945. president, or cashier, or any member
82. —
Same Charging offense in thereof, at a time when defendants
—
words of statute. State v. Bardwell, were insolvent, etc., it was fatally de-
72 Miss. 535, 18 So. 377. fective for failure to allege the names
An indictment under a statute de- of the persons who composed the
claring it an oflfense if an officer of a partnership; the condition of insol-
bank shall receive a deposit, "know- vency referred to in the statute as ap-
ing, or having good reason to believe, plied to a partnership bank being
the establishment to be insolvent." is referable to the insolvency of the in-
not sufficient where it does not allege dividual partners, which must be al-
the insolvency, but merely follows the leged and proved. State v. Krasher,
words of the statute, as there would 170 Ind. 43, 83 N. E. 498.
be no oflfense if the bank was not in- Counts of an indictment charged
solvent, though the officer believed it that accused and J. B. were partners
was. State v. Bardwell, 72 Miss. 535, ?.nd carried on a private banking busi-
18 So. 377. ness under the style of the "Bank of
83. —
Same Insolvency of members U.," that accused took and received
—
of copartnership. State v. Krasher, money from a depositor named with
170 Ind. 43, 83 N. E. 498; Boyenton v. actual knowledge that the firm doing
§ 62 (leh) OFFICERS AND AGENTS. 425
Knowledge of Insolvency. —Knowledge of insolvency need not be al-

leged or proved where not made an element of the offense.** And this is
true even though, in such case, want of knowledge is a defense upon the
issue of fraudulent intent. ^^
Receipt of Money or Other Thing as a Deposit. —As it is the receipt
of deposits which is forbidden by the statute, the indictment should allege
that the money or other thing was received as a deposit. s*' For example,
where the thing received is a check, the indictment should state that it was
transferred to the bank as a deposit.*''
Receipt of Deposit in Official Capacity, by Virtue of Office, etc. —
Under a statute imposing criminal liability upon bank officers who shall
receive deposits with knowledge of the bank's insolvency, an indictment
stating that the money, check, or other thing was received for the bank by
its president, naming him, and accepted on deposit, sufficiently alleges the
receipt of the deposit by an officer of the bank in his capacity as such.**

Where the receipt of deposits under such conditions is declared by the
statute to constitute embezzlement, the fact that it came into the defendant's
possession by virtue of his office and was received by him in his official
capacity should ordinarily be alleged ;*^ but it is otherwise where, under
business as the Bank of U. was insolvency an element of the oflfense,

solvent, also that accused permitted the prosecution need not aver and
such depositor to deposit a specified prove that the officer receiving the de-
sum with actual knowledge that the posit knew that the bank was insolvent,
firm trading as the Bank of U. was as want of such knowledge is matter
insolvent. Held, that such counts of defense, which accused may show
were fatally defective for failure to to justify his act in receiving the de-
charge that accused at the time of re- posit. State V. Cadwallader, 154 Ind.
ceiving the deposit had actual knowl- , 607, 57 N. E. 512.
edge that he and his partner, or either 86. Receipt of money or other thing
of them, was insolvent; the insolvency —
as a deposit. Fleming v. State, 62.
of the partnership being insufficient to Tex. Cr. App. 653, 139 S. W. 598.
render accused guilty of a violation of An indictment under such act alleg-
the act. Boyenton v. Commonwealth ing that accused, "being persons then
(Va.), 76 S. E. 945. and there doing a banking business,
An indictment alleging that accused * * * did receive" from one D. certain
unlawfully received a deposit in the moneys, of the property of said D.,
"unincorporated" bank named, of which the said D. then and there not being
he was president, while it was insol- indebted to accused, sufficiently al-
vent to his knowledge, charged that leges that accused was doing a bank-
the bank was a private bank, and was ing business, and that the moneys
bad under Pen. Code 1911, art. 532 were received as a general deposit.
(Acts 25th Leg. c. 100), for not alleging Meadowcroft v. People, 163 111. 56, 45
that accused was its owner, agent, or N. E. 991, 35 L. R. A. 176, 54 Am. St.
manager, or the names of the owners, Rep. 447.
and that they were insolvent. Brown 87. Same.— Fleming ?'. State, 63 Tex.
V. State (Tex. Cr. App.), 151 S. W. 561. Cr. App. 653, 139 S. W. 598.
84. Knowledge of insolvency. — Mur- 88. Receipt of deposit in
official ca-
phy V. People, 19 111. App. 125. pacity, by virtue of office, etc. Ellis —
85. Same. — State v. Cadwallader, 154 V. State, 138 Wis. 513, 119 N. W. 1110,
20 L. R. A., N. S., 444.
Ind. 607, 57 N. E. 513.
Under Burns' Rev. St. 1894, § 2031, 89. Same —
Where receipt of deposit
prohibiting the receipt by an insolvent declared to constitute embezzlement.
bank of a deposit, whereby such de- — State V. Winstandley, 154 Ind. 443,
posit is lost to the depositor, but 57 N. E. 109.
which does not make knowledge of in- Defendants were indicted under
the statute, the offense is complete without regard to whether the money
came rightfully into the defendant's possession by virtue of his office, and
was then fraudulently converted, or whether it was feloniously taken from
the vault of the bank for no other purpose than to steal it.^" It is not a
material error in the latter case, however, to allege that the defendant, did
"have, receive, and take into possession," a great quantity of money, etc.,
"by virtue of his office" as president, cashier, or treasurer, as the case may
be, since such averment may be rejected as surplusage. ^^ Of course, it is
essential in every case to show either that the accused was the person who
received the deposit, or such guilty knowledge, participation or assent as
will bringhim within the condemnation of the "Statute. ^^ Thus where the
statute provides that any officer having authority to close the bank or to
prevent the receipt of deposits, and who fails to exercise such authority,
when he knows that the bank is insolvent, shall be deemed to have assented
to the receipt of deposits, an indictment seeking to hold the defendant
liable on such ground should allege his authority to close the bank or to
prevent the receipt of deposits. ^s But it is not essential, in such case, to
Burns' Rev. St. 1894, § 3031 (Horner's 414, c. 189), penalizing every officer of
Rev. St. 1897, § 6598), declaring ofany bank who receives any deposits
ficers of incorporated banks, who knowing that the ba'ik is insolvent;
fraudulently received money from per- and the indictment does not charge
sons not indebted thereto, when the accused with the offense under the doc-
bank was insolvent, so that the money trine of agency, since the receipt in
was lost to the depositors, guilty of law was by the bank. Ex parte Rickey,
embezzlement. The indictment stated 31 Nev. 83, 100 Pac. 134.
that defendants were president and 93. Same — —
Same Authority to close
cashier of a bank, that the bank was bank or to prevent receipt of deposits.
insolvent, and that defendants, know- — Ex parte Smîth, 33 Nev. 466, 111 Pac.
ing of such insolvency, fraudulently 930; Ex parte Griffin, 33 Nev. 490, 111
received moneys from a person not in- Pac. 939.
debted to the. bank, whereby such An indictment charging the accused
moneys were lost to such depositor. with assenting to the receipt of bank
Held, that the indictment was insuffi- deposits was framed under Act March
cient, since it failed to aver that the 13, 1909 (St. 1909, c. 92), which by
money was received by defendants in section 1 makes it a crime for a bank
their official capacity, and contained officer to receive deposits or to assent
no allegation from which such fact, to the receipt of deposits when the
or the receipt of the money by the bank is known to be insolvent, and by
bank, would inevitablv follow. State § 3 provides that any officer of an in-
V. Winstandley, 154 Ind. 443, 57 N. E. corporated bank, having authority to
109. close the bank or to prevent the re-
90. — —
Same Same. Commonwealth v. ceipt of deposit, who shall not
Warner, 173 Mass. 541, 54 N. E. 353. exercise such authority when he
91. Same —
Same, surplusage. Com- — knows that the bank is insolvent, shall
monwealth V. Warner, 173 Mass. 541, be deemed to have assented to the re-
54 N. E. 353. ceipt of deposits. The indictment con-
92. —
Same Necessity for showing tained no allegations that the accused
—
individual guilt. Ex parte Rickey, 31 had any authority to close the bank,
Nev. 82, 100 Pac. 134. or to prevent the receipt of deposits,
An indictment alleging that accused or that the accused personally received
was the president of a bank, and that deoosits knowing the bank to be in-
he feloniously, through the receiving solvent. Held that, under § 2, con-
teller, received a deposit knowing the sidered with the direct definition of
bank was insolvent, does not charge § 1 as to the offense of assenting to
accused with receiving the deposit the receipt of deposits, the "assent"
within Act March 29, 1907 (St. 1907, p. required by the statute implied per-
§ 62 (leh) OFFICERS AND AGENTS. 427
allege the name bank held by the person who

or style of the office in the
actually received the deposit, since if it was received by the bank with the
defendant's knowledge and assent, he knowing at the time that the bank was
insolvent, the offense in this particular is complete without regard to the
name or office held by the person receiving it.^*
Person from Whom Received. The indictment should — allege with
sufficient certainty the person, corporation, or association from whom the
deposit was received."^
—
Description of Deposit Amount, Character, Items, etc. The in- —
dictment should describe and identify the deposit with such certainty as will
apprise the accused of the particular charge which he is called upon to de-
fend and enable him to prepare his evidence accordingly and if this is ;
done, it is not necessary, unless made so by the terms of the statute pre-
scribing or defining deposits with reference to some particular kinds of
money, notes, or bills, to give a specific description of each separate item of
which it was composed. ^^ This implies, of course, that the amount or value
mission, and presupposed some mher- that the money belonged to such as-
ent power to withhold assent. Ex sociation, and that she had been in-
parte Smith, 33 Nev. 466, 111 Pac. 930. trusted with the money of such as-
94. Same — Same—When unneces- sociation, the indictment and instruc-
tions properly alleged the ownership
sary to aver name
or style of office of
person actually receiving deposit. — in her as against all wrongdoers. State
Parrish v. Commonwealth, 136 Ky. V. Sattley, 131 Mo. 464, 33 S. W. 41.
377, 123 S. W. 339. 96. Description of deposit —

Amount,
95. Person from received. whom — —
character, items, etc. Parrish v. Com-
monwealth, 136 Ky. 377, 123 S. W. 339;
State V. Eifert, 102 Iowa 188, 65 N. W.
State V. Smith, 91 Ark. 1, 120 S. W. 156;
309, 71 N. W. 248, 38 L. R. A. 485, 63
State V. Quackenbush, 98 Minn. 515,
Am. St. Rep. 433; State v. Smith, 91 108 N. W. 953.
Ark. 1, 120 S. W. 156; State v. Sattlev,
131 Mo. 464, 33 S. W. 41.
An indictment of the president of a
bank for receiving a deposit knowing
An allegation that the deposit was the bank to be insolvent, which al-
received from Y. was a sufficient aver- leged the receipt of a deposit of the
ment that the deposit was made by Y. value of $130, was sufficient to show
State V. Smith, 91 .A.rk. 1, 120 S. W. that the deposit was in money,
156. checks, or drafts aggregating the
Under Code 1873, § 4305, providing amount specified; the word "deposit"
that an indictment shall be sufficient being used in its popular sense to im-
if it states the act complained of in ply that the depositor had placed in
such manner as to enable a person of the bank money, or evidences or
common understanding to know what representatives of money such as banks
is intended to be charged, an indict- of deposit are authorized to, and do,
ment under Acts 18th Gen. Assem., c. receive; so that the indictment was not
153, § 2, making it a penal offense for defective for failure to accurately de-
a banker, knowing himself to be in- scribe the items. Parrish v. Common-
solvent, to receive a deposit, which wealth, 136 Ky. 377, 123 S. W. 339.
alleges that defendant did accept and An indictment for receiving a check
receive a deposit of money from M., for deposit knowing the bank to- be
sufficiently shows that the money be- insolvent, in violation of Kirby's Dig.,
longed to M. State V. Eifert, 103 Iowa § 1814, which stated the names of the
]88, 65 N. W. 309, 71 N. W. 248, 38 L. drawee, the payee, and the amount of
R. A. 485, 63 Am. St. Rep. 433. the check alleged to have been re-
Where, in a prosecution for receiv- ceived, sufficiently identified the check,
ing money as cashier of a bank which though the name of the drawer and
was in failing circumstances, the evi- the date of the check were not stated.
dence discloses that the person mak- State V. Smith, 91 Ark. 1, 120 S. W.
ing the deposit was the president of 156.
a voluntary charitable association, and Kirby's Dig., § 1814, making it a
should be stated.^'
Purpose or Intent. — It is not necessary to allege or prove a fraudulent
intent in the receipt of the depositwhere such intent is not made an element
of the ofifense.®^ And under
making it criminal for any person
a statute
doing a banking business to receive deposits, knowing the bank to be in-
solvent, whereby the deposit is lost to the depositor, and providing that the
subsequent failure of the bank shall be prima facie evidence of an intent to
defraud, an indictment alleging that the accused corruptly, willfully, fraud-
ulently,and feloniously received a deposit, etc., is sufficient, without specific-
was received with intent to defraud. ^^
ally alleging that the dep>osit
—
Loss of Deposit. The loss of the deposit need not be alleged unless
the statute makes the loss thereof an element of the offense.^
Formal and Unnecessary Matter. Superfluous and unnecessary mat- —
ter and formal conclusions, where the same are inappropriate or plainly not
required, may, in general, be treated as surplusage, not affecting the valid-
felony for a cashier of a bank to re- 97. Same —Amount —

or value. Brown
ceive on deposit money, bills, or drafts V. People, 173 111. N. E. 106.
34, 50
circulating as money knowing the bank Act June 4, 1879, provides: "That
to be insolvent, makes no distinction ifany banker * * * shall receive from
between general and special deposits, any person * * * not indebted to said
and it is sufficient to allege in the in- banker * * * any money * * * when at
dictment for violation thereof that the the time of receiving such deposit, said
m.oney, etc., were deposited, without banker is insolvent, where the deposit
alleging the deposit to be general or so made shall be lost to the depositor,
special. State v. Smith, 91 Ark. 1, 120 said banker * * shall be guilty of em-
=f
S. W. 156. bezzlement, and upon conviction

Anallegation that the check was thereof, shall be fined a sum double
accepted by accused in lieu of money the amount so embezzled." Held, that
was not equivalent to an allegation an indictment under this statute must
that it was a draft circulating as state the "value" of the money re-
money. State v. Smith, 91 Ark. 1, 120 ceived, and an indictment charging a
S. W. 156. receipt by the defendants as bankers
An indictment drawnunder the sec- of $380.50, without more, was not a
tion, alleging the receiving of acheck sufficient allegation of value to sup-
drawn payable to a certain person, but port a conviction. Brown v. People,
not alleging either in general terms 173 111. 34, 50 N. E. 106.
that the check was a "note or draft
circulating as money or currency" or
98. Purpose or intent. Murphy v. —
People, 19 111. App. 125.
that the check was indorsed by the An indictment under Gen. Laws,
payee so that the legal title might 1895, p.- 504, c. 219 (Rev. Laws 1905,
pass by delivery, was insufficient.
§ 5118), for receiving money as a
State V. Smith, 91 Ark. 1, 120 S. W. banker while the bank is insolvent,
156. need not allege an intent to defraud.
Defendant was indicted for having State V. Quackenbush, 98 Minn. 515,
received as a banker on deposit, know- 108 N. W. 953.
ing himself to be ins-olvenf, certain
money, to wil, "the sum of one hun-
99. —
Same. Meadowcroft v. People,
163 111. 56, 45 N. E. 991. 35 L. R. A.
dred "dollars ($100.00), the property of
the said E., good and lav/ful mnney,
176, 54 Am. St. Rep. 447.
and current as such under the laws of , Loss of deposit.— State v. Myers,
1.
the state of Minnesota, and of the 54 Kan. 206, 38 Pac. 296.

value of one hundred dollars ($100.00), An information under Laws 1891,
a better description t.i said money is c. 43, § 16, charging an officer of a
to the grand jury tmk•ôwn.'' Field, bank with knowingly accepting de-
that the description of the property, posits when his bank is insolvent, need
deposited was sufficient. State v. not allege that loss occurred to any
Quackenbush, 98 Minn. 515, 108 X. W. one by reason of such deposit. State
953. V. Myers, 54 Kan. 206, 38 Pac. 296.
§ 62 (lei) OFFICERS and agfnts. 429
ity of the indictment ;2 such, for example, as that the accused received the
money in his official capacity and was in possession of it by virtue of his
office, etc., vv^here it is immaterial under the statute whether he so received
and was in possession of it or not;^ or the concluding of each count with
the words "did take, steal, and carry away."*
—
Joinder of Offenses. In a prosecution of an officer of a bank for
knowingly receiving deposits when the bank is insolvent, the receipt of sep-
arate deposits from different depositors may be charged in separate counts
in one information; and a trial and conviction may be had and sentences
imposed on such counts as the proof warrants, although each of the counts
charges a separate and distinct felony. ^ And in the prosecution of a bank
president, under a statute, providing that any bank president who receives
or assents to the reception of a deposit with knowledge of the bank's in-
solvency is guilty of larceny, an information under such statute is not in-
valid by reason of the fact that it charges the receiving and assenting to
the reception of a deposit in one count.®
Where Statute Declares Violation of Act to Be Embezzlement. —
The sufficiency of an indictment under a statute which declares every offi-
cer of an incorporated bank guilty of embezzlement, who fraudulently
receives money from a person not indebted thereto, when the bank is in-
solvent, so that the money is lost to the depositor, must be determined by
the rules of pleading applicable to charges of official extortion, embezzle-
ment, and other abuses of official duties.'^ Under such an act an indictment
which charges that defendant, being a banker, and knowing he was insol-
money from a depositor,
vent, received is sufficient.^
§ 62 (lei) Illegal Loans, Discounts and Overdrafts. Under the —

general provisions of the code of the state requiring an indictment to con-
tain a plain statement of the act constituting a crime, an indictment for
making an excessive or otherwise illegal loan, which alleges that the accused,
as a director of a trust company permitted and procured such company to
make an excessive loan to a firm of which he was a member is sufficient,
and need not allege specifically in what manner he permitted the prohibited
loan.*^
2. Formal and unnecessary matter.*— Winstandley, 154 Ind. 443, 57 N. E.

State V. Sattley, 331 Mo. 464, 33 S. W. 109.
41; Commonwe.ilth v. Warner, 173 8. Same. — Commonwealth v. Rock-
Mass. 541, 54 N. E. 353. afellow, 163 Pa. 139, 39 Atl. 757.
3. Same. — Commonwealth v. Warner, 8a. Illegal loans, discounts and over-
173 Mass. 541, 54 N. E. 353. drafts.— People v. Knapp (N. Y.), 99
4.Same.— State v. Sattley, 131 Mo. N. E. 84 ,
464 33 S
r' T J
41Wa .-
^" mdictment framed under ^Laws
1909. c. 222, §§ 29, 30, alleging that de-
,
5. Jomder of offenses.-State v. Wai-

•
c c*. J... „, wi..,-
f,„d'^„j ^^ directors and officers of a
ner, 60 Kan. 94, 55 Pac. 342.
,^^^^^ permitted shareholders, includ-
6. Same—Jomder m
sanie count.— j„g themselves, to become indebted to
McClure v. People, 27 Colo. 358, 61 Jt ^t one time in excess of 50 per cent.
Pac. 612. of its capital, held to charge of an of-
7. Where statute declares violation fense. State v. McPherson (S. D.), 139
of act to be embezzlement.— State v. N. W. 368.
§ 62 (2) Evidence— § 62 (2a) Presumption and Burden of

Proof. — It is the general rule that the material averments in the indict-
ment must be proved by the prosecution.* An exception exists however
in the case of matters of which the court and jury may take judicial knowl-
edge. For example, where all banking institutions in the state are char-
tered by public statutes of which the court and jury must take notice, it is
unnecessary, under an indictment charging the defendant with having
engaged in unauthorized banking and having acted as an officer of such
bank, to prove that the bank or association was not incorporated, since
from their presumptive knowledge of the law as a public law, it is within
the legitimate exercise of their powers for the court and jury to take notice
of the fact that such bank or association was not incorporated.^'* If, how-
ever, the question arose in regard to a foreign association for which the
defendant exercised his office, the rule would not hold, since the private
acts or statutes of other states would not be judicially noticed. ^^ Another
exception exists with respect to matters peculiarly within the knowledge of
the officers of the bank and which they must have known, or which it was
their duty to know. In either case the presumption of law is that they did
know. ^2 And even where the facts may not raise a presumption of law,
they may still be such as to warrant an inference by the jury and support
a verdict based thereon, as where the guilty intent of an officer of a trust
company becoming indebted to it in violation of statute is inferred from
the fact of the debt."
Presumption of Previous Knowledge from Subsequent Acts. —As
a rule, presumptions never go backward, but where bank officers largely
indebted to it and possessing property interests in a corporation to a very sig-
nificant amount as compared with such indebtedness conveyed such prop-
9. Material averments must be Wh.ere, on a prosecution for violat-

—
proved. Brown v. State, 11 O. 276.
— ing Burns' Rev. St. 1894, § 2031, pro-
10. Matters of judicial knowledge hibiting the receiving by an insolvent
Nonincorporation of bank. Brown z. — bank of a deposit, whereby it is lost
State, 11 O. 276. to the depositor, the officer receiving-
11. Same — _
Foreign banking associa-

_
such deposit having been president and

_
tions. — Brown v. State, 11 Oi. 276. director for three years previous to
Matters peculiarly within defend-
12. the receipt of the deposit, and in con-
ant's knowledge or which he should tinuous control of the bank, it will be
—
have known. State v. Cadwallader, presumed that he knew of its insol-
154 Ind. 607, 57 N. E. 512; State v. vency, but such presumption may be
Quackenbush, 98 Minn. 515, 108 N. W. rebutted by proof. State v. Cadwal-
953; Parrish v. Commonwealth, 136 Ky. lader, 154' Ind. 607, 57 N. E. 512.
377, 123 S. W. 339. Where a bank remained ooen for the
The solvency of a bank is a matter transaction of business and the recep-
peculiarly within the knowledge of its tion of deposits, the law would pre-
directors and other managing officers, sume that the president assented to
and, in a prosecution for accepting de- the reception of such deposits as were
posits'when the bank is insolvent and shown by the bank's books. Parrish
the insolvency is known to defendant, v. Commonwealth, 136 Ky. 377, 123 S.
or he has good reason to know such W. 339.
fact the presumption is that he has 13.Same—Inferences of fact.— State
such knowledge. State c'^Quacken- z,. Barnes, 108 Minn. 227, 122 N. W. 4.
bush, 98 Mmn. 515, 108 N. W. 953.
§ 62 (2a) OFFICERS AND AGENTS. 431
erty to thebank on account of such indebtedness pursuant to an understand-

ing of long standing, it was held that the situation before the conveyance
should be regarded substantially the same as that thereafter, as regards the

knowledge and mental state of such officers respecting the condition of
the bank as to solvency. In other words, the fact of the conveyance had
an evidentiary or probative value, as tending to show, and raising a pre-
sumption, that the officers had knowledge, previous to the conveyance of
their property, of the bank's condition, since, otherwise, they would not
have made such a conveyance. i*
Statutes Shifting Burden of Proof. — It is within the power of the
legislature to formulate rules of evidence, and in so doing it may reverse
the presumption of innocence which usually obtains in criminal cases so
as to place upon the accused the burden of proving his innocence under any
given state of the facts. For example, under a statute making it an in-
dictable offense for the officers or directors to bring about the fraudulent
insolvency of a bank, it is entirely competent for the legislature to enact
that the proof of insolvency shall of itself raise a presumption of fraud and
place upon the defendant the burden of rebutting such presumption. There
is no hardship in such a rule, since the facts are all in possession of the
officers of the bank, whereas it would often be difficult, if not impossible,
for the prosecution to prove that the insolvency was the result of fraud. ^^
So it is competent for the legislature to prescribe that the
entirely
failure of the bank within thirty days after the receipt of a deposit shall
be prima facie evidence of knowledge of insolvency at the time the de-
posit was received. 18 Such a statute is not unconstitutional, either as an
14. Presumption of previous knowl- after the receipt of any deposits prima
edge from subsequent acts. Ellis v. — facie evidence of such officer's knowl-
State, 138 Wis. 513, 119 N. W. 1110, 20 edge of its insolvency, the presump-
L. R. A., N. S., 444 tion of knowledge of insolvency by its
15. Statutes shifting burden of proof terms applies only to such officers as
— —
Constitutionality. Youmans v. State, have power to close the bank or to
7 Ga. App. 101, 66 S. E. 383. prevent deposits. Ex parte Smith, 33
16. Same—Presumption of knowl- Nev. 466, 111 Pac. 930; Ex parte Grif-
edge of insolvency.— Ex parte Smith, fm. 33 Nev. 490, 111 Pac. 939
33 Nev. 466, 111 Pac. 930; Ex parte The title of Act March 13, 1909 (St.
Griffin, 33 Nev. 490, 111 Pac. 939. 1909, c. 93), in addition to referring to
Under an indictment for assenting to the offenses declared, states that its
the receipt of deposits by an officer ot purpose is to establish a rule of evi-
an incorporated bank, contrary to Act dence in connection therewith. Sec-
March 13, 1909 (St. 1909, c. 92), which tion 2 makes the failure of a bank
by section 1 makes it a crime for any within thirty days after the receipt of
bank officer to receive or to assent to deposits prima facie evidence of the
the receipt of deposits knowing the officers' knowledge of its insolvency,
bank to be insolvent, and by § 2 pro- and in a previous part it is provided
vides that any bank officer having au- that any officer having authority to
thority to close the bank or to pre- close the bank or to prevent the re-
vent the receipt of deposits, who does ceipt of deposits, who does not exer-
not exercise such authority when the cise such authority, shall be "deemed"
bank is known to be insolvent, shall be to have assented to the receipt of de-
deemed to have assented to the re- posits. Held, that only the part of the
ceipt of deposits, and making the fail- section relating to the knowledge im-
ure of such bank within thirty days puted from the bank's failure is evi-
attempt to enforce imprisonment for debt nor as a legislative assumption

of judicial But a statute which makes the fact of the bank's
f unctions.
i'''
failure prima facie evidence of knowledge on the part of an officer or

agent of its insolvency when he received a deposit is nugatory where the
title or caption thereof makes no mention of any rule or procedure.^^
§ 62 (2b) Admissibility of Evidence. Proof of Incorporation, —

—
Corporate Name, etc. Where the indictment is for making a false
entry in the books of a banking corporation, it is sufficient to prove a cor-
poration de facto, and evidence of general reputation of its corporate ex-
istence is competent to prove and the "name of the corporation as
it;^^
alleged in the indictment may be shown by

evidence that it was known
by such name.^'' But where the indictment is for acting as an officer of
an illegal banking association, individual notes, intended to pass as cur-
rency, or money, are not competent evidence against the person issuing
them without proving that there was a company or association of indi-
viduals formed for the purpose of putting such notes in circulation. î
Where the prosecution is for the conversion, misappropriation, larceny
or embezzlement of the money or property of the bank, records of the
bank, sufficiently proved, written by the defendant, and signed by him
as recording officer, are admissible to prove the organization of the bank
and that defendant was duly elected,^^ ^nd the fact that some of such
records were signed by the defendant as secretary and others as clerk is
immaterial where, under the banking law or charter, he might properly
be called either clerk or secretary.â Where the name of the bank is
properly laid in the indictment, it is not error to receive in evidence a

certificate of incorporation ofa bank of that same name with the addition
of the names of town and state, since the latter words are only
a certain
descriptive of the bank's place of location, and do not constitute a variance
between the proof and the name of the bank as set forth in the indictment.^*
Competency of Witnesses Whose Names Are Not on the Indict-
—
ment. This is a question of general law, and proper notice of the intention
to introduce such witnesses and of the facts expected to be proved by them,
dential in character, while the word Ark: 136, 104 S. W. 1095.

"deemed," as used in the section, means 20. Proof of corporate name. ^Mears
"adjudged," in the sense of constitut-
ing a crime, instead of a rule of evi-
v. State, 84 Ark. 136, 104 S. 1095 W
gl. Individual notes inadmissible
dence. Ex parte Smith 33 Nev. 466, without proof of corporate existence,
111 Pac. 930; Ex parte Griffin, 33 Nev. when.— Steedman v. State, 11 O 83
490, 111 Pac. 939. d
oo Recordsj •..
written u
by .i. j / j
the defend-
17. Same.-Youmans v. State, 7 Ga. ^^-
Warner, 173
App. 101, 66 S. E. 383.
18. Same-Title or caption of stat-
M
^^^^- .'^f "Jrw"
5«. 54 N. p
E. \.c-
353.
ute.— Roby State, 41 Tex. Cr. App.

v. ,.23. Same—Where records signed in
153. 51 S. W.
1114. See, also, Fleming different capacities.— Commonwealth v.
V. State, 62 Tex. Cr. App. 653, 139 S. Warner, 173 Mass. 541, 54 N. E. 353.
W. 598. Variance as to name alleged and
24.
General reputation to prove cor-
19. name —
proven. State v. Burlingame, 146
—
,
porate existence. Mears v. State, 84 Mo. 207, 48 S. "W. 73.

§ 62 (2b) •
OFFICERS AND AGENTS. 433
must be served as required by law.^^

Illegally Declaring Dividend. —
In the prosecution of a bank presi-
dent for illegally declaring a dividend on a certain date, evidence tending
to show that the conditions which made the declarations of the dividend il-
legal had existed for some time prior thereto is admissible as tending to
establish the condition of the bank's affairs on the day in question, and to
show the president's opportunities for knowledge of such conditions and ;
proof of the fact that while such condition was in existence prior divi-
dends had been declared, is admissible to show that the profits of the bank,
instead of having been used to restore it to the condition justifying a divi-
dend, had been distributed to the stockholders. ^^ It is not error in such a
case to allow one witness to testify as to the correctness of a list of in-
solvent papers' carried among the bank's assets, though he was ignorant
of the solvency or insolvency of the papers, and to allow another witness
who could not swear to the correctness of the list to testify as to the sol-
vency or insolvency of the particular papers mentioned; the testimony of
the two witnesses taken together presenting a state of facts supported by
their several credibility. ^'^ Solvency or insolvency, in such a case, is a
matter admitting of opinion evidence under the general rules on that sub-
ject's
—
Exhibiting False Books, etc, On the trial of an indictment for know-
ingly exhibiting to a bank examiner a cash book in which checks on other
banks were falsely entered as cash on hand, evidence that other banks
ordinarily carried such checks on their books as cash is inadmissible on the
question of intent, where it appears that such was not the practice of de-
fendant's bank.29 It is immaterial in such case that the cash book was
kept in the same manner in which it had been kept and presented to bank
examiners for years.^°
25. Competency of witnesses whose prove by him on the trial. State v.

names are not on the indictment. Yetzer, 97 Iowa N. W. 737.
433, 66
State V. Yetzer, 97 Iowa 423, 66 N. W. 26. Proof of condition prior to dec-
737. laration of illegal dividend. Cabaness —
In a prosecution for fraudulent bank- v. State. 8 Ga. App. 129, 68 S. E. 849.
ing, a notice by the state that it would 27. Identification of papers by one
on the trial introduce certain witnesses witness and proof of their wortiiless-
whose names were not on the indict- —
ness by another. Cabaness v. State, 8
ment stated that it expected to prove Ga. App. 129, 68 S. E. 849.
by such witnesses that a certain bank 28. Opinion evidence as to value of
was on a certain day. a bank of deposit, securities. —
Cabaness v. State, 8 Ga.
and defendant was a stockholder and App. 129, 68 S. E. 849.
director and managing party thereof; 29. Proof of intent —
Custom of other
that it was insolvent; and that defend- —
banks. People v. Helmer, 13 App. Div.
ant permitted and connived at the re- 426, 43 N. Y. S. 642, 12 N. Y. Cr. Rep.
ceiving of deposits, etc. Held, that 134, judgment reversed on other points,
such notice complied with Code 1873. 154 N. Y. .596, 49 N. E. 349.
§ 421, providing that the state shall not 30. Proof that book was always kept
use a witness whose name is not in- in —
same manner. People v. Helmer,
dorsed on the indictment unless de- 13 App. Div. 436, 43 N. Y. S. 643, 13 N.
fendant is given notice in writing, stat- Y. Cr. App. 134, judgment reversed on
ing the name, etc., of the witness, and other points, 154 N. Y. 596, 49 N. E.
the substance of what it expects to 2jr).
1 B & B— 28
434 BANKS AND BANKING. •
§ 62 (2b)
'
Forgery and False Entries, Fraudulent Alterations, etc. —Upon
the trial of a bank cashier for forgery in fraudulently altering entries in
the bank's books so as to make a deposit account appear discharged, evi-
dence as to the state of defendant's account and his indebtedness to the
bank on notes is competent on the question of intent.î
Conversion, Misappropriation, Larceny and Embezzlement. —
Records of the bank, sufficiently proved, written by the accused and
signed by him as recording officer are competent evidence in a prosecution
for misappropriating or embezzling the funds of the bank, as admissions of
the truth of the facts therein stated ;^2 and ^le fact that some of such
records were signed by the accused in one capacity and some in another, is
immaterial where he was entitled to act in either capacity. ^^ A check and

evidence showing that the persons to whose order it was drawn received
no money thereon, they being the only persons in the county of that name,
is admissible in such a case;^* and it was also proper for the jury to con-
sider, as bearing on questions in the case, to supply deficiencies in the

proof as to irregular transactions, and to convince them that they were
fraudulent, that there was a large deficiency in the assets, that defendant
was treasurer for many years, that his sworn reports were grossly false,
that when he heard that the bank was about to be examined he fled to a
distant state, and remained there under an assumed name until discovered
and arrested, and that when he went he left a written statement showing
that the loss was very large and in which he admitted his guilt and inti-
mated flight and suicide. ^^
Receiving Deposits after Insolvency Admissibility of Evidence —
—
on Issue of Insolvency. To show insolvency of a bank at the time an
officer was charged with having received a deposit, knowing at the time
that the bank was then insolvent, evidence as to the general condition of the
bank at that time, such as the amount of its deposits and obligations, and
the character and value of its securities and other resources, the amount of
worthless paper held by it, etc., is admissible. ^^ And where the defendants, as
31. Forgery and fraudulent entries — Mass. 541, 54 N. E. 353.

Intent— Condition of account. Quert- — 36. Receiving deposits after insoi-
ermous v. State, 95 Ark. 48, 137 S. W. vency —Admissibility of evidence on
951. issue of insolvency—Amount of liabil-
32. Conversion and misappropriation itiesand character and value of assets.
— Records signed by accused, as admis- — State Shove, 96 Wis. 70 N. W.
v. 1,
sion. —Commonwealth v. Warner, 173 313.
In the prosecution of a bank cashier
Mass. 541, 54 N. E. 353.
33. Same —
Records signed in differ- for receiving a deposit after the bank's
ent capacities.'— Commonwealth v. insolvency, the testimony of a witness
Warner, 173 Mass. N. E. 353.
541, 54 that one of his long overdue notes,
34. Same —
Check, and evidence that given to the bank, was accommodation
payee never received money thereon. paper, and the introduction of his writ-
— Commonwealth Warner, 173 Mass.
v. ten assumption of its payment, exe-
541, 54 N. E. 353. cuted concurrently with the note, are
35. Same —Existence of deficiency, admissible as pertinent to the issue of
false reports, statements of loss, flight, insolvency. State v. Stevens, 16 S.
etc.— Commonwealth v. Warner, 173 Dak. 309, 92 N. W. 430.
§ 62 (2b) OlfFlCEES AND AGENTS. 435
a firm, operated two banks, it is proper, in determining the question of their

insolvency, to investigate the affairs of both banks, though the deposit was
only received at one of them; the assets and liabilities of both banks being
those of the one firm, whose insolvency is charged in the indictment.^'' Evi-
dence as to the character and value of assets and amount of liabilities should,
of course, relate to the time of the receipt of the deposits, or near thereto ;^*
and where the proof relates to a date prior to the time of receiving the
deposits, it should further show that the bank continued insolvent down to
the date of receiving the deposit.^^ Where the accused has made an assign-
ment, the deed of assignment, the inventory, the appraisement, the returns
of salesmade by the assignee and approved by the court, and generally, all
proceedings under the assignment, where the same was sufficiently near
in point of time to the deposit, are admissible in evidence as an aid to the
jury in determining the issue of insolvency at the time of receiving the de-
posit.*" But an assignee's account merely filed is not independent evi-
dence, in a prosecution against the assignor as an insolvent banker for re-
ceiving deposits with knowledge of insolvency, that the various items and
amounts therein indicated as lost or uncollectible were of no value as assets
for payment of creditors.* ^ And much less admissible are the far-fetched
statements, partially from memory, made by a receiver relative to the un-
authenticated indebtedness of the bank to other banks, and testimony as
to numerous transactions pertaining to the adjustment thereof. Such evi-
dence is incompetent, because of a secondary character; the bank books
being the best evidence. ^^ But it is proper, as bearing on the issue of in-
solvency, to permit a witness who has been appointed receiver of the bank
37. Same—Same— Same—Where deposit.— Commonwealth v. Hazlett, 14

fendants operated two banks. State — v. "a. Super. Ct. 352.
*<> Same— Same— Same—Deed t-> j j-
of as-
Cadwell, 79 Iowa 432, 44 N. W. 700. .
38. Same-Same^Same-Evidence ^î:^:r..''^tJCr^^î^T^''tt

not to be too remote as .o time.-
^g ^ ^ ^^ gg ^ ^ ^
•
Mo.
^
State V. Sattley, 131 464, 33 S.
ô'„êalth Hazlett, 14 Pa. Super.
"^- *^-
In a prosecution for receiving a de-
... Ct. 353; State v.
44 j^ -yy 700.
v.
Cadwell, 79 Iowa 432,
posit as cashier of a bank when such Thoughthe receipt of such deposit

bank was fading circumstances, and
in jg charged to have been in May 1888,
after defendant had knowledge of its ^ deed of assignment for the benefit of
condition, on the issue as to the value creditors made by defendants the fol-
of certain stock held by the bank at lowing October, is admissible as tend-
the date of its assignment the court jng to gjjow insolvency at the time it
properly refused to permit a witness ^^s made, from which, in connection
to state the value of a building owned vvith other evidence, defendants' finan-
by the corporation which issued such cial condition in the preceding May
stock, based on his knowledge of its may be determined. State , v. Cadwell,
cost, as the inquiry should have been 79 Iowa 432, 44 N. W. 700.
confined to the market value of the real 41. Same — Same— Same—Assignee's
estate at the date of the bank's assign- account.— Commonwealth v. Hazlett,
ment, it having been shown that the 34 Pa. Super. Ct. 352.
stock had a value. State v. Sattley, 131 42. Same— Same—Same— Statements
Mo. 464, 33 S. W. 41. of —
receiver Best and secondary evi-
39. Same — Same— Same— Continu- —
dence. State v. Stevens, 16 S. Dak.
ance of insolvency down de-
to date of 309, 92 S. W. 420.
after its voluntary closing to relate in detail what he has done to collect
the various notes coming into his hands, and to state -whether he is able
to tell when any of them will be paid.*^ Schedules filed by the accused in
involuntary bankruptcy and testimony of an expert accountant based upon
an examination of the accused's banking books which he has turned over
to the trustee in bankruptcy are admissible in evidence upon the issue of
insolvency, and their admission does not constitute a violation of the
defendant's privilege against self-incrimination as guaranteed by the federal
bankrupt act or by state and federal constitutional provisions.** Evidence
of the value of defendants' respective homesteads, as bearing upon the
question of their solvency, is inadmissible where^ in making the assign-
ment, they expressly reserve such homesteads.*^ So it is admissible to re-
ceive the reports of thebank examiner,*^ and the conclusions of a witness
as to defendant's insolvency based on calculations made upon an examina-
tion of the defendant's books with a view to determine the amount and
character of assets and liabilities.*'^ Acts of bankruptcy and transactions
tending to show insolvency are also admissible upon this issue ;*^ but not
transactions had and done among others and in which the accused was not
43. Same — —
Same Testimony of re- 97 Iowa 423, 66 N. W. 737; State v.
ceiver as to efforts to realize on as- Sattley, 131 Mo. 464, 33 S. W. 41.
sets. —
State V. Stevens, 16 S. Dak. 309, On the trial of an indictment against
92 S. W. 430; State v. Hoffman, 130 La. a banker for accepting a deposit when
949, 45 So. 951. insolvent, it was proper to permit the
In a prosecution under Act No. 108, commonwealth to show that the de-
p. 144, of 1884, making
a crime for it fendant was engaged in a mercantile
a bank officer to assent to the recep- business, and that, as soon as any
tion of deposits after he knows the money was received in such business,
bank is insolvent, the history of the he hastened to transfer it to_the bank
bank's assets subsequent to the da}' the in order to meet incoming checks.
deposits were received, showing what Commonwealth v. Tryon, 31 Pa. Super.
efforts were made by the liquidating Ct. 146.
commissioners to realize on them and In a prosecution for fraudulent bank-
with what success, is relevant circum- ing, defendant, on cross-examination,
stantial evidence on the question of was asked, as touching his expendi-
Ihe probable value of the assets of the tures, if there had not been a bastardy
bank on the day the deposits were re- proceeding against him a few years
ceived. State V. Hoffman, 120 La. 949, before that cost him a great deal of
45 So. 951. money to settle. After the examina-
44. Same — Same— Same — Schedules tion proceeded for some time, the
filed in bankruptcy. — Commonwealth v. court struck out the testimony as too
Ensina-. 228 Pa. 400, 77 Atl. C57. remote. Held that, though the evi-
45. Value of homestead not included dence should not have been offered,
in assignment.— State v. Cadwell. 79 defendant was not prejudiced. State
Iowa 432, 44 N. W. 700. V. Yetzer, 97 Iowa 423, 66 N. W. 737.
46. — Same— Same—Reports of
Same On the trial of a bank oiScer for re-
bank examiner. — State Salmon. 216 v. ceiving deposits, knowing that the
Mo. 466, 115 W. 1106. S. bank was insolvent, evidence that de-
47. —
Same Same— Same— Conclusions positors demanded their money, and of
—
of witness who has examined books. the refusal of the bank employees to
State V. Cadwell, 79 Iowa 432, 44 N. pay them, is admissible whether or
W. 700. not defendant personally heard the de-
— —
Same Same Same, acts of bank-
48. mands, to show the failure of the bank
ruptcy and transactions indicating in- to meet its obligations in the ordinary
—
solvency. Commonwealth v. Tryon, course of business. State v. Sattley,
31 Pa. Super. Ct. 146; State v. Yetzer, 13] Mo. 464, 33 S. W. 41.
§ 62 (2b) OFEflCERS AND AGENTS. 437
shown to have been interested nor in any way connected.^^ Proof of a

custom of the banks in the state in times of great money stringency to
limit the amount which any one customer might draw out, is wholly irrele-
vant where such custom is not shown to have existed until three years
after defendant's bank had failed, or that if it did, defendant's bank did not
avail itself of the same, but closed its doors. s"
Same —Admissibility of Evidence on Issue of Knowledge of In-

solvency. —On trial of an insolvent banker for receiving deposits with
knowledge of his insolvency, the state is bound to prove such knowledge,
and can do' so by circumstantial evidence. ^^ For example, an affidavit, made
by the cashier of the bank on the day following the receipt of the deposit,
stating that the bank was insolvent; letters written to accused by persons
interested in the bank, suggesting that it was not being prudently managed
the fact that depositors who attempted to withdraw their deposits were
not allowed to do so ; evidence of excessive loans made to accused, to other
members of his family, and to further activities in which he was interested
the fact that the bank paid a high rate of interest on deposits ; the value and
character of insolvent and worthless paper carried by the bank, and the
amount ultimately realized from the disposal of all the bank's assets ad-
ministered in a prudent and businesslike way; fraudulent methods resorted
to by accused in making reports to the Secretary of State failure to keep ;'
on hand the reserve required by the statute; loans to individuals in excess

—
of the amount permitted by law are all admissible to prove that accused
had notice that the bank was insolvent when he received the deposit. ^^ On
the other hand, the books of the bank, while evidence to show the condi-
tion of the bank, are not evidence to prove the defendant's knowledge of
such condition unless accompanied by proof that they were kept under
his direction or that it was his duty to be familiar with them.^s A witness
for the state may be permitted to testify as to facts relating to the value
of the defendant's property which the witness had communicated to the
49. Same— Same — Same— S a m e his bank were inadmissible, as the law-
Transactions had and done among does not contemplate postponement
—
others. State v. Burlingame, 146 Mo. or delay in such cases. State v. Sal-
207, 48 S. W. 72. mon, 316 Mo. 466, 115 S. W. 1106.
The state, over accused's objection, 50. —
Same Same Custom of limit- —
on for receiving a de-
a prosecution ing withdrawals in time of stringency.
posit when the bank was insolvent, — State v. Hoffman, 120 La. 949, 45 So.
was permitted to introduce convey- 951.
ances made by debtors of the bank Same — Knowledge of insolvency
51.
shortly after the deposit was received. — Circumstantial evidence.— Common-
Held error, as accused was not shown wealth v. Hazlett, 14 Pa. Super. Ct.
to be in any way interested therein. .S52.
State V. Burlingame, 146 Mo. 207, 48 58. Same — Same— Same. — Parrish v.
S. W. 72. Commonwealth, 136 Ky. 377, 133 S. W.
339.
In a prosecution of a private banker
tor receiving a deposit when insolvent, 53. Same — Same —
Books of bank as
conversations between a third person proof of knowledge of insolvency.
and the secretary of state as to the State v. Hoffman, 120 L,a. 949, 45 So.
postponement of an examination of 951.
defendant prior to the alleged commission of the offense charged.^* The

accuse on his own behalf may testify as to his belief that the bank was
solvent.ss and it is error to refuse to permit him to introduce evidence to
show what had taken to inform himself regarding the bank's sol-
steps he
vency.^^ Evidence that he closed the bank on account of ill-health and
upon the advice of a physician is competent to disprove that he closed it
on account of knowledge of its insolvency.^"^ Evidence by the state as to
representations by the accused as to the solvency of the bank of which
he was president to persons he was soliciting as depositors and to others
is not prejudicial to him, but corroborates his own evidence that he believed
that the bank was solvent.^''^
Same —Knowledge of Receipt of Deposits. —Evidence as to deposits

made previously to the one in controversy by other parties is inadmissible
to prove guilty knowledge of the receipt of deposits, as the receipt of each
deposit is a separate and distinct offense. Such evidence is inadmissible
for any purpose.^^
Same—Fraudulent or Criminal Intent.— On a prosecution for receiv-
ing deposits as a banker, knowing the bank's insolvency, evidence of a con-
tinual depletion of the resources of the bank, continued for several years,
is competent on the question whether an unlawful scheme existed to wreck
the concern, and as showing a motive for a sham dissolution, whereby one
of the partners could withdraw therefrom a portion of the funds. ^^ The
question being as to the criminal intent of the defendant in receiving a de-
posit knowing his insolvency, it was error to reject his offer to show an
alleged partnership in the banking business, that the other partners were
liable, and that they had property.^** The value of land has a bearing on
the criminal intent of a defendant indicted as an insolvent banker, and
the commonwealth having introduced evidence of a sale by the defend-
ant's assignees at a certain price per acre, as tending to prove value, in asso-
ciation with other and independent proof of values, it was error to exclude
54. Same — Same, facts communi- 5g_ Same —Knowledge of receipt of

cated to defendant with reference to
— deposits. State — v. Burlingame, 146
value of his p r o p e r t y. Common-
wealth V. Hazlett, 16 Pa. Super. Ct.
jyjQ gg? 48 S W 72
^^ ^ prosecution of a bank president
^°'" ^"^^-ng on Monday with
55. Same-Same-Accused may tes-
knowledge of/T'''^
the bank s insolvency,
tify as to his belief that bank was sol-
^'dence that on the precedmg Satur-
vent.-Paulsen v. People, 195 111. 507,
„_ ,y -p. , ., ^ ' ' day other deposits were made was not
%.2Zl'
Kc Q,™. steps
Same Same, —
.^-^^ 4.=i,.„
taken byK„ ac-
,o admissible. Brown v. State (Tex. Cr.
56. \„„
cused to inform himself as to bank's ^^PP-'-
\
"^ c^- \tj
iri kr-i
^- ^^]-
condition.— McClure People, 27 59- Same—Fraudulent or
. .
criminal
Colo 358 61 Pac. 612
v. .
—
intent Proof of unlawful scheme to
56a. Same—Same—Reason for clos- 1°°* bank.— State v. Clements, 82 Minn.
-^34, 85 N. W. 229.
ing bank.— Commonwealth v. Hazlett,
14 Pa. Super. Ct. 353. 60. Same — Same— Existence of part-
57. —
Same Same Representations — nership, and pfoperty owned by other
of solvency made by accused. Parrish — members. — Commonwealth v. Hazlett,
v. Commonwealth, 136 Ky. 377, 123 S. 14 Pa. Super. Ct. 352.
W. 339.
§ 62 (2c) OFFICERS AND AGENTS. 439
an offer by the defendant to show a sale made by the vendee of the

assignee the next day at an increased price." ^
Same — Same —Matters of Excuse or Mitigation. — It is not error to
exclude evidence, offered by the accused, as to a panic in banking circles,
resulting in the failure of many banks about the time of the failure of the
bank was produced by a financial-
in question, since the fact that the failure
panic was no excuse for receiving money knowing the bank to be insol-
vent.* ^
Same —Indebtedness of Depositor to Bank. —Evidence that at the
time the deposit was received the depositor making the same was over-
drawn in an amount larger than the deposit is admissible as tending to
show that the deposit was made and accepted as an application on the
depositor's indebtedness to the bank.*^
§ 62 (2c) Weight and Sufficiency Variance. Corporate Name— —

—
and Existence of Bank. Under a statute providing that in criminal
prosecutions corporate existence may be shown by general reputation, it is
sufficient, upon the an officer for making false entries in the books of
trial of
a banking corporation, to show that there was a corporation de facto.®* And

in the prosecution of a bank cashier for receiving a deposit after the bank's
insolvency, under an indictment alleging that the bank was a corporation, it is
sufficient proof of de facto corporate existence to show that an attempt was
made to organize a corporation, and that the institution was conducted and
held out to the public as a corporation, and that a statute existed at the
time of the indictment authorizing such incorporation, though no such
statute existed when the attempt to organize was made.*^
—
Exhibiting False Book, etc. Where the prosecution is for exhibiting a
false book to the public bank examiner, it is sufficient, upon an issue as
to the defendant's knowledge of its falsity, to prove that during the ex-
amination the defendant borrowed enough cash to make up the amount
shown by the book, exhibited it to the examiner as cash on hand, and, as
soon as the examination was finished, returned the identical money to the
bank from which he borrowed it.**
Illegal Declaration of Dividend. —
Under a statute making it criminal
for the president and directors of a bank to declare dividends from funds
other than profits, a conviction of the president for participating in the
declaration of a dividend when there were no profits and when he had
61. — —
Same Same Proof of value of —
de facto, when. Mears v. State, 84
land conveyed to assignee. Common- — Ark. 136, 104 S. W. 1095.
wealth V. Hazlett, 14 Pa. Super. Ct. 352. 65. —
Same Proof of de facto corpo-
62. ——
Same Same Matters of excuse rate existence. —
State v. Stevens, 16 S.
—
or mitigation. State v. Burlingame, Dak. 309, 92 N. W. 420.
146 Mo. 48
207, W. S. 72. 66. To show defendant's knowledge
63. Same— Indebtedness of depos- —
of falsity. People v. Helmer, 13 App.
itor to bank.— Nichols v. State, 46 Neb. Div. 426, 43 N. Y. S. 642, 12 N. Y. Cr.
715, 65 N. W. 774. Rep. 134, judgment reversed on other
64. Sufficient to show corporation grounds in 154 N. Y. 596, 49 N. E. 249.
full knowledge of the insolvency of the bank is amply shown by evidence

that during the defendant's incumbency as president of the bank it suf-
fered losses through taking papers that proved to be worthless; that these
bad debts and worthless papers were not charged off, but were allowed
to accumulate until they were sufficient not only to offset all surplus and
-undivided profits, but to impair seriously the original capital of the insti- ,
tution; and that defendant's long service and intimate knowledge of the
bank's affairs was such that he must have known of this condition of its
affairs at the time he joined with the directors in declaring the alleged
unlawful dividend. And it is wholly unnecessary in such case to impute
to the defendant corrupt or malign motives in order to prove a violation of
the statute. Nor is it any defense that he held only a few shares of the
stock and that not he, but others, received the chief benefit of the dividend
declared.*'''
Receiving Deposits after Insolvency Generally. Generally speak- — —

ing, in a prosecution of abank officer for receiving a deposit knowing that
the bank was insolvent, the state must prove that the deposit described in
the indictment was actually received; that at the time it was received the
bank was insolvent that accused had knowledge of its insolvency, and,
;
with such knowledge, received or assented to receiving the deposit.*^ Neither

knowledge of insolvency nor fraudulent intent need be proved, however,
where not made elements of the offense by the statute under which the
prosecution is had.*^ Testimony of an accomplice as to a scheme to loot
the bank and defraud depositors will warrant a submission of the case to
the jury when sufficiently corroborated.'^**
Same — Proof of Insolvency. — In a prosecution under an act making
it a crime for a bank officer to assent to the reception of deposits after
he knows the bank is insolvent, any
examiner of state estimate the
banks may have made of the value of the assets of the bank is not con-
clusive on the question of its solvency or insolvency, which is a question
67. To prove deiendant guilty of ually the funds of the depositors and
participating in declaration of wrong- place them in accused's hands in an
ful dividend. —
Cabaness v. State. 8 Ga. unlawful trust for both. A
bookkeeper
App. 129, 68 S. E. 849. in the bank testified to numerous in-
_ _
68. Receiving deposits after insol- stances where, in his absence, accused's
—
vency Generally. Parrish v. — Com- name had been erased by chemic-
monwealth, 136 Ky. 377, 123 S. W. 339. als from the bank journals and such
69. —
Same Where knowledge of in- accomplice's name inserted in its place,
solvency and fraudulent intent not and that he saw accused handling and
made elements of the" offense. Murphy — examining the books. The testimony
V. People, 19 111. App. 125. also tended to show a withdrawal of
70. — —
Same Same Testimony of ac- a large sum of money in the aggregate,
—
complices. State v. Clements, 82 Minn. which had a direct influence towards
434, 85 N. W. 229. _ the insolvency of the bank. Held, that
On a prosecution for receiving de- there was sufficient corroborating evi-
posits as a banker, knowing the bank's dence, independent of the testimony
insolvency, an accomplice of accused of such accomplice, to warrant a sub-
confessed that he had been a party to mission of the case to the jury. State
a systematic scheme adopted by ac- v. Clements, 82 Minn. 434, 85 N. 'W.
cused and himself to withdraw grad- 229.
§ 62 (2c) OFFICERS AND AGENTS. 441
of fact, to be determined by the jury, and not the bank examiner J ^ But
evidence that a banker closed his bank, refused to pay his depositors money
due and payable when demanded, and made an assignment for the benefit
of his creditors after preferring some of them, is sufficient, if found by a
jury, to establish the banker's insolvency J^
Same —Knowledge of Insolvency. —Proof of active participation in
the management of the bank's affairs and in fraudulent devices to deceive
the public auditor as to the true character of the payments made on its
capital stock and keep the public in ignorance as to the true state of
to
its affairs is sufficient to show knowledge of insolvencyJ^ And under a
statute providing that failure of a bank within thirty days after receipt of
a deposit shall be prima facie evidence of knowledge of the bank's in-
solvency on the part of the defendant, proof that the bank failed within
three days after the receipt of the deposit alleged in the indictment is suffi-
cient, in the absence of any controverting evidence, to sustain a conviction^*

Same —Receipt of Deposit or Assent Thereto. —A bank president
who continues to keep his bank open after knowledge of its insolvency must
be held to authorize and assent to the receipt of deposits by his subordi-
nates during the time it is so kept open ; hence, it is not necessary in such
a case to prove the name of the person who actually received the deposit,
the position he held in the"bank, or the name of the person who made it.'^^
The contrary has been held in other courts, however, on the ground that
the president of an incorporated bank is not the owner, as is generally the
case in private banks, and that a charge of receiving the deposit is not
sustained by proof of assent to a deposit or proof of the president's pres-
ence in the bank or in a back room at the time the deposit was received,
even though it be fully shown that he had knowledge of the bank's in-
solvency at the time.''®
Same — That Depositor Was Indebted to Bank. —Where the statute

contains an exception as to deposits received from persons indebted to
the bank, the fact that the depositor from whom a deposit was alleged to
have been received was so indebted is a matter of defense, and the state
need not prove that he was not so indebted.'^''
71. Same—Proof of insolvency.— 134 Mo. 238, 35 S. W. 615; State v.

State V. Hoffman, 120 La. 949, 45 So. Warner, 60 Kan. 94, 55 Pac. 343; State
951. V- Strait, 99 Minn. 327, 109 N. W. 598.
72. Same — Same.— Commonwealth Under Rev. St., § 3581, making it a
V. Hazlett, 16 Pa. Super. Ct. 534. crime for any bank officer to "receive
73. Same —
Knowledge of insolvency. or assent" to the reception of any de-
— Paulsen v. People, 195 111. 507, 63 N. posit of money, knowing the bank to
E. 144. be insolvent, a conviction can not be
74. Same — Same.— McClure v. Peo- had on an indictment charging merely
pie, 37 Colo. 358, 61 Pac. 612. that defendant did "receive" the de-
75. —
Same Receipt of deposit or as- posit, on proof of an "assent" to the
sent —
thereto. Parrish v. Common- reception of the deposit. State v.
wealth, 136 Ky. 377, 123 S. W. 339. Wells, 134 Mo. 388, 35 S. W. 615.
See, also, McClure v. People, 27 Colo. 77. —
Same That depositor was in-
358, 61 Pac. 613. —
debted to bank. State v. Cadwallader,
76. Same— Same.— State v. Wells, 154 Ind. 607, 57 N. E. 513.
Variance —Proof of Time Laid in Indictment. —An indictment not

alleging any time when the offense bad; but, when laid,
was committed is
it is unnecessary to prove the particular time as laid, unless the time be
material. Thus where the acts charged in the indictment are laid as
having been committed on a certain day, evidence that they were committed
on a subsequent day is admissible.''^
—
Same Proof of Conversion, Misappropriation, etc. Where a —
bank president was indicted in his own state for unlawfully converting the
moneys of his bank, evidence that he obtained the money from a bank in
another state, with which his own bank had deposits, by means of a check
drawn and collected in the other state; that he had no authority to draw
such checks; and that the withdrawal of the money was ratified by the
officials of his own bank on false representations by him as to the use
made of the money, is sufficient to justify the court in leaving to the jury
whether there was such infirmity in the checks as made the subsequent rati-
fication in his own state one of the efficient causes of the absorption of the
bank's credit, so that the same might be regarded as the consummation of
the offense in that state.''
Same— Proof of False Entry. —A charge in an information of having

made or caused to be made a false entry in the account of an individual
with the bank, in that the defendant entered an overdraft of such indi-
vidual in suchmanner as to make it falsely appear that such overdraft
was a loan owing to the bank, the intent being to deceive the state bank
examiner, is not sustained by proof that such entry was of an overdraft
drawn upon an account of such individual in which he was designated, not
merely by his individual name, but as township treasurer and such variance ;
is rendered none the less fatal by the fact that in the account he was
designated as "treasurer" or simply "Tr.," when such abbreviation evi-
dently meant the same was such variance rendered any
as treasurer; nor
the less fatal by the fact that in such account there was included private
money of the individual referred to as treasurer.*" But where the accused
is charged with having made false entries in the report of the bank as to
the amount due from other banks and as to the amount due on time certifi-
cates of deposit, there is no merit in a contention that because these two
items are embraced together in the information a verdict of guilty can not
be upheld unless the proof shows that the report was false as to both
items, since a falsification of the report as to either item constitutes a vio-
lation of the law, independently of the other item.î
78. Variance —
Proof of time as laid. —
appropriation, etc. Putnam v. United
—Brown State, 11 O. 276.
v. States, 162 U. S. 687, 40 L. Ed. 1118, 16
In an indictment for acting as an of- S. Ct. 923.
ficer of an unauthorized bank, time is 80. Same —Proof of false entry.
not material, and the offense may be Williams v. State, 51 Neb. 630, 71 N.
proved to have been committed after W. 313.
the day laid. Brown v. State, 11 O. 81. Same — Same —Proof of one of
276. two averments. — Ruth v. State, 140
79. Same —Proof of conversion, mis- Wis. 373, 122 N. W. 733.
Same — Receiving Deposits While Insolvent. —Where the prosecu-

tion is for receiving deposits after knowledge of insolvency, the state must
prove the actual receipt of the deposit described in the indictment.®^ Thus
where the state, in a prosecution of this kind, elects to try the case on the
issue of the receipt of a particular deposit set out in a certain count of the
indictment, evidence as to the receipt of other deposits at other times is in-
admissible.®* Proof of the receipt of money as a general deposit will not

sustain a charge that defendant received it "on deposit and for safe-keep-
ing."®* But a charge that the defendant received a certain sum stated in
dollars and cents is sufficiently proved by evidence showing that part of
the amount consisted of checks, certificates of deposit, etc.®^
Same— Same —Proof of Person Making Deposit. —Evidence that
the deposit was made by a different person from the one named in the in-
dictment will not support a conviction.®^
§ 62 (3) Instructions. —As to Purpose or Intent — Generally. —

Where under the terms of the statute, intent to defraud
is an essential
element of the offense of making a false entry in the books of a bank, an

instruction making proof of such intent unnecessary is fatally defective.®^
82. —
Same Receiving
deposits while terest thereon, which was then surren-
insolvent — Must prove
deposit de- dered. State V. Shove, 96 Wis. 1, 70
scribed in indictment. Parrish v. — N. W. 312.
Commonwealth, 136 Ky. 377, 123 S. W. Proof that accused received $11 in
S39. currency on deposit in an insolvent
83. — —
Same Same Same. Davey — v. bank, together with checks, sustains
State, 99 Ark. 547, 139 S. W. 629. a conviction under an indictment
Where the state on the trial of an charging receipt of $100 in gold, silver,
officer a bank for receiving a de-
of and paper money. Morris v. State
posit with knowledge of the insolvency (Ark.), 14?- S. W. 213.
of the bank elected to try the case on 86. Same — Same— Proof of person
a deposit made two days before the making deposit. — State v. Oleson, 35
failure of the bank, it was error to Wash. 149, 76 Pac. 686.
permit the state to subsequently rely Where an information charged an
on a deposit made nearly a year before officer of abank with receiving a de-
that time, especially in the absence of knowledge of the fact that
posit, after
a witness who, as disclosed by the ap- the bank was insolvent, from tlie "By-
plication of accused for a continuance, ron Grocery Company, a corporation,"
knew more of the condition of the and the proof showed that the deposit
bank than any one else. Davey v. was made by a partnership known as
State, 99 Ark. 547, 139 S. W. 629. Byron & Shumway, and that the cor-
84. Same — Same— General and spe- poration named in the information was
cial deposits.— Koetting State, 88 v. not in existence at the time the deposit
Wis. 60 N. W.
502. 822. was made, the variance is fatal to a
85. Same— Same—Where deposit conviction, notwithstanding 2 Balling-
made up of money, checks, certificate er's Ann. Codes & St., § 6846, provid-
of deposit, — State
etc.Shove, 96 v. ing that when
crime involves the
a
Wis. 1, 70 N. W. 312; Morris v. State commission or attempt to commit a
(Ark.), 145 S. W. 213. private injury, and is described with
On the question whether an officer sufficient certainty in other respects to
of a bank received on deposit, know- identify the act, an erroneous allega-
ing the insolvency of the bank, $300, tion as to the person injured is not ma-
for which a certificate of deposit was terial. State V. Oleson, 35 Wash. 149,
given, it is immaterial that the proof 76 Pac. 686.
shows that part of the amount was a 87. Omitting element of intent. —
certificate of deposit given by the Mears v. State, 84 Ark. 136, 104 S. W.
bank, and then due, with accrued in- 1095.
Same — Specific Intent —Effect of Other intent. —The question of

intent is for the jury, and where, under the statute, the existence of a
specific intent is essential to the criminahty of the acts charged, it is
competent, and a good defense for the defendant to show that in com-
mitting the act charged, he was actuated by an entirely different intention,
even though such other intention was within itself unlawful. It is error
in such a case, therefore, to charge the jury that the existence of such
other intention on the part of the defendant would constitute no defense,
and that the intention to perform one unlawful act could not excuse
another.^*
Where Statute Mentions Several Intents.*'—Where the court has sev-
eral times stated to the jury that the indictment charges the making of
false entries in the books of the bank, with intent to deceive the bank ex-
aminer, and the making of false reports, with intent to deceive the comp-
troller, it is not misleading to thereafter say that defendant is guilty if he
made such false entries and report "with the intent mentioned in the
statute," although the statute mentions several other intents. ^^
Authorizing Conviction upon Proof of Different Intent —Variance.
—Where the indictment charges the defendant with having made a false
entry with intent to defraud the bank, an instruction authorizing a convic-
was to defraud the officers of the bank is not erroneous.^"
tion if the intent
—
Defining Fraudulent Intent. And an instruction telling the jury that
if the entry was made by the defendant "with the intention of circumvent-
ing, misleading and deceiving the officers of the bank," to his own ad-
vantage and benefit such intention was fraudulent, was held to define cor-
;
rectly fraud as applicable to the facts in evidence. î
88. Specific intent— Effect of other father's account, that he believed his
"• Comstock, 115 Mich. father would pay it, and that he thought
l,'i^"*•"^?^°,?'^
305^ 73 N. W. 245. the bank would not lose by the trans-
General Banking Law, §,,„,„„
58 (3 How. action. Held, that it was error to
Ann. St., § 3208f7), provides for the charge the jury that such intent on the
punishment of every bank officer who part of respondent would constitute
embezzles the funds^ of the bank, or „o defense,' and that the intention to
who, without authority of the direct- perform one unlawful act could not ex-
ors, draws any order or bill of ex-
cuse another. The question of intent
change with intent to injure or _de- âs for the jury, as it is not every in-
t!^^"- aL A A-A^^,'Ti"^^'
f^-individual debtors
fraction of the banking law which is
a fraud upon and inju?y to the bank,
nf%r.
of the v"%'t°m
bank.
1
Under an information ^,ithin the statute. People v. Corn-
charging respondent with having, while
acting as clerk and manager of a cer-
stock, 115 Mich. 305. 73
„„ a . .•
345N W
tain bank, drawn an order or bill of ex- ^^-
.
'^^ to intent where statute men-
change with intent to defraud said *^°"^ several intents.— United States z/.
-teeters, 87 Fed. 984.
bank, respondent was convicted of
drawing and issuing a draft to pay an 90. Intent to defraud directors or
acceptance of his father's without the
.
intent to —
defraud bank Variances-
express authority of the board of di- Shipp v. Commonwealth, 101 Ky. 518,
rectors, the father being at the time 19 Ky. L. Rep. 634, 41 S. W. 856.
indebted to the bank in excess of the 91. Instruction defining fraudulent
amount fixed by the statute. On the intent.— Shipp v. Commonwealth, 101
trial the respondent testified that he Ky. 518, 19 Ky. L. Rep. 634, 41 S. W.
intended to charge the draft to his 856.
§ 62 (3) OF-FICBRS AND AGENTS. 445
Offense Committed by More than One Person Participation or —

Consent — —
Aiders and Abettors. On a trial for forgery, in fraudulently
altering entries in the bank's books, an instruction that the fact that others
than the defendant consented to or assisted in the alteration is no defense,
if the change was falsely made with intent to defraud a certain depositor, is
not objectionable as leading the jury, to believe that, if the bank's directors
consented to the change and did so with intent to defraud said depositor,
the defendant would be guilty, though he had no such fraudulent intent;
the purport of the instruction being that the consent of the directors to the
transaction would not exonerate the defendant if he participated with
fraudulent intent.^^ Under an indictment for aiding a bank president in
violating the banking laws, an instruction that, to make defendants guilty,
they must have done something "showing their consent to or participation
in" the unlawful acts of the president could not have misled the jury to
understand that the acts of the president were to be treated by them as
criminal acts; nor could they have been misled by the use of the disjunctive
''or" into supposing that mere consent of defendants to his unlawful acts
would be sufficient to render them guilty.^^ Where the charge was that
defendants aided the president in misapplying the funds of the bank and
in making false entries in its books, and the jury were charged that if thfe
president did knowingly make, or cause to be made, the false entries,

they could not find defendants guilty as aiders, unless defendants, with
like intent, did something showing their consent to and participation in
the "unlawful and criminal acts" of the president, such instruction was not
open to the objection that the expression "unlawful and criminal acts''
might have been understood as relating to unlawful acts of the president
generally. 8*
Restricting Words to Connection in Which Used. —Where in one

count of an information the defendant is charged with making false en-
tries in the reportof the bank as to the amount due from other banks and
as to the amount due on time certificates of deposit, and the court reads
such count to the jury, and states that it is for them to determine whether
there are any false statements or false entries as to the resources and lia-
bilities of the bank in such report, and whether or not it contains any false
statements or entries as to any of the books of the bank, it will be pre-
sumed that the jury applied the words "any false statements or false en-
tries" in view of what immediately preceded, namely, that the prosecution
was for two respects alleged in the information
falsifying the report in the
92. Forgery and fraudulent entries abetting. — Coffin

v. United States, 162
— Instruction asto effect of consent or U. S. 664, 40 L.
Ed, 1109, 16 S. Ct. 943.
assistance of other officers.— Querter- 94, Same—Reference to unlawful
mous V. State, 95 Ark. 48, 137 S. W. acts of principal.— Coffin v. United
951. States, 163 U. S. 664, 40 L. Ed. 1109,
93. Instruction as to consent or jg 3 i^^ 943
participation by person aiding and
read to them, and that hence the instruction is sufficiently restrictive, and
not prejudicial to the accused. ^^
—
Exhibiting False Books Weight of Evidence. The question —
whether a defendant has knowingly exhibited false books to the bank ex-
aminer is purely one of fact to be determined by the jury from the evi-
dence before it, unprejudiced by any statement as to what another court
may have said upon the subject in a previous trial; hence in charging the
jury upon the question of the defendant's knowledge in such case, it is
reversible error to instruct the jury that, as held by the court upon a former
trial of the case, certain evidence is sufficient to satisfy the jury that there
was an exhibition or presentation of the boo8s to the examiner by the
defendant.^®
Officer Becoming Indebted to Bank.Ân instruction that "it is not, of
itself, a crime for the president of a bank to borrow money of the bank of
which he is president," is not objectionable because of the presence of the
words "of itself."8T
Receiving Deposits after Insolvency Insolvency and Failing Cir- —
—
cumstances. In a prosecution for receiving money on deposit with knowl-
edge of the bank's insolvency, the court should charge as to the rule for deter-
mining insolvency f^ and in those jurisdictions where insolvency is defined
to be the inability to pay checks and other obligations in the ordinary course
of business, not error to instruct that a bank is in failing circumstances
it is
when unable meet the demands of its depositors in the ordinary and usual
to
course of business, even though an inability to so meet demands upon it
was caused by a stringency in the money market.^^ And even where the
contrary doctrine prevails, an instruction defining insolvency as meaning
inability to meet liabilities in the usual course of business is not objec-
tionable, as being too broad- in its would
application to such insolvency as
fasten guilty knowledge on accused, wherewas followed by a further
it
charge that, if the assets of a banking firm and of the individual members
thereof were insufficient in value to pay the debts of the firm, then the firm
was insolvent.*®* Where there was no effort made by the prosecution to
prove that the bank was insolvent merely because it did not have suffi-
cient cash on hand to pay its depositors, and evidence was offered demon-
strating that when the bank received the deposit, all its assets, prudently
administered, were only sufficient to pay a very small dividend to its de-
positors, an instruction that a bank is "insolvent," within the meaning of
95.
tries
As to false statements and en-
— Restricting words to connection
54 g
„„
^ -ci
326
•
c^
• j 1 -^ •
Receiving deposits afterinsol-
^^^-
in which used.-Ruth v. State, 140 Wis.
vency-Insolvency and faihng circum-
373, 123 N. W. 733.
^
96. As toknowingly exhibiting false
books—Invading province of jury.—
'. ,
App.;, ;T?c°
151 b. w
^
W. .«i
5bl.
People V. Helmer, 154 N. Y. 596, 49 N. 98. Same— Same.— State v. Darrah,

j;, 249. 3 52 Mo. 522, 54 S. W. 226.
97. Officer becoming indebted to 98a. Same — Same. — State v. Cle-
bank.— State v. Darrah, 152 Mo. 523, ments, 82 Minn. 434, 85 N. W. 329.
62 (3) OFFICERS AND AGENTS. 447
the law creating such offense, when its property and assets are such that
it can not meet its demands in the ordinary course of business should be
construed as requiring that the evidence should show that all the bank's
assets were insufficient to and was not, therefore, erroneous
pay its debts,
as authorizing a finding of insolvency in case the bank had insufficient mone-
tary funds to pay depositors on demand. ^^ As regards the proof of in-
solvency it is not error to refuse an instruction that testimony as to the
value of assets must not be considered when based on information gained
from others, since the only way of ascertaining the value of such assets is
to take the estimate at which they are generally held in the market. ^ An
instruction discrediting the testimony of the defendant and all his witnesses
should not be given because certain witnesses for the defense made their
estimates of value upon an improper basis. ^ Where evidence is properly
receivable only for the purpose of aiding the jury in determining the con-
dition of the bank, it is proper to limit its effect to that purpose.
Same—Knowledge of Insolvency. —Where knowledge of insolvency
is made an essential element of the offense, this fact should be clearly
presented to the jury;* and where the statute requires that the defendant
should have had actual knowledge of insolvency, an instructiorl authorizing
or permitting a conviction on proof of anything less is erroneous.
99. Same Same. — — Parrish v. Com- borrowed money of the bank, to in-
monwealth, 136 Ky. 377, 123 S. W. 339. struct that the fact that the president
1. Same Proof — of insolvency. — borrowed money of the bank could be
State V. Darrah, 153 Mo. 522, 54 S.'W. considered in determining the condi-
226. tion the bank, and for no other
of
2. Same — Same.— Commonwealth v. purpose. State v. Darrah, 152 Mo. 523,
Hazlett, 16 Pa. Super. Ct. 534. 54 S. W. 226.
On the trial of an indictment against 4. —
Same Knowledge of insolvency.
a banker for receiving deposits when — Commonwealth v. Tryon, 31 Pa.
insolvent, where, on the question of Super. Ct. 146.
insolvency, various witnesses for the On the trial of an indictment against
defendant have testified as to the value a banker for accepting a deposit when
of defendant's property, and two wit- insolvent, the prisoner can not com-
nesses for the defendant based their plain that the trial judge failed to give
estimate on what they would have due prominence to the question of the
paid for it in depreciated certificates of prisoner's knowledge of the insol-
the bank, it is error for the court to vency, where the court in the course
charge that, if the jury believed the of its charge said: "If he did not
testimony of the two witnesses, then have such knowledge, if he believed
under all the evidence, including the honestly, as a prudent man in his posi-
defendant's testimony, the estimates of tion would, that he had sufficient as-
value were not found upon a proper sets to be converted into cash that
basis, as such instruction vitiated the would meet his obligations, then he
testimony of the defendant, and all the would not be guilty of the offense
other witnesses of the defendant. Com- charged. This is a question of fact
monwealth V. Hazlett, 16 Pa. Super. for you from the testimony in the
Ct. 534. case." Commonwealth v. Tryon, 31
3. Same — Same. — State v. Darrah, Pa. Super. Ct. 146.
152 Mo. 522, 54 S. W. 226. 5. Same— Same —
Where statute re-
was not error, as commenting
It quires actual knowledge. State v. —
upon evidence, on the trial of a presi- Dunning, 130 Iowa 678, 107 N. W. 937.
dent of a bank for assenting to the re- On a prosecution under Code 1885,
ception of deposits after knowledge of making it a felony for any banker to
the bank's insolvency, and where it knowingly receive deposits when in-
had been shown that the president had solvent, unless actual knowledge of
Same—Presumption and Burden of Proof of Knowledge of Insol-

—
vency. An instruction that so long as the defendant retained the, presi-
dency of the bank he was presumed to know, and it was his duty to know,
its condition as to solvency, is erroneous, since the president is only bound
to exercise reasonable care and diligence to ascertain and keep himself in-
formed regarding the bank's financial condition.^ Even where the statute
makes the failure, or failing condition, of the bank prima facie evidence of
knowledge of insolvency, it is improper, after declaring the law in that
respect, to further emphasize its provisions by telling the jury that it was
the defendant's duty to know its financial condition, and that the law pre-
sumed that he did know it at the time the deposit was received.'' An in-
struction, in the language of the statute, that the failure of a bank is prima
facie evidence of knowledge on the part of its president that the same was
in failing circumstances, coupled with a statement that prima facie evidence
is such as raises such a degree of probability in its favor that it must
prevail unless it be rebutted, or the contrary proved, is not erroneous.* The

fact that the statute creates aprima facie presumption of knowledge from
the subsequent failure of the bank does not, however, shift the burden of
proof from the state to the defendant, and it is error for the court to re-
fuse, upon request, to give an instruction to that eflfect, and to make it
clear that the defendant may still show the condition of the bank and cir-
cumstances tending to exonerate him from criminal liability, and that, on
the whole case, the burden of proof would still rest on the state.® Failure
to so instruct is not cured by other general instructions that the jury must
be satisfied of the defendant's guilt, and that the law presumes his inno-
cence. i*
Receipt or Assent to Receipt of Deposit. —Instructions relating to
the receipt of deposits, or assent to receipt of deposits, are not erroneous
where, taken as a whole, they make it clear that the deposit must have been
the insolvency is shown, an erroneous if the state proved beyond a reason-

instruction that if defendant had acted able doubt that accused had good rea-
as a reasonable and prudent man in son to know he was insolvent. State
the conduct of his business as a v. Drew, 110 Minn. 247, 124 X. W.
banker, and, based on his so acting, 3 091.
he had a right to believe and did be- 6. Same —Presumption and burden
lieve that he and the bank were sol- of proof of knowledge of insolvency.
vent, he must be acquitted, was preju- — McClure v. People, 37 Colo. 358, 61
dicial, though other instructions had Pac. 612.
positively declared that the deposit 7. Same— Same. — State v. Salmon,
must have been received when the 216 Mo. 466, 115 W. 1106.
S.
bank and the defendant were in fact 8. Same— Same — Defining prima
insolvent, and that it must be shown facie evidence in language of statute.
that the defendant then knew of such — State v. Buck, 120 Mo. 479, 25 S. W.
insolvency. State v. Dunning, 130 573; State v. Sattley, 131 Mo. 464, 33
Iowa 678, 107 N. W. 927. S. W. 41; State v. Darrah, 152 Mo.
Rev. Laws 1905, § 5118, makes it a 522. 54 S. W. 226.
criminal oflfense for a banker to re- 9. Same — Same— Shifting of burden
ceive deposits when he is insolvent. of proof. — State Darrah, 152 Mo.
v.
Accused, a private banker, was con- 522, 54S. W. 226.
victed of such oflfense. Held error to 10. Same— Same— Same.— State v.
instruct the jury that it was sufficient Darrah, 152 ;Mo. 522, 54 S. W. 226.
received either actually by the defendant, or with his knowledge and con-
sent, or that knowing of the unlawful receipt of the deposit, he accepted
and received itand placed it among the funds of the bank.î
§ —
62 (4) Verdict. Where an indictment, contains a count for re-
ceiving a deposit, knowing that the bank is insolvent, and another count for'
assenting to the creation of an indebtedness by the bank, with such knowl-
edge, and the evidence shows but one transaction, which consisted in re-
ceiving a deposit and issuing a certificate therefor, a general verdict of
guilty, without specifying on which count, is sufficient. ^^ Where the statute
fixes the punishment for receiving a deposit while insolvent, which is lost
to the depositor, at a fine in double the amount of the deposit, and, in addi-
tion, imprisonment — ^the imprisonment being optional —a general verdict
fixing the amount of the fine and the term of imprisonment, without finding
as to the amount of the deposit, is not invahd.i^ And a verdict of guilty in
such case, against F. and C, codefendants, and fixing the ''punishment of
said F. and C. at a fine of twenty-eight dollars, and, in addition thereto, at
imprisonment for one year," is not defective, as fixing a joint, instead of
several, punishment, i*
§ 62 (5) Sentence and Punishment. —

Under a statute making it a
felony for an insolvent banker to receive deposits, a judgment of conviction,
sentencing the accused to the penitentiary at hard labor for .the term of
five years, is not reversible as providing excessive punishment. ^^
11. Receipt, or assent to receipt, of N. W. 248, 38 L. R. A. 485, 63 Am. St.

—
deposit. State v. Eifert, 103 Iowa 188, Rep. 433.
65 N. W. 309, 71 N. W. 248, 38 L. R. On trial of a banker for receiving
A. 485, 63 Am. St. Rep. 433. deposits when insolvent, it is proper
On trial of an indictment of a to instruct tliat though the deposit was
banker for receiving deposits when in- received against defendant's orders, if,
solvent, it was proper to charge that, on learning that it had been received,
though the deposit was received by he placed it among the funds of the
defendant's son after defendant had in- bank, he "knowingly accepted and re-
structed him to refuse deposits, if deceived" it, within the statute, such in-
fendant, on learning that the deposit struction resting the acceptance on de-
was so received, placed it among the fendant's own acts, not on a ratifica-
funds of the bank, he "knowingly action of the acts of others. State v.
cepted and received" it, within the Eifert, 102 Iowa 188, 65 N. W. 309, 71
statute. State v. Eifert, 103 Iowa 188, N. W. 348, 38 E. R. A. 485, 63 Am. St.
65 N. W. 309, 71 N. W. 248, 38 L. R. Rep. 433.
A. 485, 63 Am. St. Rep. 433. 12. —
Verdict Failure to distinguish
An instruction on trial of a banker between counts. State — v. Sattley, 131
for receiving deposits when insolvent, Mo. 464, 33 S. W. 41.
that it is enough that the deposit, 13. Same — Failure to find amount of
though not received by him person- deposit. — IVleadowcroft People, 163
v.
ally, was received under his authority. 111. 56, 45 N. E. 991, 35 L. R. A. 176,
is not error, though the evidence is 54 Am. St. Reo 447.
that it was received against his order, 14. —
Same Fixing joint instead of
where such charge is but part of the several punishment. Meadowcroft — v.
instruction, and aids in making plain People. 163 111. 56, 45 N. E. 991, 35
a pertinent charge following, as to de- E. R. A. 176, 54 Am. St. Rep. 447.
fendant's accepting the deposit after 15. Sentence and punishment, ex-
it had been so received. State v. cessive sentence. State v.— Boomer,
Eifert, 102 Iowa 188, 65 N. W. 309, 71 103 Iowa 106, 72 N. W. 434.
1 B & B— 29
450 BANKS AND BANKING. _
§ 62 (5)
Restitution. —To authorize a judgment of restitution under a statute

requiring, in addition to the prescribed punishment, in crimes which in-
clude in their perpetration the obtaining of money, that the defendant shall
be adjudged to restore such money to its owner, the indictment must
show that the defendant obtained the money.^*
Costs. —Where the receipt of deposits after insolvency is made a mis-
demeanor, and the question of costs in such cases left to the jury, they
should dispose of the same in their verdict.^''
—
16. Restitution. Huntzinger v. Com- K. that said bank was solvent, and
monwealth, 97 Pa. 336. thereby inducing him to deposit in
Therefore a judgment of restitution said banic the said $24,000, whereas de-
can not be supported by an indictment fendants well knew said bank was
alleging that defendants, being the wholly insolvent. Huntzinger v. Com-
president and cashier of a bank, a cor- monwealth, 97 Pa. 336.
poration, did conspire to cheat and de- 17. Costs. —Commonwealth v. Schall,
fraud K. of $24,000 by means of falsely 12 Pa. Co. Ct. Rep. 209.
and fraudulently representing to said
CHAPTER VI.
E. Insolvency and DissoIvUTion.

§ 63 (1) Constitutionality of Statutes.
§ 63 Interpretation and Construction of Statutes.
(2)
§ 64. Voluntary Liquidation and Dissolution.
§ 64 (1) Voluntary Liquidation.
§ 64 (la) Definitions.
§ 64 (lb) Methods of Liquidation.
§ 64 (Ic) Time of Dissolution.
§ 64 (Id) Estoppel.
§ 64 (2) Involuntary Liquidation.
§ 65. Reorganization.
§ 65 (2) Effect of Reorganization.
§ 65 (2b) On
Liability for Debts of Old Corporation.
§ 65 (2c) On
Rights and Liabilities of Stockholders.
§ 65 (3) Validity of Reorganization Proceedings.
§ 65 (4) Reorganization Agreements.
§ 66. Effect on State Bank of Reorganization as National Bank.
§ 67. Consolidation.
§ 67 (1) Right to Consolidate.
§ 67 (2) What Constitutes.
§ 67 (3) Effect of Consolidation.
§ 68. Grounds of Forfeiture of Franchise or Dissolution.
§ 69. Waiver or Remission of Forfeiture.
§ 70. Proceedings to Enforce Dissolution.
§ 70 (2) Nature or Character of Proceeding.
§ 70 (3) Necessity of Proceeding.
§ 70 (4) Jurisdiction and Venue.
§ 70 (5) Parties.
§ 70 (6) Multifariousness.
§ 70 (7) Pleading.
§ 70 (8) Judgment.
§ 70 (9) Abatement and Vacation of Proceedings.
§ 70 (10) Costs.
§ 70 (11) New Trials.
^ 71. Receivers, Trustees or Commissioners in Proceedings for Dissolution.
§ 71 (1) Selection, Appointment and Removal.
§ 71 (3) Title, Right and Authority.
§ 71 (3) Salary or Compensation.
§ 71 (4) Suits by and against.
§ 71 (4a) Suits by.
§ 71 (4b) Suits against.
§ 71 (4c)Revivor of Actions.
§ 71 (5) Termination of Trust.
§ 71 (6) Accounting.
§ 72. Effect of Dissolution.

§ 72 (2) On th« Relation of Officers to the Bank.
§ 72 (3) On Rights of Creditors.
S 73 (3b) Rule in Equity.
§ 72 (3c) Pre-Existing Liability for Taxes.
§ 72 (4) On Rights of Stockholders.
§ 72 (5) On Liability of Stockholders.
§ 72 (6) On Right to Make Collections.
§ 73. Insolvency and Its Effect in General.
§ 73 (1) WhatConstitutes Solvency or Insolvency.
§ 73 (2) Evidence of Insolvency.
§ 73 (3) Effect of Insolvency.
§ 73 (3b) Transacting Business after Knowledge of Insolvency.
§ 73 (3c) On the Venue of Suits against Bank.
§ 73 (4)Rights of Correspondent Bank.
§ 73 (5) Insolvency of Foreign Banks.
§ 74. Transfers and Preferences Affected by Insolvency.
§ 74 (2) Right of Directors to Prefer Themselves.
§ 74 (3) Payments to Depositors.
§ 74 (4) Who Is Entitled as a Preferred Creditor.
§ 74 (5) Transfers to Pledgees.
§ 74 (6) Transfer after Appointment of Receiver.
§ 74 (7) Purchase of Its Own Stock by a Bank.
§ 75. Rights of Persons Making Deposits after Insolvency.
§ 75 (2) Deposits for Collection
§ 75 (3) Special Deposits.
§ 75 (4) Rights of Payee of Draft.
§ 75 Restoration of Consideration on Rescission.
(5)
§ 75 (6) Evidence.
§ 76. Remedies and Proceedings on Insolvency.
§ 76 (1) Right of Action.
§ 76 (2) Modes of Prpcedure.
§ 76 (2b) Injunction.
§ 76 (2c) Summary Remedies.
§ 76 (2d) Creditors' Suits.
§ 76 (3) Parties.
§ 76 (4) Evid-ence.
§ 76 (5) Accounting.
§ 76 (6) Reference.
§ 76 (7) Costs.
§ 76 (8) Supplying Vacancies in Boards of Directors.
§ 77. Assets and Receivers on Insolvency.
§ 77 (H) Assets.
§ 77 (yia) What Constitutes.
§ 77 (>4aa) In General.
§ 77 (J^bb) Surplus from Sale of Collateral.
INSOLVENCY AND DISSOLUTION. 453
§ 77 (J4cc) Unpaid Subscriptions and Statutory and Other

Liabilities of Stockholders.
§ 77 (^dd) Credits.
§ 77 (J4ee) County Money Wrongfully in Bank.
§ 77 (^b) Distribution of Assets.
§ 77 (1) Appointment and Removal of Receiver.
§ 77 (la) Purpose of Appointment.
§ 77 (lb) Selection, Qualification and Compensation.
§ 77 (Ibb) Oath.
§ 77 (Ice) Bond.
§ 77 (Idd) Number of Receivers.
§ 77 (lee) Compensation.
§ 77 (Iff)Temporary Receivers.
§ 77 (Ic) Grounds for Appointment of Receiver.
§ 77 (Id) Proceedings for Appointment of Receiver.
§ 77 (laa) In General
§ 77 (Ibb) Jurisdiction and Powers of the Court.
§ 77 (Ice) The Petitioner.
§ 77 (Idd) Notice.
§ and Answer.
77 (lee) Petition
§ 77 Hearing and Determination
(Iff) of Motion.
§ 77 (Igg) The Order of Court.
§ 77 (le) Removal and Discharge.
§ 77 (2b) OnRights of Attaching Creditors.
§ 77 (2c) OnRight to Sue the Bank.
§ 77 (3) Title, Rights, Powers and Duties of Receivers.
§ 77 (3b) Relation of Receiver to Bank and Creditors.
§ 77 (3c) Conflicting Receiverships.
§ 77 (3d) Title and Rights as to Assets.
§ 77 (3e) Powers of Receiver in General.
§ 77 (3f) Duties of Receiver in General.
§ 77 (3g) Liabilities of Receivers in General.
§ 77 (3h) Instructions from Court.
§ 77 (4) Collection and Protection of Assets.
§ 77 (4b) Surrender of Assets to Receiver.
§ 77 (4c)~Compromise of Claims.
§ 77 (4d) Proceedings to Collect.
§ 77 (4aa) Form of Proceedings.
§ 77 (4bb) Jurisdiction and Power of Courts.
§ 77 (4cc) Parties.
•
§ 77 (4e) Retention of Assets by Bank.
§ 77 (5) Sale or Other Disposition of Assets.
§ 77 (5a) Marshaling the Assets.
§ 77 (5b) Sale of Assets.
§ 77 (5c) Purchaser of Notes.
§ 77 (5d) Right of Receiver to Purchase at His Own Sale.
§ 77 (5e) Interest on Purchase Money.
§ 77 (6) Actions by or against Receiver.

§ 77 (6a) Actions by.
§ 77 (6aa) Jurisdiction.
§ 77 (6bb) Right of Action.
§ 77 (6cc) In Whose Name Action to Be Brought.
§ 77 (6dd) Representative Capacity of Plaintiff.
§ 77 (6b) Actions against.
§ 77 (6c) Defenses.
§ 77 (6aa) In Actions by Receivers.
§ 77 (6bb) In Actions against Receivers.
§ 77 (6d) Set-Offs.
§ 77 (6aa) Set-Offs by Receiver|.
§ 77 (ebb) Set-Offs against Receivers.
§ 77 (6e) Plea, Answer and Reply.
§ 77 (6f) Issues, Proof and Variance.
§ 77 (6g) Parties.
§ 77 (6h) Evidence.
§ 77 (6i) Judgment.
§ 77 (6j) Costs.
§ 78. Assignments for Benefit of Creditors.
§ 78 (1) Right to Make.
§ 78 (2) Involuntary Assignments.
§ 78 (3) Requisites and Validity.
§ 78 (3a) Requisites.
§ 78 (3aa) In General.
§ 78 (3bb) Execution of Assignment.
•§ 78 (3cc) Assent of Stockholders.
§ 78 (3dd) Acceptance of Trust by Assignee.
§ 78 (3b) Validity.
§ 78 (3bb) Preferences.
§ 78 (4) Operation and Effect of Assignment.
§ 78 (4b) What Passes by Assignment.
§ 78 (5) The Assigneeor Trustee.
§ 78 (5a) Relation of Trustee to Bank and Creditors.
§ 78 (5b) Necessity of Assignee.
§ 78 (5c) Selection or Appointment.
§ 78 (5d) Qualifications of Assignee.
§ 78 (5e) Joint Assignees.
§ 78 (5f) Title and Rights, Powers and Duties of Assignee.
78 (5g) Compensation of Assignee.
§
§ 78 (5h) Removal of Assignee.
§ 78 (6) Rights and Remedies of Creditors.

§ 78 (6a) Assets.
§ 78 (6aa) What Constitutes.
§ 78 (6bb) Collection of Assets.
§ 78 (6cc) Limitation on Actions by Assignee.
§ 78 (6b) Presentation, Proof and Payment of Claims.
§ 78 (6aa) Presentation of Claims.
§ 78 (6bb) Allowance of Claims.
§ 78 (6cc) Set Off.
INSOLVENCY AND DISSOLUTION. 455
§ 78 (6c) Distribution of Assets.

§ 78 (6bb) Priorities.
§ 78 (6d) Actions by Creditors.
§ 78 Proof of Assignment.
(7)
§ 78 (8) Vacating and Setting Aside Assignment
§ 79. Rights of Holders of Circulating Notes.

§ 79 (1) Payment Out of Assets in General.
§ 79 (la) Right of Bill Holders to Share in Assets.

§ 79 (lb) Payment in Bills, Notes or Other Obligations of the Bank.
§ 79 (2) Preference.
§ 79 (3) Penalties and Interest.
§ 79 (4) Set-Ofif against Bank or Receiver.
§ 79 (5)Rights against Officers of Bank.
§ 79 (6) Actions by Bill Holders.
§ 80. Presentation and Payment 'of Claims.
§ 80 (1) Claims Provable and Estoppel to Claim.
§ 80 (la) Claims Provable.
§ 80 (Ibb) Claims for Taxes.
'
§ 80 (Ice) Claims of Depositary.

§ 80 (Idd) Paid-Up Stockholders.
§ 80 (lee) Incidental Expenses in General.
§ 80 (lb) Estoppel to Claim.
§ 80 (3) Presentation and Proof.
§ 80 (2a) Presentation.
§ 80 (2bb) Notice to Creditors to Present Claims.
§ 80 (2cc) Time for Presentation or Filing of Claim.
§ 80 (3b) Proof.
§ 80 (3) Allowance and Payment.
§ 80 (3a) By Whom Allowed.
§ 80 (3b) To Whom Allowed.
§ 80 (3c) Rights and Liabilities of Creditors Holding Collateral.
§ 80 (3d) Hearing and Determination.
§ 80 (3bb) Raising and Waiving Objections to Allowance of
Claims.
§ 80 (3e) Payment.
§ 80 (4) Preferences and Priorities in General.
§ 80 (4a) Order of Liability of Assets.
§ 80 (4b) Claims Preferred.
§ 80 (4bb) Expenses of Insolvency Proceedings.
§ 80 (4cc) Claim for Taxes.
§ 80 (4dd) Pre-Existing Liens and Equities.
§ 80 (4ee) Debts Lawfully and Unlawfully Contracted.
§ 80 Claims of Firm and Individual Creditors.
(4flf)
§ 80 (4gg) Claims of State and County.

§ 80 (4hh) Claims of Forwarding or Collecting Banks.
§ 80 (4c) Effect of Fraud,
§ 80 (4d) Transfer of Right to Priority.
§ 80 (4e) Allowance of Preferences.

§ 80 (4bb) Funds or Assets Available to Preferred Creditors.
§ 80 (4f) Estoppel and Election.
§ 80 (5) Deposits.
§ 80 (5b) Priorities as between Themselves.
§ 80 (5c) Deposits by Savings Banks.
§ 80 (6) Special or Segregated Deposits.
§ 80 (6b) Checks Deposited for Collection.
§ 80 Fund Deposited.
(6c) Identification of
*
§ 80 (7) Deposit of Trust Funds.
§ 80 (7b) Deposits of Public Moneys.
§ 80 (7c) Right to Follow and Reclaim Fund.
§ 80 (7bb) Notice of Character of Deposit.
§ 80 (7cc) Efifect of Beneficiary Taking Collateral Security.
§ 80 (7dd) Identification of Fund or Deposit.
§ 80 (7d) Proceedings to Establish Trust.
§ 80 (8) Holders of Checks or Drafts.
§ 80 (8b) Rule in Equity.
§ 80 (8c) Holders of Protested Paper.
§ 80 (8d) Drawers of Drafts on Consignment.
§ 80 (8J^) Officers and Stockholders.
§ 80. (85â) Bank Officers.
§ 80 (8^b) Stockholders.
§ 80 (9) Dividends and Interest.
§ 80 (9a) Dividends.
§ 80 (9aa) Right to Dividends.
§ 80 (9aaa) In General.
§ 80 (9bbb) Rights of Purchasers of Claims.
§ 80 (9ccc) Establishment of Right.
§ 80 (9bb) Distribution of Dividend.
§ 80 (9b) Interest.
§ 80 (9aa) Right to and Liability for.
§ 80 (9bb) Computation of.
§ 80 (9cc), Rat« of.

§ 80 (9^) Set Off.
§ 80 (9Ka) In General.
§ 80 (S]4h) Conditions Annexed to Exercise of Right.
§ 80 (9^c) Claims That May Be Used as Set Oflfs.
§ 80 (9Hd) Estoppel to Interpose Set Off
§ 80 (9]4) Proceedings to Compel Payment.
§ 81. Distribution of Surplus.
§ 82. Civil Liabilityon Insolvency.
§ 83. Criminal Responsibility on Insolvency.
§ 84. —- Ofifenses.
§ 85. Prosecution and Punishment.
63 (1) INSOLVENCY AND DISSOLUTION. 457
E. INSOLVENCY AND DISSOLUTION. i
§ 63. Constitutional and Statutory Provisions § 63 (1) Con- —

stitutionality of Statutes. —
It is under art. 1, § 10, of the federal consti-
tution that most of the constitutional questions respecting banks have arisen,,
and these controversies usually grow out of alleged violations of the sanctity
of the bank's charter by subsequent state legislation. It has been truly
said that no provision of the federal constitution has received more fre-
quent consideration than this one.^ For example, the statutory modes pre-
scribed for winding up banking corporations constitute a contract with the
creditors, and a statute taking them away entirely impairs the obligation,
of the contract.^ In like manner a law authorizing and requiring a corpo-
ration to distribute its property among its stockholders, or to transfer it
to its sole stockholder, leaving its bills unredeemed, impairs the obligation
of the contract contained in those bills.^ And a law which withdraws from,
the reach of legal process the real property of a bank, which at the time-
1. As affecting power to borrow paying specific sums in relief notes

money, see post, "Borrowing Money," into the state treasury —was a contract
§ 97. between t]ie state and the accepting,
Enforcement of liability of stock- banks, which was binding on the state
holders, see ante, "Actions and Pro- until the loan was repaid. Long v..
ceedings to Enforce," § 49. Farmers' Bank (Pa.), 1 Clark 384,
Of national banks, see post, "In- The act of the legislature of 1843.
solvency and Its Effect in General," provided that, on judgment of forfei-
§ 285. ture against a bank when its debts
Power impose penalty for conduct
to could not be extinguished, trustees,
of business by insolvent bank, see should be appointed to collect them.
ante, "Power to Control and Regu- Held, that the Act of 1846, providing
late," § 3. that trustees appointed under such Act
Of savings banks, see post, "Insol- of 1843 should sell to the highest
vency and Receivers," § 309. bidder the property and evidence of
Of trust companies, see post, "Func- debts of banks to whom charters ware-
tions and Dealings," § 315. forfeited under that act, in so far as
Insolvency of collecting bank, efit prohibited the right of such trustees
fect on liabilities as to proceeds of to enforce payments of the debts, and

collections, see post, "Insolvency of destroyed the trust character of the-
Collecting Bank," § 106. fund for the benefit of creditors, was
Temporary receivership as affecting unconstitutional. Commercial Bank
liability for interest on deposits, see I. Chambers (Miss.), 8 Smedes & M. 9.
post, "Interest on Deposits," § 133. The Act of 1840 which provides for
Enforcement of liability of loan, the appointment of a receiver to take
trust and investment companies, see charge of the assets of banks where-
post, "Insolvency and Receivers," the charters thereof may be declared
317. forfeited by judicial proceedings, and'
§
Action against receiver on fraudu- the several acts amendatory thereof,
lently certified check, see post, "Ac- do not impair the rights of the debtors^
tions by Payees or Holders of Checks to the bank. The statute being reme-
dial in it,7 character, is not unconstitu-
against Bank," § 155.
tional Hall V. Carey, 5 Ga. 239.
2. See Barnitz v. Beverly, 163 U. S. 4. Curran v. Arkansas (U, S.), 15'
118, 41 L. Ed. 93, 16 S. Ct. 1042.
How. 304, 14 L. Ed. 705.
3. Bank Comm'rs v. Bank (Mich.), 1 "The state had nti right to pass
Har. 106. these laws, under the circumstances,
Contract to suspend forfeiture pro- either as a creditor of the bank or as-
—
ceedings. Act May 4, 1841 which — a trustee taking possession of the real
suspended proceedings against non- estate for the benefit of all the credit-
specie paying banks for the forfeiture ors." Curran v. Arkansas (U. S.), 15;
of their charter on condition of their How. 304, 14 L. Ed, 705,
of the execution of the contract was liable to be subjected to the satisfac-

tion of such contract, and which provides no substitute remedy, thereby
reducing the creditors of the bank to a condition in which their rights
"live but in grace, and their remedy is entreaty only," impairs the obligation
•of their contracts and is therefore invalid. ^ Likewise, a statute appropriat-
ing the bank's assets to the payment of debts due the state in preference
to other creditors,'' or a statute which deprives creditors of the right to
follow the assets of an insolvent bank into the hands of any one not a
bona fide purchaser, without notice and appropriates the property to other
uses,'^ or a statute subsequently enacted which allows a debtor to a bank
to discharge his obligations to it in a different medium from that in which

they were soluble when contracted,^ impair the obligation of contract and
are invalid. And when a bank becomes insolvent, the conflicting rights of
its various creditors and stockholders are questions for the courts, to be
determined in accordance with the laws then in force. It is not the province
5. Withdrawing assets from creditors. and, if assented to by them, amounts

— Curran v. Arkansas (U. S.), 15 How. to a contract with them to carry out
14 L. Ed. 705.
.304, said trust. Baring v. Dabney (U. S.),
In 1836, the legislature of Arkansas 19 Wall. 1, 22 L. Ed. 90. If such an
incorporated a bank with the usual act, however, has the feffect to appro-
banking powers of discount, deposit, priate the assets of the bank to pay
and circulation, the state being the the debts of the state, to the preju-
sole stockholder. The bank went into dice of bill holders. and other creditors
operation, and issued bills in the usual of the bank, it is repugnant to that
form, but in November, 1839, sus- clause of the constitution which pro-
pended specie payments. The bills of hibits a law impairing the obligation
the bank being payable on demand, of contracts, and is void. Baring v.
there was a contract with the holder Dabney (U. S.), 19 Wall. 1, 23 L.
to pay them; and laws, which with- Ed. 90.
drew the assets of the bank into a The fact that a state is the sole
different channel, impaired the obliga- stockholder in an incorporated bank
tion of this contract. Curran v. Ar- does not change the nature of the re-
ls:ansas (U. S.), 15 How. 304, 14 L. Ed. lation of such bank to its creditors,
705. and therefore, when such bank be-
Nor does the repeal or modification
comes insolvent, an act of the general
assembly authorizing and requiring the
of the charter of the bank by the leg-
governor, for and on behalf of the
islatvire prevent this conclusion from
state, to take possession of the assets,
heing drawn. Curran v. Arkansas (U.
is unconstitutional, as depriving the
S.), 15 How. Ed. 705.
304, 14 L.
creditors of the bank of their right to
6. Preferences given the state in the
such assets. State v. State, 1 S. C. 63.
assets. —
Though the stock of a bank be A provision in a state statute for a
altogether owned by a state, if the preference in favor of a savings bank
bank is insolvent its assets can not be in the distribution of the funds of an
appropriated by legislative act or insolvent national bank is void because
otherwise to pay the debts of the in conflict with the federal .statutes re-
state, as distinguished from the debts quiring the distribution ratably to the
of the bank. Those assets are a trust creditors. Davis v. Elmira Sav. Bank,
fund first applicable to the payment of 161 U. S. 275, 40 L. Ed. 700, 16 S. Ct.
the debts of the bank. Baring v. Dab- 502.
ney (U. S.), 19 W.all. 1, 22 L. Ed. 90. 7. Statutes taking away right to fol-
An act of the legislature requiring low assets. —
State v. Bank, 64 Tenn.
the managers of an insolvent bank be- (5 Baxt.) 1.
longing to the state to hold its assets 8. Right of debtor to pay debt in
appropriated to the payment of certain —
notes of bank. Woodrull v. Trapnall
specified debts, creates a trust in favor fU. S.), 10 How. 190; Miller v. An-
of the creditors holding said debts, drews, 43 Tenn. (3 Coldw.) 380.
§ 63 (1) INSOLVENCY AND DISSOLUTION. 459
of the legislature to legislate upon the subject. A law asiuming to declare

or settle the conflicting rights growing out of these past transactions is .
manifestly ex post facto.® But where the general assembly has reserved
the right to alter or repeal the bank's charter, an act placing upon the
same footing all creditors not having specific liens is not obnoxious to the
charge of interfering with vested rights or impairing the obligation of con-
tracts. i" And a statute making the circulating notes of a bank an offsei
to its claims isunobjectionable.^^
Summary Remedies by —
Execution. It has been held, that an act
of a state legislature giving a bank a summary process against debtors on
paper expressly made negotiable at the bank is not unconstitutional. ^^
Statutes Restricting Powers of Trustee. In authorizing the ap- —
pointment of a trustee where a banking corporation is dissolved, the state
undoubtedly has a right to restrict his power within such limits as it
thinks proper. And the trustee may exercise no power over the assets or
credits of thebank beyond that which the law authorizes. ^^
Constitutionality of Acts Allowing Suits. Acts allowing banks, or —
the trustees of banks, which have been dissolved or whose charters have
expired, to prosecute suits against their debtors, are constitutional, i*
Waiver of Constitutional Objections. —A creditor of a bank who
voluntarily submits his claim to the determination of an officer appointed
9. State V. Bank, 64 Tenn. (5 mary process, by execution in the na-

Baxt.) 1. ture of an attachment, against its
Bank notes are entitled to a priority debtors who have, by an express con-
of payment out of the assets of the sent, in writing, made the bonds, bills
bank, whether issued before or after or notes, by them drawn or indorsed,
the 6th of May, 1861, the date at negotiable at the bank, is not repug-
which the ordinance of secession was nant to the constitution of the United
passed, and the provisions of the States or of Maryland. Bank v. Okely,
amended constitution of 1865 and ac- 4 Wheat. 235, 4 L,. Ed. 559. See Bank
repudiating V. Sweeney, 3 Pet. 671, 7 L. Ed. 557.
cordant state legislation
the liability of the bank for deposits But the last provision in the act of
received and notes issued after that incorporation, which gives this sum-
date, are held void as impairing the mary process to the bank, is no part
oblie:ation of contracts. State v. Bank, of its corporate franchises, and may
64 Tenn. (5 Baxt.) 1. be repealed or altered, at pleasure, by
Gardiner, 39 Va. (18
the legislative will. Bank z'. Okely,
10 Robinson v.
4 Wheat. 235, 4 L. Ed. 559.
Graft.) 509.
13. Restriction of trustee's authority.
11. Statute allowing set-ofJ of cir- —Robertson v. Coulter (U. S.), 16
culating notes.— Acts 1842, Nos. 98, How. 106, 113, 14 L. Ed. 864.
157, and 1843, No. 93, provide specially And if the statute clothes him with
for holders of notes of banks in liqui- the power to collect the debts and
dation, and make the circulation of deal with the assets of the bank to a
each a good offset to its claims; and, certain amount only, and for certain
in compelling the commissioners to purposes, such a limitation of his au-
allow such ofifsets, they violate no thority does not interfere in any de-
vested right, and impair the obligation gree with the obligation of contracts.
of no contract. Exchange & Bank- Robertson v. Coulter (U. S.), 16 How.
ing Co,, V. Mudge (La.), 6 Rob. 397. 106, 14 L. Ed. 864.
12. Attachment against parties to 14. Statutes authorizing; suits against
paper negotiable at bank. The act of — trustees.— Lewis v McElvain, 16 O.
assembly of Marylpnd, of 1793, c. 30, 347; Cuyahoga Falls Real Estate Ass'n
incorporating the Bank of Columbia, ^'. McCaii"hv. 3 St. 153; Bates v.
and giving to the corporation a sum- Lewis, 3 O. St. 459.
460 BANKS AND BANKING. § 64 (lb>
under the authority of a statute, to take proof of claims, and at the hear-
ing makes no objection to the proceeding, waives his right to question the
constitutionality of the statute making the decision of such officer final. i°
§ 63 (2) Interpretation and Construction of Statutes. Statutes —

authorizing the institution of insolvency proceedings against banks are to be
strictly construed.!^ Hence, statutes providing for the forfeiture of char-
ters of insolventbanks do not operate retroactively. Repeals by implica- i'''
tion are not favored, ^^ but an act covering the subject matter of a former
act refines it.^^
§ 64. Voluntary Liquidation and Dissolution § 64 (1) Volun- —

tary Liquidation — § —
64 (la) Definitions. Liquidation of a banking:
corporation implies the winding up of its affairs. 2"
§ 64 (lb) Methods of Liquidation. —The banking laws in most ju-
15. Waiver of constitutional objec- in existence, was entitled; and a sale,

tions. — Dowd V. City Sav. Bank, 59 N. pursuant to the act, of notes then in
H. 391. suit, does not affect the further prose-
16. Construction of statutes allow- cution of it for the benefit of the pur-
ing insolvency proceedings. A bank- — chaser. Jemison v. Planters', etc.,
ing association, organized under the Bank, 23 Ala. 168.
Act of 1838, "to authorize the business Implied repeal by repugnancy. —
of banking," is not a corporation, Where one act directed the appoint-
within the meaning of the statute, ment of trustees, to sue for and col-
liable to be proceeded against for in- lect the debts, and sell the property of
solvency or other causes specified charter forfeited banks, and a subse-
therein. Parmlv v. Tenth Ward Bank quent act directed a sale of debts and
(N. Y.), 3 Edw: Ch. 395. property in a prescribed mode, it was
17. Forfeiture of bank charters. — held that there was a direct repug-
The provisions of the statute of April nancy between the two acts. Com-
21, 1825, providing for the forfeiture mercial Bank v. Chambers (Miss.), 8
of the charters of insolvent banks, do Smedes & M. 9.
not apply to cases of forfeiture hap- An act provided that, when the
pening before it was passed. People charters of banks were declared for-
V. Niagara Bank (N. Y.), 6 Cow. 196. feited, the debts due by and to them
18. Implied repeals. The povêr — should not be" extinguished, but that
conferred on the board of currency by trustees should be appointed to sue
St. Feb. 5, 1842, § 2, and St. March 14, for and collect the debts due to them.
1842, §§ 15, 27, 28, 29, of requiring that An act was subsequently passed di-
the books, papers, and minutes of the recting the trustees to sell all the
proceedings of the board of managers debts due to the banks to the highest
and directors appointed to liquidate the bidder for cash. Held, that the last
affairs of the Citizens' Bank should be law, if constitutional, repealed the-
subject to examination by them and former by implication. Commercial
of supervising the procee'dings of the Bank v. Chambers (Miss.), 8 Smedes
managers and directors, was not re- & M. 9.
pealed by the subsequent statutes (St. 19. Act March 24, 1909 (Laws 1909,
April 5. 1843, § 8, and St. April 6, c. 191), § 22, making it a felony to pub-
1847). Board v. Managers, 3 La. Ann. lish any false statement of the amount
346. of the assets or liabilities of any bank,
The Act of 1850. which directed a was repealed by Act March 22, 1911
sale of the remaining assets of the (Laws 1911, c. 150), which makes it an
Planters' & Merchants' Bank of Mo- offense to make such false statements.
bile, does not repeal, by implication, Eureka County Bank Habeas Corpus-
the Act of 1845, which authorized the Cases (Nev.), 126 Pac. 655.
appointment of trustees to settle its 20. Assets Realization Co. v. How-
affairs, and gave them power to use all ard, 70 Misc. Rep. 651, 127 N. Y. S„
the remedies to which the bank, while 798.
^ 64 (lb) insoi<vi;ncy and dissolution. 461
risdictions prescribe themethod of winding up the affairs of a bank, and

thismethod, when so prescribed, is exclusive. ^^ Thus a bank may be dis-
solved by a resolution of its board of directors, ^^ qj- jjy ^ surrender of its
charter or seizure of its franchises, ^^ or by a transfer of its business to
another man. 2* The owners of two-thirds of the stock may vote for
liquidation.^' ^^d this means three-fourths of the stock represented at
the meeting called to consider the question of dissolution, not three-fourths
of the entire stock. ^^^
21. Methods of liquidation. —Verp- of the lands or chattels of the corpo-

lanck V. Mercantile Ins. Co., 1 Edw. ration. State Bank v. State (Ind.), 1
Ch. 84; Hitch v. Hawley, 132 N. Y. Blackf. 267, 12 Am. Dec. 234.
212, 30 N. E. 401 Assets Realization
; Voluntary surrender of charter. —
Co. V. Howard, 70 Misc. Rep. 651, 127 A banking corporation can not, by a
N. Y. S. 798. voluntary surrender of its franchises,
Liquidation agreements. An agree- — dissolve itself at will. Subsequent leg-
ment by one bank to liquidate another islative assent is necessary. Me-
providing for a personal guaranty chanics' Bank Heard, 37 Ga. 401.
v.
against loss to the first bank does not What constitutes surrender of fran-
imply release of the second bank from chise. —
The closing of a bank and call-
liability. Assets
Realization Co. v. ing on the superintendent of banks to
Howard, 70 Misc. Rep. 651, 127 N. Y. take charge of its assets, resulting
S. 798. from fright or overcaution in view of
One bank agreeing to liquidate an- the financial situation existing, or from
other was not entitled to the fixed ignorance of the bank's actual sol-
compensation until full performance. vency, were not a surrender of the
Assets Realization Co. v. Howard, 70 bank's corporate franchise, since sur-
Misc. Rep. 651, 127 N. Y. 798. render of a corporate franchise can
An agreement by one bank to liqui- not be inferred even from insolvency
date another implied repayment cover- and suspension of business for a less
ing its advances and expenses. Assets period than that designated by the
Realization Co. v. Howard, 70 Misc. statute, unless the circumstances are
Rep. 651, 127 N. Y. 798. such as to make it appear that the cor-
22. Dissolution by resolution of poration has not power to continue
—
board. A banking association, organ- or resume its business. People v.
ized under the general banking laws of Oriental Bank, 124 App. Div. 741, 109
this state, has the power, by a reso- X. Y. S. 509.
lution of its board of directors, volun- 24. Dissolution by transfer of as-
tarily to dissolve itself and close its sets.—A bank, desiring to quit busi-
business, and to distribute a portion of ness, may transfer its accounts to an-
its capital and surplus earnings among other bank, and pay its depositors with
the stockholders. People v. Olmsted borrowed money, and pledge its as-
(N. Y.), 45 Barb. 644. sets for such purpose. Overstreet v.
23. Dissolution by surrender of Citizens' Bank, 12 Okl. 383, 72 Pac.
charter. —
Cooper v. Curtis, 30 Me. 379.
488. 25. Who may vote for liquidation
Effect of seizure of corporate fran- —
of national bank. Whenever the own-
—
chises. A seizure of the franchises of ers of two-thirds of the shares should
a corporation effects its dissolution. agree that they do not desire to con-
I3ut a judgment of seizure of the fran- tinue the business, they may, under
chises for a violation of the charter the forms prescribed, terminate the
of a corporation should not direct a existence of the bank, and wind up its
seizure of the corporate possessions. affairs; that is, provide for payment
The better opinion is that such a judg- of its debts and distribution of the
ment does not dissolve the corpora- surplus of its assets among the share-
tion, though the seizure of the fran- holders. Green v. Bennett (Civ. App.),
chises by execution issued upon the 110 S. W. 108, 115, citing Watkins v.
Judgment may work such dissolution. National Bank, 51 Kan. 254, 32 Pac.
State Bank v. State (Ind.), 1 Blackf. 914; Windmuller v. Standard Distill-
267. 12 Am. Dec. 234. ing, etc., Co., 114 Fed. 491.
Abuse of corporate franchises works 26. Dreifus v. Colonial, etc.. Trust
a forfeiture of the franchises, but not Co., 123 La. 61, 48 So. 649.
Suspension of Specie Payment. —During periods of great financial

depression, banks are frequently authorized by statute to suspend specie
payments. ^'^
§ 64 (Ic) Time of Dissolution. —The duration of banking corpora-

tions is often prescribed in the charter. ^^
§ 64 (Id) Estoppel. —Persons consenting to a voluntary liquidation of

a bank are thereafter precluded from questioning its validity.^^
§ 64 (2) Involuntary Liquidation. —Under the Act of the Virginia.

Legislature of February 12, 1866, the banks of the commonwealth were
required to go into liquidation, when insolvent, and execute deeds convey-
ing all their property, including debts due to them, to trustees for the pay-
ment of their debts.^"
§ 65. Reorganization— § 65 (1) In General. —The method of ef-

fecting the reorganization of a bank is prescribed by statute in most juris-
dictions. ^^
27. Suspension of specie payment. — 28. Time of dissolution. clause- —A

The charter of the bank of the state in the charter of a bank providing that
of Indiana (§ 45) does not authorize a the corporation shall not be dissolved
suspension of a specie payment within before the time specified for the ex-
Const., art. .11, § 7. Wright v. Defrees, piration of its charter, until all its-
8 Ind. 298. debts are paid, does not prevent the
Right to premium on .specie pay- seizure of its franchise for violation
—
ments. The banks of this common- of its charter. State Bank v. State
wealth in which the public moneys (Ind.), 1 Blackf. 367, 12 Am. Dec. 234.
were on deposit, paid the interest fall- 29. Estoppel by agreement to dis-
ing due in January, 1840, upon public solution. —A
depositor in an insolvent
loans, in specie or its equivalent. Un- bank who consented to a liquidation,
der the proviso to the second section agreement whereby another bank took,
of the Act of March S8, 1838 (Sess. over the assets of the insolvent in-
Acts of 1838, p. 37, ch. 13), they stitution can not, at a later date, ques-
claimed credit in account with the tion its validity. Wilde v. Oregon.
commonwealth for the premium which Trust, etc., Bank, 59 Ore. 551, 117 Pac.
they had to pay to the public creditors 807.
for the then difference between specie But where a creditor's claim against
and the notes of the banks. Held: 1. an insolvent bank has been approved,
That under the acts in 3 R. C, 1819, he is, already in court, and need not
ch. 174, § 6, p. 3, and in Sess. Acts of petition for permission to intervene-
1838, p. 27, ch. 14, the claim of any before liquidation agree-
attacking a
bank for such premium may properly ment. Wilde V. Oregon
Trust, etc.,"
be presented to the first auditor. 2. Bank, 59 Ore. 551, 117 Pac. 807.
That, upon the disallowance of such 30. Exchange Bank v. Knox, 60 Va.
claim, the bank may file a petition for (19 Gratt.) 739, reaffirmed in Saunders
redress to the court of chancery for V. White, 61. Va. (20 Gratt.) 327; Bank
Henrico and Richmond, created by the V. Marshall, 66 Va. (25 Gratt.) 378.
Act of March 13, 1840-41, p. 65, ch. 48. 31. Hunt V. Roosen, 87 Minn. 68, 91
3. That according to the true construc- N. W._ 259.
tion and effect of the Act of Decem- A dismissal by the court of a peti-
ber 11, 1839, in Sess. acts of 1839-40, tion for reorganization of a bank un-
p. 52, ch. 63 (especially the first proviso der chapter 89, Gen. Laws 1897, with-
thereto), the claim of any bank for out prejudice, disposes of the matter
the premium so paid must be disal- until it is reinstated upon notice to-
lowed; dissentiente Brooke, J., on the parties interested therein; and a sub-
last point. Commonwealth v. Farm- sequent judgment rendered on such
ers' Bank (Va.), 2 Rob. 737. petition is without merit, unless based'
§ 65 (2b) INSOLVENCY AND DISSOLUTION. 463
§ 65 (2) Effect of Re organization^ § 65 (2a) In General.—

The old bank continues to exist for the purpose of winding, up its affairs
and to that end may sue and be sued.^^
§ 65 (2b) On Liability for Debts of Old Corporation.— Where tne

reorganized bank is the same as the original bank, it is liable for the unpaid
debts of the latter.^^ But when a new banking corporation, with different
stockholders, formed out of another, it can not be sued by the creditors,
is
or be held liable for the debts of the old corporation, except upon some
special ground, such as having received assets of the old corporation with-
out giving value therefor.^*
upon the express consent of the par- tion, itself to pay back
and obligated
ties interested. Abel v. Allemania to the new
association any amount it
Bank, 79 Minn. 419, 82 N. W. 680. might be compelled to pay in excess
32. Donnally 41
v. W.
Hearndon, of the seventy-four per cent compro-
Va. 519, 23 E. 646.
S. mise, which compromise the new as-
33. Liability of reorganized bank for sociation agrees to pay, and such new
debts of old bank. Where certain — association resumed its business un-
persons enter into an agreement with der the old name and franchise, using
the shareholders of an insolvent bank, the seal of the insolvent bank, there is
by which they bind themselves to open a mere change of membership and not
the bank and continue its business and a change of the corporation itself; and
to pay its debts to a specified amount, the bank as reorganized is liable to a
if such shareholders will release and depositor who refused to compromise
surrender to them all the stock and for the full amount of his debt with
assets of the bank, it was held that the interest from the date* of demand.
hank as reorganized is in law the Island City Sav. Bank v. Sachtleben,
same as the original bank, and be- 67 Tex. 420, 3 S. W. 733. See, also.
comes liable for its unpaid debts. Island City Sav. Bank v. Wales, 3
Island City Sav. Bank v. Wales, 3 Tex. App. Civ. Cases, § 244.
Tex. App. Civ. Cases, § 244; Island But a banking firm, by accepting
City Sav. Bank v. Sachtleben, 67 Tex. the assets of a bank and agreeing to
420, 3 S. W. 733. pay its debts, did not act in a fiduciary
Rights of depositors. —A special de- capacity with respect to the deposits
posit of money was with a made of the bank and the repayment thereof
branch bank, and this branch being to depositors, since a depositor, by
withdrawn, and a new bank established placing money in the bank, was not
with the same officers, the deposi't entitled to demand of the bank the
went into the possession of the new return of the identical money, but only
bank, and was embezzled by its cash- a sum of money equal to that de-
ier. Held, that the depositor should posited; and hence the agreement of
have been notified of the transfer, and, the firm, on the assets being turned
unless he assented thereto, the old over to it, was to pay the deposit out
bank must bear the loss; but if, be- of the assets, but not to return the
fore the loss, he acquiesced in the ar- specific deposit. Hoskins v. Velasco
rangement, he must be presumed to Nat. Bank, 48 Tex. Civ. App. 246, 107
have consented either that the new S. W. 598.
bank should hold the deposit on its 34. Donnally v. Hearndon, 41 W.
own account, or as the agent of his Va. 519, 23 S. E. 646.
bailee. If the deposit was so held by When a bank .becomes insolvent, it
the new bank in its own right, the old may, under proper contract, transfer
bank was released from all liability. its assets to a new association, which
Rav V. Bank, 73 Ky. (10 Bush) 344._ may continue a similar business with-
Where an insolvent banking associa- out incurring liability for the debts of
tion, aftersuspension of business, com- the insolvent corporation. Island City
promised with all its depositors, save Sav. Bank v. Sachtleben, 67 Tex. 420,
one, on the basis of a payment of 3 S. W. 733. See, also, Island City
seventy-four cents on a dollar, and Sav. Bank v. Wales, 3 Tex. App. Civ.
transferred all its assets, including its Cases, § 244.
name and franchise, to a new associa- The mere receipt by the officers of
§ 65 (2c) On Rights and Liabilities of Stockholders.— The right^

of stockholders upon reorganization depend, largely upon the terms of the
reorganization scheme.^ ^
a new bank, of the bills of an old bank the room occupied by the corporation,
of the same name, and paying out the and by men who had been officers and
same bills, does not make the new stockholders of the bank, and who be-
bank responsible to pay all the bills of came stockholders and officers of the
the old bank. Bellows v. Hallowell, corporation, was insufficient. Austin
^tc, Bank, Fed. Cas. No. 1,279, 2 V. Tecnmseh Nat. Bank, 49 Neb. 412,
Mason 31. 68 N. W. 628, 35 L. R. A. 444, 59 Am.
Where a new bank incorporated
is St. Rep. 543.
with the same name as an old one, 35. Rights o£ stockholders. Gre- —
whose charter is about to expire, the sham V. Island City Sav. Bank, 2 Tex.
new bank is not responsible for the Civ. App. 52, 21 S. W. 556.
notes of the old, though a major part Where upon the reorganization of
•of the stockholders are the same in an insolvent bank, new stock is issued
each. Bellows v. Hallowell, etc., Bank, and the holders of the new shares as-
Fed. Cas. No. 1,279, 2 Mason 31. sume control of the bank, paid up
Under St. Feb. 5, 1842, No. 22, re- stock of nonconsenting shareholders
viving the charters of the banks in was not subject to further assessment
New Orleans, only the debts due for any purpose. The corporate ex-
them at the date of the act can be con- istence of the old organization con-
sidered a part of their "dead weight." tinued, notwithstanding its insolvency
Debts subsequently contracted, though and suspension of business, and the
between the date of the passage of the legal rights of shareholders could not
act and its promulgation, or acceptance be taken from them by a majority,
by the banks, are not included in the however large. Gresham v. Island City
"dead weight." City Bank v. Barbarin Sav. Bank, 2 Tex. Civ. App. 52, 21 S.
(La.), 6 Rob. 289. W. 556.
Proof that a bank issued the notes Where upon the reorganization of
of a former bank of the same name a bank one of the old stockholders is
will not make it responsible therefor, refused recognition as a stockholder
unless it issued them as its own notes, in the new organization, the conver-
nor then, except as to the very notes sion of his stock took place at the date
issued. Wymanv. Hallowell, etc.. of demand by him for recognition as
Bank, 14 Mass. 58, 7 Am. Dec. 194. a stockholder. Gresham v. Island City
Where a banking company, incor- Sav. Bank, 2 Tex. Civ. App. 52, 21 S.
porated by the same name with a W. 556.
former one, appoints the same presi- Where owner of stock in a bank
the
dent and cashier, and the officers re- which reorganized delays for four
is
ceive and issue the notes of the former years in demanding recognition as a
company, and declare that there is no stockholder and sues for the value of
difference between the notes thus is- his stock, the aid of equity to reinstate
sued and those of the new company, him in the enjoyment of the privileges
the new company, never having au- of a stockholder in the new organiza-
thorized these proceedings, is not li- tion should be withheld. The managers
able to pay such notes. Wyman v. of the bank have been allowed to go
Hallowell, etc.. Bank, 14 Mass. 58, 7 on and establish it in accordance with
Am. Dec. 194. the arrangements made four years be-
—
The pleadings. A petition seeking fore, and the business of the bank is
to charge a newly-organized corpora- doubtless readjusted to its changed
tion for the debts of a bank to whose conditions, and the plaintiff can be
bus''T» = s and property it had suc- compensated in money for any dam-
ceeded, which did not allege a con- age he has sustained, and that should
tractual liability, or that the corpora- be his remedy. Gresham v. Island City
tion did not in good faith, in the usual Sav. Bank, 2 Tex. Civ. App. 52, 31 S.
course of business, purchase and pay W. 556.
for the rights and property of the Where
the stock of an old
" bank
bank, but showed merely that the cor- which has been reorganized is trans-
poration, by some undisclosed means, it was held that
ferred to the plaintiff
acquired the assets, business, and good he was not an innocent holder and
will of the bank, and that the bank's that he acquired only such rights by
business was at one time conducted in his purchase as the original owners
§ 65 (3) Validity of Reorganization Proceedings. The fact that —

creditors are not made parties to a reorganization agreement does not af-
fect its vaHdity.^® Nor can the irregularity of reorganization be set up as a
defense to an action brought by the new bank.^'''
§ 65 (4) Reorganization Agreements. —An agreement by stock-

holders of a bank to supply a deficiehcy of the assets to cover liabilities as
a part of a plan of reorganization, may be enforced by the receiver in ac-

cordance with its terms.38 Nor is such agreement invalid because the
had, but he had a right to maintain a Thompson v. Gross, 106 Wis. 34, 81
suit for reinstatement as a stockholder N. W. 1061.
or for conversion of the stock upon 37. Where a new charter was granted
the lien transferred by the original to a bank, and it thereupon ceased to
owners of their stock. Gresham v. operate under its old charter, and was
Island City Sav. Bank, 3 Tex. Civ. in fact reorganized under the new one,
App. 53, 21 S. W. 556. the fact that such reorganization was
Stockholders of reorganized savings irregularly accomplished, or that a
—
bank. The depositors of a member- condition precedent to its full cor-
ship savings bank, which was in need porate existence thereunder was not
of funds, met and agreed to reorganize complied with, can not be set up by
as a capital bank, whereupon subscrip- an indorser of usurious notes dis-
tion books were opened, the old de- counted by the old bank, and renewals
positors being preferred in the right to thereof, accepted by it after reorgani-
subscribe for stock, and their sub- zation, as a defense to an action,
scriptions being made payable by their thereon by the new bank. Spahr v.
funds in the savings bank. large A Farmers' Bank, 94 Pa. 439, 434.
amount of stock was taken in the man- —
Estoppel. Where creditors of an in-
ner, amounting nearly to the amount solvent bank were permitted, under
of the bank's deposits, and such sub- Laws 1897, c. 89, to reorganize, and
scribers, before all the stock was taken, the receivers were discharged, and the
incorporated and organized the bank, officers of the bank resumed control,
and proceeded to operate it. These and issued certificates of deposit to
subscriptions were unconditional in the creditors, which they accepted, and
form, and soon thereafter the bank at no time questioned the validity of
suspended, and turned over its assets the reorganization, or the judgment
to a board of directors for liquidation. authorizing it, though the judgment
The board collected the assets, and adopting and approving the plan of
proceeded to pay dividends on de- reorganization was void, because based
posits, excluding such as had been ap- on a petition which had formerly been
plied in payment for stock. Held, that dismissed by a judge other than the
such stockholders could not now claim one granting the order, but without
their subscriptions to have been con- his knowledge, the creditors who ac-
ditional on the subscription of the en- quiesced therein and retained the
tire capital of the bank, and be benefits accruing therefrom are es-
relegated to their rights as depositors. topped from questioning the validity
Dallemand v. Odd Fellows' Sav. Bank, of the proceedings. Hunt v. Roosen,
74 Cal. 598. 16 Pac. 497. 87 Minn. 68, 91 "N. W. 359.
36. Validity of reorganization pro- 38. A plan for the reorganization of
—
ceedings. That creditors of an in- an insolvent bank included the execu-
solvent bank were not made parties tion and delivery of an agreement
to an agreement included in a plan for binding its stockholders to give their
its reorganization, binding the stock- notes to the bank to the amount of
holders to give their notes to the bank their respective holdings of stock, to
to the amount of their respective hold- be collected only in case there was a
ings of stock, to be collected in case deficiency of "present assets" to cover
there was a deficiency of assets, and the liabilities then existing, and pro-
providing that payment thereof should viding that the payment of such notes,
discharge the payor's statutory lia- or any portion thereof, should, pro
bilitv existing at the date of the agree- tantc, discharge the payor's statutory
ment, did not affect its validity. liability existing at the date of the
1 B & B—30
creditors were not made parties thereto,^* nor is it void for want of con-
sideration.*"
An action to enforce an agreement binding stockholders of an in-
solvent bank to give their notes to it, to be collected in case there was a
deficiency in assets to discharge liabilities existing at the date of the
agreement, was not prematurely brought where it appeared from the
complaint that there was such a deficiency when the action was commenced,
and that an accounting was necessary to determine the exact amount
thereof.*!
§ 66. Effect on State Bank of Reorganization as National Bank.

—When a bank reorganizes as a national bank the change does not re-
state
lieve it from any former liabilities to individuals with whom it has had
dealings. It passes from one jurisdiction to another; but its identity i.s
not thereby necessarily destroyed. It remains substantially the same in-
stitution under another name. The transition does not disturb the relation
of either the stockholders or officers of the corporation, nor enlarge or
diminish the assets of the institution. These all remain the same under
the national as they were under the state organization. *2
agreement. The plan was carried out, fund in the hands of the bank, in which
and the bank resumed business, and creditors can not participate except by
continued until it again became in- releasing pro tanto their rights against
.solvent. Held, that an action to en- the stockholders under the statute.
force the agreement was properly- Thompson v. Gross, 106 Wis. 34, 81
brought by the receiver of the bank, N. W. 1061.
since it did not take the place of the The reorganization of an insolvent
statutory liability of stockholders, but bank, and the mutual agreement be-
merely bound them to pay the notes tween its stockholders to effect that
on the contingency mentioned. Thomp- resultby increasing its capital stock
son V. Gross, 106 Wis. 34, 81 N. W. and canceling part of its liabilities by
1061. allowing creditors to subscribe for
39. That the creditors of an in- stock in satisfaction of' their claims,
solvent bank were not made parties is a sufficient consideration for an
to an agreement included in a plan agreement binding the stockholders to
for its reorganization, binding the give their notes to the bank, to be col-
stockholders to give their notes to the lected in case there is a deficiency of
bank to the amount
of their respective assets to cover the remaining liabili-
holdings of stock, to be collected in ties. Thompson v. Gross, 106 Wis. 34,
case there was a deficiency of assets, 81 N. W. 1061.
and providing that payment thereof 41. Premature suits. —Thompson v.
should discharge the payor's statutory Gross, 106 Wis. 34, 81 N. W. 1061.
liability existing at the date of the 42. Effect on state bank of reorgani-
agreement, did not affect its validity. zation as national bank. Coffey v. Na- —
Thompson v. Gross, 106 Wis. 34, 81 tional Bank, 46 Mo. 140, 2 Ain. Rep.
N. W. 1061. 488; City Nat. Bank v Phelps, 86 N.
40. An agreement between an in- Y. 484; Citv Nat. Bank v. Phelps, 97
solvent bank and its stockholders, N. Y. 44; Kelsey v. National Bank, 69
binding them to give their notes to it Pa. 426.
to the amount of their holdings of The conversion of a state bank into
stock, to be collected in case there is a national bank
not a "closing of its
is
a shortage of assets to cover liabili- business," within the meaning of the
ties, and providing that paj'ment statute of 1859, providing for the re-
thereon should pro tanto discharge the demption of a state bank's circulation,
payor's statutory liability, is not void ,Tnd releasing it from liability on such
for want of consideration, since pay- notes as are not presented within six
ments thereunder constitute a trust years after the giving of the prescribed
§ 66 INSOLVENCY AND DISSOLUTION. 467
notice; and any notes not so presented an appeal from a judgment against the
constitute a valid claim against the na- state bank, taken within the three
tional bank. -Metropolitan Nat. Bank years, under Code, § 121, providing
V. Claggett, 141 U. S. 520, 35 L. Ed. that no action shall abate by disability
841, 12 S. Ct. 60. of a party, or by the transfer of any
Laws 1865, c. 97, § 2, provides that interest, if the cause of action survive.
any state bank becoming a national Claffin V. Farmers', etc., Bank (N. Y.),
bank shall be deemed to have surren- 54 Barb. 228.
dered its charter on, compliance "with When a state bank has surrendered
the requirements of this act," but that its charter to the state, and has organ-
it shall continue a body corporate for ized as a national bank, the right of
three years afterwards for the purpose the state to continue to exact a bonus
of closing its concerns, but not for the imposed by the charter for the exer-
purpose of the business for which it cise of the
franchise is terminated.
was established. Section 6 provides State National Bank, 33 Md. 75.
V.
that, when authorized to commence The conversion of a state bank into
business as a national bank, all assets a national bank, under Act Cong. June
of the old bank shall vest, without any 3, 1864, is not equivalent in law to a
conveyance, in the national bank, paying off in fact of its stock, so as to
which, on returning the bills of the adeem a residuary legacy in certain
state bank to the banking department shares of the bank's stock, limited on
of the state, may receive the stock a life estate in such shares, which is
pledged to secure the redemption of to become absolute in case the bank
the same, and that it shall be sub- should pay off its stock. Maynard v.
jected to the same rules as the state Mechanics' Nat. Ban'K (Fa.), 1 Brewst.
banks with regard to the final re- 483.
demption of the circulating notes of
"such state banks so converted into
Form of suit. —Under Act 1863, c.
144, authorizing a change of the state
national associations." Section 8 pro- banking institutions into national
vides that the act shall not be con- banks, and providing that they might
strued so as to release the national continue to use their corporate name
bank from any obligation incurred be- for the purpose of "prosecuting and
fore becoming such association. Held, defending suits" instituted by or
that the conversion of a state bank against them, and of winding up their
into a national bank did not constitute business, the Farmers' Bank of Mary-
such a "closing of the business" of the land was converted into the Farmers'
state bank that it could limit its lia- National Bank of Annapolis, in June,
bility to redeem its" circulating notes 1865. Held that, on a judgment ob-
by proceedings under Laws 1859, c. tained by it in 1864, a scire facias might
236, authorizing state banks intending properly issue in the old corporate
to close business to publish notice that name of the bank against the, original
any persons having any of the circu- defendants. Thomas v. Farmers' Bank,
lating notes of the bank should present 46 Md. 43.
them for redemption within six years; Where a state bank, after paying to
and, failing to do so, the bank would its president money falsely represented
no longer be liable on such notes. by him to have been paid to an agent
Clagsrett V. Metropolitan Nat. Bank, to whom the bank was indebted, is
56 Hun 578. 10 N. Y. S. 165, 31 N. Y. duly chang:ed into a national bank, the
St. Rep 937, affirmed in 125 N. Y. 729, new association, upon being sued by
26 N. E. 757. the agent who recovers a judgment
Act March 9. 1865 (Laws 1865, p. against it, can maintain an action in
169), § 2, provides that, where a state its own name against the president for
bank is merged in a national bank, it money had and received, under St.
shall be deemed to have surrendered 1870, c. 217, setting forth in the writ
its state charter, but that "every such the fact of sale by the state bank, and
bank shall, nevertheless, be continued purchase of the chose in action by
a body corporate for the term of three plaintiff. Atlantic Nat. Bank v. Har-
years, * * * for the purpose of prose- ris. 11 K Mass. 147.
cuting and defending suits by and —
Liability for costs. Under the pro-
a.gainst it, and of enabling it to close visions of Act 1865, c. 144. a state
its concerns." A state bank was con- bank organized as a national bank in
verted into a national bank, and the June, 1865; and in 1874 it sued out, in
national bank failed two vears later, its old corporate name, a scire facias
and went into the hands of a receiver. on a judgment obtained in 1864. Held,
Held, that the receiver could prosecute that the new bank was substantially
§ 67. Consolidation"^— § 67 (1) Right to Consolidate.—\Mth

legislative authority and the assent of stockholders, banks are allowed to
consolidate.*^
§ 67 (2) What Constitutes. —

One banking corporation may, in con-
templation of closing up its business, sell its assets, property, and business
to another corporation, and make arrangement for the liquidation of its
liabilities, but this does not constitute a consolidation.**
§ 67 (3) Effect of Consolidation. —

Where two banks consolidate,
a new corporation is thereby formed, composed of two, and the stockhold-
ers of each become ipso facto stockholders in the new bank and are entitled
to a proportionate share in its stock.*^
the plaintiff, and, as such, was there- to appraise the value of his stock, and
fore liable for costs in case of judg- that, when
the corporation has paid the
ment for the defendant. Thomas v. appraised value thereof, the stock
Farmers' Bank, 46 Md. 43. shall be canceled, one owning stock
—
Service of process. Where a state which stands on the books of the
bank, on a proper application made by corporation in the name of another
it. is duly changed into a national baiik, person can not maintain the pro-
whereby it surrenders its charter as ceeding. In re Rogers, 102 App. Div.
a state bank (Laws 1865, c, 97; Laws 466, 92 N. Y. S. 465.
3 882, c. 409, § 168), and the period dur- 44. Overstreet v. Citizens' Bank, 13
ing which it may do business as a na- Okl. 383, 72 Pac. 379.
tional bank, as prescribed by the cer- A banking corporation desiring to
tificate issued by the comptroller of quit business may transfer its deposi-
the currency, has expired, its corpo- tors' accounts to another bank, and
rate existence, both as a state bank may borrow money from such other
and as a national bank, is at an end, bank to pay its depositors, and may
and the authority of the cashier thereof pledge its assets as security for the
is terminated, and service of summons money so borrowed; and such action
on such cashier in an action against is not a consolidation or merger, nor
the two banks will be set aside as to does it release the first bank from lia-
each defendant. Hayijen v. Bank, 59 bility, nor render the second liable to
Hun 620, 15 N. Y. S. 48. the other creditors of the first bank.
42a. Of national banks, see post, Overstreet v. Citizens' Bank, 12 Okl.
"Consolidation," § 283. 383, 72 Pac. 379.
43. Rule in Oklahoma. — "Corpora- 45. Green v. Bennet (Civ. App.), 110
tions can not consolidate without au- S. W. 108.
thority of law, and there was no law Where a debtor bank, on consoli-
in this territory, at the time of doing dating with another corporation, caused
the acts complained of, authorizing trustees to be appointed to wind up its
banking corporations to merge or con- affairs, the corporation formed by the
solidate." Overstreet v. Citizens' consolidation was not. liable for the
Bank, 12 Okl. 383, 72 Pac. 379. debts of the bank on general grounds.
Consolidation under invalid statute. Donnally v. Hearndon, 41 W. Va. 519,
— Of national banks, see post, "Con- 23 S. E. 646.
Banking Law, as amended by
solidation," § 283. § 37,
Where a consolidation of banks is Laws 1895. p. 223. provides that
c. 382,
made pursuant to an invalid statute, on the merger of any corporation in
such consolidation is inoperative and the manner prescribed all the rights
void. Boor v. Tolman, 113 111. App. and interests of the corporation merged
322. in property and things in action shall
Right of nonassenting stockholder. be deemed to be transferred to the
— Under Banking Laws (Laws 1892, p. merging corporation without any other
1842, c. 689, as amended by Laws 1H95, deed or transfer, and the latter 'cor-
p. 222, c. 382), § 36, providing that poration shall hold the same in the
any stockholder not voting in favor of same manner as if the corporation
merger may, on application therefor, merged should have continued to re-
procure the appointment of appraisers tain title and transact the business of
§ 68. Grounds of Forfeiture of Franchise or Dissolution.*" — Be-

cause of the well-settled general rule that forfeitures are not favored, the
forfeiture of a bank charter will not be declared, except where there is a
plain abuse of power by which the corporation ceases to fulfill its func-
tions.*'' But when the corporation is insolvent*'^ or fails or refuses to pay-
such corporation; and § 38, as amended done in violation of positive statute, is

by Laws 1900, p. 438, provides
c. 199, good cause of forfeiture of its charter.
that the rights of creditors and others State V. Real Estate Bank, 5 Ark. 595,
having relations with the merged cor- 41 Am. Dec. 109; State v. Commercial
poration shall not be impaired by any Bank, 10 O. 535; Bank v. Iglehart,
such merger. Held that, where de- Fed. Cas. No. 860, 6 McLean 568;
fendant was liable on a guaranty to a Lane v. Morris, 8 Ga. 468; Lumpkin v.
bank which was subsequently merged Jones, 1 Ga. 37; Planters' Bank v.
under such act in plaintiff bank, plain- State (Miss.), 7 Smedes & M. 163;
tiff, by virtue of the statute, acquired Commercial Bank v. State (Miss.), 6
the right to enforce the guaranty. Smedes & M. 599, 45 Am. Dec. 380;
Bank v. Young, 101 App. Div. 88, 91 State V. Commercial Bank, 10 O. 535;
N. Y. S. 849. Long V. Farmers' Bank (Pa.), 1 Clark
Void consolidation. Where the de-— 384; unless such cause of forfeiture is
waived. State v. Bank (S. C), 3 Mc-
fendant was a stockholder in a bank-
ing corporation under a
organized Mullan 439, 39 Am. Dec. 135; or cured
special act of the legislature which im- by a subsequent resumption of specie
posed a stock liability equal to the payment. Lumpkin v. Jones, ~1 Ga. S7.
amount of his stock, and such corpora- But a mere suspension of specie pay-
tion subsequently is sought to be con- ments by a bank does not work a for-
solidated with another banking cor- feiture of its charter. State v. Com-
poration, such special stock liability mercial Bank, 10 O. 535; especially if
will not be enforced in an action the bank has good cause for refusing
against such supposed consolidated payment. Long v. Farmers' Bank
corporation where it appears that such (Pa.), 1 Clark 284.
attempted consolidation was void. Though a bank charter contains no
Boor V.Tolman, 113 111. App. 323. provision for its forfeiture in the event
of a failure to pay specie, jêt, where
46. Waiver or remission of forfei-
there was in force at the date of the
ture, see post, "Special Deposits,"
charter a general law to the same ef-
§ 153.
fect, the forfeiture can, under that law,
47. Expansions and contractions of be enforced. Palfrey Paulding,
v. 7
circulation work no forfeiture of the Ann.
La. 363; Atchafalaya Bank v.
franchises of a bank where another Dawson, 13 La. 497.
adequate remedy or penalty was pro- The Act of 1821, declaring the char-
vided by the charter of the bank. State ter of the Tombeckbee Bank liable to
V. Commercial Bank, 10 O. 535. forfeiture for a failure to pay specie
48. Insolvency as ground for dis- on demand for its notes, did not af-
solution. State—V. Mechanics', etc.. fect the bank, as its charter contained
Bank, 35 La. Ann. 563; Attorney Gen- no such provision. State v. Tombeck-
eral V. Oakland County Bank (Mich.), bee Bank (Ala.), 3 Stew. 30.
Walk. Ch. 90. A bank incurred no forfeiture by
Under the act incorporating the mere suspension, where another pen-
Bank of Niagara, the bank did not for- alty for suspension v/as given to the
feit its charter by insolvency and holder of its notes, both by its charter
closing its operations, if payment of and the general law. State v. Com-
its debts were resumed before prose- mercial Bank, 10 O. 535.
cution. Aliter, if a prosecution were Redemption in treasury notes. The —
commenced before payment was re- act of congress making treasury notes
sumed. People V. Niagara Bank, 6 a legal tender is within the constitu-
Cow. 196; People v. Bank (N. Y.), 6 tion, and valid; and hence the state
Cow. 311. banks, by redeeming in treasury notes,
Suspension of specie payments by a do not expose their franchises to for-
bank, continued a great length of time, feiture, under charter provisions that
without being produced by the fault they shall not at any time suspend or
of the state, and adopted without any refuse payment in gold or silver of
sufficient excuse or necessity or when their obligations or moneys received
its debts,'*® or when it has violated any provision of its charter or any law
binding on it, though such violation be unintentional,^'' or where it aban-
on deposit. Reynolds v. Bank, 18 Ind. 49. Failure of bank to pay debts as

467. —
ground for dissolution. Bank Comm'rs
By statute in Pennsylvania, a bank V. Bank(N. Y.), 6 Paige 497.
refusing specie payment is compelled Failure to pay circulating notes. —
to make an involuntary assignment for To subject a banking association to a
creditors. But as such statute is penal forfeiture of its charter, under the Act
it will be strictly construed. General of 1840, for allowing its circulating
Banking Laws April 16, 1850, § 24, notes to remain unpaid for twenty
provide that, if a bank refuse or fail days after presentation at an agency
>
to redeem its bills when presented, it of the bank, such notes must be al-
shall forfeit its charter. Section 25 lowed to remain with the agent until
provides that the cashier of any bank the expiration of the twenty days, or
refusing to pay specie for the bank's must be presented a second time at or
liabilities if the demand is on a
shall, after the expiration of that time. Bank
note or indorse thereon, over his
bill, Comm'rs v. James Bank (N. Y.), 9
signature, the date of the demand. Paige 457.
Section 27 provides that if, upon a Failure to pay interest on state
hearing, the court or judge shall be —
bonds. That a bank has failed to pay
satisfied that the bank has refused to the interest on state bonds is no cause
redeem, and that the provisions of of forfeiture. State v. Real-Estate
§ 25 have been violated,
the directors Bank, 5 Ark. 595, 41 Am. Dec. 109.
shall make an assignment. an ap- On Refusal to redeem obligation. —
plication for an order directing an as- general refusal by an incorporated
signment, on the ground that the bank to redeem its issues and other
bank has refused to redeem its notes, obligations in gold and silver coin is
held, that it must appear that the of- per se a sufficient cause of forfeiture of
ficers of the bank not only refused to its charter. Commercial Bank v. State
pay the notes in gold or silver, but (Miss.), 6 Smedes & M. 599, 45 Am.
that they also refused to indorse the Dec. 280; State v. Bank (S. C), 1
day and year when they were pre- Speer 433.
sented for payment. Commonwealth 50. Violation of law or charter pro-
V. Bank, 9 Am. Law Reg. 379. visions as ground for dissolution. —
Act April 16, 1850, § 24, declares that Bank Comm'rs v. Bank (N. Y.), 6
a bank's failure to redeem its notes in Paige 497; Miami Exporting Co. v.
specie upon demand shall be an abso- Clark, 13 O'. 1; Franklin Bank v. Com-
lute forfeiture of its charter. Section mercial Bank, 36 O. St. 350, 38 Am.
25 provides that the cashier of a barik Rep. 594.
refusing to pay its notes in specie Contracting debts or issuing bills to
shall indorse thereon the day and year a larger amount than a charter allows,
of the demand. Section 27 provides or issuing, with a fraudulent intention,
that, if "the provisions of the twenty- more paper than the bank can redeem,
fifth section of this act have been will- or embezzling large sums deposited
fully violated," then the directors shall for safe-keeping, or making large divi-
make an assignment to trustees, and dends of profits, while it refuses to pay
thus forfeit the charter. Held, that specie for its bills, subjects a bank to
the statute must be construed as penal, a forfeiture of its charter. State Bank
and hence an assignment could not be V. State (Ind.), 1 Blackf. 267, 12 Am.
required, unless the officer refused to Dec 234.
make the indorsement. The court The establishment of an agency or
could not presume that the legislature office by a bank at a place not au-
intended a reference in § 27 to § 24, thorized by the charter is a violation
instead of § 25. Commonwealth v. of it and works a forfeiture of the
Bank, 9 Am. Law Reg. 379. franchise. Attorney General v. Oak-
—
Rule in Louisiana. Since Act March land County Bank (Mich.), Walk.
14, 1839, relieving banks from the
for- Ch. 90.
feiture of their charters occasioned by Failure to comply with clearing
the previous suspension of specie pay- house regulations. Act —
March 14,
ments, no bank can suspend specie 1839, § 3, No. 22, requiring the banks
payments even for a day without ex- in the city of New Orleans to settle
posing its charter to forfeiture. State and pay in gold and silver the balances
V. New Orleans Gas, etc., Co. (La.), due each other, every Monday, im-
2 Rob. 529. posed no duty not previously required
dons its corporate franchise and surrenders its assets for the purpose of
by law; and the party, in whose

if stockholder.'' Held, that a failure on
favor it was stipulated, chooses to the part of the bank to comply with
waive the right, the state can not com- the provision of its charter, respecting
plain without showing some injury to the sale of stock upon which any
the community. State v. New Orleans stockholder should fail to pay any in-
Gas, etc., Co. (La.), 3 Rob. 539. stallment, was not a cause of forfei-
Failure to maintain legal reserve. — ture of the charter; the authority to
Under Gen. St., c. 57, § 19, it is the sell the stock being a mere cumulative
duty of a bank so to conduct its busi- remedy given to coerce the payment
ness as to keep on hand an amount cf of stock. Commercial Bank ik State
specie equal to 15 per cent of its lia- (Miss.), 6 Smedes & M. 599, 45 Am.
bility for circulation and deposits; and, Dec. 280.
for a neglect or omission substantially Failure to file financial statement. —
to compl3^ with this requisition, a bank Where an independent banking com-
is liable to be enjoined, on the applica- pany, organized under the act passed
tion of the bank commissioners, from February 26, 1846 (§ 59), requiring
the further prosecution of its business, that a statement of its condition be
so far as may be needful to prevent a transmitted to the auditor of state, re-
violation of this provision of the stat- fused to transmit such statement, held,
ute. Commonwealth v. Bank (Mass.), that it forfeited its corporate franchise.
4 Allen 1.
Attorney General v. Seneca County
—
Failure to elect directors. The fail- Bank, 5 O. St. 171.
—
Subscription to its stock. A bank's
ure to elect directors or other officers
could not produce a dissolution of the charter provided that no person should
corporation. Blake v. Hinkle, 18 Teiin. on any one day subscribe, directly or
(10 Yerg.) 318. indirectly, for more than fifty shares
But where the charter of an incor- of stock. The act of incorporation di-
porated bank provides for the election rected that the books should be opened
of directors annually, the failure to for subscription to the capital stock
hold an election for five years is a on a certain day under the superintend-
cause of forfeiture of its charter. State ence of eight commissioners named
V. Commercial Bank, 33 Miss. 474.
in the act. Section 6 of the act pro-
Failure to pay up full capital stock. vided that, as soon as $500,000 should
— Where a bank has failed to comply be subscribed, the subscribers should
be a_ body corporate. Held, that a
with the law requiring its full capital
stock to be paid up within one year violation of the charter by indirect
from the date of its organization, its subscriptions for more than fifty
charter will be forfeited. People v. shares, while the books were still in
City Bank, 7 Coio. 336, 3 Pac. 314. the hands of the commissioners, who
Act March 29, 1869, incorporating a were the agents of the state, was no
banking company, provided that the ground for forfeiture of the charter.
capital stock should be a certain Commercial Bank v. State (Miss.), 6
amount, and that no increase should Smedes & M. 599, 45 Am. Dec. 380.
be made unless the amount thereo) Excessive loans to officers.— A
was paid in; that, before the corpora- bank's charter will not be forfeited be-
tion began business, the stockholders cause a large portion of their loans
should pay their subscriptions in full; have been made to their officers, in
and that the act should become void the absence of a statute requiring for-
unless the corporation organized and feiture on account of disproportionate
proceeded to business within two loans to its officers. State v. Com-
years. Held, that a failure to sub- mercial Bank, 10 O. 535.
scribe and pay in the amount of capi- But in some jurisdictions there are
tal stock within two years forfeited statutes expressly providing that ex-
the charter. People v. National Sav. cessive loans to directors shall work a
Bank, 129 111. 618, 22 N. E. 288. forfeiture of the franchise and disso-
Failure to sell for nonpayment of lution of the bank. Bank Comm'rs v.
—
stock subscription. The charter of a Bank (N. Y.), 6 Paige 497; Attorney
bank provided that, "should any stock- General v. Seneca County Bank, 5 O.
holder refuse or fail to pay any install- St. 171, 172.
ment on his stock when called for, the and discounts made by the
All loans
company shall sell said stock, on giv- bank will be presumed to
officers of a
ing thirty days' notice in some gazette, have been made by the authority of
on account of and at the risk of the the directors, unless they show that
liquidating its debts, ^^ or where the affairs therefore are being misman-
Euch officers have been guilty of fraud rate of interest, it does not work a for-
or embezzlement, and that they have feiture of its charter to receive more
removed such officers on the discovery than the legal rate. Corwin v. Urbana,
of the fraud. Bank Comm'rs v. Bank etc., Ins. Co., 14 O. 7.
(X. Y.), 6 Paige 497. And even where there is a restriction
It is a violation of the act to incor- upon the rate of interest chargeable ])y
porate banking companies for one of a bank, the charging or taking of usuri-
the independent banks chartered by it ous interest does not, in the absence of
to make loans to a director before the charter or statutory provision to the
adoption, by the stockholders, of by- contrary, afford ground for forfeiture
laws to regulate the liabilities of di- of franchises. State v. Commercial
rectors; and such violation may be a Bank, 10 O. 535.
cause of forfeiture of the charter, and But by statute in some jurisdictions,
render each director who knowingly persons exercising the privilege of
assents to it individually liable for all banking are prohibited from exacting
damages which the company, share- usury under penalty of forfeiting their
holders, or others shall sustain in con- privileges. Commonwealth r. Com-
sequence thereof. But the court are mercial Bank, 28 Pa. 383; Wetmore v.
not prepared to say that no debt is Brien, 40 Tenn. (3 Head) 723; Per-
created by such loan; yet even if such kins V. Watson, 61 Tenn. (2 Baxt) 173.
debt be void, and be paid, a creditor at On the other hand it has been held
large of the payer can reach the money that the violation by an incorporation
or property with which it is paid, such bank of the provisions of its charter,
creditor having at the time no lien on and the general banking law, by the
nor interest in the money or property. reservation of more than the legal rate
Conantj etc., Co. v. Reed, 1 O. St. .298. of interest, does not forfeit the con-
Aloan knowingly made by a bank tract or security, but merely prevents
for the benefit of a director is a loan to the recovery of the illegal excess of in-
the director, within a statute provision terest. Bank z: Bingham, 33 Vt. 621.
prohibiting loans to the officers of the Failure to make report to auditor. —
bank beyond a certain amount, though Where an independent banking com-
the name of such director does not ap- pany, organized under the act of Feb-
pear upon the paper discounted, and ruary 26, 1845, refused to make and
though he has not guarantied the pay- transmit to the auditor of state a state-
ment. Bank Comm'rs v. Bank (N. Y.), ment of its condition, as required by
6 Paige 497. § 59 of said act, it thereby incurred the
It is no excuse for a violation of the penalty of forfeiture of corporate
act incorporating a bank by loaning to franchises. Attorney General i'. Sen-
the officers to an amount prohibited eca County Bank, 5 O. St. 171.
by the act that the directors had neg- 'Violation of charter by cashier. —
lected to keep themselves informed of The directors of a bank may, through
the amountof the loans to officers of their cashier, violate the charter of the
the corporation. Bank Comm'rs v. bank. If, however, they can show that,
Bank (N. Y.), 6 Paige 497. in the particular act of the cashier al-
—
Illegal loans to directors. Under the leged to be in violation of the charter,
act to incorporate the State Bank of he departed from his duties as pre-
Ohio and other banking compa:nies, it scribed by them, such act will not
was ground for forfeiture of its char- cause a forfeiture of the charter.
ter for a bank incorporated under such State V. Commercial Bank (Miss.), 6
act to make loans to its directors be- Smedes & M. 218, 45 Am. Dec. 280.
fore the adoption of by-laws to regu- —
Unintentional violations. If viola-
late the liabilities of directors. Con- tions of Gen. St. c. 57, §§ 19, 63, 67,
ant, etc., Co. V. Reed, 1 O. St. 298; Ar- have been committed by a bank under
nold V. Reid, 1 O. Dec. 347; Attorney a mistake or misapprehension of the
General v. Seneca County Bank, 5 O. law, and with no willful intent to vio-
St. 171. late the same, and it is not alleged that
Contracting by a bank to take usuri- any other or further similar acts are
ous interest works no forfeiture of its threatened or intended by it, a tem-
charter; where the charter contains no porary injunction which had been
restrictions as to the rate of interest. granted upon it may be dissolved upon
State V. Commercial Bank, 10 O. 535. payment of costs. Commonwealth v.
Whenan incorporated company is. Bank (Mass.), 4 Allen 1.
by its charter, authorized to lend 51. Abandonment of corporate fran-
money, without restriction as to the —
chise as ground for dissolution. At-
68 INSOLVENCY AND DISSOLUTION. 473.
aged,52 or where one of the members of a voluntary association dies'^ disso-

hitionand forfeiture of charter results. But a cashier of a bank can not cause
a forfeiture of its charter by a direct and palpable violation of his authority
or instructions.^'' Neither the opinion of the superintendent of banks, nor
torney General v. Seneca County Bank, a forfeiture of its charter, yet if it

5 O. St. 171. place the bank in a position where it
But a mere omission alone to exer- can not comply with the terms of its
cise corporate powers, Attorney Gen- charter, or fullill its purposes, it may
eral V. Bank (N. Y.), 1 Hopk. Ch. 354; work a forfeiture for nonuser. State
or a brief temporary cessation of busi- V. Commercial Bank (Miss.), 13 Smedes
ness operations will not work a for- & M. 569, 53 Am. Dec. 106; Town v.
feiture of its charter. State v. Louisi- Bank (Mich.), 3 Doug. 530.
ana Sav. Co., 12 La. Ann. 568. if a bank makes a valid assign-
But
And it has even been held that a ment of all its assets and property to
nonuser of the corporate franchise of trustees, for the benefit of its creditors,
a bank for sixteen years does not of it is good cause of forfeiture. State Z'.
itself work a dissolution of the corpo- Real Estate Bank, 5 Ark. 595, 41 Am.
ration. Richards v. Minnesota Sav. Dec. 109.
Bank, Minn. 196, 77 N. W. 823.
75, Where a bank becomes insolvent,
But if a bank abandons its franchise and assigns so much of its property to
and ceases to do business as a bank it.s trustees for payment of its debts as to
charter is thereby forfeited. Hender- prevent its resuming banking business,
son Loan, etc., Ass'n v. People, 163 111. it is equivalent to a surrender of its
196, 45 N. E. 141; Attorney General v. corporate rights; such act destroying
Seneca County Bank, 5 O. St. 171. the end and object for which the bank
See, also, State v. Commercial Bank, vvfas instituted. People v. Hudson
10 O. 535. Bank Cow.
(N. Y.), 6 317.
Where bank became insolvent and
a 52. Mismanagement
as ground for
suspended operations in 1840, and did —
dissolution. To justify the action of
not resume again until 1864, and only the bank commissioners, or of the
fourteen months of its chartered ex- court against a bank, under Rev. St.
istence remained unexpired when it c. 126, § 47, on the ground that "it is
resumed business after such suspen- so managing its concerns that the pub-
sion, the court, if it has a discretion so lic, or those having funds in its cus-
to do under the statute, will not impose tody, are in danger of being defrauded
a fine instead of adjudging a forfeiture thereby," it is not necessary that ei-
of the charter. People v. Bank, 13 ther should be satisfied that there is a
Mich. 537. formed design on the part of the man-
In Tennessee a (banking) corpora- agers to cheat the bill holders or the
tion is not dissolved by the nonuse, or depositors, but only that the condition
assignment to others, in whole or in of_ the bank, from its gross and illegal
part, of its powers, franchises and priv- mismanagement, and the temptation
ileges, unless all the corporate prop- to and danger of fraud growing out of
erty has been appropriated to the pay- it, are such that the commissioners and
ment of its debts; and, in such cases, the court ought to interfere to prevent
says the Code (§ 3431), "any creditor, it. Bank Comm'rs v. Rhode Island
for himself and other creditors, whether Cent. Bank, 5 R. I. 12.
he has recovered a judgment or not, or 53. The death of any member of a
any stockholder, for himself and other banking association operates as a disso-
stockholders, may file a bill, under the lution thereof as between all the mem-
provision of this chapter, to attach the bers. First Nat. Bank v. Payne Coi, &
corporate property, and have such 85 Va. 890, 9 S. E. 153, 3 L. R. A. 384.
property applied to the payment of the 54. State v. Commercial Bank (Miss.),
corporation debts, and any surplus di- 6 Smedes &
M. 218, 45. Am. Dec. 280.
vided among the stockholders." Marr In a proceeding by information in
V. Bank, 44 Tenn. (4 Coldw.) 471. the nature of a quo warranto against a
Assignment for benefit of creditors. bank, the court was asked to char.ge
— An assignment by a bank of its prop- the jury that, if they believed from tiie
erty to trustees is not a dissolution of evidence that the cashier, or teller, or
the corporation or a surrender of its clerks of the bank, as officers and
franchises; but though such an assign- agents of the bank, received, either di-
ment, if fair, will be sustained, and will rectly or indirectly, from an)"- one, the
not be held as misuser, so as to work notes of nonspecie-paying banks, in
of the attorney general, that it is unsafe or inexpedient to allow a bank to

transact business, is a sufficient basis for a judgment dissolving the bank
and distributing its assets through the medium of a receiver, or otherwise. ^^
And where is provided for the commission or omission of a
another penalty
by a bank, the presumption is that such commission or omis-
specified act
sion was not intended by the legislature to be a ground of forfeiture of
franchises. S6
§ 69. Waiver or Remission of Forfeiture. The state may waive^" —

or remit the forfeiture of a bank charter.^^
—
Relief against Forfeiture. While a state legislature may relieve a
hank chartered by it from the penalty of forfeiture of its charter for breach
of its legal obligations, it can not do more or relieve against the other legal
consequences thereof as to private contracts, ^^
payment for any part of the capital of said fifth section of the Act of 1855,
stock of the bank, they must find for in relation to illegal banking, in bar of
the plaintiff. Held, that the charge the right of the plaintiff to sue, was
was too broad; that, to make a pay- held to be properly stricken out on mo-
ment binding on a corporation, it tion.Bank v. Bredow, 31 Mo. 523.
should be made to some agent author- Where a bank had forfeited its cor-
ized to receive it; and that the charge, porate franchises by a violation of the
as asked, was properly rejected. State act of incorporation, the court, being
:'. Commercial Bank (Miss.), 6 Smedes satisfied of the integrity of the officers,
•& M. 218, 45 Am. Dec. 280. that the institution could go on with-
55. People v. Oriental Bank, 124 App. out danger to the creditors or the pub-
Div. 741, 109 N. Y. S. 509. lic, and that the suspension of the op-
56. State v. Commercial Bank, 10 O. erations of the bank would cause great
535. public inconvenience, permitted the
57. Waiver or remission of forfeiture. bank to go on, notwithstanding the
— the
If
knowing
state borrow money of a bank, forfeiture. Bank Comm'rs v. Bank (N.
Paige 497.
a cause of forfeiture to exist, Y.), 6
this is a waiver of the forfeiture. State Forfeiture for suspension of specie
-v. Real Estate Bank, 5 Ark. 595, 41 —
payment. Where, after a bank's char-
Am. Dec. 109. ter had been forfeited, for its suspen-
Where a banking corporation be- sion of specie payment, it continued
came insolvent and suspended opera- to exist de facto, and exercised all the
tions in 1840, and did not attempt to privileges previously granted by the
resume business until 1864, and no pro- legislature, and the legislature after-
ceedings were taken by the state dur- wards, by subsequent legislation, de-
ing that time to enforce the forfeiture clared that the corporation should ex-
of the charter of the corporations, un- ist, it was a waiver by the state of the
der Comp. Laws, § 4854, it was held previous forfeiture. State v. Bank (S.
that the forfeiture was not waived C). 2 McMullan 439, 39 Am. Dec. 135.
thereby, and that the state might insti- 58. The legislature may remit a for-
tute proceedings, and claim a forfei- feiture, and the exercise of that power
ture, within a reasonable time after by Act March 14, 1839, No. 22, relieved
discovering the intention of the cor- the banks from all penalties incurred
poration to resume. People v. Bank, by the nonpayment of specie. Atchaf-
12 Mich. 527. alava Bank v. Dawson, 13 La. 497.
The act approved November 23, 1857, 59. Relief against forfeiture. —
^When
entitled "An act in relation to certain the suspension of specie payments in
bank paper in this state," was a waiver 1860, by the banks of South Carolina,
by the state of all forfeitures imposed was legalized by her legislature, the
upon the banks of this state, incurred legislature did no more, and could do
under the provisions of Act 1855, p. no more than to relieve them from the
287, § 5. for dealing in the paper of the penalty of the forfeitures of their char-
suspended banks of this state prior to ters. It could not relieve them from
the date of said waiver. An answer, the obligation to pay their debts in
therefore, which pleaded the violation specie, nor extend the time for such
§ 70. Proceedings to Enforce Dissolutioneo— § 70 (1) In Gen-

eral. —Proceedings to dissolve banking corporations are usually regulated
and prescribed by statute in the various jurisdictions.®} But if the statute
payment. It could not do this, because the people, under the court's direction.
any SMch law would impair tne obliga- People V. Superior Court, 100 Cal. 105,
tion of the creditor's contract. God- 34 Pac. 493,
frey V. Terry, 97 U. S. 171, 24 h. Ed. The remedies provided by the bank
944. commissioners' act and the insolvent
The act legislature of 1853,
of the act are not cumulative, nor tne pow-
which relieved the Citizens' Bank from ers conferred by the bank commission-
the decree of forfeiture of its charter, ers' act auxiliary to those coiiieired
while it restored the "rights and priv- by the insolvent act; the object of the
ileges" of the corporation, is not to be bank commissioners' act being to pro-
understood as having restored those of vide an entirely different scheme for
the individual corporators, so as to en- winding up the business of a banking
title the original stockholders to a corporation. People v. Superior Court,
credit at the hands of the bank, as at 100 Cal. 105, 34 Pac. 492.
present organized, of $33 per share, as Louisiana. —
Acts 1843, Nos. 98, 157,
a loan payable in installments, accord- intend all contests as to the liabilities
ing to the original charter. Pollock v. of banks in liquidation to be cumulated
Citizens' Bank, 12 La. Ann. 228. before the court putting them in liqui-
60.Proceedings against persons en- dation. The former act (§ 34) assim-
gaged in unauthorized banking, see ilates the proceedings, except where
ante, "In General," § 8. Proceedings otherwise provided, to those of the
on insolvency, see post, "Making, Re- voluntary surrender, and thereby es-
ceipt, and Entry of Deposit for Col- tablishes a concurso in a modified
lection," § 158; "Rights and Liabilities form. Dorville v. Citizens' Bank (La.),
as to Proceeds," § 164. 9 Rob. 362.
61. See statutes in the various juris- Mississippi. —
By the fifth section of
dictions. the Act of 1843, prescribing the mode
California. —
Bank Commissioners' Act of proceeding against incorporated
March 30, 1878, § 11, as amended by banks for a violation of their corporate
St. ]887, p. 90, provides that if the com- franchises, etc., it is enacted that the
missioners find that any bank has vio- provisions of the act shall not extend
lated its charter, or is conducting busi- to the Commercial and Railroad Bank
ness in an unsafe manner, and refuses of Vicksburg, so as to affect the rail-
to discontinue its illegal practices, the road and its operation. Held, that this
attorney general may bring suit to bank was not, by this provision, ex-
prohibit further business, and to wind empted entirely from the operation of
up its affairs. Section 21 provides for the act. The provision only limited
the repeal of all inconsistent acts. the extent of the judgment of forfei-
Held, that the insolvent Act of 1880, ture against the bank in the event one
providing for an adjudication of insol- should be rendered. State v. Commer-
vency on the petition of creditors, is cial, etc.. Bank (Miss.), 12 Smedes &
superseded by the bank commission- M. 376.
ers' act so far as banking corporations The third section of the act, "relat-
are concerned. People v. Superior ing informations in the nature of
to
Court, 100 Cal. 105, 34 Pac. 493. quo warranto, and for other purposes,"
A contention that, the sole object of passed March 12, 1845 (3 Curw. 1153),
the bank commissioners' act is visita- providing for proceedings by the as-
tion and a report to the attorney gen- signee of dissolved corporations: the
eral by the commissioners, and that first section of the act of March 10,
there is no, suggestion therein for the 1843 (2 Curw. 951), providing that suits
sequestration of assets, is untenable; should not abate by the dissolution of
§ 11 of such act further providing that any corporation; and the provision of
if the court shall consider it unsafe the act of March 21, 1850, "in relation
for the corporation to continue to to judicial proceedings in favor of and
transact business, and that it is insol- against dissolved corporations," that
vent, an injunction shall be issued, and suits might be prosecuted by banking
thereupon such proceedings shall be or other corporations at any time after
taken asrainst the corporation "as may —
dissolution had all the same object.
be decided upon bv its creditors"; and Stetson V. City Bank, 2 O. St. 167.
§§ 18, 19 .authorizing the commission- They were intended to preserve the
ers to maintain actions in the name of rights of and furnish an effectual rem-
provides no method of procedure, the procedure should follow that specifiea

for ordinary actions.*'^
§ 70 (2) Nature or Character of Proceeding. —

It is well settled^
however, that in order to forfeit the charter of a bank a direct proceeding

for the purpose,^3 visually an information in the nature of a quo warranto,**
edy to persons entitled by assignment for that purpose. Bank v. Snelling, 35

or otherwise to rights in action which Mo. 190; Miami Exporting Co. v.
had accrued to corporations, during Clark, 13 O. 1; Bank v. Renick, 15 O.
their continuance (and which must 322; Johnson v. Bentley, 16 O. 97; Bar-
therefore be prosecuted in the name tholomew V. Bentley, 1 O. St. 37; Zinn
of the corporation), against the opera- V. Baxter, '65 O. St. 341, 62 N. E. 327.
tion of the common-law rule, which The debtor of a bank can not ab-
forfeited all such rights on the uncon- solve himself from payment by alleg-
ditional dissolution of the corporation. ing that the bank has by mismanage-
Stetson V. City Bank, 2 O. St. 167. ment forfeited its charter, until the
While many of the provisions of fact of forfeiture is established by di-
these statutes are necessarily confined rect proceedings against the bank.
to domestic corporations, those which Such a forfeiture can only be enforced
relate to the prosecution of suits must, by the state in a direct proceeding for
by a just and sound construction of that purpose. Hughes v. Bank (Ky.),
the acts in question, be extended to as- 5 Litt. 45; Farmers' Bank v. Garten, 34
signees holding such claims as those Mo. 119.
mentioned by assignment from corpo- Effect reversal of judgment of
of
rations beyond the limits of this state. forfeiture. —Where the affairs of a
Stetson V. City Bank, 2 O. St. 167. bank are, by statute, placed in the
"The Act of May 1, 1852 (3 Curw. hands of trustees for settlement, after
1876), 'to provide for the adjustment a judgment has been rendered on quo
and settlement of the afifairs of incor- warranto against the bank declaring
porated associations and companies,' its charter forfeited, the subsequent re-
was not inconsistent with and did not versal of that judgment does not affect
repeal the provisions of the former a suit previously instituted by the
statutes allowing suits to be prosecuted trustees against a debtor of the bank,
in the name of a dissolved corporation, so as to protect the debtor against the
although the further facilities which it rendition of judgment. Jemison v.
afforded for the same object were lim- Planters', etc., Bank, 23 Ala. 168.
ited to domestic corporations." Stet- 64. Information in nature of quo
son V. City Bank, 12 O. St. 577, approv-
City
—
warranto. Saltmarsh v. Planters', etc.,
ing and following Stetson v. Bank, 14 Ala. 668; People v. Ridgley,
Bank, 2 O. St. 167. 21 111. 65; Miners' Bank v. Thomas
62. As corporations might be organ- (Iowa), 4 Green 336; Coulter v. Rob-
ized under the act of June 15, 1852, of ertson, 24 Miss. 278, 57 Am. Dec. 168;
such a character as to fall within the Farmers' Bank v. Garten, 34 Mo. 119.
class of "moneyed corporations," as
intended by § 28 of the act to regulate
—
Nature of proceeding. An informa-
tion in the nature of a quo warranto
the business of general banking (1 is a civil, and not a criminal, proceed-
Rev. St. 1852, p. 159), is appears to fol- ing. Commercial Bank v. State (Miss.),
low that, so far as proceedings to dis- 4 Smedes &
M. 439.
solve corporations for banking pur-
poses and the appointment and duties
Grounds for quo warranto. — Persons
appointed, under Acts 1847, to wind up
of a receiver are governed at all by the affairs of a state bank, are not of-
special statute, the act establishing ficers, within the meaning of Scates'
general provisions respecting corpora- Comp. 224, providing that, in case any
lions (1 Rev. St. 1852, p. 239) should person usurps or unlawfully holds any
maintain. Herron v. Vance, 17 Ind. office or franchise, it shall be lawful
595. See Wright v. Rogers, 26 Ind. for the attorney general to exhibit an
218. information in the nature of a quo
63. Forfeiture not enforceable in a warranto. People v. Ridgley, 21 111. 65.
collateral proceeding, —
Forfeiture of a Persons appointed under the Act of
bank charter can not be taken advan- 1847 to wind up the affairs of a state
tage of in a collateral proceeding, but bank do not enjoy a franchise, within
only in a proceeding instituted directly the meaning of Scates' Comp. 224, pro-
§ 70 (2) INSOIvVENCY AND DISSOIvUTION. 477
in the name of the state® ' must be instituted in the proper iovnm.^^
viding for the filing of an information sion superintendent of banks,

of the
in the nature of a quo warranto to states that contains the required
it
oust a person who unlawfully holds or matter so far as known, and that there
executes any office or franchise. Peo- are ''a number of other depositors
ple V. Ridgley, 21 111. 65. whose names are unknown to petition-
Hearing in quo warranto proceed- ers," and gives the aggregate clairns
—
ings. The court has full power and of all
Bank,
depositors. In re Murray Hill
App. Div. 546, 41 N. Y. S. 914,
jurisdiction, upon a writ of quo war- 9
ranto, to hear and determine all ques- 65. Parties to quo warranto pro-
tions touching the forfeiture of the —
ceeding. Huntington v. Crescent City
bank's franchises. Miami Exporting' Bank, 18 La. Ann. 350.
Co. V. Clark, 13 O. 1. "The state * * * only, by the at-
Quashal of quo warranto. If a pro-— torney general, can institute proceed-
ing to have the franchises of a corpo-
ceeding in the nature of a quo war-
ranto has been improvidently issued ration declared forfeited for failure to
against a bank, it will be dismissed or comply with the provisions of the
quashed on motion. State v. Com- charter. State v. White's Creek Turn-
mercial, etc.. Bank (Miss.), 13 Smedes pike, etc., Co., 3 Tenn. Ch. 163; State z/.
& M. 276. McConnell, 71 Tenn. (3 Lea) 332; State
V. Scott, 32 Tenn. (2 Swan) 332; Code,
Injunction as ancillary to quo war-
Merriman v. Magiveny,
ranto. —
After the attorney general had 3409, et seq. ;
59 Tenn. (12 Heisk.) 494." State v.

filed an information in the nature of a
Butler, 83 Tenn. (15 Lea) 104.
quo warranto in the supreme court to
.annul the charter of a bank, he filed a
Third parties can not enforce the
bill in chancery to restrain the bank forfeiture of a charter. The state
from doing business. Held, that the grants it and alone can take it away,
but other parties in dealing with such
bank's continuing its operations while
corporations may inquire into their
insolvent, or buying up its own notes
powers and obligations. State v. But-
.at a discount, will not authorize an in-
junction from chancery to restrain its
ler, 83 Tenn. (15 Lea) 104.
operations, as the questions of for-

"By our a (banking) corpora-
law,
tion is not dissolved by the nonuse,
feiture are to be determined in the quo
or assignment to others, in whole or
warranto proceedings. Attorney Gen-
in part, of its powers, franchises and
eral V. Bank (N. Y.), 1 Hopk. Ch. 354.
privileges, unless all the corporate
In order to justify the issuing of an
property has been appropriated to the
injunction, under the statute, to re-
strain a bank and its officers from ex-
payment of its debts; and, in such
cases, says the Code (§ 3431), 'any
ercising its franchises, positive testi-
creditor, for himself and other credit-
mony of the^ insolvency of the bank, ors, whether he has recovered a
• or that it has violated some provision
judgment or not, or any stockholder,
of law, is requisite; and an affidavit of
for himself and other stockholders,
belief to that effect is not sufficient.
Attorney General v. Bank (N. Y.),
may file a bill, under the provision of
this chapter, to attach the corporate
1 Hopk. Ch. 596
property, and have such property ap-
Scire Facias. In —South Carolina plied to the payment of the corpora-
forfeiture of a b9.nk charter for sus- tion debts, and any surplus divided
pension of specie payments may be en-
forced by scire facias in the common 66. "By the common law the forfei-
pleas. State v. Bank (S. C), 1 Speers ture of a charter can only be enforced
433. in a court of law, in a proceeding by
Schedule annexed to petition. —The scire facias, or on an information in
provision of Code Civ. Proc, § 2421, the nature of a writ of quo warranto,
that the schedule annexed to a peti- yet in this state there can be no doubt
tion for voluntary dissolution of a cor- that, under the act of 1856, ch. 55, a
poration shall show, as far as petition- court of chancery is invested with the
ers "know or have the means of know- jurisdiction to inquire into and de-
ing,'' the name and residence of each termine the fact of a violation of the
creditor, or, if either of these is un- charter by the corporation, in the re-
known, a statement to that effect, is spects indicated in the 12th section of
complied with where the schedule to the act incorporating the Bank of East
such a petition by the directors of a Tennessee." Johnson v. Churchwell,
bank, whose property is in the posses- 138 Tenn. (1 Head) 146.
§ 70 (3) Necessity of Proceeding. —Until

bank charter has been a
judicially forfeited, the institution may its banking
continue to exercise
functions, because it is well settled that the powers of a corporation do
not cease by the mere act of violating its charter. ^^ But in a few juris-
among the stockholders.' " Marr v. Civil Procedure relating to the volun-
Bank, 44 Tenn. (4 Coldw.) 471. tary dissolution of corporations
Consent of attorney general re- (§§ 2419-2432), a proceeding instituted
quired. —Under Act March 18, 1858, by the attorney general under the
providing for the establishment of a former statute for the dissolution of
general free banking system within the such a corporation, after the seizure
state, § 20 authorizing the forfeiture of its property by the superintendent
of a bank charter on the application of of banks, ^ takes priority over a pro-
the attorney general, a judgment of ceeding instituted by the directors un-
forfeiture obtained not only without der the latter statute, though the di-
the attorney general's consent, but rectors' proceeding was begun before
contrary to his express agreement will that of the attorney general. Judg-
be set aside. Riggin Sz; Co. v. Union ment, 43 N. Y. S. 836, 14 App. Div. 318,
Bank, 18 La. Ann. 677, affirmed. In re Murray Hill Bank, 153-
Bank commissioners. It i s —
not N. Y. 199, 47 N. E. 298.
necessary that all the bank commis- 67. Necessity of forfeiture proceed-
sioners should unite in a proceeding —
ings. Atchafalaya Bank v. Dawson,
against a bank for a violation of its 13 La. 497; Union Bank v. Macdonald,
charter. Bank Comm'rs -u. Bank (N. 15 La. 25; Bank v. Green, 20 La. Ann.
Y.), 6 Paige 497. 214; People v. Bank, 12 Mich. 527;
—
Private relator. A writ of quo war- Montgomery v. Merrill, 18 Mich. 338;
ranto to dissolve a banking corpora- Finnell v. Burt, 2 Handy 202, 12 O.
tion can not be maintained in the su- Dec. 403; State v. Butler, 83 Tenn. (15
preme court upon the suggestion of Lea) 104.
a mere private relator; but in ques- A
decree of a court where a bank is
tions involving merely the administra- located, finding the latter insolvent, ap-
tion of corporate functions or duties af- pointing a receiver, and restraining the
fecting only individual rights, such as bank from further transacting any
the election of officers, or admission business, is not a declaration of a for-
of corporate ofificers or members, the feiture. City Ins. Co. v. Commercial
writ, under the Act of 1836, may issue Bank, 68 111. 348.
at the suit of the attorney general, "or The
failure of a bank to redeem its
of any person or persons desiring to notes is a question for the state to in-
prosecute the same." Murphy v. Farm- quire into, and the bank possesses the
ers' Bank, 20 Pa. 415. power to make loans until its charter
Suit to dissolve by
stockholder. — shall have been declared forfeited.
Notwithstanding it may
be true the Maury v. Ingraham, 28 Miss. 171.
right to dissolve a banking corpora- Bank may dispense with judicial pro-
tion is reposed solely in the state, yet ceeding. —The object of the Act of
a court of equity may, at the instance February 1843, "for the final set-
12.
of a stockholder of such a corporation, tlement of the affairs of the Planters'
entertain a proceeding against it and and Merchants' Bank of Mobile," was
its officers and compel it to account to obtain a dissolution of the bank's
for a fraudulent conversion of its charter agreeably to law; and although
funds, and such court may, if neces- it provides for the institution of ju-
sary for the preservation of the res, dicialproceedings against the bank, to
appoint a receiver. Chandler Mortg. obtain a judgment of forfeiture of its
Co. V. Loring, 113 111. App. 423. charter, and declares, "that, if no cause
Priority of proceedings. The pro- — of forfeiture shall be found, this act
visions of the banking law (Laws 1892, shall have no force or validity," yet
c. 689) relative to the taking posses- the bank might dispense with the ju-
sion of the property of an insolvent dicial proceeding by surrendering its
banking corporation by the superin- charter and accepting the provisions
tendent of banks, and the institution of of the act, and it was competent for
proceedings by the attorney general the state, with the assent of the bank,
for its dissolution, being a special act, to resume its franchises at any time.
applying only to banking and similar Savaee v. Walshe, 26 Ala. 619.
corporations, and of later date than Effect of order of foreign court. —
the general provisions of the Code of The order of a Kentucky court, made
dictions, because of peculiar statutory provisions, a bank ceases to exist

upon a noncompliance with or violation of the banking laws, so as to ren-
der a judgment of forfeiture unnecessary.®*
§ 70 (4) Jurisdiction and —

Venue. Dissolution proceedings by a
creditor of a corporation to wind it up can not be instituted in a court of
equity.®^
§ 70 (5) Parties. — In some jurisdictions creditors and stockholders

may institute dissolution proceedings against a bank.'''"
under the law of the state, appointing the superior city courts, of which the
commissioners to- take possession, for common pleas of the city and county
the benefit of its creditors, of the as- of New York was one, continued with
sets of a banking institution there, the jurisdiction then possessed, and
does not operate as a dissolution such further civil and criminal juris-
of the bank's corporate powers, diction as might be conferred by law.
so that the bank's interest in property Code Civ. Proc, § 263, subd. 2, pro-
of any description in Ohio could not vided that the superior city courts
be reached by legal remedies directed should have jurisdiction of actions for
against that property by its creditors. causes specifically enumerated, as well
Finnell v. Burt, 2 Handy 202, 12 O. as for any other cause of action aris-
Dec. 403. ing within the city, or where defend-
68. Wilson Tcsson, 13 Ind. 285.
v. ant is a resident of that city,
,
or
Under the act to prevent illegal where the summons is personally
banking, a violation thereof may be served on him therein. Held, that the
pleaded in bar of any suit brought by court of common pleas of New York
a corporation, and it is not necessary had jurisdiction to entertain an action
that the franchise should have been to dissolve a state bank incorporated
forfeited, upon direct proceedings for under Daws 1882, c. 409, where New
that purpose. North Missouri R. Co. York City was its of
principal place
V. 'Winkler, 33 Mo. 354. business, and the summons was served
69. Jurisdiction of forfeiture pro- there, and the cause of action arose
—
ceedings. Discontinuance of business, therein. Hagmayer v. Alten, 36 Misc.
reputed insolvency, suffering its cir- Rep. 59, 72 N. Y. S. 623.
culating notes to be returned to the 70. Who may institute forfeiture
comptroller for redemption, and non- —
proceedings. In an action by a stock-
payment of rent for the premises oc- holder of a bank, praying the dissolu-
cupied by the association, and the is- tion of the corporation, the vacation
suing of post notes to circulate as of an assignment made by the presi-
money, are not sufficient grounds for dent and cashier, alleged to have been
a proceeding in this court to dissolve made without the knowledge of the
the association at the instance of a stockholders, and with intent to de-
simple contract creditor. Parmly v. fraud them, removal of the assignee,
Tenth 'Ward Bank (N. Y.), 3 Edw. Ch. and appointment of a receiver, the
395. bank, the president, and the cashier
But in Michigan under the Act of and assignee are all proper parties de-
Tune 21, 1837, the court of chancery fendant. Mitchell V. Bank, 7 Minn.
has jurisdiction over banking corpora- 252 (Gil. 192).
tions to restrain them by injunction Rev. St., c. 148, § 25 (2 Taylor's St.,
from exercising their corporate pow- p. 1734), provides, with reference to
ers, to appoint a receiver to take proceedings against corporations, for
charge of their assets, and to decree failure to pay debts oi for charter vio-
their dissolution, when the corporation lations, that if an application for an
is insolvent, when it refuses to pay its injunction and the appointment of a
debts, or when it has violated any pro- receiver be made by a creditor of any
vision of its charter, or of any law corporation whose stockholders are
bindine on it. Attorney General v. liable for the payment of the debt, in
Oakland County Bank (Mich.), 'Walk. any event or contingency, they "or
Ch. 90. any of them may be made parties to
Court of common pleas of New the action, either at the commence-
York.— In 1894 (Const, art. 6, § 12) ment thereof, or in any subsequent
§ 70 (6) Multifariousness. —A
single suit to wind up a banking
corporation is sufficient, and the statutory liability of stockholders, and the
liability of directors and officers and stockholders of the corporation for
the payment of the indebtedness of the corporation in any event or con-
tingency and the liability of the directors, managers, trustees and other
officers of the corporation to make good any money or property squandered
or lost through their fraud or negligence, are all germane to the subject of
the action; therefore, may all be properly brought in as parts of the one
controversy.'^^
§ 70 (7) Pleading. —The general rules of pleading in civil cases are

applicable to proceedings upon an information in the nature of a quo war-
ranto, except so far as these rules have been modified by statute. The in-'
formation is a pleading which must be answered or demurred to, but the
allegations of the information may be in very general terms ; no great par-
ticularity is required.'^^ On the other hand, the defendant's answer to the
stage of the proceedings, whenever it become the court may re-

insolvent,
shall become necessary to enforce such strain it from
transacting business;
liability." Section 26 provides that, if § 3219 provides that the injunction may
any creditor desires to make stock- issue at the commencement of any ac-
liolders parties to the action "after a tion by any creditor or stockholder;
judgment therein against the corpora- and § 3227 provides that when an ac-
tion," he may do so by filing a com- tion shall be commenced under any of
plaint against them founded on such the provisions of the chapter against
judgment. Held, that § 26 is but an a corporation, its officers or stock-
extension of the remedy to such credit- holders, the court may, on application
ors as may choose to proceed to judg- of either party, restrain all proceed-
ment before resorting to the equitable ings by any other creditor. Held, that
proceedings, and is not an implied de- but one winding-up suit is proper, and
nial of the action expressly authorized in an action by a creditor to close the
by § 25; and hence a creditor of a business of an insolvent bank the statu-
bank may, without having obtained a tory liability of stockholders, the lia-
judgment at law against it, maintain bility of directors, officers, and stock-
an action against the bank and its holders for the indebtedness of the
stockholders jointly, to restrain the bank, and the liability of the directors
further exercise of corporate fran- or other officers to make good any
chises to procure the appointment of money squandered through their fraud
a receiver, the distribution of assets, or negligence, may be enforced; the
and, if necessary, enforce the stock- several liabilities not being different
holders' individual liability. Cleveland causes of action. Gager v. Marsden,
z: Marine Bank, 17 Wis. 545. 101 Wis. 598, 77 N. W. 922.
Theforfeiture of charter for a fail- 72. Pleadings in quo warranto pro-
ure to pay one of its. notes in specie, ceedings. — Commercial Bank v. State
given by the fourth section of the (Miss.), 6 Smedes & M. 599, 45 Am.
Act of 18th February, 1836, incorporat- Dec. 280; People v. Hudson Bank (N.
ing the Bank of the United States, is a y.), 6 Cow. 217.
penalty to enforce a private claim, and For exacting excessive rate of dis-
can not be pursued by a party who, on
a second application, has received the
—
count. Where a bank is prohibited by
its charter from making loans above a
amount of his note, with 12 per cent certain rate of discount, and also in
interest, in specie, and who has de- dealing in anything but bills of ex-
livered it up to the bank, he not be- change, gold or silver bullion, etc.
ing the "holder or proprietor," within (not including promissory notes), a
the meaning of the law. Kuhn z'. Bank count in an information, charging the
CPa.), 2 Ashm. 170. bank with "dealing in promissory
71. Rev. St. 1878, § provides
3218, without charging the taking of
notes.''
that, when a banking corporation shall unlawful discounts, is bad on special
§ 70 (8) INSOLVENCY AND DISSOI,UTION. 481
charge of forfeiture must set forth particularly his matters of excuse or

defenseJ^
§ 70 (8) Judgment. —
Under the New York practice, a final judgment
entered in an action brought by the attorney general to wind up the affairs
of an insolvent bank, which dissolves the corporation and adjudges that
it is insolvent and that its capital stock has been impaired, relates back to
the date when the temporary receiver was appointed and took possession
of the assets of the corporation."*
demurrer. Commonwealth v. Com- A count charging that, "for many

mercial Bank, 28 Pa. 383. months past, the defendant has been
The bank being expressly authorized in the constant practice of discounting
to deal in bills of exchange, a count in promissory notes at exorbitant and
a quo warranto information charging usurious rates of interest, far exceed-
the discounting of bills of exchange, ing the rate of one-half of one per
at rate of discount exceeding that al- centum for thirty days," is good on
lowed by the charter, is bad on special special demurrer. Commonwealth v.
demurrer, as, being drawn upon a dis- Commercial Bank, 28 Pa. 383.
tant place, the discount may have been —
Service of petition. The officers of
regulated by consideration of ex- a bank are without authority to waive
change as well as time. Common- the service of a petition praying a for-
wealth V. Commercial Bank, 38 Pa. 383. feiture of its charter, or to waive the
A count charging the bank with delay within which third persons may
^'dealing in promissory notes by pur- intervene to protect their interest, or
chasing same at rates of discount of filing an answer which virtually con-
greatly exceeding" the allowed rate is fesses the forfeiture of the charter,
good on special demurrer. Common- and admits the necessity of the imme-
wealth V. Commercial Bank, 28 Pa. 383. diate liquidation of the bank. State v.
Citizens' Sav. Bank, 31 La. Ann. 836.
Counts charging, respectively, that
73. In a proceeding against a bank
defendant, on a day named, "and at
to forfeit its charter because of its sus-
divers other days before and since, dis-
pension of specie payments, the an-
counted promissory notes and made
swer of the bank stated that it paid all
loans, at rates of discount exceeding"
itsnotes and liabilities, except certain
the rate allowed, are good on special
checks which had drawn on another
it
demurrer, without setting out the spe-
cial notes, their
parties, dates, or
bank for payment of which provision
had been made with that bank, but it
amounts, the particular loans re-
or
failed to pay them, and they were re-
ferred to, as the offense charged is the
turned; that, on being returned, the
diversion of the business from its
Commonwealth v. bank was unable to pay them at the
proper course. time, but in two years afterwards, and
Commercial Bank, 28 Pa. 383. before the commencement of any pro-
Where the charter of a bank de- ceeding against it, it resumed specie
clared that the "rate of discount at
payment on these checks and all other
which loans may be made shall not liabilities, whenever payment was de-
exceed one-half of one per centum for manded at its counter, and was then
thirty days," a count, charging it with
paying specie. Held, that this was not
"discounting promissory notes at rates a sufficient answer to the charge of for-
of discount exceeding one-half of one feiture, and no excuse for the sus-
per centum for thirty days," is good on pension. Commercial Bank v. State
special demurrer, without averring that (Miss.), 6 Smedes & M. 599.
such discounts were made upon loans 74; Judgment in forfeiture proceed-
of money. Commonwealth v. Com- —
ings. People V. Merchants' Trust Co.,
mercial Bank, 38 Pa. 383. 187 N. Y. 393, 79 N. E. 1004, citing
A count charging such a discount People V. American Loan, etc., Co.,
of a bill of exchange payable at Phila- 173 N. Y. 371, 65 N. E. 200; People v.
delphia is good, as this is a mere dis- Commercial Alliance Life Ins. Co., 154
count of a domiciliary bill, for which N. Y. 95, 47 N. E. 968; Attorney Gen-
only the rate fixed by law could be eral V. Life, etc., Ass'n, 150 N. Y. 94,
charged. Commonwealth v. Commer- ".% N. E. 8; In re Equitable, etc..
cial Bank, 28 Pa. 383. Life Ass'n, 131 N. Y. 354, 30 N. E. 114.
1 B & B— 31
§ 70 (9) Abatement and Vacation of Proceedings. —Abatement

of Proceedings. —A proceeding for a voluntary dissolution of a banking
corporation, instituted by its directors, abates upon the entry of a judgment
-dissolving such corporation in an action brought by the attorney general. '^^
Setting Aside. —A stockholder of a bank can not have the dissolution
proceedings set aside on account of defects therein.^®
§ 70 (10) Costs. —The costs of a proceeding to wind up the afiEairs
of a bank should be borne ratably by all the creditors.''''
§ 70 (11) New Trials. —Where an issue of fact is involved in dis-

solution proceedings against a bank, a new trial may be had as in other
cases.''®
§ 71. Receivers, Trustees or Commissioners in Proceedings for

—
Dissolution § 71 (1) Selection, Appointment and Removal. Where —
a banking corporation goes into liquidation, a receiver is the officer usually
75. In re Murray Hill Bank, 153 N'. though in the name of a single creditor,
Y. 199, 47 N. E. 298, affirming 14 App. for appointment of a receiver and
Div. 318, 43 N. Y. S. 836. to wind up the aflfairs of an insolvent
—
Another suit pending. The pend- bank, is for the benefit of all
creditors, so that the fees of the at-
its
ency of a proceeding by directors of
an insolvent bank to dissolve it does torneys bringing the action should be
not bar an action by the attorney gen- borne by all the creditors in propor-
eral the same relief.
for People v. tion to the amounts received by them.
Murray Hill Bank, 10 App. Div. 328, Bradshaw v. Bank, 76 Ark. 501, 89 S.
41 N. Y. S. 804, 26 Civ. Proc. R. 1, 75 W. 316.
N. Y. St. Rep. 1203. Counsel fees. —
For services rendered
in the prosecution of a bill by cre'ditors
76. A bank was dissolved and a re-
to wind up the affairs of a bank, coun-
ceiver appointed, who assigned a judg-
sel are entitled to be paid out of the
ment in favor of the bank, under au- aggregate recovery, all the petitioning
thority of court. The assignee at- creditors contributing pro rata; but
tempted to enforce the judgment
counsel, only representing petitioning
against the proceeds of the share of
creditors, must be paid by their clients
the debtor in realty which had been
out of the funds recovered for them.
sold in partition proceedings. A
stock-
Moses V. Ocoee Bank, 69 Tenn. (1
holder of the bank intervened, and at-
Lea) 398.
tacked the assignment of the judg-
78. New trials in proceedings to en-
ment, setting forth defects in the dis-
solution proceedings. Held, that he —
force dissolution. St. 1903, p. 368, c.
266, § 10, authorizes the dissolution of
could not afterwards move to have the
a bank at the suit of the attorney gen-
dissolution proceedings set aside on
eral, where the bank is insolvent, or
account of said defects. Order In re
its directors are transacting its busi-
Grand Cent. Bank, 27 Misc. Rep. 116, ness in an unsafe manner and by un-
57 N. Y. S. 418, affirmed. In re Volun-
safe practices. Held that, while such
tary Dissolution, 42 App. Div. 157, 58
N. Y. S. 1022; Treacy v. Ellis, 45 App.
section provided for the summary
winding up of the aflfairs of a bank
Div. 492, 61 N. Y. S. 600.
under such circumstances, suit brought
77. Costs in dissolution proceedings. by the attorney general was not neces-
—TJnder the statute forbidding an in- sarily of a summary character in its
solvent corporation giving a prefer- proceedings, so that, where an issue
ence, and providing that any of its of fact was raised therein as to the in-
creditors may institute proceedings solvency of the bank, and as to alleged
for winding up its aflfairs, and on such improper acts of its directors, a mo-
application the court shall take charge tion for a new trial was authorized
of all its assets and distribute them after decree of dissolution. People v.
equally among the creditors, an action, Bank, 152 Cal. 261, 92 Pac. 481.
designated to wind up its affairs. ''^ But in some jurisdictions the statutes
authorize the appointment of other officers, such as trustees, with, how-
ever, much the same powers.^'' This trustee is sometimes appointed upon
petition or application by the stockholders.^ "^
In New York, a superintendent of banks is authorized to take charge

of any institution that has violated its charter or any state law, or is con-
ducting its business in an unsafe or unauthorized manner. This officer acts
by virtue of his authority as such superintendent under the statute, and

not as a result of any proceeding in court, but his general administration
of the trust is subject to the supervision and control of the state supreme
court in most respects. ^^
79. See post, "Assets and Receivers cause the election was not supported
on Insolvency," § 77. by three-fourths of the entire stock.
80. Appointment of trustees. The — Dreifus v. Colonial, etc.. Trust Co., 123
governor has no authority, by virtue La. 61, 48 So. 649.
of his office, to appoint trustees un- 81. A bank, being insolvent by ac-
der the act of 1847 to wind up the af- tion of its stockholders, under Bank-
fairs of a state bank. People v. Ridg- ing Law (Laws 1895, p. 92, c. 8), § 35,
ley, 21 111. 65. passed with all its assets into the con-
Persons appointed to wind up the Banking Board, which
trol of the State
affairs of a state bank are not public turned over the property, under the
officers, but merely trustees. People law, to a trusteeon the application of
V. Ridgley, 21 111. 6,5; and hence are the stockholders. Thereafter the bank
not subject to legislative control. Com- brought suit on a note, and defendant
mercial Bank v. Chambers (Miss.), 8 pleaded that the bank was not the real
Smedes & M. 9. party in interest, but that the trustee
Removal of trustees. —
Since persons was the proper party plaintiff. Held,
appointed, under Act 1847, to close up that where the answer fails to allege
the affairs of a state bank, are merely that the parties, who are described as
trustees, the proper method of pro- stockholders and on whose petition
ceeding to remove them is by bill in the assets were turned over to the
chancery, and not by quo warranto. trustee, were all, or even a majority,
People V. Ridgley, 21 111. 65. of the stockholders, as required by
Liquidators in Louisiana. Where — Laws 1895, pp. 91, 92, c. 8, §§ 34, 35, to
a charter gives the right to sharehold- authorize such appointment of a trus-
ers to control liquidation of a bank, tee, it was insufficient to show a legal
the officers, including the board of di- appointment of such trustee, and vest-
rectors, are without authority to sur- ing in him the right to sue and recover
render such right, and a request by the assets. Omaha Sav. Bank v. Rose-
shareholders, made to the court, to water, 1 Neb. 723, 96 Nl W. 68.
confirm their action in appointing Where the assets of an insolvent
liquidators, is not a renunciation of bank were, on petition of its stock-
their right to select liquidators, but is holders, turned over to the trustee in
an affirmance of it. Dreifus v. Colonial, accordance with the banking law, if
etc., Trust Co., 123 La. 61, 48 So. 649. such act was illegal, because a suffi-
Election of liquidators. —
Louisiana cient nuriiber of stockholders had not
Rev. St., § 687, provides that stock- petitioned therefor, as required by the
holders at a general meeting convened statute, any acquiescence in the pro-
therefor may dissolve the corporation ceedings or ratification thereof by the
with assent of three-fourths of the stockholders must be shown in the
stock represented thereat. Articles of record. Omaha Sav. Bank v. Rose-
incorporation of a bank provided "said water, 1 Neb. 723, 96 N. W. 68.
association may be dissolved with the 82. Under New York Banking Law
assent of two-thirds of the capital (Consol. Laws 1909, c. 2), §§ 19, 190,
stock represented at a general meeting authorizine control of certain banks by
of the stockholders convened for that the superintendent of banks under
purpose." Held, that the election of specified circumstances, a superintend-
liquidators by all the stockholders ent taking charge of a banking in-
present at a meeting is not invalid, be- stitution does so by virtue of statu-
§ 71 (2) Right and Authority.—While the legal title to the

Title,
bank's assets is bank commissioner under the stat-
in the trustee,*^ yet a
utes in some states can not supersede the officers of the bank in control oi
its property.** The powers of bank commissioners and trustees are lim-
ited to such acts alone as pertain to closing the pecuniary matters of the
bank, to do what the officers of the bank could do before its charter was
repealed. In short, they are merely administrators to settle up the estate.*®
A majority of such commissioners are authorized to act.*^ Thus trustees
tory authority as superintendent, and quiring the commissioners to examine

not as a result of any proceeding in the condition of every banking cor-
court, though his administration is, in poration in liquidation in the same
certain respects, subject to the action manner as in case of solvent banks,
of the state supreme court. In re and providing that subject to the right
Bologh, 185 Fed. 825. of removal and appointment the di-
83. The charter of a bank was for- rectors of banking corporations in
feited by legal proceedings, and the liquidation shall manage the affairs
plaintiff was appointed a trustee to thereof under the direction of the bank
sue for and collect the debts due the commissioners, etc., the business of
bank. Afterwards, in pursuance of a closing up the affairs of a banking
law subsequently passed, the circuit corporation in liquidation is vested in
court directed the trustee to sell the the directors of the corporation, and
assets of the bank to the highest bid- the bank commissioners have authority
der. Held that, the legal title to all over the directors and the affairs of
the property of the bank being vested the corporation only for the purpose
in the trustee by operation of law and of safeguarding the depositors and
the proceeding of the court consequent stockholders against an extravagant or
on the forfeiture of the charter, such fraudulent administration. Bank v.
title was not terminated by the order Brown. 8 Cal. App. 566, 97 Pac. 533.
to sell. Bingaman v. Robertson, 35 Number and salaries of employees.
Miss. 390. —St. 1895, p. 177, c. 167, § 13, giving
84. Powers of California bank com- the bank commissioners power to
missioner.— Act March 30, 1878, § 11, limit the number and salaries of em-
as amended by Acts 1886-87, p. 90, au- ployees of banking corporations in
thprizing the bank commissioners to liquidation, amends St. 1887, p. 92, c.
obtain an injunction to restrain the 80, giving the commissioners power

doing of business by a bank which is "to designate the number of officers
insolvent or can not safely do busi- and employees necessary to close up
ness, requires the business of such the business * * * and to fix the sal-
bank to be settled within four years aries of the same;" and under it the
after it is declared insolvent, unless a commissioners are empowered to fix
majority of the commissioners consent the maximum number of employees
to its longer continuance in liquida- of banking corporations in liquidation,
tion. The act also provides that banks and to fix their maximum salaries, and,
in liquidation shall make semiannual where the commissioners have fixed
reports of their condition to the bank such limitation, the directors of the
commissioners, and that the commis- corporation must fix the number of
sioners shall examine their condition, employees and their salaries v.'ithin
and "shall have a general supervisory such limit. Bank v. Brown, 8 Cal.
control" of them, and shall designate App. 566, 97 Pac. 433.
the number of officers and employees 86. Act March 34, 1903, § 10, St.
necessary to close up the business and 1903, p. 368, c. 366, as amended by Act
fix their salaries. Held, that the act March 30, 1905, St. 1905, p. 304, c. 396,
does not authorize the commissioners provides that upon the failure of a
to supersede the officers of the bank bank to conform to the requirements
in the control of the bank's property of the bank commissioners, or if the
during its progress towards final liqui- comrnissioners unanimously decide
dation. Lon^ V. Superior Court, i02 that it is unsafe for the bank to con-
Cal. 449, 36 Pac. 807. tinue business, they shall take its
85. Authority over directors. Un- — property, whereupon the attorney gen-
der the law creating the bank commis- eral shall commence suit to enjoin the
sioners and defining their powers, re- transaction of business by such bank,
may compromise debts due the bank,^^ with the approval of the court,®*
or perform any other acts that will contribute to an advantageous closing
of its affairs.*^ The trustees of an insolvent bank may execute a warrant
the act also providing that there shall that it shall be lawful for said com-
be four bank commissioners. Held missioners to submit to arbitration
that the fact that there were only- contested claims, "to compound any
three bank commissioners serving doubtful or bad debt," etc. Pamph.
when they decided that a continuance Acts 1845, p. 46, provides that the
of defendant's bank was unsafe did not trustee may use the corporate name of
prevent a "unanimous" decision under said bank in the collection of debts
the act, as they could exercise the due it, and may use all the modes and
powers conferred by law so long as powers given to the bank for the col-
there was in office a majority of the lection of its debts, in the same man-
number provided by statute. People v. ner as if the charter had never been
Bank, 154 Cal. 194, 97 Pac. 306. forfeited. Held, that these provisions
87. Trustees may make compromises. do not authorize discounting or pur-
— Neither one of several nor all the chasing bills except in payment or as
security for a debt that is bad or
assignees in conjunction appointed to
wind up the affairs of the Bank of doubtful. Saltmarsh v. Planters', etc..
Illinois is or are authorized to make a Bank, 14 Ala. 668.
compromise with any debtor of the 88. The proceedings of a trustee ap-
bank, by which the security of the pointed to settle up the affairs of a
bank or the trust fund will be dimin- bank, and authorized to make such com-
ished, unless some advantage will promises as he may deem most ad-
thereby accrue to the creditors of the vantageous, are subject to the revision
bank. Thomas v. Sloo, 15 111. 66. and control of a court of equity, and
Under the powers conferred by the may be rejected or confirmed. Morris
acts of the 13th February, 1843, for the V.Thomas, 17 111. 112.
final settlement of the affairs of the Powers incidental to main power.
89.
Planters' & Merchants' Bank of Mo- —Under the Act of 1850, relative to
bile, and of the 24th January, 1845, the final settlement of the affairs of
amendatory thereof, the trustees ap- the Planters' & Merchants' Bank of
pointed by virtue of the latter act may Mobile, etc., and providing that,
lawfully enter into a contract with a within thirty days after, etc., the trus-
third person, without the consent of tees of said bank shall sell for cash all
the debtor, to secure the payment of remaining property, claims, etc., be-
a doubtful debt due to the bank, and longing to said bank, and realize the
transfer the debt for that purpose to same for the purpose of final settle-
such third person. Saltmarsh v. Plan- ment, the trustees, by necessary im-
ters', etc., Bank, 17 .Ma. 761. plication, had the power to transfer
Act 1845 authorizes the appointment negotiable securities so as to pass the
of trustees to settle the affairs of the legal title by their assignment, and en-
Planters' & Merchants' Bank, whose able the purchaser to sue in his own
charter had been declared forfeited, name. Savage v. Walshe, 26 Ala. 619.
and gave them power to compromise —
Discounting notes. As the trustees
bad or doubtful debts, and to use all of the Planters' h. Merchants' Bank of
the remedies which the bank might Mobile had authority, on the filial set-
have used, while in existence, for the tlement of the affairs of the bank, to
collection and securing of its claims. take a note in settlement of a debt due
Held, that the trustees were authorized to the bank, the fact that a note taken
to take individual notes to secure a by the trustees after the surrender of
balance due from another bank that the bank's charter was made "nego-
had suspended specie payment, as such tiable and payable at said bank" does
debt must be considered bad or doubt- not raise a legal presumption that it
ful. Jemison v. Planters', etc., Bank, was unlawfully discounted by the trus-
23 Ala. 168. tees, instead of being taken in settle-
Act Feb. 13, 1843, for the final set- ment of a debt due, so as to defeat an
tlement of affairs of the Planters' & action brought thereon by one who
Merchants' Bank after declaring its purchased the note at the trustees'
charter forfeited, and providing for the sale of the bank's assets. S?vage v.
exhibition of an information in the na- Walshe, 26 Ala. 619.
ture of a quo warranto and the ap- Sale of collateral securities by trus-
pointment of commissioners, provides tee. —The trustee of a bank in liquida-
to confess judgment given to the bank before its insolvency.^" But trus-
teeshave no power to contract away the assets of the bank to carry on
quo warranto proceedings against its officers,î nor sue for and recover
debts due the bank, after its liabilities are paid off.^^ Commissioners ap-
pointed in another state have no extraterritorial powers. ^^
Duties. —The duty of a trustee of a banking corporation forbids the
concealment of any fact from the note holders and creditors which affects
the value of their notes or debts, and requires them to disclose every fact
that the creditor is concerned to know. prompt distribution of
It requires
cash assets, prompt notice to creditors to file claims, and a full recognition
of the fact that they are equally the agents of the creditors to protect and
to assist them, and of the corporation to husband and economically ad-
minister its resources. 8*
tion has the same right as anj' pawnee close the affairs of a bank after its
or pledgee to sell collateral security charter has expired may use a warrant
transferred to the bank, upon giving of attorney to enter judgment given
to the debtor notice of the time and to the bank. Martin v. Belmont Bank,
place of the sale. But if it appears that 13 O. 250.
he had actual knowledge of the fact 91. The trustees of the Miners' Bank
a reasonable time before the sale was of Dubuque, appointed under the act
to take place, this is sufficient without repealing the bank charter, could only
a formal notice. Alexandria, etc., R. settle the affairs of the bank, and were
Co. 7'. Burke, C3 Va. (22 Gratt.) £.54. not authorized to employ and pay,
See, also, Howe, etc., Co. v. Ould, 69 from the assets of the bank, an at-
Va. (28 Gratt.) 1. torney to conduct a quo warranto suit
Transfer of assets.— St. 1895, p. 172, against the bank officers. Miners'
c. 167, creates a bank commission, and Bank v. Thomas (Iowa), 4 Greene 336.
§ 11 (page 175) requires the commis- 92. Powers of trustee appointed on
sioners to control a bank in liquida- judgment of dissolution against bank
tion until the court shall order the
under the act of the twentieth of July,
commissioners to surrender the prop- 1843, are terminated when he has paid
erty in their possession to the corpo- off and discharged the whole of the
ration for liquidation, and that the di-
debts of the bank, and he can not sue
rectors or trustees shall be permitted for and recover the debts which were
to manage the bank's affairs during due to it, and which were still out-
liquidation. The corporation is also standing and unpaid. Coulter v. Rob-
required to report its affairs to the ertson, 24 Miss. 278, 57 Am. 'Dec. 168.
commissioners, and with amounts re-
alized for property sold since any pre- 93. Rights of foreign commission-
vious report. Held, that the officers ers. —
The order of a Kentucky court,
of a bank in process of liquidation had
made under the law of the state ap-
power, with the knowledge and ac- pointing commissioners to take pos-
quiescence of the bank commission- session, for the benefit of creditors, of
ers, to make an absolute assignment
the assets of a banking institution
there, does not operate so as to di-
of pledged securities to the pledgee,
in a final settlement of the bank's vest any title or interest of that in-
transactions with such pledgee. Merced stitution in property of any descrip-
Bank v. Price (Cat.), 98 Pac. 383. tion in Ohio, and prevent legal
Revival of judgment. —The trustee remedies directed against that prop-
erty to satisfy a debt.- Tq give such
of a bank whose charter has been for-
feited may, in his own name, revive a commissioners a priority, they must
iudsrment upon which a claim of the establish their claim under the laws of
bank is founded, and the claim will be this state. Finnell v. Burt, 2 Handy
reearded as that of the trustee of the 202. 12 O. Dec. 403.
bank. Robertson v. Agricultural Bank, 94. Trustee must act in good faith.
28 Miss. 237. — Moses V. Ocoee Bank, 69 Tenn. (1
90. Warrant of attorney to confess Lea) 398.
judgment. — Trustees authorized to
§ 71 (4a) INSOI^VENCY AND DISSOIvUTlON. 487
Liabilities. - -Such trustees are liable as well for acts of nonfeasance as

misfeasance.^^
§ 71 (3) Salary or Compensation. —Right to Compensation. —

The trustees of a banking corporation in process of liquidation are entitled
to reasonable compensation for services performed. '^s
Amount of Compensation. — In the absence of any amount of com-
pensation having been fixed for commissioners appointed to effect the liqui-
dation of an insolvent bank by the statute governing the subject, it is the
duty of the judge of the court before whom the proceedings are taken to
fix same according to his best judgment and discretion, and his finding in
the premises will not be reversed unless it clearly appears that his awarfl
is excessive or erroneous. ^'^ Where the directors of a banking corporation
in liquidation fail purposely or negligently to fix the salary of its secretary
and manager, though the bank commissioners have fixed the maximum
salary to be paid him, he can only recover on a quantum meruit.^^
§ 71 (4) Suits by and against— § 71 (4a) Suits by.—The trustee

may bring suit to collect claims due the bank until a sufficient fund has
been realized to pay its debts. ®^ But it has been held that commissioners
95. Liabilities of trustees. Where — limited to the period of four years,

the managing trustees of a bank in mentioned in St. March 14, 1842, § 25.
liquidation have funds, the distribution In re Merchants' Bank, 3 La. Ann.
of which is prevented by litigation, 382.
and responsible banks in the com- Arrears of salary which arc due a
munity in which they reside pay in- liquidating bank commissioner under
terest on deposits, and such funds were the Louisiana Act of March 14, 1842,
bearing interest when the trustees ob- are extinguished by a judgment of
tained custody of the same, and they equal amount, held against him by the
withdrew the moneys from the banks bank. Conrey v. Copland, 4 La. Ann.
and deposited them in a bank in which 307.
a trustee was
a stockholder, without 98. In an action by a banking cor-
interest, such trustee is personally poration for money collected and re-
liable for the customary rate of in- tained by an officer, the answer ad-
terest paid for deposits of like char- mitted receiving the money in the ca-
acter. Gund V. Ballard, 80 Neb. 385, pacity as officer, and alleged that the
114 N. W. 420. officer retained the same in part pay-
Compensation of trustees.
96. — ment of his compensation for serv-
That managing trustees of a bank in ices as secretary and manager during
process of liquidation have not been the liquidation of the corporation, and
active in defending actions by one of set forth an express agreement to pay
their number against the bank on an him a specified sum per month as his
individual claim will not defeat their salary without alleging between whom
right to a reasonable compensation the agreement was made. Held, that
for services in settling the other af- the allegation of an agreement to pay
fairs of the bank. Gund v. Ballard, 80 him a salary referred to the action of
Neb. 385, 114 N. W. 420. the bank commissioners fixing the
97. Amount
of compensation. State — limit of the salarv' and the answer
failed to show a valid agreement fixing
V. Bank, 49 La. Ann. 1060, 22 So. 207.
Under St. April 6, 1843, § 2, the com- his salary. Bank v. Brown, 8 Cal.
missioners for the liquidation of banks App. 566, 97 Pac. 533.
were entitled to compensation at the 99. Suits by trustee to collect as-
rate fixed by that section until su- sets. —The trustee of a dissolved bank
perseded by the appointment of a. appointed under Act 1843, with power
liquidator under St. May 4, 1847. The to collect sufficient assets of the bank
salaries allowed by St. 1843 were not to pay its debts, has no longer power.
can not enforce the liability of bank directors.^

Manner of Instituting Suit. —The trustees of an insolvent bank should
sue in their collective and not in their individual names. ^ But an action
by a sole trustee should be in his own name, without in any way using the
name of the bank.^
§ 71 (4b) Suits against. —

Commissioners may be sued for any cause,
though arising under the administration of former boards of directors.*
§ 71 (4c) Revivor of Actions. — Suits by bank commissioners do not

abate upon the abolition of their office.^
§ 71 (5) Termination of Trust.—After the trustee executes his

trust, his rights terminate.®
after a sufficient amount has been col- 2. Manner of bringing suit. — Martin
lected, to sue on claims due the bank. V. Belmont Bank, 13 O. 250.
Coulter V. Robertson, 24 Miss. 278, 57 3. Action by sole trustee. In an ac- —
Am. Dec. 168. tion brought in the name of the "Bank
The charter of a bank was, by legal of Tennessee for the use of R. Ewing,
proceeding, declared forfeited, and the trustee and receiver," on a note ex-
plaintiff was appointed a trustee to ecuted to S. Watson, trustee of said
sue for and collect the debts due the bank, the defense was, that the bank
bank. Afterwards, in pursuance of a as a corporation had ceased to exist
law subsequently passed, the circuit when the action was brought. Held,
court directed the trustee to sell the that the bank was not the real plaintiff,
assets of the bank to the highest bid- or even a necessary nominal plaintiff,
der. Held, that the right of the trus- and the defense, was not available.
tee to sue for and collect a note due Kyle V. Ewing, 73 Tenn. (5 Lea) 580.
the bank was not devested by the or- Suit by surviving trustee. A suit —
der of sale. Bingaman v. Robertson, on a note assigned to the trustees of
25 Miss. 390. the Real-Estate Bank by that bank is
Where, before an assignment to perfectly brought in the name of the
trustees on the dissolution of a bank, surviving trustees, after the death of
as provided for by the Laws of 1843, any of them. Conway v. Roane, 10
the bank had transferred without in- Ark. 242.
dorsement a note payable to a third 4. Suits against bank commission-
person, the trustees appointed could ers. — Gaillard v. Citizens' Bank (La.),
not bring an action on such note in 11 Rob. 168.
their own name for the use of the 5. Abatement of suits against bank
holder of such note. Bacon v. Cohea —
commissioners. After the dissolution
(Miss.), 12 Smedes & M. 516. of a banking corporation by a decree
The trustees of the rights and prop- in a suit by the bank commissioner,
erty of a bank, on its dissolution, can and after the appointment of a re-
not maintain an action, as such trus- ceiver, and a reference to a master to
tees, on a note, against a person who settle the claims of creditors, who
drew or indorsed it, as an officer and had come in under the decree requir-
in behalf of the bank. McLaren v. ing allcreditors of the bank to
the
Pennington (N. Y.), 1 Paige 102. come and prove their claims, the
in
1. Suits by trustee to enforce lia- office of bank commissioner was abol-
—
bility of directors. Commissioners ap- ished by statute, but no provision was
pointed to liquidate a free bank, whose made for the continuance of suits pre-
charter was judicially forfeited, have viously commenced by such officer.
no right of action against directors Held, that the court might proceed in
charged with violating Rev. St., the suit, without a formal revivor, upon
§§ 300, 301, regulating loans, etc. The the mere entry of an order that the
directors' liability for the debts is not master proceed in the reference. In
an asset susceptible of collection by re Citv Bank (N. Y.), 10 Paige 378.
the commissioners, but accrues to the 6. Termination of trust. Under the —
creditors ut singuli. Lacombe v. Milli- Act of July 26, 1843, a payment of the
ken, 86 La. Ann. 367. bank's debts, or collection from the
§ 71 (6) Accounting. —
If a trustee of a bank should receive the
money of the bank, use it as his own, or in any way interfere with it, so^
that, in consequence of his wrongful act, it was lost to the bank, the bank
would have an action in equity to compel him to account^
§ 72. Effect of Dissolution— § 72 (1) In General. «— The statutes

providing for the winding up and dissolution of banking corporations
usually specify the effect thereof.^ But it may be stated generally that
upon bank to enter upon new business is sus-
dissolution the right of the
pended, except such as is necessary and appropriate in settling the affairs
of the concern.!" And the legal duty resting on going concerns to report
assets of sufficient money for that pur- as a settled proposition, that the power
pose by the trustee, was a full execu- of a partner to make a contract for
tion of his trust, whereby he became the firm ceases upon the dissolution
functus officio. Coulter v. Robertson, of the firm, and the surviving partners
24 Miss. 278, 57 Am. Dec. 168. or expartners can enter into no con-
7. Accounting by trustees. Hig- — tract which will bind the estate of the
gins V. Tefft, 4 App. Div. 62, 38 N. Y. deceased partner, except such as is ap-
S. 716, 74 N. Y. St. Rep. 100. propriate and necessary in settling the
8.Effect of appointment of re- affairs of the concern. Dissolution
ceiver, see post, "Negligence or De- operates as a revocation of all author-
fault of Agents or Correspondents,'' ity for making new contracts; as dis-
§ I'-'O. solution finds the engagements of the
9. General effect of dissolution of company, they must remain until
—
banks. Donnally v. Hearndon, 41 W. liquidated and paid. First Nat. Bank
Va. 519, 23 S. E. 646. V. Payne &
Co., 85 Va. 890, 9 S. E. 153,.
Rule in Mississippi. A judgment of— 3 L. R. A. 284.
forfeiture, under the statute of 1843, Where a bank became insolvent and
prescribing the mode of proceeding went into liquidation, its power to
against banks for a violation of their bind its stockholders ceased except
franchises, has none of the common- with reference to transactions implied
law consequences of a judgment of in the duty of liquidation. Covell v.
forfeiture, but only such effect as is Fowler, 144 Fed. 535.
given by the statute itself,
it being
it Right to contract. —A contract made
competent for the legislature to waive by a bank officer after the bank had
the penalties of the forfeiture in whole ceased to exist, for failure to comply
or in part, and to determine all the with the provisions of Act of 1855, is
consequences of such judgment. Ne- not binding on the stockholders. Wil-
vitt V. Bank (Miss.), 6 Smedes & M. son V. Tesson, 12 Ind. 285.
513. UnderSt. 1819, c. 43, providing that
A judgment of forfeiture rendered in corporations shall continue bodies cor-
a proceeding to forfeit the charter of porate for the term of three years-
a bank (Sess. Acts, p. 55), and an ap- after the expiration of their charters,
pointment of trustees thereunder to for the purpose of settling their busi-
take charge of and collect the assets ness, but not for the purpose of con-
of the bank, operate as an assignment tinuing business, a bank is authorized,
of the effects of the bank to the trus- immediately before the expiration of
tees for the benefit of creditors. Nevitt the term of three years after its char-
V. Bank (Miss.), 6 Smedes & M. 513. ter has expired, to indorse a note to
10. No new business allowable after trustees appointed to wind up its af-
dissolution. —
Saltmarsh v. Planters', fairs. Folger V. Chase (Mass.), 18
etc.. Bank, 14 Ala. 668; Smith v. Frye, Pick. 63.
Fed. Cas. No. 13,049, 5 Cranch C. C. Necessary officers may be appointed.
515. —Where, on the surrender of the char-
By death. — On the dissolution of a ter of a bank, and its acceptance by
banking association by the death of a the legislature, the bank is continued
member, the survivor has the right to in its corporate capacity for a limited
take possession of the copartnership time, for the purpose of closing its
assets and settle up the afifairs of the affairs, the directors may legally ap-
joint concern; and it may be stated. point a cashier, under the general
49.0 BANKS AND BANKING. § 72 (1)
their financial condition is also suspended. ^^ But the dissolution of a bank-

ing corporation does not prevent a court of equity from collecting and
administering its assets. ^^
On Right to Sue and Be Sued. —In the absence of statute a banking
corporation, after its charter has been forfeited, can not sue in the cor-
porate name.i^ But by statute in most jurisdictions, even after dissolution,
a bank is continued in its corporate capacity for a limited time and may
sue and be sued, plead and be impleaded, as a corporation." Nor will a
banking law.- Cooper v. Curtis, 30 57, 50 Am. Dec. 649; Rankin v. Sher-
Me. 488. wood, 33 Me. 509.
Issuing and circulating securities. — Where, after the repeal of the char-
St. 1812,c. 57, which prohibited banks, ter of a bank, property had been or-
after the expiration of their charters, dered to be taken and distributed
from issuing or putting into circula- among creditors by receiver, suit on
tion any securities for money, did not a debt due by the bank can not be
extend to the assignment of a note for brought against it in its name, and a
the purpose of paying a debt owed by judgment in such suit is a nullity, the
the bank before the charter expired; statute giving corporations three years
no new obligation being contracted by in which to wind up their affairs not
the bank. Hallowell, etc.. Bank v. being applicable. Whitman v. Cox, 26
Hamlin, 14 Mass. 178. iNTe. 335.
11. On duty to report financial con- After the charter of a bank has
dition.— Under Sess. Laws 1897, p. Ill, been repealed, and a receiver ap-
c. 47, § 30, providing that a bank may pointed, a stockholder has no authority
be voluntarily liquidated by paying its to defend an action brought against
depositors in full, and that, on filing the corporation. Merrill v. Shaw, 38
a verified statement with the bank Me. 267.
commissioner setting forth that its lia- by assignee of judgment. The
Suit —
bilities have been paid and the sur- assignee of a judgment rendered in
render of its certificate of authority to favor of a bank filed a bill to revive
transact a banking business, it shall and enforce the same against the
cease to be subject to the provisions judgment debtor. After the assign-
of that act, and may continue to trans- ment, a judgment of forfeiture was
act a loan and discount business under pronounced against the bank. Held
its charter, where a bank has paid its that, as the assignee can not proceed
depositors and surrendered its cer- at law in the name of the bank by
tificate of authority, it is no longer reason of the forfeiture, a court of
subject to the requirement of that act equity will entertain jurisdiction, and
that reports of its financial condition enforce such judgment. Marsh v.
be made to the bank commissioner. Mandeville, 28 Miss. 3 22.
Wilson 7'. First State Bank, 77 Kan. 14. Pomeroy v. State Bank, 1 Wall.
589, 95 Fac. 404. 23, 17 L. Ed. 500; Smith v. Frye, Fed.
12. Kyle v. Ewing, 73 Tenn. (5 Cas. No. 13,049, 5 Cranch C. C. 515;
Lea) 580. Huntsville Bank v. McGehee (Ala.),
13. Effect of dissolution on right to 1 Stew. & P. 306; Underbill v. State
—
sue and be sued. A banking company, Bank, 6 Ark. 135; Cunningham v.
whose charter was adjudged forfeited, Clark, 24 Ind. 7; Conwell v. Pattison,
and which had been placed in the 28 Ind. 509; American Bank v. Cooper,
hands of receivers under the Act of 64 Me. 438; Folger v. Chase (Mass.),
February 13, 1842, could not prosecute 18 Pick. 63;- Pub. St. New Hamp. 1901,
a suit after such dissolution. Under Ch. 148, §§ 18, 19; Kalb v. American
this act, the corporate name of the Nat. Bank, 21 O. C. C. 1, 11 O. C. D.
company could be used only by the 4 37; Franklin Bank v. Commercial
receivers under
appointedthe act. Bank, 6 O. Dec. 339, 4 Am. L. Rec.
Miami Exporting Co. v. Gano, 13 O. 705; Commonwealth v. Huntingdon
269. Bank (Pa.), 3 Pen. & W. 438; Kyle v.
The dissolution of a corporation by Ewing, 73 Tenn. (5 Lea) 580, con-
act of the legislature degrives it of its struing, § 1493 of the Code; Shappard
corporate existence, so that a legal V. Cage, 19 Tex. Civ. App. 206, 46 S.
judgment can not be rendered against W. 839, affirmed in 93 Tex. 656, no op.;
it. Merrill v. Suffolk Bank, 31 Me. Donnally v. Hearndon, 41 W. Va. 519,
§ 72 (1) INSOLVENCY AND DISSOIÛTION. 491
suit brought against the corporation prior to the expiration of its cliarter
23 S. E. 646; W. Va. Code, p. 511, ch. solve a free bank organized under the
53, § 59. Act of !May 28, 1853, because its pro-
When the condition arrives which visions were not complied with. But
drives an incorporated company into such bank, under § 48 of the first-men-
liquidation, when it must marshal and tioned act, continued until j\larch 1,
collect its assets, and pay its debts, 1857, for tlfe purpose of viînding up,
and wind up its business and adjust or accepting such act, and had three
its affairs, its power to assert and de- years from the latter date to sue and
fend its rights is most strong because be sued, to settle, dispose of, and con-
the necessity is then most imperative. vey its property, and divide the capital
The last sign of vitality of an incor- stock, but not to continue the business
porated company is the power to main- for which it was established. Cun-
tain and defend an action; and the na- ningham V. Clark, 24 Ind. 7; Conwell
ture and purpose of the action is the V. Pattison, 28 Ind. 509.
test of whether or not the company Under the bank commissioners' act,
has sufficient life to maintain it. Kalb as amended in 1895, providing a
V. American Nat. Bank, 21 O. C. C. 1, scheme of liquidation for insolvent
11 O. C. D. 437. banks by which the assets are created
Abanking corporation may prose- a trust in the hands of the directors
cute suit to final judgment for the
its for the benefit of creditors, and the
purpose of closing up its affairs, corporation enjoined from, the trans-
though it goes into voluntary liquida- action of any business except that of
tion pending the litigation. Commer- trustee for the purpose of liquidation,
cial Loan, etc., Co. v. Mailers, 242 111. an ordinary action for the collection
50, 89 N. E. 661. of a debt can not be maintamed
Where a solvent bank goes into vol- a.gainst an insolvent bank in process
untary liquidation under Act March of liquidation under the act. Argues
14, 1842, No. 98, though its banking V. Union Sav. Bank, 133 Cal. 139, 63
franchises be surrendered, the body Par. 307.
corporate exists, and the commissioner Right to sue on collaterals. Where —
in collecting its debts may sue in the a note and mortgage, payable to a bank
corporate name. Commercial Bank v. as a corporation, was pledged by the
Villavasco, 6 La. Ann. 542. bank, it was entitled to sue thereon in
A
bank, just before the expiration of its corporate name, though it v/as in
its corporate existence, by its cashier, course of liquidation. Merced Bank
indorsed and assigned to a trustee, for V. Price (Cal.), 98 Pac. 383.
the stockholders, all unpaid paper be- Rights of foreign corporations. —

longing to the bank. Held, that the Rev. St. Can., c. 129, § 15, provides that
assignment was valid, and that the a company shall cease to carry on its
trustee might sue, after the expiration business from the time of the winding-
of the bank charter, on paper so in- up order, except in so far as is re-
dorsed to him. Cooper v. Curtis, 30 quired for the beneficial winding up
Me. 488. thereof, and that the corporate state
The period for which a bank was and all the corporate powers of the
chartered not having expired, no for- company shall continue until the af-
feiture having been suffered, and no fairs of the company are wound up.
judgment of dissolution having been St. Can. 53 Vict., c. 31, § 91,provides
rendered against it, it continued to that on the forfeiture of the charter
exist as a banking corporation, au- of a bank it shall only remain in force
thorized to sue on a note due it, not- for the purpose of enabling the di-
withstanding it had gone into volim- rectors or other lawful authority to
tary liquidation, paid off its depositors, wind up its business. Held, that an
surrendered to the banking commis- insolvent Canadian bank has the ca-
sioner its certificate of authority to pacity to maintain an action, after the
transact business, and ceased to trans- appointment of liquidators, for the re-
act anj' business, except to collect covery of a debt. Ham
v. Banque
debts owing it and to distribute the Ville Marie, 22 R. I. 248, 47 Atl. 364.
proceeds among its stockholders by Attachment after dissolution. The —
wav of closing up its affairs. Wilson forfeitureby a bank of its charter,
v. First State Bank, 77 Kan. 589, 95 and the appointment of a receiver to
Pac. 404. distribute the assets among its credit-
The Act of March 3, 1855 (1 Gav. & ors in the state of its location, does
H. St. 124), did not operate to dis- not prevent a creditor from bringing
abate on its expiration/^ though as a general principle, the dissolution of

a corporation by the expiration of its charter pendente lite is an abate-
ment of the suit.i^ Furthermore, it is the especial duty of its officers to
see that all such suits are maintained and defended. ^^
§ 72 (2) On the Relation of Officers to the Bank.— The powers

and duties of the officers of an insolvent bank cease when it makes an as-
signment for the benefit of creditors. After its dissolution said officers
are neither the agents nor trustees of the bank, and they may lawfully
an attachment suit against the bank neither can deny a jurisdiction to

in another state. City Ins. Co. v. which they voluntarily submitted."
Commercial Bank, 68 111. 348. McGoon V. Scales (U. S.), 9 Wall. 23-
A banking corporation may sue out 19 L. Ed. 545.
execution on its judgment for the pur- 15. Abatement of actions against
pose of closing up its affairs, though —
banks. Pomeroy v. State Bank (U.
more than two years have intervened S.), 1 Wall. 23, 17 L. Ed. 500.
between its voluntary dissolution and Banking associations organized un-
the date of the judgment; the limita- der the Act of 1838 are corporations;
tion in Hurd's Rev. St. 1908, c. 33, and therefore a suit begun by such
§ 10, continuing corporations for two bank is not abated by the appointment
years for the purpose of collecting of a receiver, within the Act of April,
debts, being applicable to "corpora- 1832, which provides that dissolution
tions organized under" that law, and of a corporation shall not abate any
not to banking corporations which are suit brought by it, and that such suit
within the general public policy of the may be continued by the receiver.
state, allowing a corporation to do Talmage v. Pell (N. Y.), 9 Paige 410.
such acts as may be necessary to col- But the expiration by limitation of
lect its debts and settle up its aflairs the charter of the United States banks
after dissolution. Commercial Loan, abated all pending suits in the name
etc.,Co. V. Mailers, 342 111. 50, 89 N. of the president, directors, and com-
E. 661. pany of that bank, though by the char-
—
On rights of federal courts. Judicial ter its notes were still receivable in
all payments to the United States.
proceedings on petition of the bank
commissioners, under Pub. St. N. H. Bank v. McLaughlin, Fed. Cas. No.
1901, c. 163, for winding up a banking 928, 2 Cranch C. C. 20.
corporation, in which an assignee is 16. The law no action-
rule that at
appointed in whom the title to all its can be maintained by or against a cor-
property vests, do not operate to dis- poration after it has ceased to exist,
solve the corporation at once so as to in the absence of statute, still applies
preclude the rendition of a judgment in some jurisdictions. Kyle v. Ewing,
against it by a federal court. Judg- 73 Tenn. (5 Lea) 580.
ment, Anglo-American Land, etc., Co. The
expiration of the charter of the-
V. Cheshire Provident Ins., 124 Fed. State Bank during
the pendency of a
464, affirmed. Cheshire Provident bill in chancery for the collection of a
Inst. V. Anglo-American Land, etc., debt due the bank did not affect the
Co., 66 C. C. A. 132, 133 Fed. 968. right to the debt which was previously
—
Effect of appearance. "It is by no vested in the superintendent and board
means certain that the bank had no of common-school commissioners of
capacity to sustain a suit, notwith- the state. Ingraham v. Terry, 30 Tenn.
standing the expiration of its charter (11 Humph.) 572.
and the transfer of its property to 17. When an incorporated company
trustees. But, however this may be, goes into liquidation, it becomes the
where those very trustees, in whom special function of its president, for the
plaintiff claims that the title was purpose of winding up its affairs, to
vested, and from whom he derives see that actions to that end are main-
title by deed, appeared to this suit tained and defended; and he may do-
and moved to dissolve the attachment, this without specific authority of the
and the bank appeared by attorney board of directors. Kalb v. American
and defended the suit, both must then Nat. Bank, 21 O. C. C. 1, 11 O. C. D.
be bound by these proceedings, and 437.
§ 72 (3a) INSOLVENCY AND DISSOLUTION. 493
buy up outstanding claims against it, if in so doing they act fairly and with
an honest intent.^*
§ 72 (3) On Rights of Creditors— § 72 (3a) In General.—The

elementary books and the numerous cases decided are uniform in their lan-
guage in regard to the consequences resulting from the dissolution of a
banking corporation at common law. They hold that upon the death of a
corporation, all its real estate remaining unsold reverts back to the original
grantor and his heirs. The debts due to and from the corporation are all
extinguished. Neither the stockholders, nor the directors, nor trustees of
the corporation, can recover those debts, or be chargeable with them in
their natural character. All the personal estate of the corporation vests
in the crown, with use in the people of the state, as succeeding, in this
respect, to the rights and prerogatives of the king.i^
The principal alterations made by statute in the common-law
rule are that, by judgment of forfeiture its debtors are not released from
their debts, and it is usually provided that a trustee shall be appointed with
power to sue for and collect debts due to the dissolved bank and to sell
and dispose of all of the property belonging to it, and that the debts when
collected and the proceeds of sale of the property shall be applied by the
trustee to the payment of its debts. ô- In other words, the assets of a bank-
18. Hill V. Frazier, 22 Pa. 320, dis- tracts still survives, and its property,
tinguished. Craig's Appeal, 92 Pa. 396. not in the hands of a bona fide pur-
19. Effect of dissolution at common chaser, may be subjected to the pay-
law on rights of creditors. Co. Lit. — ment of its debts by suit commenced
13 b; 1 Bla. Com. 484; 2 Kent's Com. by attachment, there being nothing in
309; Angell & Ames on Corp. 513; Rob- the comity existing between states
ertson V. Coulter (U. S.), 16 How. 106, rendering it improper on the ground
14 L. Ed. 864; Smith v. Frye, Fed. Cas. that by the local laws its effects are
No. 13,049, 5 Cranch C. C. 515;United in the hands of a receiver. City Ins.
States V. Alexander, Fed. Cas.No. Co. V. Commercial Bank, 68 III. 348.
14,428, 4 Cranch C. C. 311; Mayor, etc., 20. McGoon V. Scales (U. S.), 9 Wall.
of Colchester v. Seaber, 3 Burr. (Eng.) 23, 19 L. Ed. 545; Kipp v. Miller, 47
1868; Commercial Bank v. Lockwood Colo. 598, 108 Pac. 164; Coulter v. Rob-
(Del.), 2 Har. 8; State Bank v. State, ertson, 24 Miss. 278, 57 Am. Dec. 168;
1 Blackf. 267, 12 Am. Dec. 234; Con- Donnally v. Hearndon, 41 W. Va. 519,
well V.Pattison, 28 Ind. 509; Commei-- 23 S. E. 646.
cial Bank v. Chambers (Miss.), 8 On judgment of forfeiture against
Smedes & M. 9; Coulter v. Robertson, bank, all assets, consisting of credits
24 Miss. 278, 57 Am. Dec. 168; Bank v. or debts due to it, chattels, and real es-
Duncan, 56 Miss. 166; Fox v. Horah, 36 tate, become a trust fund for the sole
N. C. 358, 36 Am. Dec. 48. purpose of paying the debts due by the
Since all debts due to a bank are ex- bank at the time of its dissolution.
tinguished by the expiration of its Coulter V. Robertson, 24 Miss. 278, 57
charter, it is held that when a note has Am. Dec. 168.
been given to the cashier as trustee Debts due the late Bank of the United
for the bank, although the legal title States were not extinguished by the
is in him, equity will restrain its en- expiration of its charter; and a note
forcement after the bank has ceased to given after such expiration to one of
exist. Fox V. Horah, 36 N. C. 358, 36 its agents, in his own name, in renewal
Am. Dec. 48. of a note previously due, is valid.
Foreign banking corporations. — Smith V. Frye, Fed. Cas. No. 13,049, 5
Where a bank in a foreign state has Cranch C. C. 515.
forfeited its charter under the laws of An Act of 1843 provided that after
such state, the obligation of its con- judgment of forfeiture against a bank
494 BANKS AND BANKING. § /2 (4)
ing corporation, after its dissolution, are regarded as a trust fund, for the
payment of the bank's debts. -^ And, if the legislature has failed to pro-
vide an adequate remedy for the enforcement of that right, a court of
equity will supply the deficiency. ^^
§ —
72 (3b) Rule in Equity. But the rule in equity independent of
statute is that upon the dissolution of a bank by the expiration of its char-
ter or otherwise, its property will be impounded and appropriated first to
the payment of its debts, and then for the benefit of the stockholders. ^^
§ 72 (3c) Pre-Existing Liability for Taxes. The liability of a —

bank for taxes assessed against its capital stock, being fixed and primary
before its dissolution, may be enforced afterwards by distraint and levy
when due, upon property in the hands of trustees for the benefit of stock-
holders and creditors. 2*
§ 72 (4) On Rights of Stockholders.—In most, if not all of the

states, in which the legislature has deemed it expedient to repeal or modify
the principles of the common law which apply on the dissolution of a bank-
ing corporation produced by a judgment of forfeiture, express provision
has been made by which the stockholders may take the surplus after the
payment of debts. ^s The dissolution of a banking corporation not only
does not suspend the property rights of the stockholders, or hinder the
its debts should not be extinguished, though the corporation had ceased to
but that trustees should be appointed exist as such by the laws of Illinois,
to collect them, and apply their pro- the only limitations on the right of the
ceeds to the payment of the debts of legislature to prescribe the mode of
the bank. Held, that the legislature doing being the constitution of
this,
did not thereby make an appropriation the state and of the United States.
in favor of creditors, but that, wholly ÎcGoon V. Scales (U. S.), 9 Wall. 23,
independent of the legislative provi- 19 L. Ed. 545.
sion, the trustees should thus apply the Under the Indiana statute, where no
proceeds, the creditors having a right application is made to the circuit court
to such application, growing out of the for the appointment of a receiver and
relation of debtor and creditor pre- an extension of the time for collecting
served by the act. Commercial Bank the debts due an insolvent bank, such
V. Chambers (Miss.), 8 Smedes & Î. 9. debts are, at the expiration of three
The Act of 1843, saving rights of years, totally extinguished. Conwell
creditors of a bank after dissolution, v. Pattison, 28 Ind. 509.
did not apply to banks dissolved by 21. Coulter v. Robertson, 24 Miss.
limitation of time, but only to those 278. 57 Am. Dec. 168.
against which any judgment of for- 22. Commercial Bank v. Chambers
feiture should be rendered. Bank v. (Miss."). 8 Smedes '\l. 9. &
Duncan, 56 i\Iiss. 166. 23. Effect of dissolution in equity. —
Subjection of land lying in another O'Connor v. Memphis, 74 Tenn. (6
state. —
.\nd the proceedings of a cred- Lea) 730; Connecticut Mut. Life Ins.
itor of the bank to subject such real Co. V. Dunscomb, 108 Tenn. 724, 69 S.
estate lying in Wisconsin to the pay- W. 345, 58 L. R. A. 694, 91 Am. St. Rep.
ment of its debts, had in the courts of 769.
Wisconsin, must be governed by the 24. Bramel v. Manring, 18 Wash. 421,
laws of that state made for such cases. 51 Pac 1050.
McGoon V. Scales (U. S.), 9 Wall. 23, 25. Effect of dissolution on rights of
19 L. Ed. 545. —
stockholders. Connecticut Mut. Life
The state of Wisconsin had a right Ins. Co. V. Dunscomb, 108 Tenn. 724,
to pass laws to subject such lands to 69 S. W. 345, 58 L. R. A. 694, 91 Am.
the payment of the debts of the bank. St. Rep. 769.
§ 72 (6) INSOLVENCY AND DISSOI,UTION. 495
preservation thereof by a court of chancery, but furnishes additional

ground therefor.^^ But in Mississippi, the rule is otherwise.^^ In that
state the statute, as to the dissolution of a banking corporation, leaves
common law.^^
stockholders in just the position they had at
The stockholders may also interfere to prevent waste of the as-
sets by the receiver. ^^ And must be prorated and paid out
the assets in
proportion as the subscriptions of stock have been paid.^'^
§ 72 (5) On Liability of Stockholders. —Where a bank corporation

continues to transact business after the expiration of its charter for the
purpose of winding up its affairs, it is a de facto corporation and stock-
holders can not maintain that they become thereafter liable only as
partners.si
§ 72 (6) On Right to Make Collections. After a bank has sus- —

pended, it thereby ceases to have the general power and authority which
it previously had to collect paper which, before its suspension, had been
deposited with it for this purpose, so as to make it a general creditor of
the depositor, but this subsequent collection must be held by it as agent
in trust for the owner.^^
Property rights and equity juris-

26. chancery precedents. Bacon v. Rob-
diction. —
The tendency of the decisions ertson (U. S.), 18 How. 480, 15 Iv. Ed.
and judgments of the court of chan- 499.
cery in Great Britain, and of the Coulter v. Robertson, 24 Miss.
27.
courts of this country, is to concede 278, 57 Am, Dec. 168.
the existence of a distinct and posi- Debts due a bank are not kept alive
tive right of property in the individuals for benefit of stockholders, under the
composing the corporation, in its statute passed the twentieth of July,
capital and business, which is subject 1843, and they have no right to the
in the main to the management and surplus; their rights are left as they
control of the corporation itself; but were at the common law; this act was
that cases may arise where the corpo- for the benefit of the creditors of the
rators may assert not only their own corporation merely. Coulter v. Rob-
rights, but the rights of the corporate ertson, 24 Miss. 278, 57 Am. Dec. 168.
body. And no reason can be given 28. Coulter v. Robertson, 24 Miss.
why the dissolution of a banking corpo- 278, 57 Am. Dec. 168.
ration, whether by judicial sentence or
29. The statute of 1842 (Cobb's St.
otherwise, whose capital was con-
118, 119), providing for the winding up
tributed by shareholders, for a lawful
of defaulting banks, did not deprive
and perhaps laudable enterprise, with stockholders of the right to interfere
the consent of the legislature, should
and prevent waste by the receivers.
suspend the operation of these prin- Robinson v. Lane, 19 Ga. 337.
ciples, or hinder the effective inter-
ference of the court of chancery for 30. Cook, Stock ,& Stockholders,
the preservation of individual rights § 641. Connecticut lût. Life Ins. Co.
of property in such a case. The with- V. Dunscomb, 108 Tehn. 724, 69 S. W.
—
drawal of the charter that is, the 345, 58 L. R. A. 694, 91 Am. St. Rep.
769.
right to use the corporate name for
the purposes of suits before the or- 31. Elson V. Wright, 134 Iowa 634,
—
dinary tribunals is such a substantial 112 N. W. 105.
impediment to the prosecution of the 32. Effect of dissolution on right to
rights of the parties interested, make collection Jockusch v. Tow-
wiiether creditors or debtors, as sey, 51 Tex. 129; German American
would authorize equitable interposition Bank v. Third Nat. Bank, 2 Tex. Law
in their behalf, within the doctrine oi Jour. 150.
§ 73. Insolvency and Its Effect in Generals*— § 73 (1) What

•Constitutes Solvency or Insolvency.** —Where the question of insol-
vency is in issue in a state court, it is proper for the court to follow the
•definition of "insolvency" contained in the national bankruptcy act.*^ The
terms solvency and insolvency, however, are usually defined as follows
A bank is solvent so long as it possesses sufficient assets to pay, within a
reasonable time, all its liabilities through its own agencies.^* But a bank
is insolvent when the capital stock and all its assets are insufficient to meet
its liabilities.*'' And where a suspension of specie payment is the alleged
33. Conclusiveness of receiver's ap- debts in the ordinary course of busi-

pointment on question of insolvency, ness. Bell V. Tradesmen's Trust Co.
see post, "Appointment and Removal (Pa.), 85 Atl. 363.
•ofReceiver," § 77 (l). A bank is insolvent when, from the
34. On criminal prosecution for re- uncertainty of being able to realize on
ceiving deposits when insolvent, see its assets, in a reasonable time, a suffi-
ante, "Criminal Responsibility," § 60. cientamount to meet its liabilities, it
Proof of insolvency, see post, "What becomes necessary for the control of
Constitutes Collection," § 163. its aflfairs to pass out of its hands.
35. What constitutes insolvency Livingstain v. Columbian, etc., Trust
under bankrupt act. — Owen v. Ameri- Co., 81 S. C. 244, 62 S. E. 349, 22 L. R.
can Nat. Bank, 36 Tex. Civ. App. 490, A., N. S., 445, quoting 3 Encyc. Law
81 S. W. 988. (3nd ed.) 847.
Closing doors for few is days. — "It Though a banking corporation, at
provided by the bankrupt law, that if the time it suspended, had enough
a banker stops or suspends fraudu- funds on hand to meet the demands
lently for a period of fourteen days, made against it on that day, in the or-
he is deemed to have committed an dinary course of business, it was then
act of bankruptcy; but if the suspen- insolvent, if its property was insuffi-
sion be not fraudulent it is not an act cient topay all its debts. Higgins v.
of bankruptcy. Brightly Bankrupt Worthington, 12 App. Div. 361, 42 N.
Law, p. 80, and notes." Moseby v. Y. S. 737.
Williamson, 52 Tenn. Heisk.) 278.
(5 But a bank will not be considered
36. Definition of solvency. Dodge — as insolvent merely because it has
z/. Mastin (C. C), 17 Fed. 660, 5 Mc- gone voluntarily, or been forced, into
Crary 404. liquidation. It is only when the whole
The
closing of a bank and calling on amount of a bank's capital stock, to-
the superintendent of banks to take gether with assets, is insufficient to
charge of its assets may very properly meet liabilities, that it can be said to
be deemed acts of insolvency, but are be insolvent. Exchange Banking &
not conclusive, and where it is shown Co. V. Mudge (La.), 6 Rob. 387.
that this course was unnecessary, that Nor is a bank insolvent if it has
the bank was able to pay its debts, and property more than sufficient pay to
have a large surplus, these acts re- all demands, though it has suspended
sulting from fright or overcaution, in specie payment. Livingston v. Bank
view of the financial situation existing, (N. Y.), 5 Abb. Prac. 338, 36 Barb. 304.
or from ignorance of solvency, lose
their probative force. People v. Ori-
Ability to pay in cash. —A bank
ceased business in 1862 because of the
•ental Bank, 124 App. Div. 741, 109 N. Civil War, and continued its existence
Y. S. 509. simply to close its business. In 1865,
37. Definition of insolvency. Dodge — after publishing a resolution of its di-
V. Mastin (C. C), 17 Fed. 660, 5 Mc- rectors that it would make settle-
Crary 404; Youmans v. State, 7 Ga. ments by set-off, it continued to liq-
App. 101, 66 S. E. 383; Fremont uidate its business in this way until
'County V. Fremont County Bank, 145 June, 1872, when it was forced into
Iowa 8, 123 N. W. 782; Marr v. bankruptcy before completing its set-
Bank, 44 Tenn. (4 Coldw.) 471. tlements. Held, that the question of
"Insolvency," in its legal sense, as its insolvency as against persons with
applied to banks and trust companies, whom it had effected settlements
exists whenever such an institution, within four months prior to the bank-
from any cause, is unable to pay its ruptcy proceedings, which are fraudu-
ground of insolvency, it is to be considered insolvent as of the time when

payment was first suspended. ^^
lent and void under Rev. St.. U. S., ecuted (without security) to three in-
§ 5128,should be determined by dividuals —two of them, if not all,
whether or not its assets were suffi- debtors to it, and selected by direct-
cient to meet its simply, and
liabilities ors occupying the same position an —
not by its ability to pay all its claims absolute assignment of all its property
in cash on presentment. Harmanson and effects to the nominal amount of
V. Bain, Fed. Cas. Xo. 6,072, 1 Hughes $500,000, to pay its creditors. In re
188. Empire City Bank (N. Y.), 10 How.
Insolvency of borrower. an ac- — If Prac. 498.
A bank is "not clearly solvent,"
tion by a depositor against a banker
for negligence in loaning the deposi- within the act of April 5, 1849, where,
tor's money in 1896 to a borrower who prior to suspending specie payments,
became bankrupt in 1899, the defend- it borrowed money in large amounts
ant requested an instruction that the at the rate, in some instances, of 5
fact that the borrower was insolvent per cent per month. In re Empire
when the bankruptcy proceedings City Bank (N. Y.), 10 How. Prac. 498.
were begun was not evidence that he If a bank is so circumstanced as to
was not a safe, responsible, and con- depend on the individual resources and
servative borrower in 1896. It ap- exertions of its directors and stock-
peared that the borrower was in fail- holders, and is compelled to rely on
ing circumstances at and after the their private funds to meet its en-
loan, and the bankruptcy was the cul- gagements, and only claims to be able
mination of this condition of affairs. to pay at a future day, it can not be
Held, that the instruction was prop- said to be solvent. Ferry v. Bank
erly refused Judgment (1902) 105 111. (N. Y.), 15 How. Prac. 445.
App. 52, affirmed. Watson v. Fagner, But if the inability of a bank to
208 111. 136, 70 N. E. 23. meet its undertakings arises solely
Construction of words "not clearly
from an unexpected crisis, and it ex-
—
solvent." A bank which has suspended
hibits resources
to enable it to
abundantly
meet its
sufficient
engagements
specie payments is "not clearly sol-
and discharge its liabilities in the or-
vent," within the New York Act of
dinary and usual method of conduct-
April 5, 1849, providing that a cred-
ing that business, it should not be pro-
itor, in ten days after refusal of pay-
nounced insolvent, with a view to its
ment, may apply for an order under
dissolution. Ferry v. Bank (N. Y.), 15
which, upon a hearing, if the judge de-
How. Prac. 445.
termine that the bank is "not clearly
Receiving deposits with knowledge
solvent," he shall make a further order
of "insolvency."— Under § 5718 (M. &
declaring it insolvent, restraining any
v.). Code, making the managing offi-
further exercise of its corporate or
cers of a banking corporation indi-
legal rights, etc. In re Empire City
vidually liable to depositors for money
Bank (N. Y.), 10 How. Prac. 498. received on deposit, when they knew,
A bank is "not clearly solvent" or had good reason to believe, the
where it refuses to pay its undisputed bank insolvent, a bank is treated as
debts for more than twenty days after insolvent when it becomes unable to
demand. In re Empire City Bank
meet its liabilities as they become due
(N. Y.), 10 How. Prac. 498.
in the ordinary course of its business.
A bank is "not clearly solvent," It is not insolvent, within the mean-
within the act of April 5, 1849, where ing of this statute, so lo'ng as it is
it has suffered judgments against it to meeting its liabilities as they become
be recovered, and exfecutions upon due, atid there is a reasonable expecta-
them to be issued, and to remain and tion on the part of its officers familiar
to be returned unsatisfied, either in with its business affairs of continuing
whole or in part. In re Empire City to do so. Whether the officers acted
Bank (N. Y.), 10 How. Prac. 498. in good faith and upon a reasonable
A bank js "not clearly solvent," expectation of continuing the business
within the Act of April 5, 1849, where must be determined from the con-
it allows an injunction against its busi- sideration of all the attendant circum-
ness to be issued, and when, on a com- stances. Minton v. Stahlman, 96 Tenn.
promise with the creditors, such in- 98, 34 S. W. 222.
junction was withdrawn or dissolved, 38. Suspension of specie payment. —
or supposed to be, it immediately ex- Where a bank in South Carolina
1 B & B— 32
498 BANKS AND BANKING. § 7Z (3a)
§ 73 (2) Evidence of Insolvency. —Evidence that is competent and

relevant, According to the well-established general rules of evidence, whether
direct,39 q,- presumptive,*" may be admitted to prove the fact of solvency or
insolvency. But such fact must be shown by a preponderance of evidence.*^
§ 73 (3) Effect of Insolvency— § 73 (3a) In General.*^— By the

insolvency of a bank the corporation is rendered incapable of pursuing the
objects for which it was created without defrauding the public and its ex-
isting creditors. Its officers or agents should cease to use its franchises
after the insolvency is ascertained, but their responsibility as to assets does
suspended specie payments in Novem- its doors, they tried to borrow money
ber, 1860, and never after resumed, to continue the business. McAfee v.
'
paying out its own bills for the last Bland, 11 Ky. L. Rep. 1, 11 S. W. 439.
time in August, 1861, and after that 41. Sufficiency of evidence to show
date paying its debts only in Con- insolvency. The — fact that circum-
federate money, held, that the bank stances have made it a bank's duty to
failed at the time of the suspensions, abstain from receiving further deposits
in November, 1860. Godfrey v. Terry, ^nd making further payments; that it
97 U. S. 171, 24 L. Ed. 944. has suspended in justice to its deposi-
39. W., who owned a private bank, tors, creditors, and stockholders; and
drew a draft on such bank in July. that it is, for the present, unable to
In October he assigned, and in No- —
meet its cash liabilities establishes
vember the plaintiffs, as his assignees, legal insolvency. State v. Mechanics',
made a statement of his liabilities. etc.. Bank, 35 La. Ann. 562.
Held that this, with testimony that Evidence showed that an examina-
there were no losses between July and tion of the affairs of abank was made
November, and no extraordinary on August 2d, when the specie then
shrinkage in assets or increase of lia- on hand amounted to $9,754.92. Another
between the dates named, was
bilities examination was made on the 11th of
competent on the question of W.'s in- the same month, when it then had
solvency in July. Kling v. Irving Nat. only $138.89, and there was no corre-
Bank, 21 App. Div. 373, 47 N. Y. S. 528, sponding decrease in its liabilities; that
order affirmed in 160 N. Y. 698, 55 N. about $44,000 of all the bank's issues
E. 1096. were then in the hands of agents
40. Presumption of insolvency. The — without securities; and that of the as-
jury might infer that a banking cor- sets there were $5,000 in uncurrent
poration was insolvent when it sus- notes and about $25,000 in post notes,
pended, where the suspension was fol- which were issued on August 4th, with-
lowed in a few days by the appoint- out being indorsed by the bank com-
ment of a receiver, and subsequently missioner, as required by law. Held,
by a judgment of dissolution on the that the bank was insolvent, and that
ground of insolvency. Higgins v. such facts were sufficient for the ap-
Worthington, 12 App. Div. 361, 42 N. pointment of a receiver to close up
Y. S. 737. its business. Bank Comm'rs v. Bank
The alleged acts of insolvency of a (Mich.), 1 Har. 106.
bank consisted in payments made upon Evidence held to support a finding
the checks of its depositors at a time that a bank was solvent on January
when it was insolvent. Some of the 4, 1905, when
a check was drawn on
payments were made between the time it by aretiring county treasurer in
it closed its doors and the date of an favor of his siiccessor, and three days
assignment for the benefit of creditors. later, when the successor deposited the
Held that, although the presumption check with the bank and until after
was that such payments were made the adoption on May 3d by the board
by the firm with knowledge of its in- of supervisors of a resolution desig-
solvency, or in contemplation of it, nating the bank as a depository of
such presumption was overcome where county funds. Fremont County v.
the members testified that they be- Fremont County Bank, 145 Iowa 8, 123
lieved the firm to be solvent up to the N. W. 782.
time of assignment; that they used 42. As ground for forfeiture of char-
their individual means to pay deposi- ter, see post, "Set-Off by Depositor,"
tors; and that, after the bank had closed § 135.
§ 7Z (3b) INSOLVENCY AND DISSOLUTION. 499
not cease. They continue to use them as before ; not for themselves, or for
the use and benefit of the stockholders, but for the creditors of the corpora-
tion. After the insolvency of the corporation, although the legal ow^nership
of the assets may continue as before, the beneficial interest of the stock-
holders no longer exists, as a state of insolvency presupposes that the cap-
ital and assets are insufficient to meet the liabilities.*^ But the mere insol-
vency of a banking corporation viîll not work a dissolution,** nor convert its
effects into a trustfund for its creditors.*^ And money on deposit in a

bank, subject to check, becomes due without demand when the bank be-
comes insolvent.*®
A stock assessment levied before the insolvency of the bank but not
collected can not be enforced by the bank commissioners.*'^
§ 73 (3b) Transacting Business after Knowledge of Insolvency.*^

— By statute in many jurisdictions the officers of a bank are forbidden to
receive deposits or create any debts, after knowledge that it is insolvent and
in failing circumstances, and the plaintiff is only bound to prove to the sat-
isfaction of the jury that the bank was insolvent. Upon this showing, the
officers of the bank, to escape liability, must prove that they did not have
the knowledge the law imputes to them, and thus overcome the law, which
says they did know. The burden of proof of the want of knowledge of
insolvency is on the officer sued.*^ The rule seems to be well settled, that
43. General effect of insolvency could not be taken from them by the
Williams v. Patrons, 23 Mo. App. 132; majority, however large, and the at-
Roan V. Winn, 93 Mo. 503, 4 S. W. tempt of such a majority was beyond
736;Marr v. Bank, 44 Tenn. (4 Coldw.) the power of the corporation. Gresham
471. V. Island City Sav. Bank, 3 Tex. Civ.
The general authority of private App. 52, 21 S. W. 556; Island City Sav.
bankers' cashier to transact business Bank v. Sachtleben, 67 Tex. 430, 3 S.
for them ceased with their insolvency, W. 733.
and hence he could not validly deliver 45. Catlin v. Eagle Bank, 6 Conn,
a note for them. Casale v. Guion, 116 333.
N. Y. S. 294. 46. Thompson v. Union Trust Co.,
44. Insolvency does not vyork disso- Mich. 508, 90 N. W. 394, 97 Am.
130
lution. —The mere insolvency of a cor- .St. Rep. 494.
poration will not work a dissolution, 47. A stock assessment levied, but
nor will the assignment of all of its not collected, and not yet due, when
property, nor the appointment of a re- the adjudication of insolvency was
ceiver, extinguish the franchises with made under the bank commissioners'
which the company has been invested, act, was set aside by the adjudication;
where there have been no proceedings and the levy can not be enforced, as
for forfeiture inaugurated by the a call for the payment of unpaid sub-
state, nor a surrender by act of the scriptions, by the bank commissioners,
stockholders. Coburn v. Boston, etc., since the commissioners had no such
Mig. Co., 76 Mass. (10 Gray) 243; authority, nor could the directors act
Bickerhof v. Brown, 7 Johns. Ch., 217; as trustees under the statute before
State V. Butler, 86 Tenn. 614, 8 S. W. such adjudication was made. Bank v.
586. Johnson, 133 Cal. 185, 65 Pac. 383.
The existence of the corporation, 48. Criminal Responsibility, see ante,
with the powers conferred by its char- "Criminal Responsibility," § 60.
ter, continued, notwithstanding the in- 49. Transacting business after knowl-
solvency of the bank and its conse- —
edge of insolvency. St. Louis, etc., R.
quent suspension of business, and the Co. v. Johnston, 133 U. S. 566, 33 L.
legal rights of individual shareholders Ed. 683, 10 S. Ct. 390; Dodge v. Mas-
after a bank has suspended, it ought not to receive payments upon business
paper previously deposited with it for collection, in such a manner that the
money so received by it will pass into its general assets, and the owner of
tin (C. C), 17 Fed. 660, 5 McCrary that W. was entitled in equity to en-
404, (construing Missouri Constitu- join suit against himself by the re-
tion) ; Minton v. Stahlman, 96 Tenn. ceiver in a jurisdiction where G.'s as-
98, 34 S. W. 223. signee in insolvency, who held the dis-
Where one intrusts his money to a honored draft and refused to deliver
bank as a general deposit, makes no the same to W. or the receiver, could
inquiry as to its solvency, and is not in- not be made a party. Warner v. Arm-
duced to make the deposit as the re- strong, 31 Wkly. L. Bull, 124, 10 O.
sult of any statement made by the Dec. 426« affirmed in 49 O. St. 376,' 31
officers of the bank, such depositor is N. E. 877.
in no better position than any other Effect of fraud by bank inducing de-
person who deals with an insolvent positor to let fund remain on deposit.
under the impression that he is sol- — Where a depositor, who presented
vent. McGregor v. Battle, 128 Ga. his check for the payment of the bal-
577, 58 S. E. 38. ance of his deposit, was induced
Right to recover funds deposited through the fraudulent misrepresenta-
pending —
insolvency. Where it ap- tions of the bank as to its solvency to
pears that a bank has been insolvent let his money remain on deposit in
for a long time before the assignment, said bank, such deposit does not be-
to the knowledge of the directors ana come a trust fund in the hands of the
officers of the bank, it was a fraud on bank as trustee, but the relation of
the part of such officers to continue debtor and creditor still exist. Com-
to do business, and persons having in- mercial Bank v. Armstrong, 148 U. S.
trusted money to the bank may re- 50, 37 L. Ed. 363, 13 S. Ct. 533; Ven-
cover it back if it can be identified. ner v. Cox (Tenn.), 35 S. W. 769; Akin
But where the money can not be V. Jones, 93 Tenn. 353, 27 S. W. 669,
identified, but was mingled with 25 L. R. A. 523, 42 Am. St. Rep. 921.
the funds of the bank, they must take Discounting paper. — Act Feb. 13,
their chances with the other creditors 1843, for the final settlement of the af-
of the bank, unless the money came fairs of a certain bank, after declaring
into ,the hands of the bank impressed its charter forfeited for failure to pay
with a special trust, in which case the its debts, and providing for the exhi-
assignee will have to refund it out of bition of an information in the nature
any money of the bank in his hands. of a quo warranto by the solicitor
In re Assignment, 2 N. P. 170, 4 O. Dec. of the circuit court on the requisition
108; Jones v. Kilbreth, 49 O. St. 401, of the governor, and the appointment
31 N. E. 346; Mad River Nat. Bank of commissioners to take charge of its
;,. Melhorn, 8 O. C. C. 191, 4 O. C. D. effects, with power to sue, etc., pro-
401; In re Assignment, 1 N. P. 358, vides that it shall be lawful for said
2 O. Dec. 304. commissioners to submit to arbitration
Right to recover check given for contested claims, either those against
—
worthless draft. A few hours before or held by the bank, and "to com-
the Fidelity National Bank closed its pound any doubtful or bad debt," etc.
doors, and at a time when its officers Pamph. Acts 1845, p. 46, provides that
knew that it was hopelessly insol- the trustees may use the corporate
vent, and that no deposit made could name of said bank in the collection of
be withdrawn, G., acting as agent of debts due it, and may use all the
W., was allowed by said officers to de- modes and powers given to the bank
posit W.'s check on another bank to by its original charter, or any subse-
G.'s account in the Fidelity National quent act of the legislature, for the col-
Bank, and receive in exchange there- lection of its debts, in the same man-
for a draft of the Fidelity National ner as if the charter had never been
Bank on a New York Bank, where it forfeited. Held that, though the stat-
had no funds. It was held that W., as ute authorizes the bank to exert all
asainst the receiver of the Fidelity the powers conferred by the charter for
National Bank, was entitled to rescind the purpose of collecting its debts, it
the contract of deposit of the check for has no power to discount or purchase
fraud, and on the tender of the dis- a bill of exchange as a business trans-
honored draft was entitled to a de- action; and an averment, therefore, in
livery up of the check. Held, further. a plea in an action on a bill due the
the paper be placed in the position of one of its creditors, entitled only to
take his dividends and proceeds received after the bank becomes insolvent,
;
will be held in and may be recovered in fulL^**

trust,
—
On Right to Secure Future Advances. A banking corporation may
execute a mortgage to secure an antecedent indebtedness of the bank even
at a time when it is insolvent, provided it is not in the hands of a receiver. ^^
On Right of Directors to Withdraw Deposits. It seems that a di- —
rector of an insolvent banking corporation, with full knowledge that the
corporation is insolvent and must close its doors, can not withdraw his de-
posits from the bank.^^
§ 73 (3c) On the Venue of Suits against Bank. Another effect—

of insolvency is to confine suits against the bank to the court in which the
insolvency proceedings have been instituted. ^^
§ 73 (4) Rights of Correspondent Bank. —A correspondent bank,

indebted to an insolvent bank on open account, is entitled to apply the
bank, that such bill was acquired by their consent. Bank v. Puget Sound
the bank by discounting it, is sufficient Loan, etc., Co., 30 Wash. 636, 56 Pac.
prima facie to show that the transac- 395.
tion was unauthorized. Saltmarsh v. 52. 'In an obiter dictum in Lamb v.
Planters', etc., Bank, 14 Ala. 668.
Laughlin, 25 W. Va. 300, the court
50. Jones v. Kilbreth, 49 O. St. 401,
after an exhaustive review of many
31 N. E. 346, citing Morse Bk., § 348a. cases, laid down the rule that the di-
—
Right to recover interest. Where a rectors of an insolvent banking cor-
bank known by its officers to be in- poration sustained a fiduciary relation
solvent collected money for a cus-
to the creditors, and therefore, when
tomer and mingled the same with its the directors and depositors know the
own funds which, to an amount larger bank is hopelessly insolvent, they may
than the sum received, passed to the not make a rush for their deposits and
bank's receiver in insolvency, the cus- delay the closing of the doors of the
tomer, though unable to trace the bank until they have made themselves
identical money into the receiver's safe.
hands, was entitled to recover from
the receiver an amount equal to that
InLamb v. Laughlin, S5 W. Va. 300,
collected but without interest, the gen- a director of a banking corporation,
eral creditors of the bank not being
knowing the institution to be insolvent,
responsible for the receiver's error of availed himself of his superior knowl-
judgment in refusing to pay the claim edge as director and withdrew all the
deposits of the firm of which he was
on demand. Butler v. Western Ger-
man Bank, 86 C. C. A. 306, 159 Fed. a member. The court, without decid-
116.
ing the point, was of the opinion that
51. Mortgage to creditor to secure such assets constituted a trust fund
advances. — Creditors and stockhold- for the creditors of the bank and
ought to have been permitted to re-
ers of a bank in the hands of a re-
ceiver made an agreement for the remain in the bank for the creditors
sumption of business by it. To obtain generally; and that the defendant be-
funds to make a part payment to the ing a director and trustee for the cred-
creditors, a loan was obtained from
itors should be compelled to make
one of the creditors, and a mortgage good the amount himself.
given to him to secure his pre-existing 53. Venue of suits against bank aftei
claim. Held that, on an issue of the dissolution. —A bank in liquidation,
validity of the mortgage as against under Act 1843, No. 98, § 8, can not be
the other creditors, the question of sued before any other court than that
the bank's insolvency at the time of . before which it is liquidated. New
its execution was immaterial, since Orleans Imp. Co. v, Citizens' Bank
the receiver had been discharged with (La.), 10 Rob. 14.
amount thereof on an indebtedness due to the correspondent bank from the

insolvent bank.^* «
§ 73 (5) Insolvency of Foreign Banks. —The insolvency and dis-

solution of a foreign bank has no extraterritorial operation so as to affect the
rights of domestic creditors. ^^
§ 74. Transfers and Preferences Affected by Insolvencys® —§ 74

( 1 ) In General. —A
banking corporation in failing circumstances may as-
sign its property to trustees for the benefit of preferred creditors, or of all
the creditors equally, unless restrained by some express provision in its act
of incorporation. 5T But by statute in most jurisdictions banks are now for-
bidden to make conveyances when insolvent or in contemplation of insol-
vency, with a view to prefer one creditor to another, and such transaction
is void and may be set aside by the receiver,^* unless the conveyance was
Rights of correspondent bank.

54. — ing 21 Hun 166.
The bank, having a sufficient de-
S. A
creditor of an insolvent foreign
posit the B. bank for that purpose,
in bank may sue and obtain judgment
directed the B. bank to remit a sum of against it for the amount of his claim
money to the N. bank to cover an and enforce the same against any
overdraft in the S. bank's deposit ac- property in the state which would have
count. The B. bank sent a draft on belonged to it had it not gone into
the M. bank to the N. bank, and the liquidation. State Bank v. Corwith,
draft was credited on the deposit ac- 6 Wis. 551.
count of the S. bank. The S. bank 56.Preferential assignments for
having failed after the transmission of benefit of creditors, see post, "Col-
the draft, the B. bank, being fearful lateral Security," § 179.
that collateral security, held by it for Preferences allowable in absence
57.
a loan to the S. bank, would prove in- of statute. —
State v. Bank (Md.), 6
sufficient, requested the N. bank to re- Gill &
J. 205, 36 Am. Dec. 561.
turn the draft, with which request the An incorporated bank, not being a
N. bank complied, but immediately person capable of taking the benefit of
sent its agent to the B. bank, and se- the insolvent laws of the state of
cured a redelivery of the draft on the Maryland, is not within, or affected
giving of an indemnity bond. Held, by, Acts 1812, c. 77, § 1, and Acts 1816,
that the duty of the S. bank to main- c. 221, § 6, which provide that deeds,
tain the credit side of its deposit ac- etc., made to a creditor or security
count in the N. bank was a sufficient "with a view or under expectation of
consideration for its direction to the becoming an insolvent debtor," and
B. bank, and, that the bank having no with intent thereby to give undue
authority to recall the draft, the sur- preference to such creditor, shall be
render of the draft by the N. bank did void. State v.. Bank (Md.), 6 Gill & J.
not affect its rights as against the S. 205, 26 Am. Dec. 561.
bank, and therefore the receiver of the 58. Preferences by banks generally
S. bank was not entitled to credit for forbidden by statute.- Robinson v. —
that part of the fund represented by Aird, 43 Fla. 30, 29 So. 633; Hill v.
the draft as was necessary to satisfy Western, etc., R. Co., 86 Ga. 284, 12
the overdraft in the N. bank. Brown S. E. 635; v. Ingram, 107 Ga.
Clarke
i: Sheldon State Bank, 139 Iowa 83, 565, 33 S.802; Booth v. Atlanta
E.
117 N. W. 289. Clearing-House Ass'n, 133 Ga. 100, 63
55. Insolvency of foreign banks. — S. E. 907; Roan v. Winn, 93 Mo. 503,
The appointment of commissioners 4 S. W. 736; Gillet v. Moody, 3 N. Y.
under the law of Louisiana, to admin- 479; Leavitt v. Blatchford, 17 N. Y.
ister the assets of the M. bank, a 521; Robinson v. Bank, 21 N. Y. 406;
Louisiana institution, in liquidation, Leavitt V. Tylee (N. Y.), 1 Sandf. Ch.
does not defeat the riarhts acquired by 207.
plaintiff under attachment in this Construction of term "effects." —
state. Hibernia Nat. Bank v. Lacombe, The term "effects" as used in the stat-
84 N. Y. 367, 38 Am. Rep. 518, affirm- ute of 1833 prohibiting insolvent banks
to a bona fide purchaser without notice of the insolvency.^^ And any ad-
vantages given to directors or officers of the bank are particularly obnoxious
from making preferences is construed answer setting up con-

Sufficiency of
to include atransfer of money and veyance. — In asuit on a note and
promissory notes or other securities. mortgage executed to a bank, and by
Hill V. Western, etc., R. Co., 86 Ga. it assigned to plaintiff, an answer al-
284, 13 S. E. 635. leging that the assignor is "a bank of
Transfer of collaterals. Where a— deposit and^ discount organized under
bank, by the assignment and transfer the laws of the state of Indiana," and
to plaintiff of a note in suit, was sim- that it assigned the mortgage after it
ply performing that which it had and plaintiff knew it to be insolvent,
agreed and obligated itself to do in is not demurrable as failing to show
order to induce plaintiff in the first that the bank is within the provisions
instance to loan it the money, and the of Rev. St., § 3697, declaring that as-
promise or agreement to assign the signments and transfers of evidences
notes as collateral was made before of indebtedness by such banks when
plaintiff had actually become a creditor insolvent, with a view to prefer a
of the bank, the action of the latter in creditor, shall be void, since the pre-
assigning" and transferring the col- sumption is that it was organized
laterals to plaintiff in no sense resulted —
under that statute the only general
in an unlawful preference within statute of the state relating to banks.
Burns' Rev. St. 1894, § 2934 (Horner's Brighton v. White, 138 Ind. 330, 27
Rev. St. 1897, § 3697), though the bank N. E. 620.
was insolvent at the time ithe col- Acts 1882, c. 409, §§ 186, 187, declare
laterals were assigned. Harris v. Ran- that no conveyance of the effects of
dolph County Bank, 157 Ind. 130, 60 a bank exceeding in value $1,000, ex-
N. E. 1025. cept in the ordinary course of busi-
—
Pledge of collaterals. A bank, after ness, shall be valid unless previously
insolvency, borrowed money from authorized by resolution of the direct-
plaintiff with which to resume busi- ors, and that no conveyance or trans-
ness, and pledged collaterals to se- fer given in contemplation of insol-
cure the loan. On
its maturity the vency shall be valid. A
bank cashier,
bank was again an insolvent con-
in knowing that the bank was insolvent
dition, and, in order to secure an ex- and was to suspend business the next
tension of the loan, paid a small por- day, gave a depositor drafts belonging
tion, and pledged further collaterals, to to the bank amounting in the aggre-
secure it, at which time plaintiff had gate to more than $1,000. Held, in an
knowledge, or at least constructive action by the bank's receiver against
notice, that the bank was insolvent. the transferee, that defendant might
Held, that such pledge was a prefer- show that he had brought suit on the
ence to plaintiff by an insolvent corpo- draft, and that a valid defense had
ration, and void as in fraud of credit- been interposed. Atkinson v. Roches-
ors. Burrell v. Bennett, 30 Wash. 644, ter Printing Co., 43 Hun 167, 5 N. Y.
56 Pac. 375. St. Rep. 470.
Payment of depositor's check Setting aside conveyance. Code, —
Payment by a bank known by its § 4439, provides that all conveyances,
managing officers and agents to be in- etc., made by any bank in contempla-
solvent, but continuing in business, of tion of insolvency, or after insolvency,
the check of a depositor wholly igno- shall, unless made to an innocent pur-
rant of its financial condition, is not chaser for a valuable consideration,
within the meaning of the provision of and without knowledge or notice of
1 Rev. St. 603, § 4, declaring it unlaw- the condition of the bank, be fraudu-
ful for any incorporated company to lent and void; and that the officers of
make any transfer or assignment the bank making or consenting to such
in contemplation of its insolvency. a conveyance shall be guilty of a mis-
Dutcher v. Importers', etc., Nat. Bank, demeanor. Held, that an action to set
69 N. Y. 5. aside such a conveyance will lie, with-
Effect of conveyance. When — the out first prosecuting the officers of the
statute declares void an assignment of bank consenting to the fraudulent con-
evidence of debt by an insolvent bank, veyance. Hill V. Western, etc., R. Co.,
the assignee of such bank of a note and 86 Ga. 384, 13 S. E. 635.
mortgage acquires no title, and can 59. Rights of bona fide purchasers. —
not sq£ thereon. Brighton v. White, A conveyance by an insolvent bank,
138 Ind. 330, 27 N. E. 620. not made for the benefit of all its
to this statutory prohibition. All such moneys and securities must be

promptly refunded or surrendered.^ ° But to bring a case within the pro-
creditors and stockholders, to ont solvent condition, is considered a bona

who, at the time of receiving the in- fide purchaser under
the statute of
strument, was chargeable with notice 1833 prohibiting preferences. Hill v.
of the bank's insolvency, though he Western, etc., R. Co., 86 Ga. 284, 12
had no actual knowledge, is void, S. E. 635.
under Civ. Code, § 1979, providing that "Under our statute. Civil Code, p.
all conveyances by a bank in contem- 1979, 'it would seem that if the de-
plation of insolvency, or after insol- positor, although paid not in the usual
vency, except for the benefit of all course of business, was ignorant of the
creditors and stockholders, shall be insolvency and of the intent of th^
void, unless made to an innocent pur- bank to prefer him, he would be pro-
chaser for value, without notice or tected and not required to refund..
knowledge of the condition of the However, it would seem, under some
bank. Clarke v. Ingram, 107 Ga. 565, circumstances, that payment out of
33 S. E. 80S. the usual course of business would be
Under the proviso in Act April 15, a circumstance to be given great
1846, § 2, a transfer of notes or prop- weight in determining whether thert
erty by a bank prior to suspension for was notice; as a payment made with
a valuable consideration to a bona fide a view of giving a preference to a
purchaser without knowledge or notice particular creditor is rarely, if ever,
of the insolvency, is valid. Kinsela v. made in the usual course of business.' "
Cataract City Bank, 18 N. J. Eq. 158. McGregor v. Battle, 128 Ga. 577, 58
An associate who took no part in S. E. 2-8.
the transactions of the bank, after he 60. Preferences to directors. di- —A
had signed the certificate for organiza- rector of and depositor in a bank,
tion required by the sixteenth section knowing it probably was insol-
that
of the banking Act of February 27, vent, obtained from the cashier bank
1850, can not be charged, as a director securities equal to the amount of the
or manager, with implied notice of deposit. Held, that he must surrender
the bank's insolvency; and therefore them for the benefit of depositors and
a bona fide assignment to him for a creditors generally. Lamb v. Cecil, 28
valuable consideration is valid, in the W. Va. 653.
absence of actual knowledge of in- An arrangement between the cash-
solvency. Kinsela v. Cataract City ier an insolvent bank and one of
of
Bank, 18 N. J. Eq. 158. its creditors having knowledge of its
But in New York, the invalidity of a insolvency, whereby a check is to be
transfer by an insolvent bank does not paid, not in the ordinary course of
depend upon the knowledge of the business, but is to be held by the cash-
transferee, but upon the fact of insol- ier until the deposits are sufficient to
vency. Dutcher v. Importers', etc., pay it, whereupon the money is laid
Nat. Bank, 59 N. Y. 5. aside for the creditor, is fraudulent,
Knowledge as matter of law. — and the creditor will be compelled by
Where a bank had been insolvent for a court of equity to refund the money.
several years, and it is shown without Lamb V. Cecil, 25 W. Va. 288.
contradiction that at the time pay- A
bank which had been insolvent for
ments were made to its president and several years paid its president's check
directors, or the way thereafter, it be- for a large amount, and retired its
came hopelessly insolvent, such pay- note, without demand, on which its
ments, when attacked as unlawful officers were indorsers, and the day
preferences, can not be defended on thereafter was hopelessly insolvent on
the ground that such president and account of such payments. Its disso-
directors had no knowledge of the in- lution was decreed, and receivers were
solvency, since such knowledge is im- appointed under the insolvent law, § 22
puted to them by law. James Clark v. of which prohibits preferences made
Colton, 91 Md. 195, 49 L. R. A. 698, either in actual or contemplated insol-
46 Atl. 386. vency. Held that, though the bank
—
Bona fide purchasers. A depositor was a going concern at the time of the
or other bona fide creditor who draws payments, they were unlawful prefer-
his check upon an insolvent bank or ences, and acts of insolvency, and such
one contemplating insolvency, or who payments when the officers must have
receives effects therefrom withoui known condition were a fraud
its au( on
notice of or reason to suspect its in- other creditors for whom the "fficers
visions of these statutes, there must be not only an act or a contemplation

of insolvency and a payment resulting in a preference, but the payment must
be made with a view to create the preference.''^
In a few jurisdictions, however, such preferences are upheld on the
ground that the mere insolvency of a bank, incorporated with the usual
powers of such an institution, does not convert its effects into a trust fund
for its creditors. 82
In New York a transfer in excess of a certain amount is expressly for-

bidden unless authorized by the board of directors.''^
held its property in trust, and recover- less contingent liability of the
such
able by such receivers. James Clark bank as guarantor was likely to be-
Co. V. Colton, 91 Md. 195, 49 L. R. A. come absolute, it could not be con-
698, 46 A. 386. sidered a liability in determining sol-
The president of a corporation, who vency or insolvency. Booth v. Atlanta
was also a director of a bank, obtained Clearing House Ass'n, 132 Ga. 100, 63
knowledge, as director, that the bank S. E. 907.
was insolvent and would close the next 62. Preferences upheld in some
day. He thereupon executed a check states. — Catlin v. Eagle Bank, 6 Conn.
for the corporation's deposit in the 233.
bank, and caused it to be collected The fact that the board' of directors
through the clearing house from the of a bank had resolved to go into liq-
insolvent's funds which he knew were uidation does not render invalid an
in the possession of the bank through agreement afterwards made by which
it preferred a certain creditor. Merced
which the insolvent cleared. Held, •
that the transaction was an attempt Bank v. Ivett, 127 Cal. 134, 59 Pac. 393.
by the bank to transfer its assets "by" 63. New York rule.— The General
one of its officers with intent to prefer Banking Act (Laws
1883, c. 409),
a creditor, prohibited by Stock Corpo- § 186, provides that no transfer of its
ration Law, § 48, and hence that the effects to an amount exceeding $1,000
receivers of the bank were entitled to by any corporation contemplated by
recover the amount of the check from the act shall be made unless authorized
the corporation. O'Brien v. East by a previous resolution of its board
River Bridge Co., 36 App. Div. 17, 55 of directors. Section 187 provides that
N. Y. S. 206. no transfer, etc., made in contempla-
tion of insolvency, with the intention
61. Stone V. Jenison, 111 Mich. 592,
of preferring any particular creditor,
70 N. W. 149, 36 L. R. A. 675.
shall be valid. Two days after the re-
Transfers to clearing house. Where — ceiver of an insolvent bank was ap-
a bank executed its notes to a clearing pointed, the cashier, unauthorized by
house association in return for clear- resolution of the directors, transferred
ing house certificates and deposited securities of the bank to secure certain
collateral to secure payment, no such creditors. Held, that such transfer
preference was created as is inhibited was void, and it is immaterial that ar-
by Civ. Code, 1895, § 1979, making any rangements therefor had been made
transfer in contemplation of insol- several days before the receiver was
vency, except for benefit of creditors, appointed. Bradner v. Woodruff, 52
fraudulent and void, unless made to Hun 214, 5 N. Y. S. 207, 23 N. Y. St.
an innocent purchaser for value with- Rep. 365.
out notice of the condition of the bank. Where the cashier of an insolvent
Booth V. Atlanta Clearing House bank transfers to a depositor securities
Ass'n, 132 Ga. 100, 63 S. E. 907. of the bank exceeding in value $1,000
The fact that a clearing house asso- in payment of the deposit, the trans-
ciation knew that a bank had guar- action not being in the usual course of
anteed the whole amount of clearing business, and for a valuable considera-
house certificates issued, and that the tion, the transfer is illegal, without re-
amount of its guaranty exceeded all of gard to defendant's intent or knowl-
its resources, was not in itself suffi- edge that the bank was insolvent. At-
cient to charge it with actual knowl- kinson V. Rochester Printing Co., 114
edge of insolvency, for such liabilitj N. Y. 168, 21 N. E. 178, affirming 43
would at most be contingent, and, un- Hun 167.
Duty of Transferee. —A transferee of the assets of a bank at the time

insolvent will be required to deliver them up the to receiver.^*
Knowledge of Insolvency. — And regard
wîth to the question whether
the transferee had knowledge of the bank's insolvency the rule is that what-
ever is sufficient to put a person on inquiry is notice. Rumors of insolvency
may be sufficient when brought home to the party to be charged, and per-
sonal knowledge of the insolvency of the bank is not required. ^^
Unincorporated Banks. —An unincorporated bank is not a de facto
corporation, and its president, who is its sole owner, may transfer any of
its property to secure a bona fide creditor.^^
64. Duty of depositor to refund. — must give way to the claims of a cred-
The defendant was a depositor in a itor when a court of equity is asked
savings bank, and purchased of the by him to avoid them. Roan v. Winn,
bank, through its president, a bond 93 Mo. 503, 4 S. W. 736.
and mortgage, the defendant paying Sufficiency of evidence. — About two
for said bond and mortgage partly in hours before the making of a deed of
cash and partly by being debited on assignment for the benefit of creditors
the books of the bank with the amount by an insolvent bank, the cashier gave
of his deposit. At the time of the orders for the transfer of moneys be-
purchase and transfer the bank was in- longing to the bank to defendant bank.
solvent, but the purchaser had no This was done without any under-
knowledge of the insolvency. Held, standing with defendant. About an
that the defendant should assign the hour afterwards and before the assign-
bond and mortgage to the receiver of ment, the cashier transferred to de-
the bank on having returned to him fendant's president in person certain
the amount of his cash payment, with notes, and the latter was then informea
interest, and being reinstated as a of the proposed assignment. The cash-
creditor upon the books of the bank ier testified that he considered the
in the amount of his deposit. French bank solvent at this time, and the con-
O'Brien (N. Y.), 58 How. Prac. 394. sideration of these transfers was in-
z'.
Duty of stockholder to refund. — debtedness of the insolvent bank to de-

Where stockholders in a bank sold fendant, but the cashier could not give
their stock to an ofBcer thereof at a the exact amount of the debt, nor re-
time when the bank was insolvent and member whether any balance was
they anticipated its suspension, and struck. Held, that the evidence was
the funds used to pay for the stock be- sufficient to take the case to the jury
longed to the bank, and were withdrawn on the question of whether such trans-
to prevent such funds being appro- fers to defendant were within the in-
priated to the payment of creditors, hibition of Code, § 4429, providing that
the amount so paid for the stock was all conveyances of effects made by any
recoverable by the receiver of the bank bank in contemplation of insolvency,
for the benefit of creditors, Kirby's or after insolvency, except for the
Dig., § 861, providing that, if the benefit of all the creditors, shall, un-
capital stock of anv corporation be re- less made to an innocent purchaser for
funded to the stockholders before the a valuable consideration, and without
payment of the corporation's debts, the notice of the condition of the bank, be
stockholders shall be liable to the ^'oid. Hill 7'. Western, etc., R. Co.. 86
amount so refunded, and § 6348, pro- Ga. 284, IS S. E. 635.
viding that a receiver for a corpora- 66. Longfellow v. Barnard, 58 Neb.
tion shall have the right to collect 612, 79 N. W.
255, 76 Am. St. Rep.
debts, preserve the assets for the 117, affirmed on rehearing in 59 Neb.
benefit of creditors, and that he may 4o.i. 81 N. 307. W.
sue in his own name for such pur- When a bank is unincorporated, and
pose. Corn V. Skillern, 75 Ark. 148, is owned
exclusively by a private indi-
87 S. W. 142. vidual, although the business is con-
65. If a bank was actually insolvent ducted by a president and cashier, the
at the time it conveyed land to a di- assets of the bank represent merely
rector and stockholder in exchange the portion of the owrter's capital in-
for stock, and the grantor had knowl- vested in banking, and he may lawfully
edge of such insolvency, the deeds dispose of them to pay or secure the
§ 74 (2) Right of Directors to Prefer Themselves. — In those ju-

risdictions in which directors of a bank are regarded as trustees, transac-
tions whereby directors prefer themselves to other creditors will not be
upheld.8'^ But in others this trust relation is repudiated, and preferences
may be made in their own favor provided they act in good faith. "^
§ 74 (3) Payments to Depositors. —Where a bank, though insolvent,

is still conducting its business and pays a check of a depositor in the usual
course of business, and the depositor has no notice of the insolvency of the
bank, the payment is good, and the depositor will be protected.^® But if
just claims of any of his creditors. closed the doors of the institution.
Longfellow V. Barnard, 58 Neb. 613, 76 Under these circumstances he had no
Am. St. Rep. 117, affirmed on rehear- right to draw his money and thus pre-
ing in 79 N. W. 355, 59 Neb. 455, 81 fer himself to the other creditors, for
N. W. 307. whom he was acting as trustee. To
67. Right of directors to prefer do so was a gross breach of trust and
themselves. Lamb— v. Laughlin, 25 W. was also fraud; and in my opinion the
Va. 300; Trustees v. Bosseiux, 3 Fed. decree of the circuit court ought to
817. be affirmed." Lamb v. Laughlin, 35 W.
The assets of an insolvent bank be- Va. 300.
come a trust fund to be managed by 68. Directors of a bank are bound to
the directors for the benefit of the discharge their duties prudently, dili-
creditors, and thereafter the directors gently, and faithfully, and apply the
can not, in equity, secure any ad- assets, in case of insolvency, for the
vantage to themselves. Roan v. Winn, benefit of creditors in preference to
93 Mo 503, 4 S. W. 736. stockholders and other persons. But
When the directors of a banking they are not technically trustees nor
corporation ascertain that it is hope- bound to apply the assets rateably
lessly insolvent, so that individually among the general creditors. They
they are unwilling longer to aid it, may not only make preferences be-
their manifest duty is to close its tween creditors, but such preferences
doors at once; for continuing to do may be made in their own favor if
business then (as receiving deposits) they be creditors. But in such cases
is a fraud upon the public, and they they must act with the utmost good
should not receive any more deposits faith. Planters' Bank v. Whittle, 78
nor pay any more checks, but should Va. 737.
proceed to execute their trust, either 69.
Gregor
Payments to depositors.^ Mc-
138 Ga. 577, 58 S.
—
by making a general assignment for V. Battle,
the benefit of creditors, or by paying E. 28.
pro rata the debts of the corporation. Moneypaid by a bank to a depositor
"Whether the board of directors could in the usual course of business while
then under peculiar circumstances the bank is a going concern, although
make preference of creditors, as was in fact insolvent, is not impressed
done in Burr v. McDonald, 44 Va. (3 with a trust in favor of other cred-
Gratt.) 215, it is unnecessary to de- itors, where the depositor did not
cide in this case. But the directors know the fact of insolvency, and was
had no right occupying the fiduciary assured by the officers that the bank
relation to creditors
the generally, had money to pay all depositors, even
which they to keep the doors of
did, though he was induced to withdraw
the Wheeling Savings Institution the money by rumors of its embar-
open, until they could get out their de- rassment. Livingstain v. Columbian,
posits, and all the time from February etc., Trust Co., 81 S. C. 244, 62 S. E.
21, 1871, until the twenty-fifth of the 249. 22 L. R. A., N. S., 445.
said month, luring depositors to give Payments depositor during a
to a
credit to the insolvent concern, while run on a bank, and after the cashier
some of them at least, including the has persuaded some persons not to
defendant in this cause, were receiv- withdraw their deposits, but when the
ing their money from deposits thus im- bank has assets sufficient so that its
properly received. Before Laughlin officers hope and expect to continue
received his money, the directors under business and be able to pay all the
the evidence in this cause should have debts- of the bank, are not made with
there is any attempt to prefer a depositor to other creditors of the bank he

refund the payment, in accordance with the well-settled
will be compelled to
general rule which requires the assets of an insolvent corporation to be
distributed ratably among all/" and it follows a fortiori that a court of
equity will not aid him to enforce his unfair advantaged ^ Even a recovery
in a separate suit against the common assets will not give the creditor a
preference over the others in their final distribution J ^
§ 74 (4) Who Is Entitled as a Preferred Creditor. One who is —

induced by the officers of an insolvent bank through fraud and misrepre-
sentation to furnish securities to the institution to tide it over its period of
distress, is entitled to recover from the receiver as a preferred creditor J*
a view to prevent the application of A depositor whose account was over-

the assets of the bank in the manner drawn paid the balance to the bank's
prescribed by statute, or with a view receiver.Afterwards the receiver dis-
to the preference of that depositoi covered that such depositor, at the
over other creditors; within the meantime the bank become insolvent, had
ing of 3 How. St., § 3308e6. Stone v. a deposit, and that the cashier had
Jenison, 111 Mich. 592, 36 L. R. A. fraudulently delivered to him certain
675, 70 N. W. 149. bills of the bank, for the amount of
For three days there was a slight which he drew a check, giving it a
run on a bank, which suspended on the prior date, which check slightly over-
third day at 3 p. m. The cashier be- drew his account. The receiver then
lieved the bank had sufficient assets brought action to recover these bills.
to pay all depositors could it avoid Held, that the payment of the over-
suspension, and in the forenoon of the draft to the receiver was not a settle-
third day paid defendant his deposit. ment which would relieve the depos-
He testified that in making payments itor from liability to account for the
he acted to protect the bank, and not unlawful preference. Atkinson v.
with a view to making preferences. Rochester Printing Co., 114 N. Y. 168,
During the run, and before the pay- 21 N. E. 178.
ment to defendant, he had persuaded 71. An insolvent bank drew a draft
some depositors not to withdraw, in to pay a depositor on a bank in which
one instance giving as a reason for it had as a deposit the proceeds of a
the request the closeness of the money note secured by collateral; the note
market. Held, that a receiver of the providing that, in case of insolvency
bank could not recover the amount so of the maker bank, it should become
paid defendant, on the ground that it due at once, and the note could be
was a payment after an act of insol- charged to the account of the bank and
vency, or in contemplation thereof, the collateral sold. On notice of the
with a view to giving a preference (b insolvency of the maker, the drawee
How. Ann. St., § 320Se6)— Grant, )., bank so charged the note, but refused
holding that there was no act of in- to pay the draft, and turned over the
solvency; Moore and Hooker, JJ., collateral to the receiver of the insol-
holding (Long, C. J., and Montgomery, vent bank. Held, that the holder of the
J., dissenting) that there was no evi- draft was not entitled to be subro-
dence that the payment was made with gated to the rights of the drawee bank
a view to create a preference. Stone in the collateral as against general
V. Jenison, 111 Mich. 592, 36 L. R. A. creditors of the drawer bank. Living-
675, 70 N. W. 149. stain V. Columbian, etc.. Trust Co., 77
70. Where the depositor of an in- S. C. 305, 57 S. E. 182, 122 Am. St. Rep.
solvent bank is paid, not in the usual 568, 5 L. R. A., N. S., 442.
course of business and with knowledge 72. Leipold v. Maroney, 75 Tenn. (7
that the bank is insolvent and of the Lea) 128.
intent to prefer him, the payment is 73. Who is entitled to claim as a
not good, and such depositor is liable
for the difference between the amount
—
preferred creditor. A woman engaged
to marry the cashier of an insolvent
so received and his share of the assets bank, who is told by him that the bank
of the bank. McGregor v. Battle, 128 is in trouble ?.nd needs money or se-
Ga. 577, 58 S. E. 28. curities immediately, and is induced by
§ 75 (1) INSOLVENCY AND DISSOI<UTION. 509
§ 74 (5) Transfers to Pledgees. —

The officers of a bank in process
of liquidation may, with the knowledge and acquiescence of the bank com-
missioners, make an absolute assignment of pledged securities to a pledgee,
in a final settlement of the bank's transactions with such pledgee.'^*
§ 74 (6) Transfer after Appointment of Receiver, A transfer — of

assets made after an order of court appointing a receiver is void J ^
§ 74 (7) Purchase of Its Own Stock by a Bank. —If a banking

corporation, at the time of purchasing its own shares of stock, is in an in-
solvent condition, the transaction can not be sustained as to creditors, and
the selling stockholder who thus receives a portion of the capital holds the
same subject to the superior equities of creditors.''®
§ 75. Rights of Persons Making Deposits after Insolvency —§ 75

{1) In General.
'''
—A bank should not continue business when it is known
him to furnish securities for a loan to stockholders to secure him against a
the bank, but is no.t told that the liability previously incurred by him on
bank's capital is gone, and more, as a account of the bank, made after an or-
result of defalcations by the cashier der of the court appointing a receiver
and others, is entitled to recover from on motion, of which motion the presi-
the receiver, as a preferred creditor, dent had received notice, is a fraud
the amount of the loan paid by her to upon the court, and is therefore void,
-save her securities. Hallett v. Fish, independent of the statute. Leavitt v.
120 Fed. 986. Tylee (N. Y.), 1 Sandf. Ch. 207.
Evidence in an action by one furnish- 76. Right of bank to purchase its
ing aid to an insolvent bank (being in- —
own stock. A solvent stockholder of
duced thereto by its cashier) to re- an insolvent bank delivered to it his
cover from the receiver, as a preferred shares of stock in consideration that
creditor, considered, and held to shovif his note held by the bank, secured by
that the aid was furnished to the cash- his stock as collateral, be credited with
ier in his official capacity, as represent- an amount considered by him and the
ative of the bank, and not as an indi- president of the bank as a fair valua-
vidual. Hallett V. Fish, 120 Fed. 986. tion of the stock. At the time both the
stockholder and the president thought
74. Preferential transfers to pledgees.
the bank solvent, and the shares were
—Merced Bank v. Price (Cal.), 98 Pac. held by the bank until it made an as-
383.
Where a note and mortgage pledged signment for the benefit of the credit-
ors within a month or two thereafter.
by a bank were assigned to the pledgee
Held, that the stockholder received the
while the bank wa& in liquidation, the
credit subject to the superior equity of
mortgagor, even if a general creditor
creditors of the bank, and that the credit
of the bank, could not attack the as-
signment in an action to foreclose the
would be canceled at the instance of
a receiver for the bank, and the stock-
mortgage. Merced Bank v. Price
holder decreed to hold the amount of
(Cal), 98 Pac. 383.
such credit in trust for the creditors.
In an action, by the pledgee from a Fitzpatrick v. McGregor, 133 Ga. 333,
bank of a note and mortgage, to fore- 65 S. E. 859. See ante, "Reduction of
close the mortgage, evidence held to Capital Stock," § 38.
show that an absolute assignment of 77. Receiving deposits after insol-
the pledge by the bank to the pledgee, vency, civil liability of officers, see
made in settlement of the bank's debt post,^ "Criminal Prosecutions," § 204.
to the pledgee, and while the bank was Criminal liability, see post, "Pen-
in liquidation under the bank commis- alties for Failure to Pay, " § 210; "Lia-
sioners, was not fraudulent as against bility of Stockholders or Officers,"
§
the bank's creditors. Merced Bank v. 211. Right of deposit or to preference,
Price (Cal.), 98 Pac. 383. see post, "Issue and Payment of
75. Validity of transfer after appoint- Drafts," § 189; "Letters of Credit." §
—
ment of receiver. A transfer of assets 191.
by an insolvent bank to one of its Imputation to bank of cashier's
to its officers to be insolvent, and more especially is this true as to depositors,

because the relation between a bank and its customers is such that great
confidence is asked and reposed. Accordingly it is held to be a fraud for
the bank to receive deposits from an innocent depositor, ignorant of the
bank's condition f* when it is known by its officers to be insolvent at the
knowledge of insolvency, see post, "In It is a fraud on a depositor for a

Respect to Deposits," 116 (3).
§ bank to permit a depositor, in reliance
Enforcement of liability of stock- upon the supposed solvency of the
holders, see ante, "Actions and Pro- bank, to make deposits after it has be-
ceedings to Enforce," § 49. come irretrievably insolvent, and such
Of national banks, see post, "Assets insolvency is known to the bank or
and Receivers on Insolvency," § 287. its agent,*and, upon the discovery of
Criminal responsibility of officers, the fraud, the depositor may rescind
see ante, "Criminal Responsibility," the contract, reclaim the check or
§ 60. draft, unless it has come into posses-
78. Receiving deposits by bank af- sion of a bona fide holder for value.
ter knowledge of insolvency. Peck v. — National Citizens' Bank v. Howard (N.
First Nat. Bank, 43 Fed. 357; Wasson Y.), 3 How. Prac, N. S., 511.
V. Hawkins, 59 Fed. 233; Philadelphia Checks deposited for collection. —
V. Aldrich, 98 Fed. 487; Richardson v. Checks and drafts delivered by a de-
Xew Orleans Debenture Redemption positor to a bank for collection and
Co., 42 C. C. A. 619, 102 Fed. 780, 52 (ieposit at a time when the bank was
L. R. A. 67; St. Louis, etc., Co. v. insolvent, and known to be so by its
Johnston, 133 U. S. 566, 33 L. Ed. 683, officers, and which had not been col-
jO S. Ct. 390; American Trust, etc., lected when the bank closed its doors,
Bank v. Gueder, etc., Mfg. Co., 150 111. remain the property of the depositor,
336, 37 N. E. 227; see Fisse v. Diet- although they were indorsed to the
rich, 3 Mo. App. 584; Higgins v. Hay- bank without qualification, and on their
den, 53 Neb. 61, 73 N. W. 280; Perth subsequent collection by the receiver
Amboy Gaslight Co. v. Middlesex the proceeds may be recovered from
County Bank, 60 N. J. Eq. 84, 45 Atl. him by the depositor. Richardson v.
704; Anonymous, 67 N. Y. 598; Wil- New Orleans Coffee Co., 43 C. C. A.
liams V. Van Norden Trust Co., 104 583, 102 Fed. 785.
App. Div. 251, 93 N. Y. S. 821; Where a debtor tenders a bank a
Cragie v. Hadley, 99 N. Y. 131, 1 N. E. draft inexcess of his debt, and re-
537, 52 Am. Rep. 9; Grant v. Walsh, quests that the balance be placed to-
145 N. Y. 502, 40 N. E. 209, 45 Am. his credit, which the bank does, with-
St. Rep. 626; In re Assignment, 1 out disclosing its insolvency, it ac-
N. P. 358, 2 O. Dec. 304; Warner v. quires no title, since it could not re-
Armstrong, 21 Wkly. L. Bull. 124, 10 ceive the draft, or any part of it, as a
O. Dec. 426; see, also, Talcott v. Hen- loan, without making such disclosure.
derson, 31 O. St. 162. 27 Am. Rep. 501; Spring Brook Chemical Co. v. Dunn,
Orme v. Baker, 74 O. St. 337, 78 N. E. 39 App. Div. 130, 57 N. Y. S. 100.
439, 113 Am. St. Rep. 968; Bruner v. Construction of Illinois statute. —
First Nat. Bank, 97 Tenn. 540, 37 S. W. Act June 4, 1879, which makes it em-
286, 34 L. R. A. 532; Friberg v. Cox, 97 bezzlement for any banker to receive
Tenn. 550, 37 S. W. 283; Williams v. on deposit, while insolvent, "any
Cox, 99 Tenn. 403, 42 S. W. 3: Parker money, check, draft, bill of exchange,
V. Crawford, 3 Tex. App. Civ. Cases, stocks, bonds, or other valuable thing
§ 365; Hyland v. Roe, 111 Wis. 361, 87 which is transferable by delivery," ap-
N. W. 252, 87 Am. St. Rep. 873. plies to checks payable to the payee's
When a bank
receives a deposit order as well as to those payable to-
after it is hopelessly insolvent, the fraud bearer. American Trust, etc.. Bank v.
avoids the implied contract between Gueder, etc., Mfg. Co., 150 111. 336, 37
the parties by which the relation of N. E. 227.
debtor and creditor would ordinarily Necessity for false representations..
arise, and prevents the money depos- — In an action by an indorsee of a
ited from becoming the property of the draft deposited by defendants, the-
bank, and a trust is the equitable re- drawers, with a banker, the evidence
sult. Richardson v. New Orleans De- showed that at the time of the deposit
benture Redemption Co., 42 C. C. A. the banker was, and for a long time-
619, 102 Fed. 780, 52 L. R. A. 67. had been, to his knowledge, utterly in-
time they accepted the deposit ;''8 and the depositor may rescind the con-
solvent. The defense alleged that the ceiver, who retains the specific money
draft was obtained by the banker by among the general mass of the bank's
fraudulent misrepresentations. Held, funds."
that the court properly refused to But the mere facl that a^ bank is in-
charge that defendants must show that solvent when a check is deposited as
the banker made false representations cash does not alter the relation of
to them to procure the draft; that they debtor and creditor between the cus-
were in fact deceived thereby; and tomer and the bank arising out of the
that representations made to the world deposit, and the customer is not there-
were not sufficient, and that they must fore entitled to recover the proceeds
have been made directly to defendants; of the check as his own money, it not
that, if his failure was caused by the appearing that the officer knew of the
unexpected failure of another bank, bank's insolvency. Williams v. Cox.
upon which he depended for help, and 97 Tenn. 555, 37 S. W. 282; Showalter
he was ignorant of the latter's failure V. Cox, 97 Tenn. 547, 37 S. W. 286.
when he received the draft, the defense In Cragie v. Hadley, 99 N. Y. 131, 1
could not be sustained. Rochester N. E. 537, 52 Am. Rep. 9, a distinction
Printing Co. v. Loomis, 45 Hun 93, 9 was taken between the actual and the
N. Y. St. Rep. 592. hopeless insolvency of a bank.
—
Waiver of fraud. Where a depositor Where checks are deposited in bank
in a bank which has become insolvent in the usual course of business, and
files his claim with the trustee in in- credit therefor is given in the deposi-
solvency, it is an acceptance of the tor's pass book, the title to such checks
contract relation, waiving the right to vests in the bank, and the depositor
rescind on the ground of fraud, in that can not recover them on the ground
the deposit was accepted by the bank that the bank was insolvent at the
with knowledge of its insolvency.
.
time of the deposit without showing
Potts V. Schmucker, 84 Md. 535, 35 L. that the officers of the bank knew of
R. A. 392, 36 Atl. 592, 57 Am. St. Rep. its insolvency, and received the depos-
415. its fraudulently. People v. St. Nicho-
79. The scienter in action to recover las Bank, 77 Hun 159, 28 N. Y. S. 407,
—
deposits after insolvency. New York 58 N. Y. St. Rep. 712; People v. St.
Breweries Co. v. Higgins, 79 Hun 250, Nicholas Bank, 77 Hun 611, 28 N. Y.
29 N. Y. S. 416; Stap'leton v. Odell, 21 S. 421, 59 N. Y. St. Rep. 881; In re
Misc. Rep. 94, 47 X. Y. S. 13; Williams Beers, 77 Hun 611, 28 N. Y. S. 422, 59
V. Van Xorden Trust Co., 104 App. N. Y. St. Rep. 881.
Div. 251, 93 N. Y. S. 821. Construction of Penal Code. In —
Where plaintiff deposits money with view of Pen. Code, § 601, providing
the receiving teller of a bank, a few that one who receives a deposit for a
minutes before the bank closes its bank, which he knows is insolvent, is
doors, to be credited to his accoimt, guilty of a misdemeanor, proof merely
and the teller, not knowing of the com- of the insolvency of a bank when a de-
ing failure, after crediting the money posit was made does not justify an in-
in plaintiff's pass book, puts the money ference that the officers and directors
and deposit ticket one side, and before knew of such insolvency, so as to per-
entry is made in the books of the bank, mit the depositor to recover back the
it closes its doors, and the money is, by deposit as for fraud of the bank. Sta-
order of the directors, placed apart, pleton V. Odell, 21 Misc. Rep. 94, 47 N.
and in that condition delivered to the Y. S. 13.
receiver, plaintiff can replevy it. Fur- Sufficiency of notice or knowledge
ber V. Stephens, 35 Fed. 17. of insolvency.— Some cases hold that
In Wasson v. Hawkins, 59 Fed. 233, to constitute fraud in receiving a de-
the circuit court held that "where posit when insolvent, which will au-
money and checks are unsuspectingly thorize a rescission by the depositor,
deposited in a bank, which is known and a recovery from a receiver subse-
by its managing officer to be hope- quently appointed, the officers of the
lessly insolvent, a few minutes before bank must have known or believed
the closing hour on the last day on that it was insolvent when it was re-
which it does business, and the checks ceived; and such knowledge can not
are subsequently collected by the be presumed. The fact that the offi-
bank's clerk, the whole of the deposit cers knew the bank to be embarrassed
is charged with a trust, and an equal is not sufficient. Quin v. Earle, 95
amount may be recovered from the re- Fed. 728; Baker v. Orme, 6 O. C. C,
tract of deposit and recover back the deposit or its proceeds,*" or he may
N. S., 289, 298, 17-27 O. C. D. 465, af- Am. St. Rep. 968, reviewing many cases.
firmed in 74 O. St. 337. See post, "Notice to Officer or Agent,"
But in other cases the rule is that Liability of directors. —A
part of the
the presumption that the managing of- depositors of an insolvent banking
ficers and agents of an insolvent bank corporation in the hands of a receiver
have notice of its condition arises from may sue the directors for deceit in in-
circumstances, especially when the ducing complainants to make deposits
president is familiar with the desperate when they knew the bank was insol-
condition of the bank, and undertakes vent. Blumer v. Ulmer (Miss.), 44 So.
conduct its business. Cragie v. 161.
to
Hadley, 99 N. Y. 131, 1 N. E. 537, 52 80. Remedies of depositor. —Rich-
Am. Rep. 9. ardson V. New Orleans Coffee Co., 43
C. C. A." 583, 103 Fed. 785; Baker v.
On Tuesday the directors of a bank
Orme, 6 O. C. C, N. S., 289, 17-37 O.
discovered that the cashier had embez-
zled the funds, but not to such an ex- C. D. 465, affirmed in 74 O. St. 337;
tent, as they then supposed, as to
Parker v. Crawford, 3 Tex. App. Civ.
render the bank insolvent, and it Cases, § 365; Blake v. State Sav. Bank,
12 Wash. 619, 41 Pac. 909; Hyland v.
continued business. On Wednesday,
complainant, a dealer with the bank, de- Roe, 111 Wis. 361, 87 N. W. 352, 87 Am.
posited about $600 in cash and checks, St. Rep. 873.
which were credited in his bank book, A
depositor, vvho has been permitted
and the checks duly forwarded for by an insolvent bank to deposit a draft
with it immediately before the closing
collection, and credited to the bank by
of the doors of the bank, may rescind
its correspondent. On Thursday the the contract of deposit on the ground
bank suspended through insolvency.
of fraud, and reclaim the property.
Held, that complainant's deposit was
not entitled to preference in payment Cragie v. Hadley, 99 N. Y. 131, 1 N. E.
537, 53 Am. Rep. 9, followed in Import-
over those of other depositors. Ter-
ers', etc., Nat. Bank v. Peters, 123 N.
hune V. Bank, 34 N. J. Eq. 367.
Y. 272, 25 N. E. 319.
Where the cashier of a bank failed The officers of a bank, knovving the
to appear during business hours, and bank to be hopelessly insolvent, ac-
a shortage in the cash was discovered cepted a deposit, and the next day
by the president, and the cashier, who closed its doors. Held, that the amount
for years had the perfect confidence of of the deposit was recoverable against
the bank, telephoned that the balance the receiver. Craigie v. Smith, 14 Abb.
was in another compartment of the
'
N. C. 409.
vault, the president was not charge- Actual receipt of funds necessary. —
able with notice of the bank's insol- In an action by a depositor to recover
vency, and hence was not guilty of from the assignee for the benefit of
fraud in subsequently receiving depos- creditors of bankers a deposit alleged
its. Perth Amboy Gaslight Co. v. Mid- to have been received by the bankers
dlesex County Bank, 60 N. J. Eq. 84, on the eve of their insolvency, plaintiff
45 Atl. 704. can not recover without proof that the
Where a president of a bank heard oroceeds of the deposit actually came
that its cashier had made unauthorized ''nto the hands of the nssi^nee. Wil-
drafts on another bank, and appropri- liams V. Van Norden Trust Co., 104
ated the proceeds, to an amount ex- Ado. Div. 251. 93 N. Y. S. 821.
ceeding the capital and surplus of the
bank, and proposed to a bank exam-
—
Defenses. Defendants, directors it) a
private corporation, when sued for
iner to close the bank, but was advised money the plaintiflf, a stockholder, had
by him to first verify his information, been induced to deposit with the com-
and while this was being done with all pany, then insolvent, by the represen-
possible speed the bank remained tations of the defendants, they having
open, for one hour, the president was accepted the deposits and applied them
not guilty of fraud in receiving depos- to the payment of a debt for which
its during that period. Perth Amboy they were sureties, are estopped from
Gaslight Co. V. Middlesex County setting up as a defense in a suit to
Bank, 60 N. J. Eq. 84, 45 Atl. 704. charee them therefor, their want of au-
Knowledge on the part of the cash- thority to receive the deposits. Kink-
ier or other officer of the bank's insol- ier V. Jurica. 84 Tex. 116, 19 S. W. 359.
vency is imputed to the bank. Orme Plaintiff brought an action to re-
i: Baker, 74 O. St. 337, 78 N. E. 439, 113 cover money alleged to have been
maintain replevin for the money,*i provided the deposit or its proceeds can
be distinguished or identified, and before it has become commingled with
the general funds of the bank,*^ and to this end he is entitled to a prefer-
fraudulently received by defendant, a managing officer to be hopelessly in-

banking house, while proceedings were solvent a few minutes before closing
pending to have them declared bank- hour on the last day on which it does
rupts, in which proceedings an injunc- business, and the checks are subse-
tion had been issued restraining them quently collected by the bank's clerk,
from doing any further business. The the whole of the deposit is charged
complaint alleged that defendants con- with a trust, and an equal amount may
cealed these facts, and opened their be recovered from the receiver, who
banking house and did business as retains the specific money among the
usual, with intent to defraud, and plain- general mass of the bank's funds.
tiif, relying on the appearances, de- Wasson v. Hawkins, 59 Fed. 233.
posited the money with them, and re- Title of assignee. —A banker, know-
ceived a draft on C, in whose hands ing that he was insolvent, and intending
they, as was alleged, had no funds, and to make an assignment for the benefit
the draft was not paid. The answer of his creditors in a day or two, unless
denied most of the allegations of the he should meanwhile receive financial
complaint, and admitted the receipt of assistance, accepted a deposit, without
the money and the giving of the draft, informing the depositor of his insol-
but alleged that when the draft was de- vency, but kept the money in a sepa-
livered defendants had funds in C.'s rate parcel, marked with the depositor's
hands, and that the draft was not pre- name, intending to return it in case he
sented until a number of days after- made a general assignment. On the
wards. The answer also alleged that same day he made such assignment,
the transaction was in good faith, and and delivered the parcel to the as-
that the reason why defendants kept signee, with a request that he return
their banking house open was that they it to the depositor if he could legall}'-
expected to make a speedy arrange- do so. Held, that the assignee took no
ment with their creditors, and have the title to the deposit. Chaffee v. Fort
proceedings discontinued. Other facts (N'. Y.), 2 Lans. 81.
were alleged, tending to disprove 81. —
Replevin by depositor. Bank v.
fraudulent intent. Held, that the an- Solicitors Loan, etc., Co., 188 Pa. St.
swer constituted a defense to the ac- 330, 41 Atl. 536, 68 Am. St. Rep. 872.
tion. Van Alstyne v. Crane (N. Y.), 4 82. Deposit must be capable of iden-
Thomp. & C. 113. tification in hands of receiver. —Illi-
Evidence. —Act
June 4, 1879, making nois, etc., Sav. Bank v. First Nat.
the failure of a banker within thirty Bank, 15 Fed. 858, 21 Blatchf. 275;
days after receipt of a deposit prima Philadelphia Nat. Bank v. Dowd, 38
facie evidence of an intent to defraud, Fed. 172; Somerville v. Beal, 49 Fed.
applies as well in civil actions as in 790; Case v. Beauregard, Fed. Cas. No.
criminal prosecutions. American Trust, 2,487, 1 Woods 125; Peters v. Bain, 133
etc., Bank v. Gueder, etc., Mfg. Co., U. S. 670, 33 L. Ed. 696, 10 S. Ct. 354;
150 111. 336, 37 N. E. 227. Maury v. Mason (Ala.), 8 Port. 212;
When a bank is insolvent, and one of Goldsmith v. Stetson & Co., 30 Ala.
the managing partners, informed of its 164; Parker v. Jones, 67 Ala. 234; Mc-
condition, continues to receive depos- Call V. Rogers, 77 Ala. 349; St. Louis
its after the other absconds, it is not Brewing Ass'n v. Austin, 100 Ala. 313,
necessary for a depositor, seeking to 13 So. 908; Wilson v. Coburn, 35 Neb.
rescind a sale of paper to it, to show 530, 53 N. W. 466; Higgins v. Hayden,
that the remaining partner was privy 53 Neb. 61, 73 N. W. 280; In re North
to the flight of the other. The fact River Bank, 60 Hun 91, 14 N. Y. S. 361,
that the managing partner must have 37 N. Y. St. Rep. 931; Baker v. Orme,
known the condition of the bank, and 6 O. C. C, N. S., 289, 17-27 O. C. D.
that the sum credited to the depositor 465, affirmed in 74 O. St. 337, quoted
could not be paid in the course of from Quin v. Earle, 95 Fed. Rep. 728;
business, sufficiently shows the fraud. In re Commercial Bank, 4 O. Dec. 108,
First Nat. Bank v. Strauss, 66 Miss. 3 N. P. 170; Belding Bros. &
Co. v.
479. 6 So. 232, 14 Am. St. Rep. 579. Frankland, 76 Tenn. (8 Lea) 67, 41
Amount of recovery. Where money— Am. Rep. 630; Akin v. Jones, 93 Tenn.
find checks are unsuspectingly depos- 353, 27 S. W. 669, 35 L. R. A. 523, 42
ited in a bank, which is known by its Am. St. Rep. 931; Sayles v. Cox, 95
1 B & B—33
Tenn. 579, 32 S. W.
32 L. R. A.
626, itors, unless it could trace and recover
715, 49 Am. St.940; Bruner v.
Rep. its ownproperty. Atkinson v. Roch-
First Nat. Bank, 97 Tenn. 540, 37 S. W. ester Printing Co., 114 N. Y. 168, 21 N.
286, 34 L. R. A. 532; Friberg v. Cox, 97 E. 178.
Tenn. 550, 37 S. W. 283; Blake v. State Where a depositor in a bank, known
Sav. Bank, 12 Wash. 619, 41 Pac. 909; at the time by its officers to be insol-
Nonutuck Silk Co. v. Flanders, 87 Wis. vent, finding a mistake in the amount
237, 58 N. W. 383; Burnham v. Barth, which he intended to deposit, told the
89 Wis. 362, 62 N. W. 96; Thuemmler teller to "put that money to one side"
V. Barth, 89 Wis. 381, 62 N. W. 94; until he returned from his office, and
Stevens v. Williams, 91 Wis. 58, 64 N. the teller responded, "All right," but
W. 422; Dowie -v. Humphrey, 91 Wis. immediately mingled the deposit with
98, 64 N. W. 315. the other funds of the bank, the de-
In other words it is a general rule, posit was impressed wih a trust, and
as well in a court of equity as in a could be recovered in full, though not
court of law, that in order to follow traceable directly into the hands of the
trust funds, and subject them to the assignee. In re Commercial Bank, 4
operation of the trust, they must be O. Dec. 108, 2 N. P. 170.
identified. Cavin v. Gleason, 105 N. Y. In other words, a party who deposits
256, 11 N. E. 504. funds in a failing bank, which do not
And in the latter case of Atkinson v. become mingled with other funds, but
Rochester Printing Co., 114 N. Y. 168, remain in a separate package, can re-
21 N. E. 178, the court used this lan- cover the same from the assignee of
guage: "The fact that the defendant the bank after it has made an assign-
became a creditor of the insolvent bank ment for the benefit of creditors. In re
through the fraud of its officers, and Assignment, 1 N. P. 358, 2 O. Dec. 304.
the bank a trustee ex maleficio, gave Where a depositor makes a deposit
the defendant no right to a preference in an insolvent bank, and at the same
over other creditors, unless it could time purchases from such bank a draft
trace and recover its property." Blake en another bank, and subsequently the
V. State Sav. Bank, 12 Wash. 619, 41 bank receiving the deposit and issuing
Pac. 909. the draft makes an assignment, and
The fact bank is insolvent,
that a the draft is returned unpaid, the depos-
within the knowledge of its officers, itor, if he be unable to identify the de-
and receives the money of a depositor posit, or to trace it into the hands of
under circumstances which amount to the trustees, can not recover it; the
a_fraud 'upon him, is not of itself suffi- fact of the application of a part of the
cient to entitle him to preference from deposit to the purchase of a draft not
the funds of the bank in the hands of being sufficient to give any special
an assignee; for although he may fol- rights in the premises. In re Commer-
low his money while he can trace and cial Bank, 2 N. P. 170, 4 O. Dec. 108.
distinguish it, or the proceeds thereof, One who at various times deposited
he can not do so after it has passed moneys with a bank, not knowing of
into the hands of the assignee mingled its insolvency, and from time to time
with the other funds of the bank. Wil- drew checks on the amount, can not,
son V. Coburn, 35 Neb. 530, 53 N. W. after the bank has been declared insol-
466; Eanterman v. Travous, 174 111. 459. vent, recover from the receiver the
51 N. E. 805. amount remaining to his credit, as the
To authorize recovery of a general fund was not impressed with a special
deposit from a receiver on the ground trust in his favor, and could not be
that the bank was insolvent, and known identified and traced into the hands of
to be so by its officers, when it was the receiver. Blake v. State Sav. Bank,
received, and that the fraud authorized 12 Wash. 619, 41 Pac. 909, explaining
a rescission of the contract by the de- Cragie v. Hadley, 99 N. Y. 131, 1 N. E.
positor, the thing deposited, or its pro- 537, 52 Am. Rep. 9.
ceeds, must be capable of identification Deposit with and without instruc-
in the receiver's hands, or it must ap- —
tions. There is an evident difference
pear that the funds in his hands were between a deposit of money without
increased by that amount. Quin v. instructions and a paper, such as
Earle, 95 Fed. 728. checks, drafts, etc., without such instruc-
The fact that the bank had no right tions. Accordingly, where a check
to receive defendant's deposits when drawn on another bank is deposited in
known to be insolvent, and committed an insolvent bank without any special
a fraud by so doing, thus becoming a instructions, and it is not placed to the
trustee ex maleficio, gave defendant no customer's credit, and immediately
right to a preference over other cred- thereafter the receiving bank fails, and
§ 75 (1) INSOI.VENCY AND DISSOLUTION. 515
the check goes into the hands of the 178; Compare Frelinghuysen v. Nu-
bank examiner and afterwards col-
is gent, 36 Fed. 229.
proceeds are the property of
lected, the Where a bank receives a deposit on
the customer, and not of the bank. the day of its suspension, when it is
Showalter v. Cox, 97 Tenn. 547, 37 S. known hy its officers to be insolvent,
W. 286. and mingles the money with its own
—
Special deposits. If a deposit is funds, which, to an amount larger than
delivered to the bank for a particular the deposit, pass into the hands of a
purpose, and not as a general deposit, receiver, it is not essential to the right
it would be a trust fund in the first of the depositor to recover his deposit
instance, and the title would not pass from the receiver that he should be
to the bank; but even then it could not able to trace the identical money de-
be recovered without showing that it posited into the receiver's hands, but
had gone into the hands of the re- it is sufficient that the amount which
ceiver. Blake v. State Sav. Bank, 13 went into his hands was increased by
Wash. 619, 41 Pac. 909, citing with ap- the amount of the deposit. Richard-
proval Cavin v. Gleason, 105 N. Y. 256, son V. N'ew Orleans Debenture Re-
11 N. E. 504. demption Co., 42 C. C. A. 619, 102 Fed.
Check deposited and credited as 780, 52 L. R. A. 67.
—
cash. It is well settled where a check In Massey v. Fisher, 62 Fed. 958, the
is deposited and credited on the cus- circuit court for the Eastern District
tomer's pass book as cash, the proof Pennsylvania laid down the follow-
ceeds can not be followed and re- ing rule: "The fact that the money was
claimed unless the fund has been kept not marked and by a commingling
separate and may be identified. Wil- with other funds of the bank, lost its
liams V. Cox, 97 Tenn. 555, 37 S. W. identity, does not affect the right to
282; Friberg v. Cox, 97 Tenn. 550, 37 recover in full, if it can be traced to
S. W. 283; Klepper v. Cox, 97 Tenn. the vaults of the bank, and it appears
534, 37 S. W. 384, 34 L. R. A. 536, 56 that a sum equivalent to it remained
Am. St. Rep. 823; Bruner v. First Nat. continuously therein until removed by
Bank, 97 Tenn. 540, 37 S. W. 286, 34 L. the receiver." That court, in the opin-
R. A. 532. ion cites many supportmg cases.
Sufficiency of identification. The — According to the better rule, the
general rule that where the money de- fact that the cash deposited during the
posited is indistinguishably mingled day is mingled with the other funds
with the other funds of the bank the on hand, is immaterial if the cash de-
depositor must be able to trace and posited swells the assets of the bank.
identify his particular deposit before a And while in theory of law it is the
trust can attach, is not very strictly duty of the depositor to trace his own
applied. Accordingly, it has been held money, he complies with this rule by
that even though there are no ear- showing that his money was mingled
marks on the money, yet if the exact with the other cash on hand of the
amount deposited is known, this is a bank by the bank's officers and em-
sufficient identification. Orme v. ployees, and that the entire cash de-
Baker, 74 O. St. 337, 78 N. E. 439, 113 posits for the day were less than the
Am. St. Rep. 968. cash on hand when the bank closed
And if it appears that the deposit its doors. Haviriig shown this state of
was and that the very money
in cash facts it will be presumed that the bank
deposited was in the vaults of the bank used its own cash during the last day
at the time it closed its doors, and it transacted business, and retained
came necessarily into the hands of the that which, under the law, it had no
assignee or receiver, the depositor may right to use. Willoughby v. Weinber-
reclaim it, although he may not be able ger, 15 Okla. 236, 79 Pac. 777.
to identify the very coin or bills which Identification of proceeds of check.
composed the deposit. The reason for —Where a check on a bank was depos-
this is that the assets of the bank are ited by the payee in a bank which
actually increased by the amount of transmitted it for collection to the bank
the deposit, and the very cash came to on which it was drawn, and the follow-
the hands of the receiver or assignee. ing day the bank receiving the deposit
Perth Amboy Gaslight Co. v. Middle- suspended, owing to insolvency, and
sex County Bank, 60 N. J. Eq. 84, 45 the drawee held the check, at the re-
Atl. 704, opinion of Pitney, Vice Chan- quest of the payee, for some time, and
cellor; Wasson v. Hawkins, 59 Fed. eventually delivered it to the receiver
233; Cavin v. Gleason, 105 N. Y. 256, of the insolvent bank, a contention
11 N. E. 504; Atkinson v. Rochester that a petition by the payee, which
Printing Co., 114 N. Y. 168, 21 N. E. stated the facts and prayed for an or-
ence over the general creditors.*^ In other words the deposit is impressed
der requiring tlie receiver to pay over Nat. Bank, 65 Fed. 690.
the proceeds ot the check, was insuf- Where the relation of loaner and bor-
ficient, owing to there being no suffi- rower exists between a bank and its
cient identincation of the proceeds depositor, he may reclaim his deposit,
of the check, was without merit. Hy- as against the general creditors of the
land V. Roe, 111 Wis. 361, 87 N. W. 252, bank, in case of insolvency, when its
87 Am. St. Rep. 873. officers received the deposit know-
The identical proceeds of a check or ing the insolvency at the time, and
draft fraudulently received on deposit were guilty of actual fraud in receiv-
by an insolvent bank, are sufficiently- ing it, and he is able to trace his de-
traced by the depositor when it ap- posit to the assets which came into
pears that they are included in a fund the hands of the receiver or assignee,
paid over to the receiver of the bank though he need not identify the very
by a correspondent, as the proceeds of coin or bills deposited. Perth Am-
credits made after the bank failed, but boy Gaslight Co. v. Middlesex County
notice thereof to the correspondent. Bank, 60 N. J. Eq. 84, 45 Atl. 704.
Bruner v. First Nat. Bank, 97 Tenn. Where funds were received on de-
540, 37 S. W. 286, 34 L. R. A. 532. posit a few minutes before closing
Where bank's assets not increased. time at a time when the bank was in-
— Where one deposits in a bank the solvent to the knowledge of the cash-
ier in charge, and two days thereafter
check of another depositor of the bank,
and is given_ credit therefor, the assets the bank passed into the hands of a
of the bank are not thereby increased, receiver, the deposit having been
and hence there can be no tracing and fraudulently received, no title vested
reclaiming of the deposit on the in- in the bank, and, on making timely de-
solvency of the bank. Perth Amboy mand upon the receiver, the depositor
Gaslight Co. v. Middlesex County was entitled to recover the full amount
Bank, 60 N. J. Eq. 84, 45 Atl. 704. of the deposit in preference to the
—
Burden of proof. The burden is on claims of general creditors. Orme v.
one who transferred a draft to a bank Baker, 74 O. St. 337, 78 N. E. 439, 113
prior to its failure, and who seeks Am. St. Rep. 968; Baker v. Orme, 27
tb follow and reclaim the proceeds as O. C. C. 465.
against a receiver, to show that they Fraud in receiving a deposit of
were not received and mingled with cash, or of a check treated as cash,
the other funds of the bank before after bank officials know that it is
the failure; and, where they were hopelessly insolvent, will not give the
placed to its credit by a correspondent depositor a preferential claim against
on the same day the receiver was ap- assets in the hands of the receiver of
pointed, in the absence of further proof the bank, if the bank, before its fail-
as to the exact time it v.-iU be pre- ure, had commingled the cash with its
sumed that the credit was given be- general funds and had received credit
fore the receiver was appointed. for the check from a correspondent to
Klepper v. Cox, 97 Tenn. 534. 37 S. whom it had been forwarded, although
W. 284, 34 L. R. A. 536, 56 Am. St. there was due from the correspond-
Rep. 823. ent more than the amount of the
Preference to depositors. Perth
83. — check which went into the hands of
Amboy Gaslight Co. z'. Middlesex the receiver. Klepper z". Cox, 97 Tenn.
Countv Bank, 60 N. J. Eq. 84, 45 Atl. 534, 37 S. W. 284, 34 L. R. A. 536, 56
704; B'aker v. Orme, 6 O. C. C, X. S., Am. St. Rep. 823.
289, 17-27 O. C. D. 465, affirmed in Where a bank, knowing its in-
74 O. St, 337; Willoughby v. Wein- solvency, receives a check, which it
berger. 15 Okla. 226, 79 Pac. 777; Com- credits to the depositor as cash, and
pare Cavin 1'. Gleason, 105 N. Y. 256, then sends to a correspondent, who,
11 N. E. 504. after the failure of said bank, but with-
A depositor is entitled to a prefer- out notice thereof, credits the check
ence where the deposit was made to it as cash, and subsequently pays
when the bank was hopelessly in- over the proceeds to the receiver, the
solvent, which fact was concealed by depositor mav recover such proceeds
the bank; and an equal amount may as a preferred claim. Bruner z: First
be recovered from the receiver, who Nat. Bank, 97 Tenn. 540, 37 S. W. 286,
has received the specific money among 34 L. R. A. 532.
the general mass of the bank's funds. Deposits by county treasurer. —
Lake Erie, etc., R. Co. z: Indianapolis Where a county treasurer deposits in
with a trust in favor of the depositor.^* A return of this deposit can not
be attacked as a preference to creditors.^^
The reason for the foregoing rule is that a deposit in a bank which
is insolvent at the time does, not vest title thereto in th,e bank and convert
the depositor into a general creditor. ^^
§ 75 (2) Deposits for Collection. —A banker who receives money or

drafts for collection with knowledge that the institution is hopelessly in-
solvent gets no title and the funds or proceeds can always
legal or equitable,
be claimed and recovered by the owner when they can be traced and identi-
fied, regardless of the form of indorsement.^'' But where a bank, knowing
an insolvent bank checks received for a debt. Judgment, .63 N. Y. S. 670, 50

taxes which he has endorsed in blank, App. Div. 33, affirmed. Blair v. Hill,
for which he accepts a certificate of 165 N. Y. 672, 59 N. E. 1119.
deposit, but retains no memorandum On the day a bank closed its doors,
of the checks deposited, he can not and when it was known by its officers
after the bank has gone into the hands to be insolvent, complainant, a customer
of a receiver follow the checks or the made a deposit of money, and also of
money collected on them as a trust certain checks and drafts for collection
fund and claim a preference over other and credit, all of which were credited,
creditors for the amount so received at the time, to its account. During
from him by the bank. Towson v. the day, it also purchased drafts from
Cole, 6 N. P., N. S., 388, 17 O. D. N. the bank, for which it gave checks
P. 282. about equal in amount to its entire
84. A
petition seeking to charge a deposit, but such drafts were returned
trust in the hands of the
on property unpaid, and were tendered back to the
-defendant, the receiver of an in- receiver. Held, that the purchase and
"
solvent bank, may allege that the bank sale of the drafts was a separate trans-
obtained the property as bailee, and action, which, as it did not create any
at the same time charge that it was ob- liability affecting the general creditors,
tained by fraudulent' concealment of and was in itself fraudulent on the
insolvency, and relief may be granted part of the bank, did not affect com-
on the latter ground, although the plainant's right in equity to reclaim the
former be not proved. Higgins v. deposits from the receiver. Richard-
Hayden, 53 Neb. 61, 73 N. W. 280. son V. New Orleans Coffee Co., 43 C.
85. The
delivery by a receiver of an C. A. 583, 102 Fed. 785.
insolvent bank to its owner of a draft Where defendant, a banker, under an
deposited with the insolvent through agreement with plaintififs to receive de-
the latter's fraud is not in the nature posits, collect bills, pay their drafts
of paying a preferred creditor. Cragie on him when presented, use the money
V. Hadley, 99 N. Y. 131, 1 N. E. 537, in his hands and pay interest on the
52 Am. Rep. 9. This case is reviewed same, received a draft from plaintiffs
and explained in Blake v. State Sav. to be collected and collected the same
Bank, 12 Wash. 619, 41 Pac. 909. and used the money, when he knew
86. Reason of rule. —
Hyland v. Roe, the day before the collection that he
111 Wis. 361, 87 N. W. 252, 87 Am. St. was insolvent, and suspended payment
Rep. 873. on the same day he made the collec-
87. Deposits for collection after no- tion, his failure did not annul the
tice of insolvency. Richardson — v. agreements, or make him a trustee for
Denegre, 35 C. C. A. 452, 93 Fed. 572; the funds collected. Bussing v. Thomp-
Commercial Bank v. Armstrong, 148 son, 15 How. Prac. 97, 13 N. Y. Super.
U. 37 L. Ed. 363, 13 S. Ct. 533.
S. 50, Ct. 696.
Where a banker knew that he was Aregular customer of a bank sent
hopelessly insolvent when he received to a check with an unrestricted in-
it
for collection a check which he caused dorsement, and directed it to be placed

to be credited to him in a correspond- to his credit. The check was received
ent bank, his failure to apprise the and credited, and the customer so ad-
owner of his condition made the ac- vised. On the day of receipt the bank
Quisition of the check fraudulent, even sent the check to its correspondent for
if the latter knew he was to use it as collection, paid a check drawn by the
518 BANKS AND BANKING. § -75 (4)
its insolvency, receives from a customer, as cash, a check on a foreign bank,

and sends the paper to its correspondent, who, before the failure of the
sending bank, credits the check to it as cash, and subsequently pays over
the proceeds to the receiver, the right of the customer to reclaim the pro-
ceeds on account of the bank's fraud is lost.^®
§ 75 (3) Special Deposits. —

If the deposit be a special one the bank
ismerely a trustee or bailee, and the general funds into which it has passed
are impressed with the trust. *^
§ 75 (4) Rights of Payee of Draft.—The rights of the payee of a

draft which was never really accepted as a deposit are the same, on the in-
solvency of the bank, as if it had never been presented.^**
customer from a part of the proceeds as his property. Friberg v. Cox, 97

of the credit, and closed its doors as Tenn. 550, 37 S. W. 283.
insolvent. Held, that the check was Where a check drawn on another
not deposited for collection, but as bank is deposited in an insolvent bank
cash, for immediate use. Williams v. without any special instructions, and
Cox, 97 Tenn. 555, 37 S. W. 38a. it is not placed to the customer's
The proceeds of a check received for credit,and immediately thereafter the
collectionby a bank when its officers receiving bank fails, and the check
knew thatit was hopelessly insolvent, goes into the hands of the bank ex-
and which was not collected until aminer and is afterwards collected, the
after the bank had failed, belong to proceeds are the property of the cus-
the customer, although the check was tomer, and not of the bank. Showal-
sent for collection with other checks ter V. Cox, 97 Tenn. 547, 37 S. W.
to another bank, which retained from 386.
the entire amount collected an amount 89. Right of persons making special
exceeding that of such check, for its deposits insolvency. -One
after de- —
indemnity, remitting the remainder, ex- posited moneya bank under
in an
ceeding the amount of the check, to agreement which inade the deposit a
the receiver of the former bank, as it special one. The deposit, without the
will be presumed in such case that the knowledge of the depositor, went into
proceeds of such check were remitted. the general funds of the bank, and it
Williams v. Cox, 99 Tenn. 403, 42 S. subsequently became insolvent. There
W. 3. was more than the amount of the de-
However, where the bank has failed posit in the general fund at the time
when the checks and drafts are cred- the receiver took charge. Held, that
ited, although done by a correspond- the depositor was entitled to follow
ent which does not yet know of the the fund into the hands of the re-
failure, this can not prejudice the ceiver, and charge the same with the
rights of persons who deposited such trust. Shopert v. Indiana Nat. Bank,
paper in the insolvent bank to recover 41 Ind. App. 474, 83 N. E. 515.
back their paper or its proceeds, when
the deposit was received after the of-
90. Rights of payee of draft. A con- —
struction company drew a draft in
ficers of the bank knew it to be in- favor of a subcontractor on a bank,
solvent. Bruneriv. First Nat. Bank, 97 which under an arrangement with a
Tenn. 540, 37 S. W. 286, 34 L. R. A. 532; trust company was authorized to issue
Williams v. Cox, 99 Tenn. 403, 42 in payment of drafts for labor and ma-
S. W. 3. terials exchange on the trust company
88. Where
a bank accepts a check which paid the same out of funds de-
on another bank as cash, giving there- posited by the holders of bonds is-
for a sum of money, a certificate of sued to secure money to pay for the
deposit, and the balance in a credit to work. The subcontractor presented the
the account of a third person, such draft to the bank for deposit and the
transaction creates merely the relation amount thereof was entered on his
of debtor and creditor between the passbook, but not actually passed to
bank and its customer, and the latter his credit; the bank being in a failing
can not, on the insolvency of the bank, condition. It failed that night, and
follow up the check, or its proceeds, the next day the draft was returned to
§ 75 (5) Restoration of Consideration on Rescission. A deposi- —

tor in an insolvent bank who has received part of the deposit in money and
the residue in a certificate of deposit, need not offer to return the amount
actually received in order to obtain a rescission because of such insolvency,
where he seeks to recover the balance only.®^
§ 75 (6) Evidence. —
The burden of proof is on the depositor to
show affirmatively that the bank was insolvent when it received its deposit
and that the officers then knew it.^^
§ 76. Remedies and Proceedings on Insolvency93_§ 76 (1)

—
Right of Action. The fact that a bank is in process of liquidation does
not protect it from suits by its creditors or depositors, in the absence of a
judicial declaration of insolvency.^*
§ 76 (2) Modes of Procedure—! 76 (2a) In General.—The stat-

mode of procedure
utes in the various jurisdictions usually prescribe the
for winding up the affairs of an insolvent bank,^^ and if these remedies did
not exist at common law, are exclusive of all others. ^^
the payee. Held that, the draft not Act March 34, 1903, § 10, St. 1903, p.
having been accepted as a deposit, the 368, c. 366, as amended by Act March
payee was equally entitled with the 20, 1905, St. 1905, p. 304, c. 296, au-
holders of similar drafts to share in thorizing the bank commissioners to
the fund held by the trust company. require banks to discontinue unsafe
McBride v. American R., etc., Co. (Tex. practices and upon their failure to do
Civ. App.), 137 S. W. 329. so, or if it appear unsafe to allow any
91. Restoration of consideration by bank to continue business, to seize the
depositor on rescission. Hyland —
v. effects of the bank and notify the at-
Roe, 111 "Wis. 361, 87 N. W. 353, 87 torney general, who shall commence
Am. St. Rep. 873. suit to dissolve the corporation, etc.,
92. Burden of proof. Furber t. — was intended to supersede the general
insolvency act so far as it applied to
Dane, 304 Mass. 413, 90 N. E. 359.
banking corporations. People v. Bank,
93. Proceedings to enforce liability
3 54 Cal. 194, 97 Pac. 306.
of officers in insolvency,
"Taxation," § 305; "From Funds De-
see post,
—
Order to show cause. A vice presi-
dent of a bank, who is likewise a di-
posited as Security,'' § 209.
rector, is a proper person to serve
94. Right of action against bank in with an order to show cause why the
liquidation. —
That the bank commis- bank should not be declared insolvent
sioners have directed a bank to liqui- and a receiver appointed. People v.
date, and wind up its affairs, and that Central City Bank (N. Y.), 53 Barb.
this is being done entirely by its own 412, 35 How. Prac. 428.
officers, who are collecting its assets, 96. Exclusiveness of statutory rem-
and disbursing money to depositors, edies.— A suit under Rev. St., §§ 3318-
does not deprive its creditors of their 3326, by a creditor of an insolvent
right to commence actions against it. bank, on behalf of all the creditors,
Lanz V. Fresno, etc., Sav. Bank, 125 to close up the bank's business and
Cal. 456, 58 Pac. 63. enforce against its officers and stock-
95. Statutory proceedings to wind holders the liabilities created by stat-
up insolvent banks. — The
mere fact ute, is exclusive of all actions on be-
that a bank, incorporated by special half of the creditors, and all are com-
act, not authorized to issue notes
is pelled to seek their remedy therein.
as currency, does not withdraw it from Hurlbut V. Kelly, 63 Wis. 590, 32 N.
the operation of the general banking W. 853.
act of April 16, 1850, prescribing the An action commenced by a creditor
procedure for winding up the affairs and stockholder against an insolvent
of an insolvent bank. In re Shack- bank, alone, for the appointment of a
amaxon Bank (Pa.), 43 Leg. Int. 138. receiver and the settlement of its af-
§ 76 (2b) Injunction. —
By statute in some jurisdictions a court of
equity, upon the application of either a creditor or stockholder, may restrain
by injunction an insolvent bank from the further exercise of any of the
privileges or franchises granted by its charter and appoint a receiver to
take charge of the property and effects of the corporation. But before any
such injunction will issue, the insolvency of the bank must be clearly made
out.9'^ The issuance of the writ is, however, discretionary with the
fairs (Rev. St. 1878, §§ 3318, 3219), in provides that, upon the hearing of the
which the complaint doe.s not allege parties on such short notice as the
that it is brought on behalf of all judge shall appoint, he shall determine
creditors, but prays that they may be whether such corporation and associa-
brought in and made parties, is the tion be clearly solvent or otherwise,
exclusive action, in which not only the and that he may require the officer
assets of the bank are to be adminis- thereof to exhibit any and all of his
tered, but the liabilities of the officers books, papers, accounts, assets, and
and stockholders are to be ascertained effects, and be examined on oath
and enforced, since the complaint is touching the same. Held that, where
capable of being amended so as to jus- it is adjudged that a bank is insolvent,
tify that relief on motion of any cred- the requires rapid and summary
act
itor who has proved his claim. Gager measures for the payment of billhold-
V. Bank, 101 Wis. 593, 77 N. W. 920. ers, depositors, 'and other bank cred-
97. Injunction against insolvent itors, and that all idea of increasing
—
banks. Barnum v. Bank (Mich.), 1 the assets for the benefit of the stock-
holders to the injury, by delay or
Har. 116; Oakley v. Paterson Bank, 2
N. J. Eq. 173; Hurlbut v. Kelley, 62 otherwise of the billholders and depos-
Wis. 590, 22 N. W. 852. itors, is repudiated by the act. In re
Where suit is brought by a creditor, Knickerbocker Bank (N. Y.), 10 How.
in behalf of himself and other creditors Prac. 341.
of an insolvent banking corporation, —
Ex parte hearing. Under the bank
to close up its business, and charge commissioners' act (St. 1877, p. 744),
the directors, trustees, or other offi- as amended by St. 1886-87, p. 90, au-
cers or stockholders, on account of thorizing the attorney general, upon re-
their liability created by law, an in- ceiving a report from the bank com-
junction should issue to restrain missioners chat it is unsafe for a cer-
further action by the bank, and a retain bank to continue business, to
ceiver be appointed. Hurlbut v. Kelly, bring an action to enjoin it from do-
63 Wis. 590, 23 N. W. 853. ing any further business, and authoriz-
Construction of New Jersey statute. ing the court, if, after a hearing, it
—Act February 1, 1838, restricting the deems it necessary, to issue the in-
circulation and discounts of the Pater- junction, and to direct the commission-
son Bank for the time being, did not ers to take such proceedings against
exempt that bank from operation of it as may be decided upon by its cred-
Act February 16, 1839, authorizing the itors, the court has no power, on an
chancellor, on insolvency of any cor- ex parte hearing, to enjoin the bank
poration, to restrain the corporation from doing business, and appoint a
from further exercising its charter receiver therefor. Murray v. American
powers on application of a creditor or Surety Co., 17 C. C. A. 138, 70 Fed. 341;
stockholder and to appoint receivers. People's Home Sav. Bank v. Su-
Oaklev v. Paterson Bank, 2 N. J. Eq. perior Court, 103 Cal. 27, 36 Pac. 1015.
173. —
Necessity for bond. Plaintiff, a
Notice. — Except
where the applica- stockholder in defendant bank, brought
tion is made by the bank commissioner an action against the bank under 2
showing fraud, insolvency, or violation Rev. St., p. 461, regulating "proceed-
of charter, notice should be given of ings against corporations in equity,"
an application for injunction, and a and with the consent of defendant,
case made that would warrant the represented by counsel, an order was
court to wind up the affairs of the made by the supreme court, at gen-
bank. Barnum v. Bank (Mich.), 1 Har. eral term, enjoining defendant from the
116. exercise of its corporate functions, and
Act April 5, 1849, concerning the appointing a receiver of its property.
proceedings against insolvent banks, Held, that the provision of the statute
76 (2b) INSOLVENCY AND DISSOLUTION. 521.
court,®* but a prima facie case of insolvency is usually sufficient.®^ And

even though the bank be solvent, yet if the proceedings were instituted
against the bank for refusal to pay a debt from it, may be
the injunction
continued until the debt is paid,i unless the bank has a good defense on
the merits to such demand.
The bill for the injunction must set forth the necessity for its issuance,^
regulating the giving of a bond on the vency, to justify the issuing of an in-
injunction was waived by consenting junction to restrain the bank from
to the injunction without requiring a disposing of its effects. Bank v. At-
bond. Ferry v. Bank (N. Y.), 15 Hovv". torney General (N. Y.), 3 Wend. 588.
Prac. 445. 1. Laws 1849, c. 226, § 8, provides
Plaintiff, a stockholder in a bank, that, in proceedings against a bank to
brought an action, against the bank, have it declared insolvent upon a re-
under 2 Rev. St., p. 461, regulating fusal to pay a debt due from it, if the
"proceedings against corporations in judge on the hearing determine that
equity," and, with the consent of de- the association is clearly solvent, he
fendant, represented by counsel, an or- shall, notwithstanding, continue the
der was made by the supreme court, temporary injunction, if one has been
at general term, enjoining defendant granted, until the demand of the ap-
from the exercise of the corporate plicant has been fully paid, unless it
functions, and appointing a receiver of shall have appeared that it has a good
its property. Afterwards the defend- defense on the merits to such demand.
ant, on statements claiming that it was Held, that the fact that the demand
solvent, asked the court that such or- was for the payment of a sum of money
der be discharged, and that leave be held by the bank, but claimed also by
granted it to resume, etc., on the third persons, showed a good defense
ground, among others, that the injunc- to the claim, within the meaning of
tion was irregular, having been granted the statute, and that the title to the
without the giving of a bond or un- fund could not be tried in proceedings
dertaking. Held, that the question against the bank. In re Mechanics'
whether a bond was necessary was not Bank (N. Y.), 5 Abb. Prac. 374.
properly before the court, as the dis- 2. Proceedings under Laws 1849, c.
solution of the injunction would not 226, § 7, providing that, after ten days
restore defendant to its property or from the refusal of a bank to pay a
corporate rights without a discharge debt due from it, an application may
of the receivership, and so would af- be made declaring it insolvent, etc.,
ford no substantial relief to the par- must be dismissed, wherever the exist-
ties. Ferry v. Bank (N. Y.), 15 How. ence of a good defense to the demand
Prac. 445. of the creditor of the bank is made to
Under the California statute the in- appear. In re Mechanics' Bank (N.
junction of the trial court is, in effect, Y.), 5 Abb. Prac. 374.
an order throwing the bank into liqui- 3. Form and contents of bill for in-
dation, and until the bank goes into —
junction. Under Act Jan. 21, 1837,
liquidation under such order it is not providing that an injunction may be
protected from the suits of creditors. issued when any banking institution
Until such time it is acting largely in- shall refuse to pay its debts, where
dependent of the courts and of the a bill alleged merely a demand and re-
bank commissioners. Lanz v. Fresno, fusal by the bank to pay its notes,
etc., Sav. Bank, 125 Cal. 456, 58 and contained no allegations of any
Pac. 63. impending mischief, danger, or hazard
98. Act January 21, 1837, providing of the rights of the complainants, an
that an injunction may be issued when injunction was properly refused. Bar-
any banking institution shall refuse num V. Bank (Mich.), I Har. llo.
to pay its debts, is not imperative, but Act March 24, 1903, § 10. St. 1903,
leaves it to the sound discretion of the p. 368, c. 266, as amended by Act
court on a proper case being made. March 20, 1905. St. 1905, p. 304, c. 296,
Barnum v. Bank (Mich.), 1 Har. 116. provides that if the bank commission-
99. Upon a proceeding by the at- ers find that a bank is doing business
torney general, under the statute, for in an unsafe manner, they shall direct
the dissolution of a banking corpora- the discontinuance of such unsafe
tion, it is only necessary for him to practices and if the bank fails to obey,
make out a prima facie case of insol- or if the commissioners unanimously
.and it can not be discontinued by one of the creditors, because it is in be-
half of all.*
§ 76 (2c) Summary Remedies.- —A statute allowing summary reme-

dies against an insolvent bank to wind it up is strictly construed and will
not be extended beyond its plain terms.
§ 76 (2d) Creditors' Suits. —Where a bank has become insolvent and

ceased to do business, one or more of the creditors, stockholders and de-
positors, may bring a creditors' suit for themselves and all others against
the bank and its president for a settlement of its and a distribution
affairs
of its assets, for which purpose the court will appoint a receiver.^ Other
decide it is unsafe for the bank to 1788, to dissolve the bank, and to have
continue business, they shall take con- a temporary receiver appointed. Held
trol of its effects and notify the at- that, as there was serious doubt
torney general who shall commence whether the summary remedy given
suit to dissolve it. In a suit by the stockholders by Laws 1882, c. 409, § 134,
attorney general the complaint alleged applied to banks which did not issue
that the commissioners unanimously notes or credits, the stockholder's ap-
found that the bank was insolvent and plication would be denied, and that of
unable to pay its obligations, and the attorney general granted. Tefft v.
further alleged the fact of insolvency. N'orth River Bank, 26 Abb. N. C. 189,
Held, that, though there was no aver- 14 N. Y. S. 8.
ment in the language of the statute The fact that the bank, in common
that it was unsafe for the o;,nk to con- with all other banking institutions or-
tinue business, the act contemplated ganized under the state law, has power
tliat it was unsafe for an insolvent to issue bank bills to circulate as
bank to continue business, and an al- money, does npt render it amenable
legation of insolvency was equivalent to the summary remedj' given the
to an allegation that it was unsafe for stockholders by the above section 134,
it to continue business. People v. where it is conceded that it has in
Bank, 154 Cal. 194, 97 Pac. 306. fact issued no such bills for twenty-
4. Discontinuance. —
A suit in equity four years. Teflft v. North River Bank,
to obtain an injunction against the of- 26 Abb. N. C. 189,14 N. Y. S. 8.
ficers of an insolvent bank, and to 6. Creditors' suits against insolvent
place its assets in the hands of re- —
banks. Finney v. Bennett, 68 Va. (27
ceiver, though brought by one cred- Gratt.) 365.
itor, is a proceeding in behalf of all Under Gen. St. 1894, §§ 5900-5903, a
of the creditors, and can not, there- creditor of a corporation having bank-
fore, be discontinued by the plaintiff. ing powers may, without having ob-
Atlas Bank v. Nahant Bank (Mass.), tained a judgment at law against it,
23 Pick. 480. maintain an action, in behalf of him-
5. Summary proceedings against self and all other creditors who may
—
banks. Laws 1882, c. 409, subc. 6, choose to become parties thereto,
§ 125, renders stockholders individu- against the corporation, to obtain the
ally liable for the debts of banks "is- relief provided by said sections. Ameri-
suing bank notes or any kind of pa- can Sav., etc., Ass'n v. Farmers', etc.,
per credits to circulate as money." State Bank, 65 Minn. 139, 67 N. W.
Section 134 gives stockholders in such 800.
a bank, on showing its insolvency, a The bank of P. was ruined by the
summary remedy, by which they may late war; and no officers of the bank
enjoin it from continuing business, and have been elected nor has there been
obtain the appointment of a receiver. a meeting of the board since April,
A stockholder in a bank which had 1865, and it has done no business since,
not issued any notes or credits for and in fact it had been abandoned and
twenty-four years applied for the ap- ceased to exist. In April, 1866, H. and
pointment of a receiver undpr said M. suing as well for themselves as for
§ 134, and shortly thereafter the at- all the other stockholders, creditors
torney general also instituted proceed- and depositors, etc., filed their bill
ings under Code Civ. Proc, §§ 1785, against the bank and the president, for
^ 76 (3) INSOI^VENCY AND DISSOLUTION. 523
creditors may, however, come into the proceeding by intervention.'^
§ 76 (3) Parties. —Every one interested in the final closing up of the

business of the bank is a proper party to a creditor's suit for that purpose
and must be joined with the other creditors in the suit.^ But after com-
missioners have been appointed to wind up the affairs of a bank, stockhold-
ers are no longer necessary parties to a suit affecting their holdings. » Where
a settlement of its affairs and a dis- any steps towards bringing the stock-
tribution of its assets. The court ap- holders of the insolvent into the ac-
pointed a receiver in the case, and in tion, any other creditor may, upon an
June, 1866, there was a decree for an ex parte application to the court,
account. Held, it is a proper case for showing the necessity of enforcing the
a creditor's suit. Finney v. Bennett, statutory liability of such stockhold-
68 Va. (27 Gratt.) 365. ers, obtain an order allowing him, in
7. Intervention in suits against in- liis own behalf, and in behalf of all
—
solvent banks. Where creditors of an other creditors, to intervene and file a
complaint making the stockholders
insolvent banking corporation, in ac-
cordance with the terms of, and in re- parties defendant, and to bring them
sponse to, an order of the court, made into the action for the purpose of as-
and published under the provisions of certaining and determining their statu-
§ 5911, have filed their claims in the
tory liability in the same proceeding.
shape of an intervener's complaint, Palmer v. Bank, 65 Minn. 90, 67 N. W.
made under oath, they become parties 893.
to the proceeding or action, and no Amendment to bring in parties. —
formal order of court making them Where a creditor of an insolvent bank-
parties is required. Palmer v. Bank, ing corporation institutes an action
65 Minn. 90, 67 N. W. 893. against it under Gen. St. 1894, c. 76,
§§ 5900, 5901, and secures the appoint-
When a creditor has been allowed, ment of a receiver, but fails to take
upon application, and by order of the
steps towards bringing the stockhold-
court, to intervene and file a com-
ers into the action, and another cred-
plaint, and to bring stockholders into
itor is permitted to file a complaint
an action instituted under the pro-
which brings the stockholders in, the
visions of §§ 5900, 5901, relating to in-
original plaintiff can not then be al-
solvent banking corporations, and they
lowed to amend his complaint to the
have been brought in, there is but one
same end. Palmer v. Bank, 65 Minn.
action or proceeding pending; and as
90, 67 N. W. 893.
the insolvent corporation is already a
defendant therein, it need not be
—
Harmless error. In the interlocu-
tory decree made upon default in a
named as a defendant in said com- proceeding instituted by a creditor of
plaint, nor again he seived with a sum-
an insolvent banking corporation un-
mons. Palmer v. Bank, 65 Minn. 90,
der Gen. St. 1894, c. 76, §§ 5900, 5901,
67 N. W. 893.
the receiver appointed therein was di-
8. Parties to suits and proceedings rected to proceed by suit against the
—
against insolvent banks. Under Rev. stockholders of the bank to ascertain
St., §§ 3218-3236, allowing a creditor to and determine their statutory liability.
bring an action in behalf of all the Thereafter, by a cross bill, the stock-
creditors to close up an insolvent holders of the company were made
bank's business, and enforce against its parties to the action. Held, that the
officials and stockholders liabilities error in the interlocutory decree was
created by statute, or growing out of thereby rendered harmless. Palmer v.
unlawful declaration of dividends, the Bank, 65 Minn. 90, 67 N. W. 893.
creditor instituting the suit need not 9. Where a bank has forfeited its
have been a creditor at the time unlaw- charter, and commissioners appointed
ful dividends were declared. Hurlbut to wind up its affairs, in a bill in equity
V. Kelly, 62 Wis. 590, 22 N. W. 852. against them by a creditor of a stock-
—
Stockholders. Where a creditor of holder to subject the latter's stock to
an insolvent banking corporation in- payment of the debt, the stockholders
stitutes an action against it under the are not necessary parties, their interest
provisions of Gen. St. 1894, c. 76, being fully represented by the com-
§§ 5900, 5901, and secures the appoint- missioners. Dana v. Brown (Ky.), ]
ment of a receiver, but fails to take J. J. Marsh. 304.
a forthcoming bond is given by a bank to secure a return of its assets pend-

ino-.a receivership, any creditor may sue on the bond without joining the
others. 1"
Relators. — By statute in some states an injunction against the trans-
action of any further business by an insolvent bank is brought on the re-
lation of the attorney general. ^^
—
§ 76 (4) Evidence. 1^ Insolvency of' a bank to justify the issuance of
an injunction may be shown by presumptive evidence/^ by general reputa-
tioni* or by the fact of its refusal to pay.^^ But the mere fact that a bank
has suspended specie payment is not proof of its insolvency. ^'^
The suflB.ciency of evidence to prove insolvency depends largely on the
facts in each case.^'^
10. Where, pending an application 14. General reputation. In — a pro-

for appointment of a receiver, a
the ceeding against a bank by the attorney
bond conditioned for the payment of general under the "Act to prevent
all claims against the bank is given to fraudulent bankruptcies," etc., the oath
procure the return of the assets of the of the attorney general, with the affi-
bank, under provisions of Comp. St. davit of the comptroller, that the bank
1901, c. 8, § 35, a creditor can maintain was generally reputed to be insolvent,
an action on such bond, though there and to have suspended payment for ten
are also other unpaid creditors of the days, and of their belief to the same
bank not parties to the action. Rawson effect, were held to be sufficient evi-
V. Taylor, 69 Neb. 473, 95 N. W. 1033. dence of insolvency to authorize an
11. —
Relators. People v. Bank, 154 injunction; the suspension not being
denied by the bank, and the insolvency
Cal. 194, 97 Pac. 306.
having been presented to the court by
The state is a proper party plaintiff the affidavits of creditors in a sepa-
to the action which Act March 26, 1907
rate proceeding. Bank v. Attorney
(St. 1907, p. 232, c. 119), § 10, provides
General (N. Y.), 3 Wend. 588.
the attorney general shall bring to
15. Refusal to pay evidence of in-
prohibit doing of business by a bank-
ing corporation reported unsafe by the
—
solvency. Laws 1849, c. 226, § 7, pro-
vides that, after ten days from the
bank examiner and commissioners.
time of refusal of a bank to pay a
Sparks v. State Bank,
etc., Co. (Nev.),
debt due from it, an application can
103 Pac. 406, 407, rehearing denied in
be made for an order declaring it in-
105 Pac. 567.
solvent. Held, that the fact of refusal
12. What constitutes insolvency, see to pay, continued after the ten days,
post, "Action by Depositors or Others is not conclusive evidence of insol-
for Deposits," § 154. vency, but only shifts the burden of
—
.
13. Presumption of insolvency. In proof from the applicant to the bank.

a proceeding against a bank by the at- In re Mechanics' Bank (N. Y.), 5
torney general under the "Act to pre- Abb. Prac. 374.
vent fraudulent bankruptcies by incor- 16. Suspension of specie payment. —
porated companies, and to facilitate Where a suspension of specie payment
proceedings against them," if in the by banks is general, and nearly univer-
bill filed by way of information facts sal, the mere fact that a bank has sus-
are stated, verified by affidavit express- pended its circulation is not proof of
ing belief in the truth of those facts, its insolvency. Livingston v. Bank (N.
and they are of such a character as to Y.), 5 Abb. Prac. 338, 26 Barb. 304.
raise a fair presumption that the bank 17. Sufficiency of evidence of in-
proceeded against is insolvent, and are —
solvency. Evidence held to sustain a
not contradicted or explained by the finding that a bank was insolvent within
bank, on a motion for the appointment the banking Act of 1903 CSt. 1903, c.
of a receiver after due notice, the fact 266), authorizing-the people on the re-
of insolvency will be considered as lation of the attorney general to pro-
proved within the meaning of the act. ceed in equity to have a bank declared'
Bank v. Attorney General (N. Y.), 3 insolvent. People v. Bank, 159 Cal. 65,
Wend. 588. 112 Pac. 866.
§ 77 (/2aa) INSOI,VE;nCY and DISSOI,UTION. 525
§ 76 (5) Accounting. —
In Louisiana oppositions to the final account
of administration by the liquidators of a bank are limited to their actions
as liquidators, and their acts as directors of the bank previous to the passing
of the bank into liquidation, if subject to attack by the stockholders, should
be attacked in some other proceeding.^*
§ 76 (6) Reference. —In proceedings under Laws of New York 1849,

c. 226, relative to closing up the affairs of insolvent banks, it is not neces-
sary that the referee should ascertain preliminarily whether the officers were
not liable under Laws 1852, 4.i9
c. 71, §
§ 76 (7) Costs. — In an action by stockholders to make the directors

liable, and to wind up the affairs of the bank, each stockholder should con-
tribute to pay the costs in»proportion to the amount of stock held by him. 2"
§ 76 (8) Supplying Vacancies in Board of Directors. —Under the

California statute where vacancies occur in the board of directors after the
commencement of the action to wind up the aifairs of the bank, the court
on application may fill the vacancy.^^
§ and Receivers on Insolvency^^ § 77 (i) Assets

77. Assets —
§ 77 (|a) What Constitutes— § 77 (Jaa) In General.—The capital
stock^s and assets of an insolvent banking corporation constitute from the
18. Accounting by liquidators of bank. Superior Court, 124 Cal. 123, 56 Pac.
—In re Liquidation, 118 La. 664, 43 792.
So. 370. Burden of proof. — On application,
Reference. In re
19. — Empire City in proceedings to liquidate a bank, for
Bank, 6 Abb. Prac. 385. the appointment of a director to take
Act 1849, relating to in.solvent bank- the place of one who has resigned, the
insj a.ssociations, authorizes the re- burden is on the one claiming to have
ceiver to ascertain the debts and lia- been elected to the office to show such
bilities of the bank, and report the election, and where there is no evidence
same to a justice of the supreme court, of, but merely an answer to the peti-
who is then to refer the matter to a tion alleging, such appointment, the
referee, "with directions, after giving court is authorized to appoint another.
notice to all persons concerned, to Braslan v. Superior Court, 124 Cal. 123,
apportion the debts and liabilities 56 Pac. 792.
* * * among the stockholders ratably," 22. Assets and receivers on insol-
and then report his proceedings to said —
vency. Liability of stockholders for
justice. Held, that the referee, in ap- debts and acts of bank, see ante, "Na-
portioning such debts and liabilities, ture and Extent," § 47; "Actions and
is not bound by the report of the re- Proceedings to Enforce," § 49.
ceiver. In re Empire City Bank, 8 Right of receiver to set aside mort-
Abb. Prac. 192, 18 N. Y. 199. ,gage illegally executed by cashier, see
20. Costs.— Dunn v. Kyle, 77 Ky. (14 post, "Bills, Notes and Securities," §
Bush) 134. 109.
Notice of application. In pro-
21. — In dissolution proceedings, see post,
ceedings for the liquidation of a bank, "Liability of Bank to Drav/er for Re-
notice of an application to the court fusal to Pay," § 143; "Payment of Lost
to appoint a director to take place of or Stolen Paper," § 146.
one who has resigned pendente lite 23. Capital stock a trust fund for
need not be given a person claiming all creditors. —
Bank Comm'rs v Se-
to have been elected to such office, curity Trust Co., 75 N. H. 107, 71 Atl.
where he has given no notice to the 377; In re Columbian Bank, 147 Pa.
court of his incumbency, the statute 422, 33 Atl. 626.
not requiring any notice. Braslan v. " 'The capital stock of an incorpo-
526 BANKS AND BANKING. § 71 (/âa)
date of insolvency a trust fund for the payment of the debts of the bank,
in the order prescribed by law, or otherwise pro rata,^* and may be followed
rated bank is deemed a trust fund for Tenn. Lea) 670; Lamb v. Pannell,
(2
all the debts of the corporation; and 28 W. Va. 663, approving Lamb v.
no stockholder can entitle himself to Cecil, 38 W. Va. 653.
any dividend or share of such capital The assets of an insolvent banking
stock, until all the debts are paid, and corporation are a fund for the payment
if the capital stock should be divided, of its debts. If they are held by the
leaving any debts unpaid, every stock- corporation itself, and so invested as-
holder, receiving his share of the capi- to be subject to legal process, they
tal stock, would, in equity, be held may be levied on by such process. If
liable pro rata to contribute to the they have been distributed among
discharge of such debts out of the fund stockholders, or gone into the hands
in his own hands.' In conformity with of others than bona fide creditors or
this is the doctrine held by this court purchasers, leaving debts of the cor-
in Mumma v. Potomac Co. (U. S.), 8 poration unpaid, such holders take the
Pet. 381, 8 L. Ed. 945." Curran v. Ar- property charged with the trust in
kansas (U. S.), 15 How. 304, 14 L. favor of creditors, which a court of
Ed. 705. equity will enforce, and compel the
No power to increase or diminish it application of the property to the
belongs inherently to the bank. It is a satisfaction of their debts. Curran v.
trust fund, held by the corporation as Arkansas (U. S.), 15 How. 304, 14 L.
a trustee. It is subject to taxation Ed. 705.
like other property. If the bank fail, —
Notes to bank. The superintendent
equity may lay hold of it, administer of banking, upon finding a bank re-
it, pay the debts, and give the duced in its capital, required the de-
residuum, if there be any, to the stock- ficit to be promptly supplied, and, upon
holders. If the corporation be dis- negotiation, accepted a note from one
solved by judgment of law, equity may of the directors as sufficient therefor.
interpose and perform the same func- Upon the subsequent failure of the
tions. Farrington v. Tennessee, 95 U. bank, the receiver brought suit on said
S. 679, 24 L. Ed. 55S. note. Held, that the note was an asset
24. Assets are trust fund for cred- of the bank, and not mere collateral,
itors.— Curran v. Arkansas (U. S.), 15 and was therefore primarily available
How. Ed. 705; Baring z/. Dab-
304, 14 L. to creditors. Sickles v. Herold, 11
ney (U. S.),19 Wall. 1, 23 L. Ed. 90; Misc. Rep. 583, 33 N. Y. S. 1083, 66
Nevitt V. Bank (Miss.), 6 Smedes & N. Y. St. Rep. 337.
M. 513; State v. Commercial State Defendant and another made a note
Bank, 28 Neb. 677, 44 N. W. 998; Ex payable to a bank under an agreement
parte Sav. Bank, 73 S. C. 303, 53 S. E. that, if defendant would assign to the
614, 5 L. R. A., N. S., 530n; State v. bank a judgment owned by him, he
Bank, 64 Tenn. (5 Baxt.) 101; Marr v. should not be liable on the note. On
Bank, 44 Tenn. (4 Coldw.) 471; Com- the death of the other maker, the note
fort V. Patterson, 70 Tenn. (3 Lea) was proven as a claim against his es-
670; Leipold v. Maroney, 75 Tenn. (7 tate, and defendant assigned, in ac-
Lea) 128; Hewitt v. Traders' Bank, cordance with the agreement, the judg-
18 Wash. 336, 51 Pac. 468; Lamb v. ment held by him to the bank. Held,
Laughlin, 25 W. Va. 300. that the note ceased to be an asset of
After the insolvency of a bank, and the bank. First Nat. Bank v. New, 146
the nonuser of its franchises, the offi- Ind. 411, 45 N. E. 597.
cers or agents of the corporation, in Note given in payment for stock. —
whose hands the assets remain, hold Where one selling the charter of a
them as quasi trustees for the cred- bank agrees, after its reorganization,
itors, and, as such, may defend the to surrender a note for part of the
right of title thereto, of all the cred- purchase price, and accept stock for
itors of cestui que trusts; otherwise, his debt, whereupon the note is can-
they would, after a payment to a celed without payment, and the amount
single creditor of all the assets, be with- thereof, together with the amount paid
out remedy. State v. Bank, 64 Tenn. in cash, charged to the bank, the note
(5 Baxt.) 101; Marr v. BanR, 44 Tenn. so transferred is assets of the bank,
(4 Coldw.) 471; Smith v. St. Louis, and liable for its debts, and not sub-
etc.. Life Ins. Co., 3 Tenn. Ch. 727; ject to cancellation: and the stockhold-
Moseby v. Williamson, 52 Tenn. (5 ers for whose benefits the charter was
Hei.sk.) 378; Comfort v. Patterson, 70 purchased are pro rata liable for its
§ 77 (/.aa) INSOIvVljNCV AND DISSOLUTION. 527
wherever traceable.^' Accordingly, it is held that a conveyance thereof is

fraudulent and void-^** It should be observed, however, that the assets
would only be the balance of debt due from the debtor, at the date of in-
solvency, after deducting any just credit or setoff. It is only what remains
after a just settlement of mutual debts, which becomes a trust fund for dis-
tribution. ^^ The fact that the state is sole stockholder in a banking corpora-
satisfaction. Moses V. Ocoee Bank, 69 moneys it was held on a bill

deposited,
Tenn. (1 Lea) 398. in chancery brought by another cred-
Discounts. —Where one rediscounted itor of the Eagle Bank to have these
bank the notes of another,
at a certain conveyances set aside and all the funds
who conveyed property to the one so of the bank distributed ratably among
discounting in satisfaction of the debt, its creditors, that such bill could not
the receiver of the bank is not thereby be sustained.
entitled to such property as purchased
with money of the bank. Peters v. V.
25. Following trust fund. —
Johnston
Laflin, 103 U. S. 800, 36 L. Ed. 533;
Bain, 133 U. S. 670, 33 L. Ed. 696, 10 State V. Bank, 64 Tenn. (5 Baxt.) 101.
S. Ct. 354. If such assets " 'have been distributed
Dividends paid out of capital stock. among stockholders, or given in the
— The receiver of an insolvent bank hands of other than bona fide cred'tors
may recover of stockholders the divi- or purchasers, leaving debts of the
dends paid them out of the capital corporation unpaid, such holder.; take
stock of the bank. Corn v. Skillern, the property clothed with the trust in
75 Ark. 148, 87 S. W. 142. favor of the corporation creditors; and
Claim against third person. A de- — a court of equity will follow the prop-
mand held by an insolvent bank erty and enforce and compel its ap-
against a third person is an asset of the plication to the corporation debts.'
bank only in so far as there may be Citing 3 Story's Eq. Jur., § 1252; Cur-
a balance due upon the same after ran V. Arkansas (U. S.), 15 How. 304,
deducting whatever the bank may be 14 L. Ed. 705; Mumraa v. Potomac Co.
owing the person against whom the (U. S.), 8 Pet. 281, 8 L. Ed. 945; 3
demand is held. State v. Brobston, 94 Mason 308; Miss. R. 319; Hightower
Ga. 95, 21 S. E. 146, 47 Am. St. Rep. V. Thornton, 8 Ga. 486; 3 Edwards C.
138. R., affirmed in 9 Paige 153." State v.
Money paid depositor by insolvent Bank, 64 Tenn. (5 Baxt.) 101.
—
bank. Money paid by a bank to a de- Notes and mortgages. Where a —
positor in the usual course of business bank has used general assets, consist-
while the bank is a going concern, al- ing of notes and mortgages, held by
though in fact insolvent, is not im- itas a trust for general creditors, as
pressed with a trust in favor of other a consideration for the purchase of
creditors, where the depositor did not lands deeded in trust for depositors
know the fact of insolvency, and was in the bank, and the amount used is
assured by the officers that the bank definite and certain, and the bank be-
had money to pay all depositors, even comes insolvent, equity will follow the
though he was induced to withdraw notes and mortgages, and require the
the money by rumors of its embarrass- amount to be treated as a trust fund
ment. Livingstain v. Columbian, etc.. for the general creditors. Sadler's Ap-
Trust Co., 81 S. C. 344, 63 S. E. 349, 32 peal, 87 Pa. 154.
L. R. A., N. S., 445. 26. Conveyance of bank assets
Case contra.În Catlin v. Eagle —
fraudulent. Swepson v. Exchange,
Bank, 6 Conn. 333, it was held, that etc., Bank, 77 Tenn. (9 Lea) 713.
the mere insolvency of a bank incor- The rule applies to the property of
porated with the usual powers of such a foreign corporation doing business
an institution does not convert its in the state. Leipold v. Marony, 75
effects into a trust fund for its cred- Tenn. (7 Lea) 138.
itors; therefore when the Eagle Bank 27. Moseby v. Williamson, 53 Tenn.
of New Haven became insolvent, and (5 Heisk.) 378; Comfortv. Patterson,
the directors afterwards mortgaged its 70 Tenn. (3 Lea) 670.
real estate, assigned sundry promis- It has been held, "in cases of cross
sory notes and paid a sum of money indebtedness, the assets of the bank
to the Savings Bank in security and consist only of the balance of the ac-
payment of a debt due from the counts. That is, all the fund which
former to the latter institution for the bank itself would have had t&
528 BANKS AND BANKING. § 77 (/âa)
tion does not prevent the assets from becoming, in case of insolvency, a
trust fund for the creditors. ^s And property conveyed away under an in-
valid assignment for creditors an asset and may be recovered by the re-
is
ceiver.29 But the receiver can not seize and hold as a part of the assets of
the bank, the individual property of one of its officers.^"
Drafts given a depositor to keep him from withdrawing his money

from a bank in failing circumstances is not a trust fund in favor of other
-creditors.^^
satisfy its creditors, in case no re- Where the state was the sole stock-
ceiver had been appointed." Nix v. holder, the bank, as a corporation,
Ellis, 118 Ga. 345, 45 S. E. 404, 98 Am. could nol complain of any course of
St. Rep. 111. action which the legislature saw fit to
28. Effect where state owns bank. — adopt or prescribe. In relation to the
State V. Bank, 64 Tenn. (5 Baxt.) 1. state, it was alter et idem. In this
"That a state, by becoming in- respect its position was very different
terested with others in a banking cor- from that of private corporations. The
poration, or by owning all the capital action of the legislature could only be
stock, does not impart to that corpora- questioned by the creditors of the
tion any of its privileges or preroga- bank. As to the bank itself, the wishes
-tives, that it lays down its sovereignty, of the legislature were commands.
so far as respects the transactions of Baring v. Dabney (U. S.), 19 Wall. 1,
the corporation, and exercises no 22 L. Ed. 90.
power or privilege in respect to those 29. Receivers appointed to receive,
transactions not derived from the char- take, and hold all the property and ef-
ter, has been repeatedly affirmed by fects conveyed by an insolvent bank
this court, in the Bank v. Planters' acquire all the rights of the assignee;
Bank (U. S.), 9 Wheat. 904, 6 L. Ed. accordingly if the bank has made any
344; Bank v. Wistar (U. S.), 3 Pet. preferred assignments in contravention
431, 7 L. Ed. 731; Briscoe v. Bank (U. of the Act of 1833, while insolvent or
S.), 11 Pet. 257, 324, 9 L- Ed. 709; in contemplation of insolvency, such
Darrington v. Bank (U. S.), 13 How. transfer being void except as to bona
12, 14 Iv. Ed. 30. And our opinion is, fide purchasers without notice, the ef-
that the fact that the capital stock of fects so fraudulently transferred be-
this corporation came from the state come a trust fund in the hands of the
which was solely interested in the transferees, which may be recovered
profits of the business, does not af- by the receivers. Hill v. Western, etc.,
fect the complainant's right, as a cred- R. Co., 86 Ga. 284, 12 S. E. 635.
itor, to be paid out of its property; a
right which, as we have seen, follows
30. Individual property of officers. —
Where a receiver of an insolvent bank,
the fund into the hands of every per- under an order of the court to open
son, save a bona fide creditor or pur- a safety-deposit vault belonging to the
chaser, and which a court of equity is president of the bank, and get bank
bound to enforce by its decree against property, seized individual property of
any party except such a creditor or the president, the bank did not ac-
purchaser capable' by law of being quire an equitable lien thereon, good
brought within its jurisdiction.'' Cur- against a subsequent transfer of the
ran V. Arkansas (U. S.), 15 How. 304, property by the president. University
14 L. Ed. 705. V. Globe Sav. Bank, 185 111. 514. 57 N.
"So far, therefore, as the property E. 417.
of this bank has become vested in the
state or gone to its use, it is so vested
When lands conveyed by the presi-
and used, charged with a trust in favor dent of an insolvent bank had been
of this complainant, as an unpaid cred-
purchased with bank funds, which he
itor, unless there is something in the
had misappropriated, but which were
character of the parties, or the con- afterwards replaced by him, the bank
sideration upon which, or the opera- has no claim upon such property. Uni-
tion of the laws by force of which, it versitv v. Globe Sav. Bank, 185 111. 514,
57 N. E. 417.
lias been transferred, taking the case
out of the principles above laid down." 31. Petitioner made q check on a
Curran v. Arkansas (U. S."), 15 How. bank for the amount of his deposit
304, 14 L. Ed. 705. therein, and received payment in
§ 77 (/.cc) INSOLVENCY AND DISSOLUTION. 529
Secret agreements that assets carried as such and on which creditors

have a right to rely shall not be so treated or regarded are of no avail.^^
§ 77 (ibb) Surplus from Sale of Collateral.— The well-settled

general rule that property pledged as security for a debt can not be ap-
propriated by the pledgee to other debts, applies to securities pledged as col-
lateral for a loan from a bank. Accordingly, upon the insolvency of the
pledgor bank the pledgee has no right to hold the property for any other
debt than that for which it was pledged. Accordingly the surplus must be
returned to the receiver for the benefit of general creditors.^^
§ 77 (Jcc) Unpaid Subscriptions and Statutory and Other Lia-

bilities of —
Stockholders. Undoubtedly unpaid subscriptions to stock are
assets, and have frequently been treated by courts of equity as if impressed
with a trust sub modo, in the sense that neither the stockholders nor the
corporation can misappropriate such subscriptions so far as creditors are
concerned. Creditors have the same right to look to them as to anything
else, and the same right to insist upon their payment as upon the payment
of other debt due to the corporation. The shareholder can not transfer his
shares when the corporation is failing, or manipulate a release therefrom,
for the purpose of escaping his liability. And the principle is the same
where the shares are paid up, but the shareholder is responsible in respect
thereof to an equal additional amount.^* A recovery against bank stock-
money in the usual course of business. 32. Validity of agreements as to

He was induced to withdraw his de- what constitutes —
assets. Where a
posit by rumors that the bank was in bank transfers to a director shares of
difficulty, and the knowledge that there its stock it had taken in payment of
had been a run on it for the previous a debt, but which it was not permitted
two days. He inquired of the officers, by law to retain, and receives in ex-
however, and was told that the bank change the director's note, which is re-
was solvent, and would pay all checks newed, and held by the bank as an as-
as presented. After receiving and set for several years, upon the failure
counting the money, believing such of the bank the maker of the note can
statements in good faith, he returned not plead a secret agreement with an-
it. and took drafts for the amount. other director which nullifies the note.
The bank was in fact insolvent, and Atwater v. Smith, 73 Minn. 507, 76 N.
was declared insolvent the next day. W. 253
The drafts were not paid because the 33. Surplus from sale of collateral.
bank on which they were drawn ap- — In a receivership proceeding to wind
plied the fund to the payment of notes up the afifairs of an insolvent bank,
of the insolvent bank, which it held, evidence considered, and held to sup-
?nd which were secured bv collateral. port a finding that collateral, given by
Held, that the money which petitioner the insolvent bank to a correspondent
received was not impressed with any bank as security for loans, covered
trust in favor of other creditors, and such loans only, and did not apply to
that he stood in the same position as subsequently accruing indebtedness.
any purchaser of the drafts for cash, Brown v. Sheldon State Bank, 139
and was entitled in equity to be sub- Iowa 83. 117 N. W. 289.
roeated to the rights of the bank on 34. Unoaid subscriptions and statu-
which thev were drawn in the col- tory liability of stockholders as assets.
lateral which it held. Livinestair, v. —Peters v. Bain, 133 U. S. 670, 33 L.
Columbian, etc.. Trust Co, 81 S. C. Ed. 696, 10 S. Ct. 354.
244, 62 S. E. 249, 22 L. R. A., N- S., On the question whether the statu-
445. tory liability of stockholders is or is
1 B & B— 34
530 BANKS AND BANKING. § ^7 (/2b)
holders on the ground of illegal payment of dividends, the publishing of

false reports, theunlawful permitting of excessive loans, or the acceptance
of deposits while insolvent would be an asset of the bank, and the action
therefor should be brought by the receiver.*^
§ —
77 (Jdd) Credits. Credits allowed a stockholder on his note given
in payment of the stock issued to him by the bank may be recovered by the
receiver for the benefit of creditors.^®
§ 77 (iee) County Money Wrongfully in Bank. —Where a county

treasurer deposited county funds in a bank and failed to withdraw the ex-
cess of the deposit over theamount secured by the indemnity bond, required
by Rev. Codes, § 3003, no one would be heard to say that the funds wrong-
fully in the bank should not be withdrawn on its insolvency .^'^
§ —General Rules for Distribution

77 (|b) Distribution of Assets.
of the Assets. —An examination of the authorities that the rule
indicates
applicable to the distribution of an estate assigned for the benefit of the
creditors of an insolvent govern in the distribution of the estate of an insol-
vent corporation in the hands of a receiver. ^^
not a corporate asset, there is consid- in its nature, does not affect any
erable conflict. In some jurisdictions vested right of the creditor, and is ap-
it is not so regarded. McLaughlin v. plicable in this case. Moore v. Rio-
Kimball, 20 Utah 254, 58 Pac. 685, 77 ley, 106 Ga. 556, 82 S. E. 647.
Am. St. Rep. 908. —
Rule in Kentucky. The double lia-
But in others a contrary rule has ap- bility of stockholders in an insolvent
parently been adopted. Wilson v. banking corporation to creditors, im-
Book, 13 Wash. 676, 43 Pac. 939; Wat- posedby Ky. St. 1903, § 547, does not
terson v. Masterson, 15 Wash. 511, 46 constitute assets of the corporation
Pac. 1041; Gushing v. Perot, 175 Pa. subject to administration by a re-
66, 34 Atl. 477, 34 L. R. A. 737, 52 Am. ceiver, under § 616. Conway v. Owens-
St. Rep. 835. boro Sav., etc., Trust Co., 165 Fed.
—
Rule in Georgia. Under the Act of 822.
1894 (Civil Code, § 1890), the individual 35. McTamany v. Day (Idaho), 128
liability of the stockholder under a Pac. 563.
charter imposing such liability is de-
clared to be an asset of the corpora-
36. Credits allowed a stockholder. —
Fitzpatrick v. McGregor, 133 Ga. 332,
tion, subject to be enforced by the as-
65 S. E. 859.
signee, receiver, or other officer, hav-
ing the legal right to collect, marshal,
—
Interest on credits. In an action to
hold defendant, a stockholder of the
and distribute the assets of the in-
bank of which plaintiff was receiver,
solvent corporation. Wheatley v. liable, for the benefit of creditors of
Glover, 125 Ga. 710, 54 S. E. 636.
the bank for the amount of a credit
Where an act incorporating a bank allowed defendant by the bank while
provides that each stockholder shall
insolvent, on a note held against him
be individually liable for the ultimate
by the bank in consideration of a sale
payment of the debts of said corpora- by him to the bank of his shares of
tion to an amount equal to the amount
stock, the receiver may recover in-
of stock held by him, such liability,
terest on the credit received at the
since the passage of the act of 1894,
same rate the note bore. Fitzpatrick
may be enforced by the receiver of an V. McGregor, 133 Ga. 332, 65 S. E. 859.
insolvent corporation, notwithstanding
the act was passed subsequently to the 37. Coimty money wrongfully in
act of incorporation which fixed the
bank. — Yellowstone County v. First,
liability. The provision of the subse- etc., Sav. Bank (Mont.), 138 Pac. 596.
quent act that such liability shall be 38. Rules for distribution of assets.
considered as an asset of the bank and — Citizens' Bank v. State, 8 Kan. App.
enforced by the receiver, is remedial 468, 54 Pac. 510.
§ 77 (Ice) INSOLVENCY AND DISSOLUTION. 531
Compelling Election between Securities. —In the distribution of the

estate of an insolvent hands of a receiver, the
banking corporation in the
assets of the estate should be distributed upon equitable principles. Ac-
cordingly, where there are two funds to which a creditor can resort, and
other creditors are limited to one of them, the former will be compelled to
exhaust the fund upon which he has an exclusive lien, and will be permitted
to resort to the other for the deficiency only.^s
Right of Stockholders to Interpose Objections. In distributing the —
assets between creditors and stockholders, the stockholders can insist on
excluding the creditors as to all demands against the corporation which are
barred by the statute of limitations.*"
—
Costs of Administration. The general rule that the expense incident
to administering a special fund is a charge upon it, applies in the case of
funds created by banks for the special benefit of a class of their creditors.*^
§ 77 (1) Appointment and Removal of Receiver § 77 (la) —

—
Purpose of Appointment. The appointment of a receiver is only a pro-
visional appointment for the more speedy getting in of the estate or assets,
in relation to which the appointment extends, and for the better securing
the same for their safety and the benefit of those who may be entitled
thereto.* 2
§ 77 (lb) Selection, Qualification and Compensation —§ 77 (laa)

In General. —A person appointed as a receiver of a bank should be an im-
partial and disinterested person.*^
§ 77 (Ibb) Oath. —A an insolvent bank

statute requiring a receiver of
to take an oath of office is merely directory, and the omission to take it
before the commencement of a suit does not incapacitate him to sue.**
§ 77 (Ice) Bond. —The rules as to the liability of sureties on the

official bond of a receiver are in no wise different from the rules applying
to other official bonds. *^
39. Compelling election between tive participant in such transactions,

securities. — Citizens' Bank v. State, 8 was cog-nizant of and consented to
Kan. App. 468, 54 Pac. 510. them, should not be appointed or con-
40. Johnston v. Talley, 60 Ga. 540. tinned as its receiver. Coy v. Title,
41. Costs of administering fund. — etc.. Trust Co., 157 Fed. 794.
Bank Comm'rs v. Security Trust Co., Bank officer should not be receiver.
75 N. H. 107, 71 Atl. 3J7. — On a proceeding against a bank for
42. Purpose of appointment of re- the appointment of a receiver under
ceivers. —
Lafayette Bank v. Bucking- the statute, on account of insolvency,
an officer of the bank is not a proper
ham, 13 O. St. 419.
—
_
43. Qualification of receivers. Cun- person to be appointed receiver. At-

ningham v. United States Nat. Bank, torney General v. Bank (N. Y.), 1
6 Okl. 184, 51 Pac. 119. Paige 596.
Where a large part of the assets of 44.Oath of receiver. Dayton v. —
an insolvent banking corpora.tion con- Borst, 20 N._Y. Super. Ct. 115.
sists of obligations of subsidiary com- 45. Liabilities of sureties on receiv-
panies and firms formed by its officers er's bond. —
The legislature having al-
and largely financed by it, an officer lowed the assignees appointed to wind
and director who, although not an ac- up the afifairs of the Bank of Illinois
532 BANKS AND BANKING. § 77 (Iff)
§ 77 (Idd) Number of Receivers.- —The number of receivers to be

appointed is usually left to the discretion of the court.* ^
§ 77 (lee) Compensation. —
A receiver of an insolvent bank may be
allowed compensation for his services, to be fixed by considering the re-
sponsibility assumed, the skilland labor expended, and the rate of pay
usually allowed for similarwork and not to be determined by a percentage
;
on collections and for commissions for services rendered by him as broker

in raising money for mortgage debtors to the bank to enable them to dis-
charge their debts.*'^
§ 77 (Iff) Temporary Receivers.— By statute in New York, in an

action brought by the attorney general to dissolve a banking corporation
because of its insolvency, the court may appoint a temporary receiver until
final judgment is entered, with power to collect and receive the debts, de-
mands and other property of the corporation, to preserve the property and
the proceeds of the debts and (lemands collected, and to sell or otherwise
dispose of the property as directed by the court. And this receiver is at
all times entitled to the advice and protection of the court.**
four years to discharge their duties, dividend payments will be disallowed.

requiring a bond for the faithful per- Special Bank Comm'rs v. Franklin Sav.
formance thereof, it was held that a Inst., 11 R. I. 557.
subsequent extension of the term for —
Partial compensation. In a suit by
two years, without the assent of the the state to dissolve a bank under Rev.
sureties, operated as a discharge of St. 1899, § 3101, a stockholder was ap-
the sureties as to all acts of a principal pointed receiver. It appeared that
done after the expiration of the four there was an understanding between
years. But the sureties were liable for the receiver and other stockholders
moneys received by the principal, and and creditors that, when the work was
not paid over as required by law, dur- done and the affairs of the bank com-
ing the said four years. Thomas v. pleted, the court should fix a reason-
Lagow, 43 111. 134; Thomas v. Bow- able compensation, depending on the
man, 44 111. 499. outcorhe of the affairs of the bank.
Though Comp. St. 1901, c. 8, § 35, Held, that the understanding did not
provides for the delivery of the assets preclude the court from allowing par-
of an insolvent bank to the officers or tial compensation from time to time
owners furnishing a bond, a delivery for services rendered and less than the
to one of several parties entitled value thereof, but the court could not
thereto under the statute does not re- fix the entire compensation until all
lieve the sureties on the bond from lia- the services had been performed and
bility, where by their acts they assent his final report approved. Riordan v.
to such delivery. Taylor v. Weckerly, Horton (Wyo.), 94 Pac. 448.
09 Neb. 739, 96 N. W. 618. 48. Temporary receivers under New
46. Number of receivers to be ap- York —
statute. People v. St. Nicholas
pointed.— By § 62, Rev. St. of Maine, Bank, 76 Hun 522, 28 N. Y. S. 114, 58
1841, the number of receivers to be ap- N. Y. St. Rep. 843.
pointed by the court, to take posses- Notice of an application for appoint-
sion of the property of a bank on ap- ment of temporary receivers of a bank,
plication of the bank commissioners, as authorized by Laws 1902, p. 113, c.
in case they deem the bank unsafe, is 60, § 1, having been improperly dis-
left to the discretion of the court, or pensed with, it was proper for the
of the justice by whom the appoint- judge who granted the order of ap-
ment is made. Wiswell v. Starr, 50 pointment, to thereafter grant an or-
Me. 381, der, on application by the bank, to
47. Compensation of receivers. — show cause whj' the order appointing
gratuity paid by him to a policeman receivers should not be set aside, and
for assisting in keeping order during thus give the bank an opportunity to
77 (Ic) INSOLVENCY AND DISSOLUTION. 533
§ 77 (Ic) Grounds for Appointment of Receiver. While the ap- —

pointment of a receiver for a bank is in the sound discretion of the court
or judge,^^ a receiver should be appointed where a banking corporation has
ceased to exercise its corporate functions, 5" or where its capital has be-
come seriously impaired,^! even though the bank makes an assignment for
be heard to set aside the order im- tion of any issue upon the plaintiff's
providently granted without notice, allegations essential to sustain the ac-
and the effect of the order to show tion, or upon facts alleged in defense,
cause was not to review the former it is discretionary with the court to ap-
order, but rather to grant a hearing point a receiver or not, yet before such
on the propriety of appointing receiv- formal determination, if it is admitted
ers at all, and to advance the hearing that the facts which give the right of
on the original order to show cause action exist, and there is no defense,
why the receivers should not be made it will be an abuse of discretion to re-
permanent, embraced in the order for fuse to appoint a receiver. State v.
temporary receivers. People v. Orien- Bank, 55 Minn. 139, 56 N. W. 575.
tal Bank, 134 App. Div. 741, 109 N. Y. 50. Failure to exercise corporate
S. 509. functions. —A creditors' bill, brought
Order of —An
order
court. to by certain creditors of a bank which
show cause why a bank should had never been organized under the
not be dissolved, and appoint- terms of its charter, against the execu-
ing temporary receiver, may be trix of S., the deceased owner, who had
granted on application of the directors, operated the bank under its corporate
though the superintendent of banks name, and certain creditors, who, after
has previously taken possession of the the death of S., had obtained judg-
bank's property and business under ments against the bank and were seek-
Laws 1S92, c. 689, § 17 (Banking Act), ing to enforce them, prayed to have
as such statute authorizes him only to the judgments in favor of the defend-
hold the property, and not to manage ants declared void, and the supposed
the bank's concerns, or act for it in assets of the bank declared a part of
any way. Williams, J., dissenting. In the estate of S., and for the taking of
re Murray Hill Bank, 9 App. Div. 546, an account, etc. It appeared that, if
41 N. Y. S. 914. the bank ever had any corporate ex-
In an action commenced by the at- istence as to those who had done busi-
torney general for the dissolution of a ness with it in good faith, it had vol-
banking corporation on the ground of untarily dissolved; that no one claimed
insolvency, an order appointing tem- the stock; and that all the supposed
porary receivers was reversed on ap- officers disclaimed their ofKces. Held
peal because receivers had previously a proper case for the appointment of
been appointed for the property of the a receiver. Dobson v. Simmonton, 78
bank, by another branch of the court, N. C. 63.
in a pending action commenced for its 51. Impairment of capital as ground
voluntary dissolution by the directors. —
for appointment of receiver. In a pro-
Afterwards a judgment of dissolution ceeding by the commonwealth for the
was entered in the action by the peo- appointment of a receiver for a bank
ple. Held, that an order of the court on the ground of impairment of its
in which the action for voluntary dis- capital, insolvency, and violation of
was pending, thereafter made
solution the law, evidence held to show that the
on motion of its receivers, requiring bank's capital was seriously impaired
the former receivers of the other court when the proceeding was begun. Im-
to turn over the property remaining in perial Bank v. Commonwealth, 140 Ky.
their hands to its own receivers, was 210, 130 S. W. 1074.
without jurisdiction. In re Murray A bill filed by a stockholder on be-
Hill Bank, 14 App. Div. 318, 43 N. Y. half of herself and others who may
S. 836, affirmed in 153 N. Y. 199, 47 N. choose to join, against a banking cor-
E. 298. poration, which charges that the as-
49. Grounds for appointment of re- sets thereof have been wrongfully con-
ceiver. — In
an action by the attorney verted, can be traced by a receiver, if
general against a bank under the gen- appointed, and will be dissipated if a
eral statutes of Minnesota for the ap- receiver is not appointed, and which
pointment of a receiver, the rule is as likewise charges, among other things,
follows: Before the formal determina- that the principal of the offending of-
534 BANKS AND BANKING. 77 (Ic)
creditors after the commencement of the action for the appointment of the
receiver.^2 But no appointment should be made unless it appears that there
is danger of loss of or injury to the property.^* Moreover, to justify
the appointment of a receiver of a bank, the facts on which such relief is
granted must be proved by competent legal evidence.^*
ficers of such corporation has been furthering a fraudulent scheme. Had-

discharged in bankruptcy, that the ley V. People's United States Bank, 3 97
complainant stockholder has been paid Mo. 574, 94 S. W. 953.
nothing on account of her investment, Failure of stock books to reveal
and that no account has been made —
stockholders. Where subscriptions to
with her or her fellow stockholders, the stock of a bank were received in
makes a proper case for the appoint- small amounts by its president, and in
ment of a receiver for such corpora- some instances not fully paid for, the
tion. Chandler Mortg. Co. v. Loring, fact that the stock was carried in the
113 111. App. 423. name of the president, and that the
52. Effect of assignment by bank.— stockbooks did not show the names
After the institution by a creditor of of the actual stockholders, was not
an action against an insolvent banking ground for the appointment of a re-
corporation, under Gen. St. 1878, c. 76, ceiver of the bank; a bona fide effort
his right to the appointment of a re- having been made to remedv such de-
ceiver and to an injunction under such fect on demand of the secretary of
chapter can not be affected by an as- state. Hadley v. People's United
signment made by the corporation un- States Bank, 197 Mo. 574, 94 S. W. 953.
der the insolvent law of 1881. State Unlawful purchase of stock. Where—
V. Bank, 55 Minn. 139, 56 N. W. 575. a bank purchased certain stock in other
53. In a proceeding by the attorney corporations in violation of Rev. St.
general for appointment of a receiver 1899, § 1276, which was also a violation
of a bank, it was alleged that the pres- of its charter, but a demand of the sec-
ident had obtained proxies from eighty retary of state that the stock be im-
per cent of the stockholders, couched mediately disposed of was promptly
in such terms as to be dangerous to complied with, such misconduct was
the health of the bank. It was also not ground for the appointment of a
charged that the promotion expenses receiver to wind up the bank's affairs,
were charged to the bank without be- as provided by §§ 1305, 1307. Hadley
ing allowed by its board of directors, V. People's United States Bank, 197
and that a note for such expense, Mo. 574, 94 S. W. 953.
signed by the president and certain Election of dummy directors. Un- —
other individuals, should be paid. It der Rev. St. 1899, §§ 1305, 1307, grant-
was also contended that L., was chosen ing to the secretary of state visitorial
president and director, though he was powers over banks, to be exercised
not the bona fide owner of two shares and enforced by the attorney general,
of stock, as required by Rev. St. 1899, the fact that a bank after its organiza-
§ 1281. Held, that all of such objection wrongfully elected certain direct-
tions were curable by proceedings ors who were mere dummies to the
which the secretary of state was au- president, who was its chief promoter,
thorized to take by § 1305, and were and thereafter loaned large sums to
therefore not grounds for the appoint- corporations controlled by such presi-
ment of a receiver to wind up the af- dent, in violation of representations
fairs of thebank. Hadley v. People's made by him, which defects were cor-
United States Bank, 197 Mo. 574, 94 S. rected on objections by the secretary
W. 953. of state, constituted no ground for the
Issuance of fraud order against bank. interposition of equity and the appoint-
— Where a bank was incorporated for ment of a receiver to wind up its affairs
on a petition filed by the attorney gen-
the purpose primarily of doing a mail
order banking business, the issuance
^
eral on behalf of the state. Hadley v.
of a fraud order against it by the post People's United States Bank, 197 Mo.
office department, in the absence of the 574, 94 S. W.953.
facts on which such order was based, 54. Showing as to grounds for ap-
could not operate as a ground for the —
pointment of receiver. This require-
appointment of the receiver of the ment is not met by a verified complaint
bank, nor as proof in itself that the alone, though the allegations are posi-
bank was organized for the purpose of tively made, and especially where the
§ 77 (laa) INSOLVENCY AND DISSOLUTION. 535
§ 77 (Id) Proceedings for Appointment of Receiver § 77 (laa) —

—
In General. The statutory provisions prescribing proceedings for the
appointment of a receiver must be complied with.ss By the statute of Cal-
ifornia, the court is authorized to appoint a receiver as a part of the relief
sought in the action to enjoin the bank from the transaction of any fur-
ther business, without any allegation of the necessity therefor in the com-
plaint. The appointment of a receiver for the purpose of liquidation is a
part of the method provided by the act for the winding up of the affairs of
the corporation and under the terms of the act necessarily follows the ad-
judication of the insolvency.5^
allegations of the complaint are on in- ous to make the order for a sequestra-
formation and belief, or such as can tion and appointment of a receiver
only come from information. People without a previous judgment by de-
V. Oriental Bank, 124 App. Div. 741, fault. Huntington v. Crescent City
109 N. Y. S. 509. Bank, 18 La. Ann. 350.
55. —
Ex parte petition. Nteither Code —
Rule in Kansas. Under chapter 43,
Civ. Proc, §§ 141, 142, providing for Laws 1891, requiring the bank com-
the appointment of a receiver in cer- missioner to "take charge" of the as-
tain cases "by the court in which the sets and affairs of an insolvent bank,
action is pending;" nor Gen. St., § 358, it was necessary for the bank commis-
providing that, when suits are brought sioner to take actual personal posses-
against stockholders, "courts of equity sion of the property and assets, as a
shall have full power, on good cause condition precedent to the institution
shown, to dissolve the corporation and of an action by the attorney general
appoint a receiver," authorize the ap- for the appointment of a receiver for
pointment of a receiver on an ex parte such bank; and the property of an in-
petition by an insolvent bank, in which solvent bank, prior to the taking of
it asks to be dissolved, if at the time such actual possession by the commis-
no action is pending. Jones v. Bank, sioner, was subject to seizure bj' at-
10 Colo. 464, 17 Pac. 272. tachment or other legal process at the
Notice.—Under Kurd's Rev. St. 1905, suit of its creditors. Dodson v. Wight-
c. 16a, § 11, which provides that the man, 6 Kan. App. 835, 49 Pac. 790.
auditor of state shall give thirty day's An
order of court directing money
notice to the president of a bank to to be deposited with a banker upon
have the impairment of its capital stock condition that he pay interest thereon
made good by the stockholders, or a as long as it is in his hands, does not
reduction of the stock, and that, should constitute him a receiver so that his as-
neither be done, the auditor shall sue signees are subject to a rule for its
the stockholders, or, if the conditions payment to the receiver appointed.
so warrant, have a receiver appointed Coleman v. Salisbury, 52 Ga. 470.
to wind up the affairs of the bank, a 56. —
Rule in California. In a suit by
an attorney general under Act March
bill by the auditor for the appointment
of a receiver is insufficient if it does 24, 1903, § 10, St. 1903, p. 368, c. 266, au-
not allege that the auditor gave the thorizing a suit to enjoin a bank from
proper thirty days' notice, since the continuing business if it fails to obey
giving of the notice is a condition pre- the order of the bank commissioners
cedent to both the suit against the as to the manner of doing business, or
stockholders and the bill for a receiver. if the commissioners decide it is un-
People V. Milwaukee Ave. State Bank, safe for the bank to continue business,
230 111. 505, 82 N. E. 853. the attorney general, on being notified,
—
Rule in Louisiana. On the same shall commence an action to enjoin
the bank from transacting further busi-
day that a holder of a bank bill filed
in court a notice of its protest for non- ness, and the court, if it finds it insol-
payment a sequestration was ordered vent, shall order the commissioners to
to issue, a receiver was appointed, and surrender the property to a receiver
the bank was ordered to show cause appointed by the court, it was unnec-
within ten days why the said note was essary to make an issue as to the ap-
not paid on presentation. Held, that pointment of a receiver or to pray for
under Act March 15, 1855, as amended such relief, since the statute authorized
by Act March 18, 1858, it was errone- such appointment, upon a finding of
536 BANKS AND BANKING. § 77 (Ice)
§ 77 (Ibb) Jurisdiction and Powers of the Court. —The particular

judge or court to whom the application for the appointment of a receiver is
to be presented is governed by statute in the various jurisdictions and these
acts should alviâys be consulted But ordinarily this appointment may
first. ^^
be made in vacation.^* making the order appointing a receiver

If the judge
is a debtor of the bank this disqualifies him. so However, the court appoint-
ing the receiver acquires plenary powers over the entire subject matter of
the receivership.®"
§ 77 (Ice) The Petitioner. —As to who is the proper petitioner, the

statutes in the different jurisdictions vary.^^ But such appointment is
insolvency, as a part of the relief 1893, c. 478, requires the state treasurer
sought by the action. People w. Bank, to appoint some one to examine and
154 Cal. 194, 97 Pac. 306. report on the condition of the state
St. Cal. 1877-78, p. 740, as amended banks, and, if it appears that a bank is
by St. 1887, p. 90, creating a board of insolvent, or in immediate danger of
bank commissioners, and authorizing becoming so, the treasurer is to insti-
(section 11) the attorney general, on tute proceedings in the superior court
their request, to commence suit to en- of Wake county for winding up the
join any bank which is violating its bank and appointing a receiver. Held,
charter from transacting further busi- that an application by the treasurer for
ness, and cause its affairs to be wound the appointment of a receiver can be
up under the direction of the commis- made to the resident judge, or the
sioners, does not authorize the court, judge holding the courts by assign-
in such a proceeding, to appoint a re- ment or by exchange, of the judicial
ceiver. Murray v. American Surety district in which Wake county is situ-
Co., 17 C. C. A. 138, 70 Fed. 341; S. C, ated. Worth V. Piedmont Bank, 121 N.
61 Fed. 273; People's Home
Sav. Bank C. 343, 28 S. E. 488.
V. Superior Court, 103 Cal. 27, 36 Pac. 58. Power of court in vacation. —
1015. In the absence of any statute, the cir-
57.Jurisdiction and power to ap- cuit court has power in vacation to ap-
point receiver. —
Const., art. 6, § 2, con- point a receiver of an insolvent bank,
fers original jurisdiction on the su- and to confirm the provisional appoint-
preme court in all civil cases in which ment on the assembling of court, and
the state is a party. Banking Law, § this power is not abridged by Rev. St.
14 (Laws 1889, p. 397), provides that, 1889, § 2193, providing that the court
in certain contingencies, the attorney or any judge in vacation shall have
general shall apply to the supreme power to appoint a receiver, whenever
court, or to the district court of the it shall be deemed necessary, whose
county where the bank carries on busi- duty it shall be to keep any money or
ness, for the appointment of a re- other thing deposited in court, or that
ceiver to take charge of and wind up may be the subject of a tender, and to
the business of a bank which is insol- keep all property and protect any busi-
vent or carrying on its business in an ness intrusted to him pending any pro-
unsafe manner, etc. Held, that the .su- ceeding concerning the same. Greelev
preme court had jurisdiction of such V.Provident Sav. Bank, 103 Mo. 212, 15
application. State v. Commercial State S. W. 429.
Bank, 28 Neb. 677, 44 N. W. 998. Qualification of judge appointing
59.
The power of the circuit court to ap- —
receiver. United States Nat. Bank v.
point a receiver, under the Act of 1869, National Bank, 6 Okl. 163, 51 Pac. 119.
to place insolvent banks in liquidation, 60. Where a court in a suit by the
held not to be superseded by an order state appoints a receiver of a banking
— under a bill filed by the president and corporation, it secures full jurisdiction
directors to wind up the affairs of the to adjust all interests and demands,
bank "according to the course they had legal or equitable, and to control all
—
been pursuing" directing payment of controversies affecting the receiver-
creditors' claims at the banking house, ship. State V. State Bank, 84 Kan. 366,
out of the assets, "the president and 114 Pac. 381.
cashier acting as receivers," etc. Don- 61. Whomay petition for receiver.
aldson V. Johnson, 3 S. C. 216. — In West Virginia the commissioner
Acts 1891, c. 155, as amended by Acts of banking, by and with the consent of
§ yy (idd) INSOLVENCY AND DISSOLUTION. 537
usually made on petition of the creditors,''^ or stockholders.^
§ 77 (Idd) Notice. —Although the banking act makes no provision

with regard to notice of proceedings for the appointment of a receiver, such
notice must be given, otherwise all proceedings of the court in the matter of
the receivership will be void for want of jurisdiction.^* But by statute in
the governor and attorney general, is his report until the insolvency of the
allowed to petition a court of compe- bank was publicly known. Worth v.
tent jurisdiction to appoint a receiver Piedmont Bank, 131 N. C. 343, 28 S. E.
for an insolvent bank or any such in- 488.
stitution refusing to make special re- 63. Stockholders may petition for
ports. West Virginia Code, 1906, § receiver. —Where a bank has ceased to
3418. exercise its corporate rights for three
Appointment by legislature. —The ap- years, the directors have had
while
pointment of a receiver by the legisla- charge of assets without accounting
its
ture, to settle the affairs of an insol- to the stockholders, the latter, 'in a suit
•vent bank, is not a judicial act. Carey against the former for neglect and
'J. Giles, 9 Ga. 253. waste of the assets, are entitled to the
Directors.— Under St. 1903, p. 155, c. appointment of a receiver ex parte.
88, § 94, providing that, whenever the Warren v. Fake (N. Y.), 49 How. Prac.
assets of a corporation are in danger 430.
of waste from litigation, holders of All the stockholders of an insolvent
one-tenth of the capital slock may ap- bank are not necessary parties to an
ply for an order dissolving the corpo- application for appointment of a re-
ration and appointing a receiver, and ceiver for the bank. Judgment, 57 N.
Comp. Laws, § 3313, providing that an Y. S. 187, 39 App. Div. 151, affirmed.
injunction suspending the business of Howarth Angle, 162 N. Y. 179, 56 N.
v.
a corporation shall not be granted E. 489, 47 L. R. A. 735.
without notice, in a proceeding by The right of a stockholder to obtain
stockholders to appoint a receiver for the appointment of a receiver of a
a bank and to enjoin its further oper- state banking corporation is not pro-
ation, the directors must be made par- hibited by Code 1873, § 1573, providing
ties,and notice commanding an ap- that the auditor, when satisfied from
pearance forthwith to show cause why its report that such corporation is in-
a receiver should not be appointed is solvent, shall direct the attorney gen-
not a sufficient notice. Golden v. Ave- eral to commence proper proceedings
rill (Nev.), 101 Pac. 1021. to have a receiver appointed; or by
62.Creditors are usually the peti- Code, tit. 30, c. 6, providing for oust-
—
tioners. ^^Creditors of an insolvent ing corporations from their franchises
bank petitioned to be substituted as and winding up their affairs. Dicker-
plaintiffs, instead of a stockholder who son V. Cass County Bank, 95 Iowa 392,
had commenced an action for the ap- 64 N. W. 395.
pointment of a receiver; alleging that Code 1873, § 2903, provides that, on
the bank's money had been wasted petition of either party to a civil pro-
through fraudulent practices of the di- ceeding, wherein he shows that he has
rectors, and that plaintiff was one of a probable right or interest in the
the guilty parties. Held, that the property which is the subject of the
creditors were competent to prosecute controversy, and that such property or
such an action. Gager v. Marsden, 101 its use is in danger of being injured,
Wis. 598, 77 N. W. 922. the court, if satisfied that the interests
The North Carolina statutes (Acts of one or both parties will be thereby
1891, c. 155, as amended by acts 1893, promoted, and the substantial rights
c. 478), do not give the treasurer^ ex- of neither unduly injured, may appoint
clusive right to institute proceedings a receiver. Held, that a court of equity
for a receiver, so as to take away the has jurisdiction to appoint a receiver
right of a creditor of the bank to sue of a state banking corporation on the
for that purpose in the superior court petition of a stockholder. Dickerson
of the county where the bank is situ- V. Cass County Bank, 95 Iowa 393, 64
ated. Worth V. Piedmont Bank, 121 N. N. W. 395.
C. 343, 28 S. E. 488. 64. Notice of receivership proceed-
It can make no difference in the ings. — Holcomb V. Tierney, 79 Neb.
treasurer's right to make such applica- 660. 113 N. W. 304.
tion that the examiner did not make Where, in an action against an in-
538 BANKS AND BANKING. § 77 (Iff)
some jurisdictions such notice may be dispensed with in cases of urgent

necessity."^
§ 77 (lee) Petition and Answer. —

In petition for receiver to wind
tip the affairs of a trust company, a traverse to the averment of insolvency is
ineffectual which admits that the institution has closed its doors.®^
§ 77 (Iff) Hearing and Determination of Motion. motion for —A

the appointment of a receiver to take control of the assets, and wind up the
solvent bank to wind up its affairs, a good, and, if the bank fail for thirty
receiver is appointed without notice to days aft^r such notice to do so, the
the bank except such as is implied from secretary of state may, with the attor-
being dispossessed of its property, and ney general's advice, institute proceed-
the receiver proceeds, without objec- ings to wind up its affairs. Held, that
tion, to convert the assets into cash, while thirty days' notice should be
and pays the proceeds out to the cred- given as required by § 586 before ap-
itors, the proceeding is not void to the pointing a receiver under § 616, in an"
extent that the status of the property action for the appointment of a re-
involved is open to collateral attack. ceiver for a bank, both on the ground
Holcomb V. Tierney, 79 Neb. 660, 113 that its capital had become impaired
N. W. S04. and because it was insolvent and had
Under Laws 1903, p. 113, c. 60, § 1, violated the law, where the receiver
authorizing the court to appoint a re- was not appointed until thirty days
ceiver of a bank, and in its discretion after the therefor was filed,
petition
to dispense with notice of application and no effort was made to replace the
therefor, where the only proof before impaired capital, a receiver could be
the court was that contained in the appointed without other notice; the
complaint by the attorney general to petition being sufficient notice. Impe-
•dissolve a bank because insolvent, rial Bank v. Commonwealth, 140 Ky.
which showed that the funds of the 210, 130 S. W. 1074.
tank were in the hands of the superin-
tendent of banks, notice of the applica-
A bill was filed in the court of chan-
cery in New Jersey against a bank,
tion for appointment of receivers
subpceha ad respondendum was issued,
ought to have been given, the law con- and returned by the officer, "Not
templating the giving of notice unless served," with his affidavit that he could
facts are presented showing a neces-
not find and believed no such bank or
sity for instant action to prevent im-
bank officer to be in his county, and
pending wrong. People v. Oriental thereupon a receiver was appointed.
Bank, 124 App. Div. 741, 109 N. Y. S. Held, that the return and affidavit left
509.
the court at liberty to appoint a re-
Appointment on court's own motion.
—The appointment of the receiver on
ceiver without notice to the bank.
Dayton v. Borst, 20 N. Y. S. Ct. 115.
the court's own motion, upon a finding
of insolvency, is not an appointment 65. When notice of appointment of
without notice to the corporation, as —
receiver dispensed with. A bill by de-
the act itself constituted full notice positors and creditors of a bank, al-
that such appointment would be made leging the insolvency of the bank
upon a finding of insolvency in such an caused by the fraud and mismanage-
action. People v. Bank, 154 Cal. 194, ment of the directors then in charge
^7 Pac. 306. of it, justified the immediate appoint-
Petition as sufficient notice. Ky. — ment of a receiver without notice, un-
der Ann. Code 1892, § 574, providing
St., § 616 (Russell's St., § 2256), per-
mits the secretary of state, when any that a receiver shall not be appointed
bank has become insolvent, or its cap- without notice of the application, un-
ital has become impaired, or it has vio-
less an immediate appointment is nec-
lated any provision of law, with the at- essary, and the appointment without
torney general's approval, to apply to notice would be proper on the emer-
the circuit court for the appointment gency, independent of the statute.
of a receiver. Section 586 (§ 2175) pro- Benjamin v. Staples, 93 Miss. 507, 47
vides that, if the capital stock of any So. 425.
bank become impaired, the secretary 66. Petition and answer. Bell v. —
of state shall give notice to the presi- Tradesmen's Trust Co. (Pa.), 85 Atl.
dent to have the impairment made 363.
§ 77 (2a) INSOI,VENCY AND DISSOIÛTION. 539
affairs of a bank, will be denied as irregular, if it appears that the order to

show cause against the appointment was served before the action was com-
menced.®'^
§ 77 (Igg) The Order of Court. —An order appointing a receiver

for a bank, no appeal having been taken therefrom, is conclusive against the
bank on the question of insolvency.^*
§ 77 (le) Removal and Discharge. —

A receiver of a bank may be
removed for cause. ®^ On the discharge of a bank receiver the management
of its affairs reverts to the directors, who have full authority to enter into
any lawful arrangement to meet its obligations.'^''
A temporary receiver may be discharged and the bank permitted to
resume business with consent of the depositors upon a proper resort from
the banking department showing a sufficiency of assets.'''^
Filling Vacancies. — If one of several receivers is removed, or resigns,

it is discretionary with the court to appoint another person in his stead, or
allow the remaining ones to act without the appointment of another. '^^
§ 77 (2) Operation and Effect— § 77 (2a) In General.— After a

receiver has been appointed for a bank it is virtually dissolved and must
67. Hearing and determination of 71. Discharge of temporary receiver.

—
motion. Kattenstroth v. Aster Bank, — On motion for an order discharging
9 N. Y. Super. Ct. 632. a temporary receiver of an embarrassed
68. Order of court appointing re- bank, and directing that the property
ceiver. —
State V. German Sav. Bank, 59 in the receiver's hands be turned over
Neb. 292, 80 N. W. 901. to the bank, and permitting it to re-
69. Removal of receiver. —
If the resume business, it was shown that about
ceiver of a bank has failed to do his ninety per cent of the depositors had
duty, application should be made to the signed an agreement looking toward a
court to compel him to do so, or to re- resumption of the bank. The report
move him, as he ought to proceed and of the banking department showed that
recover all the assets and distribute on the close of business of the bank it
them as provided by law. McTamany had making vari-
sufficient assets, after
v. Day (Idaho), 128 Pac. 563. ous deductions,to pay its depositors
A receiver of the assets of an insol- in full, provide for its capital stock of
vent bank, appointed pursuant to the $200,000, and have a surplus of over
provisions of § 41, Act Feb. 24, 1845, $250,000. Affidavits of officers of the
"to incorporate the State Bank of Ohio bank and depositors tended to show
and other banking companies" (1 Swan that the inventory and appraisal of the
& C. St., p. 131), can not, under exist- banking department was well made,
ing laws, be removed from his office that the property owned by the bank
at the pleasure of the state officers by was worth the amount there set down,
whom he was appointed. State v. and that collateral held as security for
Claypool, 13 O. St. 14. the various loans was of ample margin
70. Effect of discharge of receiver. — to provide for their prompt payment
Approval in the order discharging the on becoming due. The superintendent
receivers, of an agreement between the of banks did not oppose application,
bank and another, whereby the latter and the attorney general was satisfied
was to advance a sufficient amount to to have the bank reopened if in a
pay all depositors and creditors, was proper condition to be opened. Held,
unnecessary, as was also the direction that the bank was entitled to the re-
to the superintendent of banks to relief asked. People v. Hamilton Bank,
lease the assets in his hands, and to 57 Misc. Rep. 345, 108 N. Y. S. 461.
that extent the order will be modified. 72. Filling vacancies in office of re-
People V. Oriental Bank, 124 App. Div.
741, 109 N. Y. S. 509.
—
ceiver. Wiswell V. Starr, 50 Me. 381.
thereafter act through himJ^ And the right to secure the satisfaction of
demands by the usual processes of the laws is suspended.''* After the court
in the receivership proceedings obtains jurisdiction of the assets of the bank,
a creditor can not commence an action and obtain a judgment which would
be a lien and interfere with the ratable distribution of the assets to all the
But the appointment of a receiver for a bank, after it has made
creditors.'' 5
an assignment for the benefit of creditors, does not supersede and vacate the
assignment and impose upon the property and assets of the bank a different
rule of distribution from the one prescribed by the assignment.''^
Rule in Louisiana. —Both in the cessio bonorym, and the liquidation of

banks, under apts of 1842, the property vests in the creditors, and the former
owner has no longer any but a residuary right, and, to secure it, that of
coercing a final settlement by the commissioners or syndic. Neither the insol-
vent nor the stockholders can appear in court to control the administration
of the assets.'"'
§ 77 (2b) On Rights of Attaching Creditors. —The property of an

insolvent bank, prior to the appointment of a receiver therefor, is not ex-
empt from seizure at the suit of its creditors.'* Accordingly, the appoint-
ment of receivers for a bank does not necessarily dissolve an attachment of
the assets of the bank previously made.''^ But assets in a receiver's hands
73. Effect of appointment of re- Sandb. & B. Ann. St., §§ 3316, 3317,
ceiver. — Davenport v. City Bank (N. providing that on judgment against a
Y.), 9 Paige 12; Miami Exporting Co. corporation, and execution returned
V. Gano, 13 O. 269. unsatisfied, the circuit court may, upon
Where the court appoints a receiver petition, sequester the assets of a cor-
for a bank, it may refuse to allow a poration and appoint a receiver thereof,
claim on the assets in its custody to be sequester the assets in the hands of
litigated in an independent action, and the assignee, and appoint a receiver
may adjust the matter in the receiver- therefor, so as to supersede the as-
ship proceeding. State v. State Bank, signment, and change the rule for the
84 Kan. 366, 114 Pac. 381. distribution of assets to the rule pre-
A chancery order placing a bank's scribed by statute in receivership
assets in the hands of a receiver sus- cases. Garden City Banking, etc., Co.
pends the bank's corporate functions, V. Geilfuss, 86 Wis. 613, 57 N. W. 349.
and statute damages for allowing bills
to be protested can not be recovered
77. Rule in Louisiana. Mudge v. —
Commissioners (La.) 10 Rob. 460.
after that time. Sanford v. Kentucky 78. Effect of receivership on attach-
Trust Co. Bank (Ky.), 1 Mete. 106.
But the appointment of a receiver
—
ing creditors. Arnold v. Weimer, 40
Neb. 216, 58 N. W. 709; Arnold v.
for an insolvent bank does not revoke Globe Invest. Co., 40 Neb. 235, 58 N.
the bank's charter nor terminate its W. 713.
corporate existence, so as to enable it 79. The issuance of an injunction
to plead that fact in bar of an action and the appointment of receivers of
pending against it when the receiver a bank for the purpose of distributing
was appointed. Ahrens v. State Bank, its assets among creditors pro rata, in
3 S. C. 401. proceedings instituted under St. 1838,
74. State v. State Bank, 84 Kan. 366, c. 14, § 5, does not dissolve the lien on
114 Pac. 381. bank property acquired by attachment
75. Richards v. Osceola Bank, 79 prior to institution of the proceedings.
Iowa 707, 45 N. W. 294. Hubbard v. Hamilton Bank (Mass.),
76. Effect on previous assignment. — 7 Mete. ,'40.
Where a bank has made a voluntary An attachment of the property of a
assignment, the court, on application bank, made before the bank commis-
of a judgment creditor, can not, under sioners applied for an injunction, un-
§ 77 (2c) INSOIvVUNCY AND DISSOLUTION. 541
are in custodia legis and not subject to attachment by a creditor.*" And

where creditors of the bank attach the assets after proceedings to wind up
the bank have commenced, a separate, distinct proceeding unconnected with
the original suit against the bank, to dissolve the attachments will be dis-
missed; he may obtain relief by petition filed in the original suit.^^
§ 77 (2c) On Right to Sue the Bank.— The general rule is that, so

long as the corporation over which a receiver has been appointed has not
heen dissolved, and no order of injunction exists restraining suits against
it, it may still be sued and defend in its own name.*^ But after a bank has
der St. 1838, c. 14, § 5, to restrain the the equal benefit of all creditors, and
bank from further proceeding with its that no attachment can be levied on
iDusiness, was not dissolved by the sub- the assets of a bank after the date of
sequent appointment of receivers, pur- its insolvency, as decreed in proceed-
suant to the provisions of that statute, ings under the act. Crane v. Pacific
to take possession of the property and Bank, 106 Cal. 64, 39 Pac. 315, 27 L.
effects of the bank. Hubbard v. Ham- R. A. 563; Murphy v. Pacific Bank, 106
ilton Bank (Miass.), 7 Mete. 340. Cal. xvii, 39 Pac. 218.
The suspension of a national bank The sequestration intended to be
and the appointment of a receiver do made by force of Rev. St. c. 44, of the
not defeat a right previously acquired property of an insolvent bank whose
l>y service of an attachment against charter has expired, is for the benefit
the bank as garnishee, but the assets of all the creditors of the bank, and
pass to the receiver burdened with a takes effect, not merely from the time
lien in favor of the plaintiff in the at- of the appointment of the receivers,
tachment, which can not be disre- but from the filing of the bill, or at
garded or displaced by the comptroller least from the issuing of the injunc-
of the currency. Earle v. Pennsyl- tion. Atlas Bank v. Nahant Bank
vania, 178 U. S. 449, 44 L. Ed. 1146, 20 (Mass.), 23 Pick. 480. See Davenport
S. Ct. 915. V. Tilton (Mass.), 10 Mete. 330.
80. Assets of receivership in custodia 81. Suits to dissolve attachments. —
legis. —Under Comp. St. c. 8, § 24, de- After the granting of an injunction
fining the powers of the state bank against the officers of an insolvent
examiner, when an examiner, under bank in a suit to wind up its afifairs, ,
authority of the banking board, has and before the appointment of a re-
taken possession of the assets of an ceiver, certain creditors attached. Held,
insolvent bank, such assets are not that the receiver could not bring a
subject to attachment at the suit of a separate proceeding to dissolve the at-
creditor of the bank while possession tachment, and enjoin the creditors
is so retained. Andrews v. Steele City from further attaching, as the relief
Bank, 57 Neb. 173, 77 N. W. 342. must be obtained by petition in the
The bank commissioners' act (St. original suit. Atlas Bank v. Nahant
1877-78, p. 740, as amended by St. 1887, Bank (Mass.) 33 Pick. 480.
p. 90, et seq.) provides that the board 82. On right to sue the bank. —
of bank commissioners may examine Warner v. Imbeau, 63 Kan. 415, 65
into the solvency of any bank, and if Pac. 648.
it finds that the bank is violating its Laws 1891, c. 43, § 26, providing for
charter or the laws of the state, or is the appointment of a receiver of a
in an unsafe condition, it may order banking corporation, who shall wind
the bank to discontinue its unsafe up its business for the benefit of the
practices, and, on its refusal the attor- depositors, creditors, and stockhold-
ney general may commence suit to en- ers, before its repeal, did not inhibit
join the transaction of further busi- the bringing of an action against an
ness; and that if the court finds that incorporated bank after the appoint--
the business is carried on in an unsafe ment of a receiver to wind up its af-
manner, and that the bank is insol- fairs,as the general rule is that, so
vent, he shall grant the injunction, and long as a corporation of which a re-
direct the commissioners to take such ceiver has been appointed has not been
proceedings against the bank "as may dissolved, and no order of injunction
be decided upon by its creditors." exists restraining the bringing of suits
Held, that the act was intended for against it, such corporation may be
542 BANKS AND BANKING. § 77 (3b>
been placed in the hands of a receiver, it can not sue in its own right, but
must sue by the receiver.**
§ 77 (3) Title, Rights, Powers and Duties of Receivers— § 77 (3a)

—
In General. It may be stated at the outset that the receiver stands in the
place of the bank whom he represents, and has only such rights as it had,
"so that the rights of third parties are not increased, diminished, or varied
by his appointment."** In other words, he takes only such title to the assets
as the bank itself had, subject to all equities which existed against the as-
sets in the hands of the bank.*^ Therefore, a bank receiver can not repu-
diate contracts and obligations entered into by the bank, and at the same
time retain the fruits.** Nor can a bank receiver ordinarily repudiate the
acts of a trustee who was previously in charge of the affairs of the bank.*'^
§ 77 (3b) Relation of Receiver to Bank and Creditors. —A re-

ceiver of a bank apjxjinted represents both the bank and its creditors, and
can look behind its acts in the assertion of their rights.**
sued and defend in its own name. far as their assets are concerned, and
Warner v. Imbeau, 63 Kan. 415, 65 take same subject to set-offs, liens, and
Pac. 648. incumbrances as they existed at the
The receiver of an insolvent bank time of their appointment and there-
can not defeat claims against the bank fore the appointment of a receiver of
because of the receivership. Jordan v. an insolvent bank did not deprive a.
Harris, 98 Ark. 200, 135 S. W. 830. depositor of the right to set off his
On the other hand, some cases hold general deposit against a note given
that no action can be maintained by him to the bank. Steelman v.
against a bank after the appointment Atchley, 98 Ark. 294, 135 S. W. 902.
of receivers thereof. Leathers v. The receiver derives his rights to-
Shipbuilders' Bank, 40 Me. 386; and the bank's contracts from the bank it-
hence, where a bill has been filed for self, and is affected by them as the
the purpose of obtaining a decree bank would be. Armstrong v. National
against the receiver, as such, the Bank, 11 Ky. L. Rep. 90.
answer of the bank, under its corpo- 86. The receiver of a bank can not
rate seal, can not affect the question repudiate a pledge of its assets made
between the complainant and receiver. by the bank, for advances to it, either
Davenport v. City Bank (N. Y.), 9 on the ground that the pledge was-
Paige 12. not formally executed, or that the
83. Miami Exporting Co. v. Gano, contract was void, because not author-
13 O. 269. ized by the charter of the bank, so
84. Nature and extent of receiver's long as he retains, as assets, the ad-
title.
135 S.
—Jordan
W. 830.
v. Harris, 98 Ark. 200, vances to secure repayment of which
the pledge was given. Casey v. La
85. Casey v. La Societe De Credit Societe De Credit Mobilier, Fed. Cas,
Mobilier, Fed. Cas. No. 2,496, 2 Wbods No. 2,496, 3 Woods, 77, reversed in 96
77; National Life Ins. Co. v. Mather, U. S. 467, 24 L. Ed. 779.
118 111. App. 491. 87. The trustees of a bank the af-
Receivers, for the purpose of closing fairs of which were embarrassed, and'
its concerns, have no rights superior which afterwards passed into the-
to those which the bank would have hands of a receiver, assented in good'
had, if the management of its affairs faith to an arrangement with a debtor
had continued with its directors, and of the bank whereby his property was
the liabilities of third parties are not conveyed to trustees for his creditors,
changed by their appointment. Lin- and he procured an extension. Held,,
coln V. Fitch, 42 Me. 456. that the receiver could not repudiate
Assignees and receivers of insol- the transaction. Greene v. Sprague
vents are not regarded as purchasers Mfg. Co., 52 Conn. 330.
for value without notice, but rather 88. Relation of receiver to bank and.
as personal representatives of the in- creditors. —
Hayes v. Kenyon, 7 R. I>
solvents, and stand in their shoes so 136.
§ T? (3e) INSOLVENCY AND DISSOLUTION. 54J
§ 77 (3c) Conflicting Receiverships. —And in case of conflicting

receiverships, he who is prior in time is prior in right.^^
§ 77 (3d) Title and Rights as —

to Assets. The powers of the re-
ceivers of an insolvent bank whose charter has expired extends to all the
property of the bank, real as well as personal.'"' Ordinarily, a receiver of a
bank does not become vested with the title to the property or assets which
he administers. His relation
to the property, like that of a constable, sher-
iff or master in chancery, merely that of a ministerial officer.î But in
is
some jurisdictions a receiver seems to be vested with title to the assets.^^

The receiver has no title to real estate owned by the bank in another state.^^
§ 77 (3e) Powers of Receiver in General. —A receiver has implied

89. Conflicting receiverships.— Where note secured by mortgage owned by
two persons are on the same day ap- the bank passed to the receiver, and
pointed receivers of an insolvent bank by a subsequent sale by him of the as-
by different justices, it was held that sets of the insolvent bank to the pur-
both could not act, and that the ques- chaser. Brynjolfson v. Osthus, 13 N.
tion which of them was entitled to Dak. 43, 96 N. W. 261.
the assets of the bank must be de- A
warranty deed of land covered by
termined as a legal right, and depended a mortgage, executed by the president
on the priority of judicial action on of the mortgagee bank before its in-
the petitions for the appointment of solvency, but delivered after its in-
a receiver, without regard to the time solvency, and after the appointment of
of t'rie verification of the papers, or a receiver, did not operate as an
the time of actually getting possession equitable assignment of the mortgage,
of the assets. People v. Central City as the title had already passed to the
Bank, 53 Barb. 412, 35 How. Prac. 428. receiver, and the president had no
90. Title and right with respect to authority to make such delivery.
—
assets. Atlas Bank v. Nahant Bank Brynjolfson v. Osthus, 12 N. Dak. 42,
(Mass.), 23 Pick. 480. 96 N. W. 361.
Where the owners of a private bank, Title of receiver to drafts. Where
defendant drew drafts which were dis-
—
after having appropriated certain of
its assets, sold the bank and its exist- counted by a bank, when it was in-
ing assets to T. and his associates, solvent to the knowledge of its offi-
their receiver in insolvency, not hav- cers, and the bank failed and was
ing succeeded to the rights of credit- placed in the hands of a receiver,
ors of the bank, was not entitled to whereupon defendant brought suit in
sue their vendors to recover such as- another state against the bank to re-
sets. Harrington v. First Nat. Bank cover the amount of the drafts, as
(Tex. Civ. App.), 125 S. W. 598. "due and owing for a balance on de-
Rights of action vested in stockhold- posit to plaintiff's credit in the hands
ers. —A receiver of an insolvent bank of the bank," and garnished the
becomes vested with the property and drawee who had accepted the drafts,
rights of actior that had theretofore such action constituted an election to
vested in the bank, but not so with affirm the discount, and defendant was
respect to the right of action vested not entitled to recover the amount of
in the stockholders as such or in the the drafts on the ground that they had
creditors as such; they still retain tht been obtained by the bank's officers
cause of action that they had against by fraud. Davis v. Butters Lumber
the officers or directors of the bank Co., 132 N. C. 333, 43 S. E. 650.
prior to its dissolution and it is for 93. Title to foreign assets. The —
them to enforce such cause or causes judgment of a court of the state where
of action, and not the receiver. Hig- a bank is located, restraining the lat-
gins V. Tefift, 4 App. Div. 62, 38 N. Y. ter from doing business, and appoint-
S. 716, 74 N. Y. St. Rep. 100. ing a receiver, does not transfer to
91. The receiver's title. —
Lafayette the receiver title to real estate owned
Bank v. Buckingham, 12 O. St. 419. by the bank in another state. City
92. On the appointment of a receiver Ins. Co. V. Commercial Bank, 68 111.
for an insolvent bank, the title of a 348.
as well as express powers.^* But ordinarily his authority is defined in the

order appointing him.s^ A receiver of an insolvent bank may compro-
mise doubtful claims,98 employ real estate agents to dispose of the assets,''^
and transfer the assets of the bank in discharge of claims against it.^* But
94. The extent of the powers pos- him under such compromise. Brown
sessed by receivers of a bank ap- V. Bass (U. S.), 4 Wall. 263, 18 L. Ed.
pointed in proceedings instituted by 330, reaffirmed in Brown v. Johnson,
the bank commissioners under St. 154 U. S. 551, 18 L. Ed. 333, 14 S. Ct.
1838, c. 14, § 5, not being clearly de- 1197.
fined by that act, may be inferred 97. Employment of real estate
from Rev. St. c. 44, § 8, authorizing the
appointment
agents. —A receiver of an insolvent
ofreceivers for banks bank employed an agent to sell real
whose chartershave expired. Hub- estate upon commissions of ten per
bard V. Hamilton Bank (Mass.), 7 cent. It was not agreed whether the
Mete. 340. commissions should be paid out of
95. Aninsolvent bank, in a proceed- cash payment or out of the entire
ing under Comp. St. c. 8, to wind up price when paid. The agent sold for
its business, remains an interested $85,000, whereof $10,000 was paid and
party even after the appointment of default made as to residue. Held, that
a receiver, and may resist an applica- the agent was entitled to ten per cent
tion for an order conferring on the only on such sum as had been or
receiver authority not granted by the should be paid. Peters v. Anderson,
order appointing him. State v. Ger- 88 Va. 1051, 14 S. E. 974.
man Sav. Bank, 50 Neb. 734, 70 N. W. Receiver reported sale to court stat-
221. ing agreement as to commissions, and
96. Power of receiver to compro- procured a decree for payment thereof,
mise claims.— The powers conferred "whenever whole price should be fully
on a receiver of an insolvent bank by paid." Agent, who was no party to
Comp. St. c. 8, § 35, to compound all the suit, drew an order on receiver for
bad or doubtful debts, when approved a sum out of any funds payable to him
by the court, includes the right to as commissions under the court's de-
compromise doubtful claims against cree. Held, the order did not estop
stockholders of a bank for the double agent from denying correctness of the
liability imposed upon them by Const, decree. Peters v. Anderson, 88 Va.
art. lib, § 7. State v. German Sav. 1051, 14 S. E. 974.
Bank, 65 Neb. 416, 91 N. W. 414. 98. Power of receiver to transfer as-
Where, after the insolvency of a sets. —
Receivers of a bank transferred
bank, the receiver was ordered to sue to plaintiff a negotiable note against
the stockholders for their liability, third was part of the
persons, which
and it appeared that a considerable assets, in payment demand which
of a
number of the stockholders had died, he had against it. Held that, in the
that many had moved beyond the ju- absence of anything to show the ex-
risdiction of the court, and that others tent of the receivers' authority under
were insolvent, and that others de- their appointment, or that other cred-
nied their liability on various grounds, itors of the bank had not been paid,
an order by the court approving a or of fraud or unfair dealing in the
compromise of doubtful claims on the transaction, it would be presumed that
part of the receiver against such they acted within the scope of their au-
stockholders was not an abuse of dis- thority, and that the legal title to the
cretion. State V. German Sav. Bank, •lote passed to plaintiff. Atchison v.
65 Neb. 416, 91 N. W. 414. Davidson (Wis.), 2 Pin. 48.
A court appointing a receiver for an The receivers of a bank transferred
insolvent bank may authorize the re- to plaintiff a negotiable note against
ceiver to settle suits brought by him- third persons, which was part of the
self in behalf of the estate, where for assets, in payment of a demand which
the best interests of the estate. State he had against it. Held, that the
V. Bank, 57 Neb. 608, 78 N. W. 281. transfer was presumptively legal,
But whether a receiver has the though other creditors had not been
power to effect a compromise with paid in full; since, in such case, the
the bank's debtors, or not, the bank receivers would be liable for misap-
may elect to affirm the transaction by plication of assets, and the transfer
electing to charge the receiver with was at the risk of the receivers.
the value of securities surrendered by Atchison v. Davidson (Wis.), 2 Pin. 48.
§ 77 (3f) INSOI.VENCY AND DISSOLUTION. 545
a receiver, either general or special, whether appointed at the suit of a stock-

holder or at the suit of a creditor, has no power to bring an action to re-
cover the statutory liability of a stockholder of an insolvent banking cor-
poration. *9 Nor will a motion be allowed to require a receiver of a bank to
do an impossible act.^
Temporary Receivers under New York Statute. —The New York
powers upon the temporary receiver, but en-
statute does not confer general
ables the court to enlarge his powers and give him additional authority
when in a given case it is shown to be necessary for the wise and proper
administration of the affairs of such insolvent corporation. ^ Where tem-
porary receivers have been appointed, a reversal of the order appointing
them does not deprive them of the right, nor relieve them from the duty, of
holding and protecting such property as has come into their hands until it
is taken from their possession by order of the court.^
§ 77 (3f) Duties of Receiver in General. — It is the duty of the

receiver appointed for an insolvent bank to take immediate possession of all
the real estate as well as the personal estate.* Comp. Laws of Michigan,
§ 6144, which requires receivers of state banks to pay over all money col-
lected or received by them to the State Treasurer, is not ambiguous, and it
is the duty of a court, to see that its receiver complies with such require-
ment.^ It is also the duty of a receiver to allow set-offs in a proper case.^
99. Action by receiver to enforce to the petitioner when they are not in
statutory liability of stockholders. — his pos.=ession, but have been returned
Steinke v. Loofbourow, 17 Utah 253, as paid to the depositors, who drew
54 Pac. 120; McLaughlin v. Kimball, them. People v. Federal Bank, 107
20 Utah 254, 58 Pac. 685, 77 Am. St. App. Div. 611, 94 N. Y. S. 732.
Rep. 908. %. Powers of temporary receiver. —
The authority for the appointment of People 7'. St. Nichols Bank. 76 Hun.
a receiver, conferred by Rev. St. 1898, 522, 28 N. Y. S. 114, 58 N. Y. St. Rep.
§ 3114, subd. 6, does not extend to the 843.
appointment of a receiver of a bank 3. In re Murray Hill Bank, 14 App.
for the purpose of enforcing stockhold-
Div. 318, 43 N. Y. S. 836.
statutory liabilities over and
ers'
above the amount of their stock. Mc- 4. Duties of receiver in general. —
Lauglin V. Kimball, 20 Utah 254, 58 Baker v. Cooper, 57 Me. 388.
Pac. 685, 77 Am. St. Rep. 908. 5. Duty to pay over money. Moore —
1. Return of property not in his pos-
V. Donovan, 141 Mich. 398, 104 N. W.
session. — Where fpeltitioner, having 665.
6. Duty to allow set-offs.— The re-
three checks in possession against a
bank, sent them to the bank for collec- ceiver of an insolvent bank has all the
tion, and the checks were received by powers and authority of trustees of
the bank, who delivered to the peti- insolvent debtors, and is subject to all
tioner its check on another bank to the duties and obligations imposed on
pay those checks, and the bank on them by Laws 1849, c. 26, § 11 (2 Rev.
which the check was drawn refused to St.,_ pp. 469, 470, §§ 68, 74), one of
honor it, and on the insolvency of the which is that, where mutual credits
first bank the petitioner asked for a have been given by a debtor and any
"-eturji of the three checks which it other person or mutual debts have
had presented for payment and in pay- subsisted between such debtor and
ment oi which it had received the another, to set off such credits or
check drawn by the insolvent bank, debts, and pay the proportion or re-
the receiver of such insolvent bank will ceive the balance due. In re Van Allen
not be ordered to deliver such checks (N. Y.), 37 Barb. 225.
IBS: B—35
546 I3ANKS AND BANKING. § T^ {?>%)
§ 77 (3g) Liabilities of Receivers in General. A receiver, no mat- —

terhow appointed, is the ministerial officer and servant of those from whom
he receives the appointment and he is responsible for the exercise of good
;
faith and reasonable diligence in the discharge of his dutiesJ Under the
peculiar provisions of the Ohio statute, a receiver of an insolvent bank can
not be held liable for delinquencies in the discharge of his duty, provided
he has acted under the directors of the board of control*
Liability for Fraud of Bank.^ —Nor is a receiver liable to an action by
a stockholder for the fraud of the bank or its officers in inducing him to
purchase stock.^
For Failure to Enforce Stockholder's Liability. —But a receiver is
liable for a failure to proceed with diligence to enforce a stockholder's statu-
tory liability.^''
For Penalties.—In some jurisdictions statutory penalties are recoverable

in actions against receivers. ^^
Accountability for Moneys Received and Disbursed. —The that fact
an instrument by virtue of which money has been received by the receiver
and disbursed according to law, is subsequently declared invalid by decree
of court, does not make the receiver liable to refund the money.^^
7. Liabilities of receivers in general. state bank, who fails to enforce a

—Lafayette Bank v. Buckingham, 13 stockholder's liability created
Const., art. 8, § 7, and Banking Law
by
O. St. 419.
8. for
Liability negligence. Act — (Consol. Laws, c. 2) § 52, while the
1845, incorporating the State Bank of stockholder was, for two years subse-
Ohio and other banking companies quent to the dissolution of the bank,
(§ 16), provides that the board of con- financially responsible, is liable for the
trol shall be a body corporate. Sec- loss sustained. People v. Bank, 70
tion 24 provides that, upon an act of Misc. Rep. 633, 127 N. Y. S. 908.
insolvency by any branch bank, all its 11. Suit against assignee by bill
property, credits, securities, liens, and —
holder. Carey v. Greene, 7 Ga. 79.
assets of every description shall forth- After the assignment of a bank and
with vest in, and be the property of, the forfeiture of its charter by a judg-
the board of control for the uses de- ment of the proper court, the legisla-
clared in this act. Section 25 makes ture authorized the assignee to act as
it the duty of the board of control, in receiver. Held, that the holder of bills
such a case of insolvency, to appoint of the bank is not entitled to damages,
a receiver to take immediate posses- on account of the failure of the as-
sion of the assets of the bank, and hold signee to pay the bills on demand,,
the same for the benefit of other under the Act of 1832, requiring banks
branches of the State Bank and the that fail to pay their bills on demand
creditors of such failing branch. Sec- to pay ten per cent damages on a suit
tion 27 provides that the receiver, to collect the bills. Carey v. Greene,
under the direction of said board, shall 7 Ga. 79.
proceed to settle up the affairs of the 12. Accountability for rent received
bank Held, that a creditor of such under mortgage subsequently declared
insolvent bank can not recover against void. —
Where a husband and his wife
the receiver for delinquency in the mortgaged property belonging to the
discharge of his duty, so long as he wife to secure notes which passed into
has acted under and in accordance with the hands of an insolvent national
the direction of the board. Lafayette bank, it was held that, for rents re-
Bank v. Buckingham, 12 O. St. 419. ceived from such property, with the
9. Liability of receiver for bank's consent of the husband, by the re-
—
fraud. Lantry v. Wallace, 182 U. S. ceiver of the bank appointed by the
536, 45 L. Ed. 1218, 21 S. Ct. 878. comptroller of the currency, from the
10. Failure to enforce stockholder's time of his appointment to the date of
liability. —
A receiver of an insolvent a decree declaring such mortgage void
§ 77 (3h) Instructions from Court. A receiver— of an insolvent

bank is an officer of the court, and may properly apply to it on suitable
occasions for instructions.^^
§ 77 (4) Collection and Protection of Assets— § 77 (4a) In

—
General. 1* The statutes in most states confer upon the trustee appro-
priate powers to realize and protect the assets. ^^ i^ winding up the affairs
of an insolvent bank the receiver of such bank, when so authorized by the
court, may take such steps as shall be necessary to enable him to secure
possession of the assets of the bank of their value. ^^But he is usually en-
^'^
titled to exercise asound discretion in the matter of collecting its assets.
In collecting the assets of an insolvent bank, the receiver may set aside
fraudulent or improper conveyances by it of its assets. ^^
as to the wife, and paid by him into ceiver appointed upon a judgment
the treasury of the United States sub- forfeiting its charter, does not apply
ject to the order of the comptroller, in the case of a voluntary assignment
as required by § 5234, Rev. Stat., ol by the bank of its assets to pay its
the United States, and distributed debts according to the requirements
among the creditors of the bank, such of law. Fouche v. Brower, 74 Ga. 251.
receiver is not to be held accountable Under the statute of Mississippi, ap-
in equity at the instance of the wife. proved February 38, 1846, authorizing
Hitz V. Jenks, 133 U. S. 297, 31 L. Ed. the trustee of an insolvent bank to
156, 8 S. Ct. 143. collect the debts due the latter and
13. Instructions from court. —
In re distribute the proceeds in payment of
Van Allen (N. Y.), 37 Barb. 225. its debts, the trustee, in collectine- the
Code Civ. Proc, § 1788, authorizes debts, is not limited to just what is
a temporary receiver to collect debts sufficient to pay off liabilities, but may
and to preserve the property of the collect all debts due. Davis v. Robert-
corporation, and to sell and otherwise son, 11 La. Ann. 753.
dispose of property as directed by the
court, and provides that, unless addi-
17. Discretion of receiver. It is —
within the sound discretion of the re-
tional powers are specially conferred
ceiver of an insolvent bank when to
on him, he has only those specified.
prosecute suits on its claims, and to
Section 1789 provides that the court dispose of its real estate for the pur-
may confer on a temporary receiver pose of collecting assets, with which
the powers of a permanent receiver.
the court will not interfere, except in
Held that, where a depositor in an in- special cases. In re Van Allen (N. Y.),
solvent bank was indebted to the bank
37 Barb. 325.
on a note secured by collaterals, a
temporary receiver could not allow 18. Authority of receiver to set aside
the deposit as a set-off ag-ainst the —

conveyances. The receiver of an in-
note, and therefore he was entitled to solvent bank may maintain a bill to
instructions from the court on an ap- set aside a trust deed made by the
plication by the depositor to surren- bank, where it appears that the trus-
der the collaterals on payment of the tee in such deed was interested in sus-
balance due on the note after deduct- taining the same. Leavitt v. Yates
ing the amount of the deposits. Peo- (N. Y.), 4 Edw. Ch. 134.
ple V. St. Nicholas Bank, 70 Hun 522, Where the manager of a bank who,
28 N. Y. S. 114, 58 N. Y. St. Rep. 843. at thebank's request, with others, be-
14. Actions by or against receiver, came its surety for money deposited,
see post, "Power to Make Loans in purchased in his own name real estate
General," § 176. mortgaged to the using the
bank,
15. Collection and protection of as- bank's funds to pay his bid, and in-
sets. —
State V. Bank, 64 Tenn. (5 Baxt.) tending to hold the property for the
security of himself and his co-sureties,
101.
Proceedings by receiver to col-
16. and the bank afterwards became insol-
lect assets. —
State v. Commercial, etc.. vent, its receiver could not compel a
Bank, 37 Neb. 174, 55 N. W. 640. conveyance of such property without
The section of the Georgia Code indemnifying the sureties. Smith v.
regulating the collection and distribu- Lansing, 33 N. Y. 530.
tion of the assets of a bank by a re- —
Evidence. In an action by the re-
§ 77 (4b) Surrender of Assets to Receiver. —

Where parties have,
by the fraudulent conduct of themselves or their agents, obtained possession
of the assets of an insolvent bank, and are unable to return them to the
receiver in kind, such parties will be held to strict accountability for the
A bank officer wrongfully withholding the assets of the
value thereof. 1^
bank can not impose conditions to the delivery of the possession of such
assets. 2°
§ 77 (4c) Compromise of Claims. —

In an action by a receiver of an
insolvent bank against the managers to compel them to make good to de-
positors losses sustained by their misconduct,- the court will not advise
acceptance of an offer of compromise made by some of the defendants,
where the receiver submits the question without recommendation, and a
large portion of the depositors who have expressed a preference are op-
posed to its But a court which is administering the affairs
acceptance. 2"^
of a defunct bank may entertain a petition filed against the receiver by a
creditor suggesting a plan of compromise to avoid litigation, and the judge
may order the receiver to accept the offer of compromised^
§ 77 (4d) Proceedings to Collect— § 77 (4aa) Form of Pro-
ceedings. —In the event a bank refuses to comply with an order of the
court, to pay money to a receiver, the court has no power to imprison its
officers as for contempt, but the receiver must resort to his remedy by action
against the bank.^^
§ 77 (4bb) Jurisdiction and Power of Courts. —A

chancery court
or other court with equitable powers, acquiring jurisdiction, may administer
the assets and enjoin separate creditors from prosecuting independent suits
ceiver of a bank whose charter had 22. Suit to enforce a compromise. —

been forfeited to set aside an assign- When a court of competent jurisdic-
ment of effects made by that bank tion has undertaken to exercise exclu-
for fraud, evidence is admissible, under sive control over the winding up of
the allegations of fraud in the bill, to the affairs of a defunct bank, a cred-
prove that, before the assignment of itor may, in behalf of himself and
such efifects, the board of directors other persons at interest, file an inter-
had resigned, and that the office of vention praying leave to effect a set-
presidency had been usurped bv a per- tlement with the receiver of a valid
son who was neither an officer nor a c'aim held against the bank; and if
director. Carey v. Giles, 10 Ga. 9. the receiver, as the representative of
19. Surrender of assets wrongfully its stockholders and other creditors,
witWheld.— State v. Commercial, etc., fails to show cause, upon being cited
Bank, 37 Neb. 174, 55 N. W. 640. to do so, why the proposed settle-

20. In proceedings to obtain pos- ment should not be authorized the
session of the assets of an insolvent court may m its discretion, order him
bank wrongfully withheld by one of to accept the terms of settlement of-

its former officers, the latter can not
fered by the intervening creditor, to
require the allowance of a set-off or the end that long and expensive liti-
counter claim as a condition prece- gation may be rendered unnecessary,
dent to the delivery of the possession McGregor i-. Third Nat. Bank, 124 Ga.
of such assets. State v. Commercial, 557, 53 S. E. 93.
etc.. Bank, 37 Neb. 174, 55 N. W. 640. 23. Proceedings to collect assets.
21. Compromises by receiver. Wil-— First Nat. Bank v. Clauss, 16-S6 O. C.
liams V. Halliard (N. J.), 14 Atl. 880. D. 107.
§ 77 (4cc) INSOLVENCY AND DISSOLUTION. 549
against the common trust assets. ^^
§ 77 (4cc) Parties. —A recovery against bank stockholders on

the ground of illegal payment of dividends, the publishing of false reports,
the unlawful permitting of excessive loans, or the acceptance of deposits
while insolvent being an asset of the bank, the action therefor should be
brought by the receiver.^s
Parties to Proceedings to Collect. — It is not necessary, in proceedings
to obtain possession of the assets of /an insolvent bank, wrongfully with-
held by one of its former officers, to join as parties to the proceedings other
individuals, for whose benefit the misappropriation took place.^*
—
Parties to Proceedings to Protect. The minority stockholders are
entitled to a remedy against persons who act in bad faith or mismanage the
affairs of the bank in liquidation. 2'' And one depositor may sue on behalf
of himself and other depositors to assert the title of the bank to assets
against adverse claimants after its insolvency.^^
24. Jurisdiction and powers of court. bank filed a cross complaint, and judg-
^-Leipold V. Marony, 75 Tenn. (7 Lea) ment was rendered in favor of plaintiff
128. and the bank, directing a sale of the
A creditor of an insolvent bank, stock, and the distribution of the pro-
whose charter has been forfeited, who ceeds to the president, in the amount
has exhausted the legal remedies of his disbursements, with interest, and
against it, may sue in chancery for to the bank the balance after payment
the assets of the bank and have them of plaintiff's costs and expenditures
applied in payment of its debts. High- for counsel fees. Held, that a conten-
tower V. Mustian, 8 Ga. 506. tion of the president that the judg-
25. Recovery against stockholders. — ment was inequitable to him, because,
McTamany v. Day (Idaho), 128 Pac. in taking the bonds and the stocks,
563. which he was required to take with
26. Parties to proceedings to collect them, he incurred obligations by which
assets.— State v. Commercial, etc., he might have damnified, was
been
Bank, 37 Neb. 174, 55 N. W. 640. untenable, where made no claim
he
27. If, in the liquidation of a bank, that he was in fact in any way injured,
the minority stockholders, by misman- and made no attempt to show that
agement, fraud, or otherwise on the there were any existing liabilities
part of the liquidating committee, are against which he should be indemni-
deprived of any part of the full amount fied. Dundon v. McDonald, 146 Cal.
to which they are entitled as the value 585. 80 Pac. 1034.
of their stock in liquidation, they have The objection that a bank depositor
a remedy against the persons so of- could not maintain an action against
fending in a suit against them for the bank and its president to establish
damages. Green v. Bennett (Civ. the equitable title of the bank to cer-
App.), 110 S. W. 108. tain shares of railroad stock alleged
The dissenting minority stockhold- to have been received by the president
ers of a bank in process of liquidation to the use of the bank in lieu of other
have a right to demand that the as- shares, until after demand on the di-
sets be so disposed of that the full rectors to bring suit, was obviated by
value thereof may be received for dis- the filing of a cross complaint by the
tribution among the shareholders, so bank, in whose favor judgment was
that they shall receive the full value rendered. Dundon v. McDonald, 146
of their shares, not in a prosperous Cal. 585, 80 Pac. 1064.
and going concern, but in a bank in In a suit by a bank depositor against
liquidation. Green v. Bennett (Civ. the bank in process of liquidation and
App.), 110 S. W. 108. its president to establish the equitable
28. In an action by a bank depositor title of the bank to certain shares of
against the bank and its president to railroad stock claimed by the presi-
establish the equitable title of the bank dent as his individual property, evi-
to certain shares of railroad stock, the dence held sufiicient to sustain a find-
550 BANKS AND BANKING. 77 (5b)
§ 77 (4e) Retention of Assets by Bank.— By statute in some juris-

dictions, an insolvent bank may execute a bond to the state and thereby
secure a return of its assets. ^^
§ 77 (5) Sale or Other Disposition of Assets— § 77 (5a)

—
Marshaling the Assets. If there be sufficient assets to pay creditors in
full, the resident creditors should not be forced to first resort to the deposit
before looking to the general assets of the corporation, since this would
operate to deprive the resident shareholders of the protection the statute
gives them by allowing them to participate in the deposit.*''
§ 77 (5b) Sale of Assets. —After a proper appraisal of the assets of

the bank,3i ^^y jj^j^y \^^ sqJ^j i-,y ^]^g receiver, acting under an order of the
court,32 g^jj(j sy(-i^ gjig jjia.y not be impeached in the absence of fraud or
bad faith. S3 In making this sale the trustees may exercise a broad discre-
ing that a purported purchase of the house and the furniture and fixtures
stock was for the use of the president, therein. The order did not require an
though ;n the name of another per- appraisal, but the receiver caused it to
son. Dundcn v. McDonald, 146 Cal. be appraised and the appraisers fixed
585, 80 Pac. 1034. the value at a lump sum for the build-
The evidence was also sufficient to ing, the ground, and the furniture and
sustain a fnding that the purchase of fixtures in the building, and the prop-
the stock by the president was not erty was sold for a lump sum. Held,
ratified by the bank. Dundon v. Mc- that the real property should have been
Donald, 146 Cal. 585, 80 Pac. 1034. appraised as a right of redemption ex-
29. Forthcoming bonds. here, —W isted as to such property, but appraisal
was unnecessary as to the personal
pending an application for the appoint-
ment of a receiver, under Comp. St. property, and that the real estate
1901, c. 8, a bond conditioned for the should have been appraised separately
payment of all just claims of the bank in order to preserve the right of re-
is given to procure the return of the
dem'ption, and that such irregular ap-
assets of such bank under the provi- praisement vitiated the sale. Vaughn
V. Pedley, 137 Ky. 737, 126 S. W. 1093.
sions of § 35 of said chapter, the exe-
cution of such bond is not a dissolu- 32. Effect of order of court. An —
tion of the bank. Rawson v. Taylor, order authorizing the assignment by
69 Neb. 473, 95 N. W. 1033. the receiver of a bank of certain judg-
ments held by it, duly made in the
Where, pending application for the dissolution proceedings of the bank, is
apoointment of a receiver for an in- prima facie binding upon all its stock-
solvent bank, under Comp. St. 1901, c. holders, and the title of the assignee
8, a bond is given, conditioned for can only be assailed by a direct pro-
the settlement in full of all the liabili- ceeding to which he is made a party.
ties of said bank, to procure the re-
In re Grand Cent. Bank, 27 Misc.
turn of the assets of such bank, under
Pep. 116, 57 X. Y. S. 418; In re Volun-
the provisions of § 35 of said chapter, tary Dissolution, 42 App. Div. 157,
and said proceedings are dismissed and affirmed in 58 N. Y. S. 1022; Treacy
the assets returned, any creditor who V. Ellis, 45 App. Div. 492, 61 N. Y. S.
is a beneficiary of such bond may 600.
maintain an action at law thereon, 33. Wherethe liquidation of a bank
after the condition is broken to his
pursuant tothe decision of a duly
damage. Rawson v. Taylor, 69 Neb. called stockholders' meeting sold the
473, 95 N. W. 1033.
assets at auction at a fair price, and
30. Marshaling assets. — People v. there is no fraud, nor bad faith, and
Granite State Provident Ass'n, 41 App. opponents made no objection to the
Div. 257, 58 N. Y. S. 510, affirmed in sale at the stockholders' meeting nor
161 N. Y. 492, 55 N. E. 1053. until after it took place, and do not
31. Appraisal of property. A re- — seek to have the sale set aside, their
ceiver of the property of an insolvent demand to charge the liquidators with
bank was ordered to sell its banking the face value of the assets is not well
§ yi (5d) INSOLVENCY AND DISSOLUTION. 551
tion.3*
Conduct of Sale. — Postponements of the sale are determined by the court
that ordered the sale.^^
§ 77 (5c) Purchaser of Notes. —

A receiver of an insolvent bank
has power to under order of the court by which he was appointed,
sell,
notes of the bank and thereby confer on purchasers the right to enforce
payment of such evidences of indebtedness by suits in their own name.^,^
§ 77 (5d) Right of Receiver to Purchase at His Own Sale. —As

own sale.^'^
a general rule a receiver can not purchase at his
grounded and will be rejected. In re ing trustees of a bank which is en-

Liquidation, 118 La. 664, 43 So. 270. tirely solvent is not incapacitated to
—
Action by purchaser of note. In a become a purchaser at a sale of the
suit against the makers of negotiable assets of the bank by such trustees,
paper bought by plaintiff at a salfe of made at auction to the highest bidder
an incorporated bank's assets, made after giving notice. Shappard v. Cage,
by its trustees, where the declaration 19 Tex. Civ. App. 206, 46 S. W. 839.
alleges that "the charter was surren- affirmed in 93 Tex. 656, no op.
dered," but was continued by virtue of Where the liquidating committee,
the several statutes for the settlement composed of the directors owning two-
of the bank's affairs, and that the trus- thirds of the stock of the bank in proc-
tees appointed thereunder assigned the ess of liquidation, disposed of its as-
paper to plaintiff, a plea averring "that sets by sale and transfer to another
the charter of the bank was not for- bank organized and controlled by
feited, and its corporate existence was them, it was held that although this
not dissolved," is fatally defective on was, in some sort, a sale to them-
demurrer. The first allegation is no selves, this would not avoid such sale,
answer to the declaration, which al- but only subject it to the closest scru-
leges that "the charter was surren- tiny on the part of a court of equity,
dered," and the second is an allegation and subject it to be set aside and an-
of matter of law. Savage v. Walshe, nulled if it was not conducted with
26 Ala. 619. the utmost fairness, to the end that
34. Public or private sale.— The laws full value and, in fact, the best price
for the liquidation of the Bank of Illi- obtainable, were realized for the prop-
nois were designed to vest the as- erty sold. Green v. Bennett (Civ.
signees with authority to sell the real App.), 110 S. W. 108.
estate of the bank at public or private Purchase by bank in which receiver
sale, and they are not bound to sell to
the person who first offers to pay the
interested. —
Rev. Civ. Code, § 1619,
provides that a beneficiary, having
appraised value. Atwood v. Caldwell, capacity to contract, with full knowl-
12 111. 96. edge of the motives of the trustee, and
35. Postponement of sale. — It is for
of all the facts concerning the trans-
the judge alone to determine, upon an action, and without the use of any in-
application for a sale by the receivers fluence on the part of the trustee, may
of demands due to the bank, that it permit the latter to take part in a
ought to be postponed. In re Hollis- transaction concerning the trust prop-
ter Bank, 23 N. Y. 508. erty in which the trustee has an in-
36. Defense to purchase-money note. terest adverse to the beneficiary, and
— In an action by the purchaser of a § 2431 declares that the law neither
note sold to him by the receiver of an c'oes nor requires idle acts. Held
insolvent bank under an order of court that where the purchase of a bank's as-
directing such sale, the fact that the sets from a receiver, by a bank in
entire capital stock of such bank was which the receiver was interested, was
held by its cashier at the time of the permitted by the insolvent bank's
making of such note or thereafter con- stockholders, or they were not injured
stitutes no defense. Shabata v. John- thereby, the sale would not be vacated
son, 53 Neb. 12, 73 N. W. 278. because of the receiver's interest. Jack-
37. Purchase of bank's assets by liq- son V. First State Bank, 21 S. Dak.
—
uidating officers. One of the liquidat- 484, 113 N. W. 876.
§ 77 (5e) Interest on Purchase Money.— If payment of the pur-

chase money is deferred, interest may be recovered.^®
§ 77(6) Actions by or against Receiverss— § 77 (6a) Actions

by —§ —
77 (6aa) Jurisdiction. Receivers appointed by state courts can
not sue in the courts of the United States, unless the jurisdiction of the lat-
ter courts is shown.*"
§ —
77 (6bb) Right of Action. The receiver may sue the directors for
negligence.*^ And he may also sue to recover funds misappropriated by its
cashier from one receiving them with knowledge of the misappropriation,*
or to set aside fraudulent transfers of the assets.*^ If a bank issues certifi-
cates of deposit to its stockholders without consideration, and thereafter
38. Interest on purchase money. — Bradford v. Jenks, Fed. Cas. No. 1,769,
Where a creditor of an insolvent bank 2 McLean 130.
bid off property of the bank at an auc- 41. Right of action by receivers. —
tion sale, and gave to the receiver of Burns Supp. 1897, § 3938, provides that
the bank a receipt, which stated an where a bank is insolvent the auditor
agreement that the amount of the bid of state shall apply for a receiver.
should stand unpaid until a dividend Burns' Rev. St. 1901, § 1242, empowers
should be declared, and should then be such receiver, under the control of the
applied as an advance dividend to the court, to take and keep possession of
creditor, of the date of the receipt, and the property, collect debts in his own
that, for the amount not so applied, he name, and generally to do such acts
should account to the receiver as for respecting the property as the court
"so much money advanced by him to may authorize. A bank organized
my use on this date," it was held that under the laws of the state became in-
the receiver should recover interest solvent, and on the application of the
upon the full amount of the receipt auditor the court appointed plaintiff
from its date, and not merely from the receiver, and he accepted the appoint-
time that the dividend was declared. ment, gave bond, and took the oath re-
Gillet V. Van Rensselaer, 15 N. Y. 397. quired. The order authorized him to
39. Actions by or against receiver. take charge of and reduce to his pos-
— Action to have proceeds of collec- session all the bank's property, credits,
etc., of every description, and to prose-
tions declared a preferred claim, see
post, "Holding Bank as Trustee," cute in his own name, as such receiver,
all actions necessary in the discharge
§ 166 (1).
Collection and protection of assets, of his duties whenever he deemed
see ante, "Collection and Protection ol proper. Held, that there was no defect
As.sets," § 77 (4). of plaintiff's title to the character of
receiver, so as to prevent him suing
Enforcement of liability of bank offi-
the directors of the bank for negli-
cers, see ante, "Actions and Proceed-
gence. Coddington v. Canaday, 157
ings to Enforce," § 58.
Ind. 243, 61 N. E. 567.
Enforcement of stockholder's liabil-
42. Kitchens v. Teasdale Comm. Co.,
ity, see ante, "Actions and Proceedings
105 'Mo. App. 463, 79 S. W'. 1177.
to Enforce," § 49.
43. Transfer of securities for worth-
Right to sue depending on plaintiff's
title to character of receiver, see ante,
less obligations. —
Sayle v. Guarantee
Sav., etc , Co 15-35 O. C. D. 503.
,
"Appointment and Removal of Re- Crinunal prosecution not prereq-

ceiver," § 77 (1").
— uisite.— In order for receivers to
40. Jurisdiction of federal courts. maintain suits against the preferred
Where a receiver appointed under the creditors of an insolvent bank, it is
Michigan statute for the dissolution of not necessary as a condition prece-
banking corporations brings an action dent, that the president, directors or
in his own name in behalf of the bank other officers consenting to such
in the federal court, he must show that fraudulent transfers, should first be
the court would have jurisdiction as prosecuted. Hill v. Western, etc., R.
between the defendant and the bank. Co., 86 Ga. 284, 12 S. E. Rep. 635.
goes into the hands of a receiver, the latter can maintain an action to re-
cover payment on such certificates.**
§ 77 (6cc) In Whose Name Action to Be Brought. As the legal —

title to the assets isbank a receiver in the absence of statute, must
in the
sue in the name of the bank to collect them but it is no objection to the
action that the usee is not named because the debtor is protected by the
judgment and the question of beneficial interest does not concern him.*^ But
by statute in many jurisdictions a bank receiver is authorized to sue in his
own name.*^ And in such case the proceedings should be so entitled.*"
—
Suits by Successors of Original Receivers. Though the rule at law
is different, in equity, the successors of the receivers originally appointed
may sue in their own names.**
44. State v. Bank, 65 Neb. 20, 90 N. In Connecticut bank receivers are

W. 961, 91 N. W. 497. authorized, "in the corporate name of
A bank having a nominal capital of the bank, or in their own names, as.
$25,000 and an indebtedness besides to receivers, to commence and prosecute
the amount of about $14,000, its entire any suits in law or equity, and generally
assets being only about $21,400, issued to do and perform all other acts, nec-
certificates of deposits for $12,500 to essary and proper, in the execution of
its several stockholders, and $12,500 their trust. Stat., title 3, chap. 15."
of new capital stock to take up the Eastern Bank v. Capron, 22 Conn. 639.
former capital stock. Held, that the 46. Receiver may sue his own
in
certificates of deposit were without name. — Ueland v. Haugan,70 Minn.
consideration as against a receiver and 349, 73 N. W. 169; Davis v. Industrial
creditors of the bank. State v. Bank, Mfg. Co., 114 N. C. 321, 19 S. E. 371,
90 N. W. 961, 65 Neb. 20, 91_ N. W. 497. 23 L. R. A. 322; De Wolf v. Sprague
45. In whose name action by re- Mfg. Co., 11 R. I. 380.
—
ceiver to be brought. Chicago Fire R-ior to the enactment of N. C.
Proofing Co. V. Park Nat. Bank, 44 statute (Code, § 668) and the merging
111. App. 150; Burnap v. Cook, 32 111. of the courts of law and the courts of
168; Bank v. Pahquioque Bank (U. S.), equity into one tribunal, having juris-
14 Wall. 383, 20 L. Ed. 840. diction of both legal and equitable
Where a receiver for a bank has rights, a receiver appointed by a court
been appointed, the legal title to notes of equity, and holding the relation that
held by it remains in the bank, and plaintiff holds to the corporation, its
the receiver may sue on the notes in assets, and its debtors and creditors,
the name of the bank. Chicago Fire could not maintain in his own name a
Proofing Co. v. Park Nat. Bank, 44 suit on a note due to the bank, and
111. App. 150, affirmed on another in his hands a receiver. Rattle ik rio-.ris,
point 145 111. 481, 32 N. E. 534; S. C, 66 N. C. 252; Davis v. Industrial Mfg>
145 111. 487, 32 N. E. 536. Co., 114 N. C. 321, 19 S. E. 371, 23
Action on note payable to bearer.—- L. R. A. 322.
A receiver appointed under the Michi- 47. Entitling the proceedings. —
gan statute for the dissolution of bank Where a receiver has been appointed
corporations can not sue as bearer in in a suit by the bank commissioner,
an action brought by him on a note and the office of bank commissioner
payable to bearer, but must sue as as- was abolished before the termination
signee. Bradford v. Jenks, Fed. Cas. of the suit, an order to the master, to-
No. 1,769, 2 McLean 130. whom the claims of creditors had been
Rule in New York. The superin-— referred, to proceed in the reference,
tendent of banks, through whom the was directed to be entitled as in the
afifairs of an insolvent bank in New original suit, but the subsequent pro-
York are liquidated, may sue at law ceedings were to be entitled "In the
in the name of the corporation to col- Matter of the Receiver of" the bank
lect moneys due the bank. Union against which the proceedings were
Bank v. Kanturk Realty Corp., 72 instituted. In re City Bank (N. Y.), 10
Misc. 96, 129 N. Y. S. 635, citing Lafay- 48. Suits by successors of original
ette Trust Co. V. Higginbotham, 136 —
receiver. A bond and mortgage exe-
App. Div. 747, 121 N. Y. S. 489. Paige 378.
554 BANKS AND BANKING. § ^7 (6aa)
§ 77 (6dd) Representative Capacity of Plaintiff. —The capacity

in which the receiver sues must appear.**
§ 77 (6b) Actions against. —Âction to Recover Deposits.

Where a receiver of a bank has been appointed at the instance of creditors,
an action can not be maintained against him to recover a deposit the remedy ;
being by petition in the receivership action. s"
§ 77 (6c) Defenses —§ 77 (6aa) In Actions by Receivers.—

defendant in a suit brought by the receiver of an insolvent bank may take
advantage of any defense that might have been made if the suit had been
brought by the corporation before its insolvency.î But where an act has
been done in fraud of the rights of creditors of an insolvent bank, the re-
ceiver may sue for their benefit, even though the defense set up might be
valid as against the corporation itself. ^^
cuted to the receivers of an insolvent Where notes are given a bank as

bank may be sued upon in equity by an accommodation for the purpose of
their successors in their own names swelling its apparent assets, the de-
as equitable assignees of all their fense of no consideration is good as
rights under the same. Iglehart v. against the receiver of the bank. Chi-
Bierce, 36 111. 133. cago, etc., Trust Co. v. Brady, 165 Mo.
49. Representative capacity of plain- 197, 65 S. W. 303.
tiff. —In a suit by the receivers of a
An agreement by the officers of a
dissolved corporation, appointed by the
bank holding notes of defendant to
Act of February 13, 1843, it was nec- accept from a corporation satisfactory
essary that the receivers should show
securities in substitution for such notes
the capacity in which they prosecuted
constitutes no defense to an action on
the suit. Miami Exporting Co. v. the notes by a receiver for the bank,
Gano, 13 O. 269.
Action on notes due bank. Re- — where no substitute securities were
presented by the corporation prior to
ceivers are trustees for the creditors
the bank's failure. Fowler v. Feet, 170
of the bank, and not for the bank; and
Fed. 620.
their appointment and possession of
notes due to the bank is an assign- Defendants, in a judgment by con-
ment of the notes for the benefit of all fession, alleged as ground for opening
creditors; and the receivers may rnain- it that they were induced to execute
tain an action in their proper names, as the note with the understanding on
indorsers, without specifying their the part of the bank owning it that it
capacity as receivers, on a note be- would not be enforced, but would be
longing to the bank, and indorsed in used as an asset to enable it to con-
blank. Haxton v. Bishop (N. Y.), 3 tinue business, and that it would re-
Wend. 13. lieve the maker of the note on collec-
50. Action against receiver to re- tion of certain outstanding obligations.
cover deposit. — Crutchfield v. Hunter, Held, that such a defense would not
prevail as against the receiver of the
138 N. C. 54, 50 S. E. 557..
Defenses available in suit by re-
51. bank on its subsequent insolvency.
ceiver. —
Franklin Nat. Bank v. White- People's Bank v. Stroud, 223 Pa. 33, 72
Atl. 341.
head, 149 Ind. 560, 49 N. E. 592, 39 L.
R. A. 725, 63 Am. St. Rep. 302. 52. In an action on a note by the re-
Defense to suit on note by receiver. ceiver of an insolvent bank, an affidavit
— Where the property and effects of a of defense alleging that defendant
bank have passed into the hands of a made and delivered the note to the
receiver, the receiver has not the rights bank as part of a scheme to deceive
of a bona fide purchaser of notes held the bank examiner, upon the bank's
by the bank, but as to defenses he promise that defendant would not be
stands precisely in the original posi- held liable thereon, is insufficient.
tion of the bank. Bank v. Demmon Lyons v. Benney, 230 Pa. 117, 79 Atl.
(N. Y.), Talor's Supp. (Hill & Denio) 250.
398.
§ 77 (6aa) INSOI,VENCY AND DISSOLUTION. 555
In an action by a receiver against a bank officer to recover assets

misappropriated by him, he can not set up the defense that no one was
injured by his act.^^ Nor is the negligence or gross neglect of a bank di-
rector any defense to an action by a receiver to recover funds misappro-
priated by the cashier from one receiving them with knowledge of the
misappropriation.^*
77 (6bb) In Actions against Receivers. Usury. In some juris-

§ — —
dictions a receiver is forbidden by statute to set up the defense of usury.^^
—
Statute of Limitations. Where a court undertakes to wind up the af-
fairs of a bank through a receiver, the statute of limitations against ordi-
nary actions does not apply, and lapse of time before proceeding against
funds in the receiver's hands is important only as indicating laches or un-
reasonable delay.58 And a receiver of a bank is estopped to set up the
statute of limitations against the beneficiaries of the trust fund.^'^
§ 77 (6d) Set-Offs— § 77 (6aa) Set-OflFs by Receivers.— Claims

that are mutual and due from the same person in the same capacity may
be set off by the receiver. ^^
Action by receiver for misappro-

53. and containing no reservation, express
priation for assets. In —
an action or implied, operates as well on exist-
brought by a receiver of a bank, ap- ing as subsequent suits, extinguishing,
pointed under Rev. St. c. 146, against not only the right of pleading such
the president of the bank, to recover defense thereafter, but of urging or
the value of certain securities fraudu- maintaining the plea, although pre-
lently appropriated by him to his own viously put in, if not already allowed
use, it can not be objected that it is and established. Curtis v. Leavitt
not shown that some bill holder, de- (N. Y.), 17 Barb. 309.
positor, or other creditor, or some 56. Right of receiver to set up limita-
stockholder, has been injured by the tions. —
State V. State Bank, 84 Kan.
defendant's act, or that the parties, 366, 114 Pac. 381.
the bank and the defendant are in pari 57. Effect of adverse possession by
delicto, or that certain shares given by —
trustee or receiver. The statutes vest-
the defendant in consideration of the ing title to personal property in the
securities have not been tendered to adverse holder thereof in three years,
him. Hayes v. Kenyon, 7 R. I. 136. and to such holder of realty in seven
54. fact that directors of a bank
The years, can have no application to this
were culpably negligent in the super- case; besides, it is held, that the trus-
vision of the bank's business, and per- tee, having failed to execute the re-
mitted the cashier to have exclusive quired bond, was appointed a receiver
management of its aflfairs, is no de- of the court, and, as such, held the
fense to an action by the receivers of assets of the bank for the benefit of
the bank to recover from a commis- those to whom the court might award
sion company funds of the bank trans- them, and he is, therefore, estopped
mitted to such company by draft_ on from setting up the statute of limita-
its correspondent, over the cashier's tions, either for himself or any persons
official title, to be used in the cashier's other than those ultimately entitled.
private speculation. Kitchens v. Teas- State V. Bank, 64 Tenn. (5 Baxt.) 101.
dale Comm. Co., 105 Mo. App. 463, 79 58. Set-offs by receiver. —A receiver
S. W. 1177. of an insolvent bank has no -right to
Right of receiver to set up usury.
55. set off a claim due from the bank to
— No receiver of any free banking as- one member of a firm in his individual
sociation, since the Act of 1850, can capacity against a debt of the firm to
plead, or set up, or prove, or in any the bank. In such case the claims are
manner "interpose," the defense of not mutual, nor due it from the same
usury; and the act, being in the nature persons in the same capacity, and
of a repeal of penalties and forfeitures, hence the right of set-off does not
§ 77 (6bb) Set-Offs against Receivers. —In General. —A receiver

takes choses in action of a bank in the same plight in which they existed at
the time of the filing of the proceedings under which he was appointed, and
subject to all set-offs which might have been pleaded thereto in a suit by
the bank itself .s*
exist. In re Van Allen (N. Y.), 37 New York draft from the M. bank in
Barb. 225. settlement of a clearance, on June 6,
Bill of exchange as —A
set-off. bank 1905, forwarded the same for collec-
discounted a bill of exchange, passed tion. On the 9th a preliminary clear-
the amount to the drawer's credit, and ance showed the M. bank indebted to
soon after failed. Acceptance was claimant for a clearance balance for
stopped, and his claim against the that day o*f $1,462. A duebill was given
bank assigned by the drawer. Mean- for this amount, but later in the day
while the bill came into the possession the M. Bank returned claimant's
of a second bank, which had a lien checks, surrendered on the preliminary
thereon for general balance. The re- clearance, because of an assignment
ceiver of the insolvent bank satisfied for the benefit of its creditors, where-
this lien, took up the bill, and can- upon claimant executed to the M.
celed the credit given. In an action Bank's assignee a credit slip for
by the assignees of the claim against $964.59, to which such items amounted,
the receiver, no notice of the assign- before it was advised of the protest
ment having been given, he was held of the draft given on the 6th. Held,
to be entitled to avail himself of the that claimant was entitled to have such
draft as a set-off, although it was not credit set off against its claim on the
in the possession or control of the draft as against the M. Bank's receiver,
bank when the assignment was made. under the rule that a receiver occupies
Robinson v. Howes, 20 N. Y. 84. no better position than the insolvent,
Action for conversion of deposits. — and takes the latter's property subject
In an action against a bank and its offi- to the same equities as existed at the
cers and receivers for the conversion time of his appointment. Citizens'
of a special deposit, a set-off will be Bank v. Kretschmar, 91 Miss. 608, 44
allowed for the payment of part of So. 930.
the deposit by an agent bank in a Where a depositor is sued by the
foreign country, also in the hands of temporary receiver of a bank on a
a receiver, to which the deposit had note payable thereto, set-off to the
been transferred. El Paso Nat. Bank amount of his deposit may be allowed
V. Fuchs (Tex. Civ. App.), 34 S. W. defendant, on application to the court.
203. Sickels V. Herold, 15 Misc. Rep. 116,
Debts of a partner and his firm to a 36 N. Y. S. 488; People v. St. Nicholas
bank can not be set off by a receiver Bank, 76 Hun 522, 28 N. Y. S. 114,
of the bank against trust moneys which 58 N. Y. St. Rep. 843
the partner, after the debts were con- Allowing set-off against debts due
tracted,mingled with the firm deposits, bank. —Under an order of the court di-
without the bank's knowledge and the recting the receiver of a bank "to al-
whole amount of which remained in low parties indebted to said bank,
the bank until it failed. Knight v. where their promissory notes or other
Fisher, 58 Fed. 991, affirmed in 9 C. C. evidences of indebtedness are held by
A. 582. 61 Fed. 491. said bank, to set off and credit upon
59. Set-offs against receiver. Nix v. — such evidences of indebtedness what-
Ellis, 118 Ga. 345, 45 S. E. 404, 98 Am. ever sums may be to the credit of said
St. Rep. Ill, opinion of Lamar, J., now parties upon the books of said bank
of the federal supreme court. at the date of the closing thereof," he
The right to a set-off against the re- will act at his peril as to the real ex-
ceiver of a bank is to be governed by istence and rightfulness of any demand
the state of things existing at the he may allow as a set-off. State v.
moment of insolvency, and not by con- Brobston, 94 Ga. 95, 21 S. E. 146, 47
ditions thereafter created. Yardley v. Am. St. Rep. 138.
Philler, 167 U. S. 344, 42 L. Ed. 192, When bank A failed it was carry-
17 S Ct. 835, reversing decree Philler ing on its books an indebtedness
V. Yardley, 10 C. C. A. 562, 62 Fed. 645, against bank C for an overdraft, and
,
25 L. R. A. 824. at the same time, bank A owed the

Claimant bank, having received a trustee of bank C, v/hich had failed
§ 77 (6bb) INSOLVENCY AND DISSOLUTION. 557
But unaccepted or unpresented checks can not be used as set-offs or

counterclaims in actions by receivers of insolvent banks.*" And the fact that
the bank has failed and closed its doors before the holder has an opportu-
nity to present the check for acceptance and payment is of no consequence
and does not relieve the situation for the defendant.* ^ Claims against or
liabilities of a bank obtained after insolvency can not be set off by the
holder thereof against demands of the bank.*^ And since the appointment
of receivers of a bank that has failed, constitutes them trustees, not for
the bank, but for its creditors, it is held that in a suit brought by them in
their names, upon a negotiable promissory note, against the maker, which
note became payable, after the failure of the bank and the appointment of
the receivers, the defendant can not set off, against the note, the bills of
on deposit by him as such trustee,

a the receiver of an insolvent bank on
the sumof $3,440.30. It was held, that a note, the defendant can not set up
this debt which the trustee holds such a check as a valid counterclaim.
against the bank A is not the subject Le Brenton
v. Stanley Contracting
of set-off with the debt which the bank Co., 15 Cal.App. 439, 114 Pac. 1038.
A holds against the bank C. The as- "To allow it would be to open the
sets of the bank C had come to his door to the commission of fraud on
hands charged with no right of off- the great body of the creditors of the
set in favor of bank A, but only with' insolvent bank, and would practically
the duty of pro rata distribution to defeat the great object of the insol-
that bank, along with other creditors. vent law, which is the equal distribu-
If, subsequently, he changed that re- tion of the assets of the insolvent
lation, so that, instead of paying the company among the creditors. In
bank A only a pro rata, he, by the every case where a bank failed, hav-
operation of the law of offsets, pays ing a large number of both creditors
said bank in full to the detriment of and debtors, it would be the easiest
other creditors, it is a matter affect- matter in the world for a number of
ing his personal responsibility. When each class to collude together, and,
he deposited the money in the bank A. by the former giving antedated checks
it was not then subject' to an offset to the latter, to absorb all the assets
in favor of that bank, and did not sub- of the bank to the exclusion of the
sequently become so. Akin v. Wil- other creditors." Northern Trust Co.
liamson (Tenn.), 35 S. W. 569. V. Rogers, 60 Minn. 308, 63 N. W.
Right of executor to set-off deposit 373, 51 Am. St. Rep. 536.
—
against his own note. The maker of a 61. Le Breton v. Stanley Contract-
promissory note held by the receiver ing Co., 15 Cal. App. 439, 114 Pac.
of an insolvent bank has no right to 1028.
set off a deposit in the bank standing 62. Claims acquired after insolvency.
in his name executor.
as Stasel v. —^Where, between suspension by a
Daugherty, 7 N. P., N. S., 434, 19 O. D. bank and commencement of an action
N. P. 730. for and resulting in its dissolution and
Rule to compel allowance of set-off. appointment of a receiver, one liable to
— In a bank
proceedings to liquidate it as indorser on notes takes assign-
under Act March 14, 1843, No._ 98, ments of deposit accounts, he may off-
which are to be conducted as in a set them against his liability, in an
voluntary surrender, a debtor can not action by the receiver, unless it be
l)y rule compel the commissioners to shown that the bank was insolvent at
allow an offset against his obligation, the time of the assignment of the ac-
and surrender the evidence of it. White counts; and this is not shown by the
V. Commissioners (La.), 4 Rob. 363. recital in an agreed statement of facts
Unaccepted checks as set-offs.
60. — that, at the commencement of the ac-
An unpresented and unaccepted check tion to dissolve, the bank "was insol-
gives the holder no right against the vent, and having suspended its busi-
tank upon which it is drawn, though ness" on a certain day. Higgins v.
the drawer have sufficient funds there Worthington, 90 Hun 436, 35 N. Y.
to pay it, and hence, in an action by S. 815, 70 N. Y. St. Rep. 300.
558 BANKS AND BANKING. § ^7 (6g>
the bank.63
Counterclaim. — In actions by receivers to collect debts due the bank
all legal or equitable counterclaims against the corporation must be al-
lowed.^*
77 (6e) Plea, Answer and Reply. As

§ — a superintendent of banks
under the New York statute is given power to collect the assets, he is by
necessary implication vested with all the powers necessary to be exercised
in the performance of his duties. Among these is the power to interpose a
verified reply in an action brought by him in pursuance of his duty in liq-
uidating the affairs of the bank.^^ j,
§ 77 (6f) Issues, Proof —

and Variance. The well-settled general rule
that the issues and proof must correspond applies strictly in actions by re-
ceivers to recover and collect the assets of the bank.^*
§ 77 (6g) Parties. —
In a suit by a bank receiver to set aside convey-
ances by the bank, all persons interested may be made parties and are en-
titled to be heard and may introduce evidence on that point, but the court
can riot decree for or against them.*^ The state treasurer is a proper party
63. Set-off of bills of bank.— Eastern bank, for verifying and interposing the
Bank Capron, 22 Conn. 639; Haxton
v. reply. Union Bank v. Kanturk Realty
-c. Bishop (X. Y.), 3 Wend. 13. Corp., 72 Misc. Rep. 96, 129 N. Y. S.
In an action brought in the name of 635.
an insolvent bank, by receivers ap- 66. Conformity between pleadings
pointed under the statute, against the —
and proof. In an action by the re-
indorser of a note, which was held as ceiver of a bank to recover funds mis-
part of the assets of such bank, it was appropriated by the cashier from one
held that bills of the same bank could receiving them with knowledge of the
not be set off against the plaintiffs' de- misappropriation, where the answer
mand, although a portion of said bills was a general denial, and there was no
were holden by the defendant, at the application to amend, evidence of a se-
time of the failure of such bank, and cured note given by the cashier after
when the note became due. Eastern the misappropriation, and of its ac-
Bank v. Capron, 2a Conn. 639. ceptance by the bank directory in set-
tlement, was properly excluded.
64. Counterclaims. —
Davis v. Indus-
Kit-
chens V. Teasdale Comm. Co., 105 Mo.
trial Mfg. Co., 114 N'. C. 321, 19 S. E.
App. 463, 79 S. W. 1177.
371, 23 L. R- A. 322.
67. In a suit by the receiver of a
In an action on a note payable to a bank whose charter has been for-
bank, brought by its receiver, evidence feited, to set aside an assignment of
held not to sustain the maker's counter- effects made by that bank, for fraud,
. claim based on a deposit at the time it isnot possible to make it a party, it
the bank passed into the hands of a re- being extinct. Carey v. Giles, 10 Ga. 9,.
ceiver. Rhodes v. Guhman, 156 Mo. Bill by
receiver to set aside assign-
App. 344, 137 S. W. 88. ment —Parties.— In
a bill filed by the
65. Verified reply by receiver. Un-— receiver of a bank to set aside an as-
der Banking Law (Consol. Laws 1909, signment of certain notes, it is held
c. 3), § 19, providing for liquidation of that persons liable upon those notes,
the affairs of banks through the super- and who had been sued thereon by the
intendent of banks, who rnay appoint assignee, and who were made parties
deputies to assist him therein, and giv- defendant to the bill, have an interest
ing him power to collect money due in the question of title to their notes,
the bank, which he can do by action in and upon the trial may introduce evi-
the name of the bank, a verified coun- dence, and be heard as to that ques-
terclaim, requiring a verified reply, tion, but no decree can be rendered'
being interposed, he or his deputy is for or against them. Carey v. Giles,.
vested with powers, as an agent of the 10 Ga. 9.
77 (6j) INSOLVENCY AND DISSOLUTION. 559
defendant to a by the receiver of an insolvent bank to charge the bank

bill
fund.''® But the bill in an action by the receiver of a bank against directors
for losses occasioned by their wrongful acts need not include all of the
directors who participated in any of such acts.^^
§ 77 (6h) Evidence. —
In actions by or against receivers of banks the
same general rules apply with respect to the relevancy, competency and ad-
missibility of evidence as obtain in other civil actions.''*'
§ 77 (6i) Judgment. —
Operation and Effect of Judgment. A judg- —
ment against a receiver of a bank operates only as an established claim
against the assets of the bank held by him as receiver and it is error to di-
rect execution to issue thereon.''
§ 77 (6j) Costs. —Right to and Liability for Costs. — If the receiver

is cast in the suit the defendant is entitled to his costs payable out of the
fund in the receiver's hands.''^
68. State treasurer. —

Danby Bank v. misappropriated by the cashier, from
State Treasurer, 37 Vt. 541. one receiving them with knowledge of
69. Parties to actions against direct- the misappropriation, testimony of a
ors. —Gaither v. Bauernschmidt, 108 banking expert that it was a general
custom for bank cashiers to draw
Md. 1, 69 Atl. 425.
drafts on their own banks in payment
70. Relevancy. — Where, in an action
of their own indebtedness was not ad-
by a corporation against a bank and its missible, where the drafts received by
receiver to compel the payment of a
defendant were not drawn in that form,
certain claim, the question in issue was
but were drawn on the bank's corre-
whether the transaction between the spondent by the cashier over his official
corporation and the bank was such
signature. Kitchens v. Teasdale
that the relation of debtor and creditor
Comm. Co., 105 Mo. App. 463, 79 S. W.
existed, it was not error to sustain an
1177.
objection to a question as to whether
the corporation kept or authorized a
Presumptions. —
On a showing that
ever since complainant's wife depos-
general account with any bank outside ited his money in a bank, without his
of certain ones. McCormick Harvest- knowledge or consent, the general
ing Mach. Co. V. Yankton Sav. Bank, funds of the bank have exceeded the.
15 S. Dak. 196, 87 N. W. 974.
amount of the deposit, he establishes
Record in chancery cause. The — a presumption that the money is still
bank of P. was ruined by the late war; in the bank, as afifecting his right to re-
and no officers of the bank have been cover against the receiver thereof.
elected nor has there been a meeting Patek V. Patek, 166 Mich. 446, 131 N.
of the board since April, 1865. and it W. 1101.
has done no business since, and in fact Where a bank,knowing its insol-
it had been abandoned and ceased to vency, receives from a customer, as
exist. In April, 1866, H. and M. suing cash, a check on a foreign bank, and
as well for themselves as for all the sends the paper to its correspondent,
other stockholders, creditors and de- who credits the check to it as cash,
positors, etc., filed their bill against the and subsequently pays the proceeds
bank and the president, for a settle- thereof to a receiver appointed for it
ment of its afifairs and a distribution of in the meantime, it is presumed, in an
its assets. The court appointed a re- action by the depositor against the re-
ceiver in the case, and in June, 1866, ceiver to recover the proceeds, that the
there was a decree for an account. correspondent credited the check to
Held, in an action by the receiver the bank before its failure. Friberg v.
against a debtor of the bank, the rec- Cox, 97 Tenn. 550, 37 S. W. 283.
ord in the chancery cause is evidence 71. Effect of judgment against
re-
for the plaintiff.
68 Va. (27 Gratt.) 365.
Finney v. Bennett, ceiver. —
Arnold v. Penn, 11 Tex. Civ.
App. 325, 32 S. W. 353.
—
Banking customs. In an action by 72. Liability of receiver for costs. —
the receiver of a bank to recover funds Where the receivers in insolvency of
Security for Costs. —Nonresidents desiring to come into receivership

proceedings must give security for costs.''*
§ 78.Assignments for Benefit of Creditors'^*— § 78 (1) Right

to —
Make. Unless restrained by its charter or by express statute, an in-
solvent banking corporation may make an assignment for the benefit of
<:reditors, as a natural person may do, by virtue of its general power to
contract, acquire and transfer property.'''" In other words, the right of a
a bank proceeded in a suit at law com- Grand Gulf R., etc., Co. v. State
menced by the bank, and upon trial (Miss.), 10 Smedes & M. 428; Chew v.
the plaintiffs were nonsuited, it was Ellingwood, 86 Mo. 260, 56 Am. Rep.
held that the defendant was entitled to 429; Peopfe v. Hudson Bank (N. Y.), 6
all his costs out of the fund in the re- Cow. 217; Haxton v. Bishop (N. Y.),
ceiver's hands, down to the time of 3 Wend. 13; Commonwealth v. Bank
the nonsuit. Camp v. Niagara Bank (Pa.), 3 Watts & S. 205; Dana v. Bank,
(N. Y.), 2 Paige 383. (Pa.), 5 Watts & S. 223; Dabney v.
73. Security for costs by nonresi- Bank, 3 S. C. 124; Parker v. Carolina
—
dents. ^Where nonresident stockhold- Sav. Bank, 53 S. C. 583, 31 S. E. 673, 69
ers of an insolvent bank moved to set Am. St. Rep. 888; Farmers' Bank v.
aside a receiver's sale of its assets and Willis, 7 W. Va. 31; Lamb v. Cecil, 25
for the appointment of a new receiver, W. Va. 288; Garden City Banking,
it was error to denj' the motion with- etc., Co. V. Geilfuss, 86 Wis. 612, 57
out prejudice to another application N. W. 349.
for the same relief, provided the mov- Act 1840, declaring that no bank
ing parties within thirty days depos- shall transfer any note, bill receivable,
ited $500 with the clerk to abide the or other evidence of debt, does not
orders of the court; the only protec- take from a bank the right to make
tion the receiver was entitled to being an assignment for the benefit of cred-
security for costs as provided by Rev. itors. Montgomery v. Commercial
Code Proc, § 433.
Civ. Jackson v. Bank Smedes & M. Ch. 632.
(Miss.), 1
First State Bank, 21 S. Dak. 484, 113 Right of insolvent bank to assign. —
N. W. 876. Rev. 1899, §§ 976, 1305, 1306, rela-
St.
74. Representation of bank by offi- tive to the dissolution of corporations,
cers in making, see post, "Rights and declaring .that it shall be unlawful for
Liabilities of Stockholders in General," a bank or trust company to make a
§ 246. voluntary assignment, and that if it
Civil liability on insolvency, see post, finds itself to be in a failing condition,
"Civil Liability on Insolvency," it shall place itself in the hands of the
§ 82. . secretary of state and defining the
Presentation and payment of claims, duties of that officer in case he shall
see post, "Presentation and Payment of believe that the capital stock of an.y
Claims," § 80. banking corporation or individual
Rights of persons making deposits banker is reduced by impairment be-
after insolvency, see ante, "Rights of low the amount required by law, etc.,
Persons flaking Deposits after Insol- have no application to the settlement
vency," § 75. of the affairs of a banking corporation
75. Banks may assign assets for which is perfectly solvent at the time
—
creditors. Lenox v. Roberts (U. S.), its existence terminates by the limita-
2 Wheat. 373; Pope v. Brandon (Ala.), tions of its charter. Clifford Banking
2 Stewart 401, 20 Am. Dec. 49; Catlin Co. V. Donovan Comm. Co., 195 Mo.
V. Eagle Bank, 6 Conn. 233; McCallie 262, 94 S. W. 527.
V. Walton, 37 Ga. 611, 95 Am. Dec. 369; Sess. Laws 1835-36, p. 162, provid-
Gresham v. Crossland, 59 Ga. 270; Seay ing that, where a state bank has be-
z/. Bank, 66 Ga. 609; Fouche v. Brower, come insolvent, the bank commissioner
74 Ga. 251; Wright v. Rogers, 26 Ind. shall proceed to wind up its affairs
218; State i: Bank (Md.), 6 Gill & J. through a receiver appointed by a
203. 26 Am. Dec. 561; Union Bank v. court of chancery, prescribes the ex-
Ellicott (Îd.), 6 Gill J. 363; Town
& clusive mode by which such banks
V. Bank (Mich.), 2 Doug. 530; Arthur shall be dissolved and their effects ad-
T. Commercial, etc., Bank (Miss.), 9 ministered, and hence a deed of as-
Smedes &
M. 394, 48 Am. Dec. 719; signment by an insolvent state bank
§ 78 (3aa) INSOLVENCY AND DISSOLUTION. 561
banking corporation to make such an a,ssignment, if not expressly or im-

pliedly forbidden by its charter or other positive law, must be regarded as
clear and undoubted as that of a natural person J"
§ 78 (2) Involuntary Assignments. —By statute in some jurisdic-

tions banks may be compelled by the proper authorities to make an as-
signment.'^'
§ 78 (3) Requisites and Validity— § 78 (3a) Requisites— § 78

—
(3aa) In General. The deed of assignment must bear the corporate
seal/^ and be for a sufficient consideration.^*
to a trustee for the benefit of its cred- maxon Bank (Pa.), 16 Wkly. Notes
itors is void. Bank Comm'rs v. Bank Cas. 307.
(Mich.), 1 Har. 106. Effect of national bankrupt law. —
—
Rule in Alabama. In the absence of Since Act April 16, 1850, providing
authority by its charter, the president that, where an insolvent state bank
and directors of a banking corporation had failed to pay a depositor on de-
can not use its cash or credits, etc., mand, it might be compelled, by pro-
for the purpose of effecting a settle- ceedings before a tribunal, to assign
ment of the demands of its creditors; all its property for distribution among
and an assignment by them of prop- its creditors, was suspended by the na-
erty of the bank to a third person for tional bankruptcy law, a deed of as-
that purpose will not be valid, though signment made under the Act of 1850,
the seal of the corporation be affixed. after its suspension, was void. Shryock
Gibson z:. Goldthwaite, 7 Ala. 281, 43 'J. Bashore (Pa.), 11 Phila. 565, 33 Leg.
Am. Dec. 593. Int. 56.
76. Garden City Banking, etc., Co. 78. Seal of corporation. —Where a
V. Geilfuss, 86 Wis. 613, 57 N. W. 349. deed of assignment from a banking
The provision of 1 Rev. St., p. 791, corporation has affixed to it the com-
that no assignment by any moneyed mon seal of the corporation, and the
corporation giving preferences shall be signature of the proper officer is
valid, implies that an assignment with- proved, courts are to presume, that the
out preference is valid. In re Bowery officer did not exceed his authority,
Bank (N. Y.), 5 Abb. Prac. 415, 16 and the seal itself is prima facie evi-
How. Prac. dence, that it was affixed by proper
assignments. — "The
56.
77. Involuntary authority. The contrary must be
state being the only stockholder, the shown by the obiecting party. Lamb v.
legislature might direct the bank to Cecil, 25 W. Va. 388; Hopkins v. Galla-
make an assignment, and give any tin Turnpike Co., 23 Tenn. (4 Humph.)
other direction not in conflict with the 403.
existing laws and the vested rights of 79. Consideration. — Generally, a
others, as the stockholders of any bank may convey or transfer its prop-
other bank might do." State v. Bank, erty in possession, or choses in action,
64 Tenn. (5 Baxt.) 1. either for a new consideration, or to
Necessity for order of court. Act — satisfy or secure a pre-existing debt.
1850, § 37, relating to the assignment When a bank is insolvent, or in danger
of insolvent banks, provides that, upon of insolvency, the just principle of
complaint of a creditor that the bank eauality in part payment of creditors,
has refused to pay its liabilities in gold alike entitled to satisfaction, suggests
and silver coin, the court may, upon not only the legal right, but the moral
being satisfied of the truth of the com- duty of an assignment, or other meas-
plaint, compel the directors to make ure, to secure and effect a ratable dis-
an assignment. Held, that an assign- tribution of its assets among such
ment by an insolvent bank, by the creditors. When the assignment is to
voluntary direction of its directors, trustees to secure antecedent debts,
was not void, on the ground that it these constitute a valuable considera-
was not made pursuant to an order of tion entirely adequate to sustain the
court, as such order could only have assignment, which becomes completely
compelled the action which the direct- effectual to protect the creditors
ors voluntarily took. News v. Shacka- against demands thereafter acquired
1 B & B— 36
562 BANKS AND BANKING. § 78 (3cc)
§ 78 (3bb) Execution of Assignment. —The absignment should also

be actually executed by by some other officer
the directors of the banks'' or
acting under authority from the board of directors, ^^ but it is not necessary
that the officer act under power of attorney; the affixing of the corporate
seal to the instrument of assignment is prima facie evidence of authority
and regularity.*^
§ 78 (3cc) Assent of Stockholders. —And this assignment may be

made without the authority or consent of the stockholders,*^ or at least
with the assent of a bare majority.**
by any one. Farmers' Bank v. Willis, Yerg.) 7; Union Bank v. United States
7 W. Va. 31; Wickham v. Martin & Bank, 33 Tenn. (4 Humph.) 369; Hop-
Co., 54 Va. (13 Gratt.) 427; Evans v. kins V. Gallatin Turnpike Co., 23 Tenn.
Greenhow, 56 Va. (15 Gratt), 153. (4 Humph.), 403.
80. Execution of assignment. Until — Necessity for assent of stock-
83.
the appointment of a receiver and the —
holders. The president and directors
award of the injunction, the manage- of a bank have a right to assign for
ment of the affairs of a bank remains the payment of its debts, without the
in the hands of the directors, and as- assent of the stockholders. Merrick
signments by them in payment of the V. Bank (Md.), 8 Gill 59.
company's debt may be lawfully made. Thedirectors of a bank have the
Planters' Bank v. Whittle, 78 Va. 737. power to assign its property in trust
Assignment by majority of directors. for the payment of preferred creditors,
— Where three of the seven directors without the authority or consent of
of a bank were out of the state, inac- the stockholders. Dana v. Bank (Pa.),
cessible, and beyond the reach of any 5 Watts & S. 223.
notice of a meeting of the board that A
bank chartered by act of assembly,
would have been available at the time not being a bank of issue, but of de-
the bank became insolvent, and two of posit, and therefore not subject to the
them afterwards ratified the acts of provisions of the Banking Act of April
the other directors at such meeting, 16, 1850, has power to make a general
the fact that the directors were not assignment for the benefit of creditors;
notified under such circumstances is and this power may be exercised by
not sufficient to render void a deed the board of directors, without obtain-
of assignment authorized by a ma- ing the consent of a majority of the
jority of the directors present at the stockholders. In re Miners' Bank
meeting. National Bank v. Shumway, (Pa.), Wkly. Notes Cas. 370.
13
49 Kan. 324, 30 Pac. 411.
81. Authority of officer to execute
84. An
assignment by a bank, made
by the directors with the assent of a
—
assignment. Since the bank, as a cor-
majority of the stockholders, but with-
poration, acts through its governing
out the knowledge of some stockhold-
body," the board of directors, unless
otherwise provided by law, an assign-
ers, valid.
is Town v. Bank (Mich.),
2 Doug. 530.
ment executed by the proper officers
by authority of the directors is valid. The consent of all the stockholders
Parker v. Carolina Sav. Bank, 53 S. C. of a savings bank need not be first ob-
583, 31 S. E. 673, 69 Am. St. Rep. 888.
tained to the bank's assignment for
Assignments by bank officers after benefit of creditors, if such assignment
expiration of term. —A deed of assign- ismade in good faith. Descombes v.
Wood, 91 Mo. 196, 4 S. W. 8'2, 60 Am.
ment executed by certain officers of a
bank after their term of office has ex- Rep. 239.
pired, is valid where such officers were But has been held that a bank
it
expressly authorized to make the as- president can not make the assign-
signment by the stockholders, they be- ment without consulting the directors
ing for that purpose officers de facto or stockholders. Thus, after an in-
if not de jure. Milliken v. Steiner, 56 solvent bank was sued, its president,
Ga. 251; Gresham v. Crossland, 59 Ga. without consulting its directors or
270; Mechanics' Bank v. Heard, 37 Ga. stockholders, executed, in its behalf,
401. a conveyance for the benefit of cred-
82. Necessity for power of attorney. itors. Held, that this conveyance
—Darnell v. Dickens, 13 Tenn. (4 should be deemed made without au-
§ 78 (3aa) INSOLVENCY AND DISSOIÛTION. 563
§ 78 (3dd) Acceptance of Trust by Assignee. But an assignment —

for creditors, to be valid, must be assented to by the assignee.^^
§ 78 (3ta) Validity— § 78 (3aa) In General.—An assignment of its
assets by a bank viîth intent to hinder, delay or defraud creditors is fraudu-

lent and void.®® In some jurisdictions an assignment to an ofificer or stock-
holder, or an assignment to any person in contemplation of insolvency,
is forbidden.®'' And an assignment by the directors of a bank to a trustee
thority, and that, in the absence of fully as could the grantor; and the
evidence of ratification, ratification amount of the preferred debts is not
could not be presumed. McKeag v. specified.Swepson v. Exchange, etc.,
Collins, Mo. 164.
87 Bank, 77 Tenn. (9 Lea) 713.
85. Acceptance of assignment. The — Allowing trustee to sell or pledge
Chattahoochee Railroad & Banking —
assets. A clause, in an assignment by
Company made an assignment, in 1841, a bank for the benefit of its creditors,
to Van Leonard, W. P. Yonge, and permitted the trustees "to sell or
John Bethune, of its effects, to collect pledge any of the property or effects
and pay its debts. There is no evi- conveyed, including the notes of the
dence that Van Leonard ever accepted bank, in case any pressing emergency
the trust. There is no proof that the not otherwise provided for should ren-
other two did. In December, 1843, the der it necessary to so employ said
legislature passed an act, in which it bank notes." Held that, since the pro-
is recited that an assignment had been vision was not in itself an improper
made by said railroad and banking appropriation of the assets, it did not
company, to John Bethune, and con- vitiate the assignment, or render it
firming and makmg valid said assign- fraudulent in law, though it might lead
ment for all purposes, both in law and to such a result. Montgomery v. Gal-
equity; and declaring that said as- braith (Miss.), 11 Smiedes & M. 555.
signee might sue and be sued in his 87. Assignments in contemplation of
said character of assignee for any de- —
insolvency. Armstrong v. Grannis, 4
mand due to and from said banking O. Dec. 54, Cleve. L. Rec. 71; Appeal
institution. Held, that said act is con- of Scranton Trust Co. (Pa."), 4 Walk.
stitutional and
and that the sub-
valid, 308, (assignment to president).
sequent renunciation by John Bethune, An assignment for the benefii of
in December, 1844, of this legislative creditors, made by a bank incorporated
ratification of his appointment by the under the Ohio general banking law
bank, does not discharge him from lia- of 1845, is not void, although made in
bility. Bethune v. Dougherty, 30 Ga. contemplation of general insolvency,
770. if it is not made in contemplation of
Fraudulent assignment by bank.

86. suspending specie payments on its cir-
—An assignment of assets of a bank, culating notes. Armstrong v. Grannis,
insolvent at the time, and about mak- 4 O. Dec. 54, Cleve. L. Rec. 71.
_
ing a general assignment, and against An assignment of its property by a
which proceedings are pending to re- bank, after it had stopped paying to
voke its charter, made to a creditor persons other than officers or stock-
cognizant of these things, and by col- holders, in trust for the benefit of
lusion with him to defraud other cred- creditors, is valid, and not prohibited
itors, is void, and the assets so as- by the act to prevent fraudulent bank-
signed to him is a trust fund, to be ruptcy; 7 St., p. 540a, § 6, prohibiting
applied to the payment of the debts an assignment of any property to an
of the corporation. Hightower v. Mus- officer or stockholder of a corporation
tian, 8 Ga. 506. for the payment of any debt, and as-
But a trust deed is not fraudulent on signment to any person in contempla-
its face because no time is specified tion of insolvency. Haxton v. Bishop
for the sale of the property conveyed; (N. Y.), 3 Wend. 13.
and the trustee, a young man without Assignment by director to pay in-
property, and excused from bond, is —
dividual debt. Objection that assign-
authorized to rent until sale; and al- ments of assets made by the directors
lowed to sell on credit in his discre- of a bank to pay debts for which they
tion; and to compromise or arbitrate are individually bound, are void, under
any matter of litigation; and to do all Va. Code, 1873, ch. 57, § 18, which pro-
other proper and necessary acts as vides that "No member of the board
for the benefit of creditors, with a view to evade the statute prescribing
the mode in which the affairs of banking associations established under the
general law shall be wound up in case of insolvency, is void, as being against
the policy of the law.*^ But the fact that a private banking firm may have
violated their fiduciary relations to a national bank, of which they were also
officers, or have not done their duty by their own depositors, does not in
itself render an assignment by them for the benefit of creditors, fraudulent.*^
Nor is an assignment for creditors by a bank invalid because it contains an
express reservation of the surplus, after payment of the debts specifiedj^"
or because the amount of effects assigned is larger than would be reasonably
sufficient to pay the debts,"^ or because it is made to avoid the consequences
of pending, hostile legislation. ^^ Nor is the assignment invalid for want of
the vote of the stockholders therefor.^*
By statute in Ohio if any banking institution makes an assignment with
intent to prevent or hinder such institution from being closed up by the
bank commissioner, such bank commissioner may take possession of, col-
lect and distribute the assets, as if no such assignment had been made.^*
shall vote on a question in which he because there is a stipulation that the

is interested, otherwise than as a stock- excess shall be returned to the bank.
holder," must be made in the court Such a transfer is valid in law, per se.
below, and can not be raised for the The excess in this case, is not even a
first time in an appellate court. Plant- badge of fraud in fact, but a reason-
ers' Bank v. Whittle, 78 Va. 737. able allowance to cover bad debts and
88. Bank Comm'rs v. Bank (Mich.), the expense of collection, and the
1 Har. 106. stipulation that the excess shall be
89. Where members
of a private
the returned upon the face of this assign-
banking firm who
controlled the man- ment to the bank, does not create such
agement of a national bank, being a trust as is condemned by the act of
heavily indebted to the bank and also 1818. Carey v. Giles, 10 Ga. 9.
to their depositors, made a general as- 91. Carey v. Giles, 10 Ga. 9.
signment of all their property to secure 92. passed both

After an act had
their creditors in classes, and it is said houses of the legislature, and while it
that they indulged in wild speculations was before the governor for his ap-
in real and personal estate, stocks, proval, compelling all assignees of the
bonds, mines, railroads, etc.; that ap- Bank of the United States to accept its
plies as well to the squandering of the notes in payment of debts assigned, the
seven hundred thousand dollars and bank made an assignment for the bene-
upwards of deposits with them as a fit of certain preferred creditors. Other
banking firm, as it does to the money creditors claimed that the assignment
that they absorbed from the bank; and was hurried in order to evade the act,
in any view, the violation of their and should therefore be held to be
fiduciary relations to the bank, of void. Held, that such objection was
which they were officers, or their no ground for defeating the assign-
treatment of the depositors in the ment. Dana v. Bank, 5 Watts & S.
hanking firm of which they were mem- (Pa.) 223.
bers,does not render the assignment 93. A
general assignment by a bank
of ail their property for the benefit of for of creditors executed by
benefit
their creditors therefore fraudulent- proper officers by resolution of the di-
Peters V. Bain, 133 U. S. 670, 33 L. Ed. rectors is not governed by Rev. St.,
G96, 10 S. Ct. 354. § 1524 (19 St. at Large, p. 543), pro-
90. Dana v. Bank, 5 Watts & S. viding for a corporation's securing
(Pa.). 223. debts by mortgage by vote of the
Validity of reservations in assign- stockholders. Parker v. Carolina Sav.
ment. —An
assignment made by an in- Bank, 53 S. C. 583, 31 S. E. 673, 69 Am.
St. Rep. 888.
solvent bank to pay an existing debt to
a creditor, is not void in law by the 94. Right of assignee who was
general law, or under the act of 1818, maker of note to sue surety. In 1842, —
§ 78 (3bb) INSOLVENCY AND DISSOLUTION. 565
§ 78 (3bb) Preferences. —
At common law and in the absence of re-
bank in faiHng circumstances may make an assign-
strictions in its charter a
ment for creditors preferring some over others, provided there is no fraudu-
lent intent; the insolvency of the bank at the time of such assignment does
not impair its power to assign for the benefit of preferred creditors. ^^ But
preferences by insolvent debtors have never been favored; accordingly in
most jurisdictions there are statutes forbidding preferences among creditors
of the bank and providing that assignments infringing these statutes are in-
valid or void,''^ and in some states the statutes even make it a crime for
the Bank of HamiUon assigned all its The Real-Estate Bank, in maldng its
effects to three trustees, McC, M. and assignment for creditors, might well
C, among which was a joint and sev- prefer those holders of its notes who
eral note of McC. &
J. as principals, were willing to come forward and de-
and R. as surety, for $900. After its posit them, and accept certificates,
maturity, the makers gave a new note with 6 per cent interest; but it could
of like character, and, by way of re- not compel any creditor, who chose to
newal, to assignees, at ninety days. run the risk of a failure of assets by
The last note was not paid at maturity, payment of lawfully preferred cred-
and was retained by the assignees for itors, to forego any part of his claim
several years, during which period the or demand against the assets of the
principals became insolvent. The as- bank. He might be postponed, but
signees then transferred it to F., for could not be deprived of any claim on
collection merely. F. brought suit the surplus assets. Ringo v. Biscoe,
thereon against R., and it was held that 13 Ark. 563.
an action might be maintained on said 96. Preferences by banks not favored.
note, in the names of the assignees, —State V. Bank, 64 Tenn. (5 Baxt.) 101;
against R., although one of them was Robinson v. Gardiner, 59 Va. (18
also a maker of the note, there being Gratt.) 509; Exchange Bank v. Knox,
no such suspension of a right of ac- 60 Va. (19 Gratt.) 739, reaffirmed in
tion upon the note in the hands of the Saunders v. White, 61 Va. (20 Gratt.)
assignees as authorizes the court to 327; Bank v. Marshall, 66 Va. (25
hold the note assets in the hands of Gratt.) 378; Garden City Banking,
the trustees, or either of them. Ross- etc., Co. V. Geilfuss, 86 Wis. 612, 57
man McFarland, 9 O. St. 369.
V. N. W. See Peters v. Bain, 133 U.
349.
Under the bank Acts of 1839 and S. 670, 33 L. Ed. 696, 10 S. Ct. 354.
1840, providing that no bank shall "Generally, a bank may convey or
make assignments in favor of their transfer its property in possession, or
creditors, and authorizing the commis- choses in action, either for a new con-
sioners to take possession of all the_ sideration, or to satisfy or secure a
assets in insolvency, an assignment by pre-existing debt. When a bank is in-
a bank for the benefit of its creditors solvent, or in danger of insolvency,
is not wholly void, but only void in the just principle of equality in part
so far as it conflicts with the action of payment of creditors, alike entitled to
the commissioners. Rossman v. Mc- satisfaction, suggests not only the
Farland, 9 O. St. 369. legal right, but the moral duty of an
95. Validity of preferences by bank. assignment, or other measure, to
—Peters v. Bain, 133 U. S. 670, 33 L. secure and effect a ratable distribution
Ed. 696, 10 S. Ct. 354; Catlin v. Eagle of its assets among such creditors.
Bank, 6 Conn. 233; Dana v. Bank, 5 When the assignment is to trustees to
Watts &(Pa.) 233; Planters' Bank
S. secure antecedent debts, these, con-
V. Whittle, 78 Va. 737. stitute a valuable consideration en-
Though the assets of an insolvent tirely adequate to sustain the assign-
bank are a trust fund for creditors to ment, which becomes completely ef-
the extent that they can not be di- fectual to protect the creditors against
verted from the creditors, yet no defi- demands thereafter acquired by any
nite trust attaches in favor of any one one. Wickham v. Martin & Co., 54 Va.
creditor to the exclusion of others, so (13 Gratt.) 427; Evans v. Greenhow,
as to prevent the bank preferring some 56 Va. (15 Gratt.) 153." Farmers'
of its creditors. Arthur v. Commercial, Bank v. Willis, 7 W. Va. 31.
etc., Bank (Miss.), 9 Smedes M. & Set-OfI against stockholder's statu-
394, 48 Am. Dec. 719. —
tory liability. Since the statute creat-
566 BANKS AND BANKING. § 78 (4a>
banks to prefer its creditors.^'^ However, the fact that a preference is given
to some creditors over others does not affect the assignee's title.®® Nor does
the mere fact that the preferred creditor is a director of the bank render
the transaction fraudulent, though in such case they must act in the utmost
good faith. 9® Nor can a bank by making an assignment prevent such prefer-
ence amongst its creditors as the law gives.
§ 78 (4) Operation and Effect of Assignment— § 78 (4a) In Gen-

eral. —An assignment by a bank for the benefit of its creditors will not
have the effect of discharging it from an obligation once assumed by its
own But the drawee of a draft may refuse to pay
act.^ itupon learning
of the insolvency of and assignment by the drawer bank.^
ing a stockholder's statutory liability amount of his deposits, the transaction

thereby creates a fund for distribution will be held invalid and the assignee
among all the creditors, to allow a of the bank may recover the amount of
stockholder in an insolvent bank to said bills and notes from him. Lamb
set-off his claims against the bank V. 28 W. Va. 653, approved in
Cecil,
against his statutory liability would Lamb V. Pannell, 28 W. Va. 663.
give him a preference. Parker v. 1. Fouche V. Brower, 74 Ga. 251.
Carolina Sav. Bank, 53 S. C. 583, 31 2. Operation and effect of assign-
S. E. 673, 69 Am. St. Rep. 888.
— —
ment Effect on pre-existing obliga-
97. Preferences by banks a crime. tions. —
By the charter of the Bank of
Curtis V. Leavitt (N. Y.), 17 Barb. 309. the United States (Laws 1835, p. 36)
98. Preference of school fund. — it obligated itself to pay to the state
Act Feb. 16, 1866, ordered the presi- of Pennsylvania an annual bonus of
dent and directors of the Bank -of Ten- $100,000 for twenty years. In 1841 the
nessee to make an assignment for the bank became insolvent, and executed
benefit of the school fund and of all three assignments for the benefit of its
creditors of the bank whose claims creditors. It continued its existence,
arose before May 6, 1861, "excluding however, electing officers and directors
all claims or demands of all kinds after annually thereafter, but exercised no
May 6, 1861, as absolutely null and further banking privileges except those
void." Held, in an action in the name necessary to close its business. Held
of the state and the assignee to ef- that, since the failure of the bank was
fectuate such assignment, pursuant to due to no act of the state, its nonuser
such statute, that though such statute of its corporate privileges for which
and the assignment were void, so far it had obligated itself to pay was no
as a preference of the school fund was defense to an action by the state to

concerned, the statute vesting title to recover the unpaid balance of the
personal property in the adverse holder bonus. Bank v. Commonwealth, 17
in three, and to real estate in seven Pa. 400.
years, did not apply to the title of the 3. Checks drawn by assignor may be
assignee of the assets of such bank. refused. Where— a depositor bank
State V. Bank, 64 Tenn. (5 Baxt.) 101. makes a draft on a bank in which it
99. Buell V. Buckingham & Co., 16 has funds to its credit, and afterwards
Iowa 284, 85 Am. Dec. 516; Stratton v. makes a general assignment for the
Allen (N. J.), 1 C. E. Green 232; Rail- benefit of creditors, and the holder of
road V. Clayborn (S. C), 1 Speers 562; such draft presents the same to the
Planters' Bank v. Whittle, 78 Va. 737. drawee for payment after such assign-
Preferences to directors. ^When a — ment is made, and payment is refused,
director of a bank, who is also a de- he can not maintain an action against
positor, has knowledge that the bank is the drawee, although at the time the
probably insolvent and will likely be draft was presented for payment the
unable to continue its business or pay drawee did not know of the assign-
its depositors, in order to avoid the ment, but learned of such assignment
loss of his deposits, obtains from the before making payment, and by reason
cashier, without authority from the of such knowledge refused pavment.
board of directors, discounted bills Guthrie Nat. Bank v. Gill, 6 Okl. 560,
and notes of the bank equal to the 54 Pac. 434.
§ 78 (4b) INSOLVENCY AND DISSOIvUTION. 567
§ 78 (4b) What Passes by Assignment. În determining what an

assignment includes, the intention of the assignors must be ascertained.* But
the rule is well settled that under a general assignment by a bank, all its
property capable' of assignment will pass to the assignee.^ And if the deed
of assignment by the bank does not refer to the schedule of assets accom-
panying it, it will not be limited in its operation to the assets embraced in
the schedule, but transfers all assets which come within its terms.* But
trust property is not included in the assignment.'^
4. What passes by assignment for to the country bank, and that,

"Post notes."—The Bank of the United therefore, the assignee was entitled to
States made an assignment to pay de- the fund attempted to be drawn on.
positors and holders of notes of the Coates V. First Nat. Bank, 91 N. Y. 30.
bank of the ordinary kind, payable on Deposits marked "private." Money, —
demand, and "commonly used in cir- made up by a banking firm in a pack-
culation," and also holders of notes of age, and marked "Private," with the
the bank commonly called "post notes" name of a general depositor thereon,
(other than post notes issued to banks previous to an assignment for the
in P., for which security had been benefit of creditors, who, on making
given), and to provide security for the the assignment, asked the assignee to
payment of said deposits, notes, and give the package to the depositor, who
post notes, except post notes provided knew nothing of these facts till after-
for as above. Held, that the post wards, was covered by the assignment.
notes entitled to participate in the as- Coots V. McConnell, 39 Mich. 742.
signment were such notes as were A banking firm, just before it had
designated as a "part of the circulat- determined on assigning, marked a
ing medium," and that notes of the package of money with the name of a
bank under seal, which were issued general depositor and the word "Pri-
for a loan to the bank and secured by vate." The money did not amount to
the hypothecation of collaterals, and the depositor's full credit. On mak-
not designated as "part of the circu- ing the assignment the firm asked the
lation of the bank," were not entitled assignee to give said package to the
to take under the assignment. Appeal depositor, who knew nothing of these
of Hogg, 22 Pa. 479. facts till afterwards. Held, that the
5. Money
deposited with a private money was not thereby delivered, and
l)anker to secure him from liability on was covered by the assignment. Coots
a bond, and mingled by him with the V. McConnell, 39 Mich. 742.
other funds of the bank, with the Liability of stockholders for unpaid
knowledge of the depositor, passes to —
stock. An insolvent bank may, in its
the banker's assignee, under a general assignment for creditors, include as
assignment. Mutual Acci. Ass'n v. assets the liability of its stockholders
Jacobs, 141 111. 361, 31 N. E. 414, 33 for unpaid stock for which no call has
Am. St. Rep. 303, 16 L. R. A. 516. been made. Eppright v. Nickerson, 78
Money of correspondent bank. — Mo. 482.
_
county bank requested its Kansas City Liabilities of officers to a bank for
correspondent to remit to its N'ew official misconduct pass to an assignee
York correspondent $5,000 for its ac- for the benefit of creditors by a gen-
count and credit, and, the New York eral assignment of its property for
bank being also the correspondent of that purpose. Killen v. State Bank,
the Kansas City bank, the latter ac- 106 Wis. 546, 82 N. W. 536.
cordingly drew an order on the New 6. Eppright V. Nickerson, 78 Mo.
York bank to "pay to the order of 482.
credit the [country bank] $5,000," 7. An assignment of the property
which it sent by mail, accompanied by and effects of a bank
to a trustee ap-
-a. letter saying, "Please find inclosed pointed under the Mississippi statute
for the credit of [the country bank] of 1843, relating to the dissolution of
$5,000." Before the order and letter banks, vests in the trustee the legal
reached New York, the Kansas City title to such property only of which
bank had made an assignment, and the ihe bank had the beneficial interest.
assignee had notified the New York Nevitt V. Bank (Miss.), 6 Smedes M. &
bank thereof. Held, that the order 513; Commercial Bank v. Chambers
operated to transfer the amount called (Miss.), 8 Smedes &
M. 9; Grand Gulf
§ 78 (5) The Assignee or Trustee— § 78 (5a) Relation of Trus-

tee to —
Bank and Creditors. The grantees in a deed of assignment by a
bank are not trustees for the bank but for the creditors.*
§ —
78 (5b) Necessity of Assignee. If an' assignment by a bank was
valid when made, it will not fail for the want of an assignee but the court, ;
in vacation or term time, is authorized to appoint a receiver, who shall exe-

cute the assignment. When appointed, he has all the rights, privileges and
powers of the assignee, but none others.^
§ 78 (5c) Selection or Appointment.— Manner of Selecting. In —

some jurisdictions, the stockholders of a bank which has made an assign-
ment are entitled to select an assignee, subject to the approval of the court ;i*>
the creditors have no voice in the matter. ^^
R. & B. Co. V. State (Miss.), 10 V. Marshall, 66 Va. (25 Graft.) 378;

Smedes &
M. 438; Bacon v. Cohea Farmers' Bank v. Willis, 7 W. Va. 31.
(Miss.), 12 Smedes & M. 516. 9. —
Necessity of assignee. Fouche v.
Trust funds do not pass to 'assignee. Brower, 74 Ga. 251.
— A banking firm issued its cashier's 10. Selection or appointment of as-
check to its creditor, who received it —
signee. In re Union Banking Co.
upon the assumption that it would be (Pa.), 12 Phila. 469, 34 Leg. Int. 230.
paid by a certain bank pursuant to an Where, under the law, the appoint-
arrangement between such firm and ment of the assignees of a bank is sub-
that bank, whereby such checks were ject to the approval of the court, it
to be paid through the clearing house. will not grant the application of one
After the check had been deposited, that he be discharged and his associate
and had passed through the clearing approved, where he has already en-
house, the firm gave securities to the tered on his trust, and charges of mis-
bank for the payment of this class of conduct have been made against him.
obligations. Said firm then made an Ex parte Banking Co., 34 Leg. Int. 204.
assignment for the benefit of creditors. 11. Creditors may not select as-
Held, that by such deposit the securi-
_
—
signee. News V. Shackamaxon Bank
ties became a trust fund for the bene- (Pa.), 16 Wkly. Notes Cas. 207.
fit of the holder of the check, and that, Under Act April 16, 1850, providing^
therefore, they did not pass to the that, on the application of a creditor,
firm's assignee. Watts v. Shipman (N. the directors of an insolvent bank
Y.), 21 Hun 598. shall make and execute "a general as-
8. Grantees in deeds trustees for signment to such person or persons
—
creditors, not bank. Where a bank in as they may select, subject to the ap-
conformity with the Act of February proval of the court of common pleas,"
12, 1866, entitled "An act requiring the creditors have no right to partici-
banks of the commonwealth to go into pate in the appointment of the as-
liquidation," executed its deed of assignees. News V. Shackamaxon Bank
signment, it ceased to exist for the (Pa.), 16 Wkly. Notes Cas. 207.
purposes for which it was created. A Creditors may object to selection of
resumption of its operations as a bank —
assignee. Under Act April 16, 1850,
was simply impossible. The stock- providing for a compulsory assignment
holders had no longer any interest in by an insolvent bank to assignees
it. It only remained to wind them up selected by the directors subject to the
for the benefit of the creditors. Therer approval of the court, the creditors
fore, the grantees in such deeds were have a sufficient standing in court to
not trustees for the bank, but for the entitle them to object to the assignees
creditors only, and are purchasers and selected by the directors, upon the
assignees for value of all the property ground of disqualification or personal
and effects of the bank, for the benefit unfitness for the office. News v.
of the creditors. Robinson v. Gardiner, Shackamaxon Bank (Pa.), 16 Wkly.
59 Va. (18 Graft.) 509; Exchange Bank Notes Cas. 207.
V. Knox, 60 Va. (19 Graft.) 739; Saunders Though the creditors have no voice
V. White, 61 Va. (20 Graft.) 327; Bank in the selection of the assignees of a
§ 78 (5f) INSOI.VENCY AND DISSOLUTION. 569
§ 78 (5d) Qualifications of Assignee. — The assignee selected should

be an unbiased and disinterested person. "^^ But the selection as assignee of
one of the parties bound on a joint and several obligation does not affect
the right of action against the others. ^^
§ 78 (5e) Joint Assignees. —An assignment to several assignees

jointly may provide for survivorship, so that one may act without joining
the others.i*
§78 (5f) Title and Rights, Powers and Duties of Assignee. —

When an insolvent bank executes an assignment of "all and every of its
property and effects and credits of each and every kind and character what-
soever, in as full and complete a manner as the same are now owned, held
and possessed by it," and the assignees accept the trust, the title of the prop-
erty passes to the assignees, and also the right to sue for and recover all
rights, credits, etc^^
Conflicting Rights of Assignees and Others. — If a receiver is ap-

pointed by the court pending litigation over assignees improperly appointed,
the receiver will be ordered to pay over money in his hands to such assignee,
after the latter has qualified. ^^ And if trustees are appointed after the
bank has made an assignment, the rights of the assignee are paramount to
that of the trustees. ^^
bank, under Act 1850, § 37, providing thereof at S. and of the branch at L.
that the court may order the directors should be assigned to A. and B., and
of an insolvent bank to make an as- of the other branches to other as-
signment to such persons as they may signees. There was no requirement
select subject to the approval of the that this should be done jointly, with
court, they may object to the assignees or without the right of survivorship.
selected by the directors upon the A note made by the plaintiff, payable
ground disqualification or personal
of to the bank at S., was assigned to A.
unfitness for the office. News v. and B. and the survivor. A. died. Held,
Shackamaxon Bank (Pa.), 16 Wkly. that the assignment, with survivorship,
Notes Cas. 207. was authorized by the act, though the
12. Qualifications of assignee.—The act provided for the filling of vacan-
fact that one appointed as an assignee cies; and therefore the fact that A.'s
of an insolvent bank is a small stocks vacancy was not filled did not invali-
holder therein does not disqualify him date the assignment. Ryan v. Van-
to serve. News v. Shackamaxon Bank landingham, 7 Ind. 416.
(Pa.), 16 Wkly. Notes Cas. 20T. 15. Title, rights and powers of as-
13. Where one of the parties, liable —
signee. Hill V. Western, etc., R. Co.,
on a joint and several note, becomes 86 Ga. 284, 12 S. E. 635.
one of the general assignees of the 16. Conflicts between rights of as-
bank to which the note is payable, the signees and others. In re Union—
other parties are not thereby released Banking Co. (Pa.), 12 Phila. 469, 34
from liability. Rossman v. McFar- Leg. Int. 230.
land, 9 O. St. 369. Wherethe appointment of assignees
14.Survivorship between joint as- by a bank
is defective, and the court
—
signees. A bank was put in liquidation appoints a receiver, on a subsequent
legal appointment and approval of as-
by St. 1843, and by St. 1845, a supple-
mentary act, it was provided that all signees, the court will direct the re-
the eflfects of the bank should be trans- ceiver to turn the bank property over
ferred to four assignees. It was to such assignees. Ex parte Banking
further provided that the real estate Co., 34 Leg. Int. 230.
should be conveyed to allthe assignees 17. Rights as between trustees and
jointly, and that the personal effects assignees. Upon — quo warranto to
—
Duties. Under the law, it is the duty of the assignee to ascertain
whether a claim presented for payment is legal. His failure to do so would
render him liable to those injured by a neglect of duty in this respect.^^
§ 78 (5g) Compensation of Assignee. —

The trustees in an assign-
ment by a bank may forfeit their compensation by misconduct.^^
§ 78 (5h) Removal of Assignee. —

If necessary the court may remove
a delinquent assignee of a bank and appoint another.^**
§ 78 (6) Rights and Remedies of Creditors— § 78 (6a) Assets—

§ —
78 (6aa) What Constitutes. Debts owing to a bank at the time of
its insolvency constitute assets in the hands of the assignee.^! And a note
•deposited for collection in a bank that afterwards becomes insolvent is not
impressed with the character of a trust fund in the hands of the assignee,
.so as to enable the plaintiff to recover its value from the assignee.^^
annul the charter of a bank that had trustees should be denied all compen-
made a partial assignment of its as- sation from any source, where, by
sets to pay its debts, trustees were misconduct and mala fides towards the
:appointed, to whom the bank was or- public they have forfeited their claim
dered to deliver all its property. Held, to such compensation. Moses v.
that the right of the assignees was Ocoee Bank, 69 Tenn. (1 Lea) 398.
paramount to that of the trustees, and 20. Removal of —
assignee. Garden
that, therefore, the latter took only City Banking, etc., Co. v. Geilfuss, 86
what did not pass by the assignment. Wis. N. W. 349.
612, 616, 57
Grand Gulf R., etc., Co. v. State 21. The debts due to the bank of
<Miss.), 10 Smedes & M. 428. Illinois after the assignment thereof
18. —
Duties of assignee. Kassler v. to trustees for the benefit of creditors
Kyle, 28 Colo. 374, 65 Pac. 34. in pursuance of the statute of Illinois
19. Right of assignees to compensa- of 1845 had the same force in the
tion. —
Where trustees, to whom have hands of the assignees after the dis-
been assigned the assets and property solution of the corporation as the
of a banking corporation for the bene- rights and credits of deceased persons
fit of its creditors, etc., have been in the hands of their representatives.
guilty of gross misconduct toward Ryan v. Vanlandingham, 7 Ind. 416.
•such creditors, refusing inspection of 22. When a bank to which a note
their books, taking no steps to collect is sent for collection, instead of col-
-or distribute the assets, neglecting for lecting it, takes from the maker a new
years to sue upon the stock notes, rote, payable to itself, which note
loaning the only funds actually col- comes to the hands of the assignee for
lected to themselves and the stock- the credifors of the bank, the equitable
holders, etc., such trustees are entitled owner of the note can not hold the as-
1o no compensation as against the note signee as trustee for him to its
"holders and creditors of the bank. amount. Harrison Nat. Bank v. Elli-
Moses V. Ocoee Bank, 69 Tenn. (1 cott, 31 Kan. 173, 1 Pac. 593.
Lea) 398. Checks and drafts of correspondent
As between the trustees and stock- —
bank do not pass. The assignees of
"holders, the former having carried out an insolvent banking firm, the surviv-
the settled policy and wishes of the ing partner of which has made an as-
latter with reference to the manage- signment, can not hold as assets of
ment of the trust property, and having the firm the proceeds of checks and
consulted their interests to the ex- drafts which were in the mails at the
clusion of the interest of creditors, a time of the death of the other partner
different rule might apply, entitling one morning before the banking hours,
them to compensation, did not a rule and were received by the survivor the
-of public policy intervene, by which same day and paid by charging them
to prevent a collusion between corpo- against the accounts of the drawers,
rations and their trustees detrimental the proceeds being placed to the credit
to the ends of justice and good faith. of the bank which sent them. First
§ 78 (6cc) INSOIvVBNCY AND DISSOLUTION. 571
§ 78 (6bb) Collection of Assets. —The assignee has a right to sue to

collect assets of the bank^^ either in his own name^* or in the name of the
assignor, depending on the statute or rules of practice in the particular juris-
diction.^^ And if the assignee refuses to bring the suit the creditors may
maintain it.^^ But the trustee should exhibit the deed with his pleadings.^''
§ 78 (6cc) Limitation on Actions by Assignee. The limitation on —

actions by the assignee of a bank is governed by statute in the various
jurisdictions. 28 '
Nat. Bank v. Payne, 85 Va. 890, 9 S. recovery of the assigned estate or any
E. 153, 3 L. R. A. 284, citing Overseers interest therein, or for the recovery
V. Bank. 43 Va. (S Gratt.) 544, 44 Am. of property conveyed or transferred
Dec. 399. in fraud of creditors, or the transfer
23. Suit by assignee to collect claims. or conveyance of which is void by rea-
—Whatever claims a bank could col- son of being preferential or other-
lect by suit or action before an as- wise, are required to be brought only
signment may be so collected after- in the name of the assignee. Garden
wards by the trustee in the deed of City Banking, etc., Co. v. Geilfuss, 86
assignment. Lamb v. Cecil, S5 W. Va. Wis. 613, 57 N. W. 349.
288; S. C, 38 W. Va. 653, approved in 25. Suit in name of bank for trus-
Lamb V. Pannell, 28 W. Va. 663. tees. — Stetson V. City Bank, 12 O. St.
The president of a bank, by the au- 577; Crews v. Farmers' Bank, 73 Va.
thority of the directors, given before (31 Gratt.) 348.
the time limited for closing the con- 26. Setting aside confessed judg-
cerns of the bank, assigned certain —
ments. A judgment taken by a bank-
notes to trustees, to whom the prop- ing partnership (whose capital stock
erty of the bank had been transferred is not divided into shares, and trans-
ty a vote, and for the benefit, of the ferable on the books of the "concern")
stockholders. Held, that the assign- in its firm name upon a note with a
ment vested the legal interest in the power of attorney to confess judg-
trustees, who were, therefore, entitled ment, and releasing all errors, after a
to sue on such notes. Stevens v. Hill, change has taken place in its member-
29 Me. 133. ship, and before the filing of a nev>r
Foreign assignee. —
A statute passed certificate, is invalid, and may be set
ty the Illinois legislature in 1845 pro- aside by the debtor or his assignee
vided that the real estate of the in- for the benefit of creditors; and where
solvent bank of Illinois should be con- the latter refuses on request of the
veyed to four assignees jointly, and creditors to bring suit, the creditors,
that the personal effects of the branch or any of them, may maintain an ac-
•of the bank at S. should be assigned tion to set it aside for the benefit of
to Aand B, but did not require that themselves and all other creditors of
it should be done jointly, with or with- the debtor. Cobble t. Farmers' Bank,
out the right of the survivorship. 63 O. St. 528, 59 N. E. 221.
Held, that B had a right to sue in this 27. Admissibility of copy of deed.—
state on a note assigned to himself Where a deed of assignment is made
and A, whether he was clothed with for the benefit of creditors by a bank-
the legal title or not. Ryan v. Van- ing corporation, a copy of such deed
landingham, 7 Ind. 416. from the records of deeds of the
—
Estoppel. A trustee in an assign- county may be exhibited with the bill
ment for the creditors of an insolvent by the trustee with the same effect as
bank is not estopped from suing to re- if he had filed the original. Lamb v.
cover the amount of discounted bills Cecil, 25 W. Va. 388.
and notes fraudulently received from 28. Limitation on actions by as-
the cashier, without authority, by a —
signee. The seventeenth section of
•director of the bank, by the fact that the statute of Illinois of 1845, provid-
the trustee has paid such director ing that the personal effects of the de-
dividends on the bank's indebtedness funct bank of Illinois should be as-
to him. Lamb v. Cecil, 25 W. Va. 288; signed by the bank to trustees for the
S. C, 28 W. Va. 653, approved in benefit of creditors, was not designed
Lamb v. Pannell, 28 W. Va. 600. to limit the assignees to sue within
24. In Wisconsin all actions for the four years, nor was the Act of 1849
572 BANKS AND BANKING. § 78 (6cc>
§ 78 (6b) Presentation, Proof and Payment of Claims— § 78

—
(6aa) Presentation of Claims. As a general rule, those creditors fail-
ing to present their claims to the assignee for special allowance, after the
assignee has given notice to creditors of the time for the presentation and
allowance of demands, are precluded from any benefit in the estate. ^^
§ 78 (6bb) Allowance of Claims. —A

certificate of allowance by the
assignee of a bank of the amount of a check on it does not merge or satisfy
the check.^"
«
§ 78 (6cc) Set-Off. —
Set-Off against Assignee. A depositor, in ac- —
tion by the assignee against him on a note, may *set off against the note the
amount of his deposit.^^ But to justify a set-off against an assignee for the
benefit of creditors, there must be a present debt due at the date of the
assignment. In this respect a surety stands on no better footing than any
other creditor.32
Right to Apply Deposits to Debts Due Bank. The assignees of a —
bank for the benefit of its creditors may apply a bank deposit to the payment
of a debt due the bank by the depositor.^^ But if the assignee wishes to
make this application of a deposit he should manifest such desire in a plead-
of that state "for the relief of the as- burg Co-Op. Bldg. Ass'n v. Zoll, 83
signees" of said bank "and to extend Mo. 94.
the time for the liquidation of the af- 31. Set-offs against assignees. — In
fairs of said bank" designed to limit an action by an assignee of an in-
their right to sue to January 1, 1851. solvent bank against an indorser on a
Ryan v. Vanlandingham, 7 Ind. 416. note that did not fall due until after
—
Laches. When a director of an in- the assignment, the defendant may set
solvent banking corporation by fraud off against the note the amount of his
and collusion with the cashier of such deposit in thebank at the time of the
institution receives from the cashier assignment. Arnold v. Niess (Pa.), 36
for his deposits, without the authority Leg. Int. 437.
of the board of directors, discounted 32. The maker can not set off
bills and notes, the property of said against a note to a bank, due when
corporation) and suit is not brought the bank made an assignment for cred-
therefor until nearly five years after itors, the amount of his part payment
such transaction, the doctrine of laches after the assignment as cosurety of an
does not apply. Lamb v. Cecil, 25 W. account due by the bank to a de-
Va. 288; S. C, 28 W. Va. 653, approved positor. Storts V. George, 150 Mo. 1,
Lamb V. Pannell, 28 W. Va. 663. 51 S. W. 489.
29. Presentation of claims. —
Section A guarantor of a note by a bank can
21, assignment act of Kansas. not set off against his own note to it,
Owner of trust fund deposited is not due at the time of its assignment for
—
"creditor." If a trustee places the creditors, money paid as guarantor
trust fund in a bank, and the bank, after the assignment. Storts v. George,
knowing its character, mingles it with 150 Mo. 1, 51 S. W. 489.
its own funds, and, after using it in 33. Right to apply deposits to pay
the payment of its debts, becomes in- —
debts. Wallace v. Estill County De-
solvent, and assigns for the benefit of posit Bank (Ky.), 116 S. W. 351.
creditors, the beneficiary has a right The fact that the assignees paid out,
to recover the trust fund from the as- in settlement of the bank, the assets in
sets of the bank in preference to k? their hands did not affect the right to
general creditors, although he fails to attach the deposit, since the assignees
present his claim to the assignee for could not appropriate or apply the de-
allowance. Myers v. Board, 51 Kan. posit to the payment of debts due by
87, 32 Pac. 658, 37 Am. St. Rep. 263. the bank. Wallace v. Estill County
30. Allowance of claims. —
Warrens- Deposit Bank (Ky.), 116 S. W. 351.
§ 78 (6d) INSOI^VENCY AND DISSOLUTION. 573
ing,34 and if the assignee does not so apply it the deposit is Hable to garnish-
ment.35
§ 78 (6c) Distribution of Assets— § 78 (6aa) In General.— The

rule for the distribution of the assets of an insolvent bank, as prescribed in
the assignment, is not changed or affected by the subsequent appointment
of a receiver.^®
§ 78 (6bb) Priorities. —
In distributing the assets of the bank existing
priorities will be recognized, but as to the other creditors of the bank who
have no specific lien upon its property, they are placed upon the same foot-
ing and are entitled to share the assets ratably .^'^
§ 78 (6d) Actions by Creditors. Right of Action. Creditors of— —

the bank may sue the assignee to obtain satisfaction of their claims out of
the assets.^* For example, creditors who have not accepted the assignment
34. Wallace v. Estill County Deposit pledged themselves to aid in securing

Bank (Ky.), 116 S. W. 351. a dismissal of the receivership pro-
35. Wallace v. Estill County Deposit ceeding. The motion was granted
Bank (Ky.), 116 S. W. 351. and the assets of the bank turned over
to it, upon which it proceeded to do
36. Distribution of assets. Garden — business under a different name but
City Banking, etc., Co. v. Geilfuss, 86
under the old charter. The scheme
Wis. 612, 57 N. W. 349.
failed, and the bank again made an as-
Payment by stockholders. Where — signment. Upon the petition of some
the stockholders of an insolvent bank
of its creditors it was again placed in
that has made an assignment for the
the hands of a receiver. Its assets
benefit of its creditors, voluntarily pay
are not sufficient to pay all of its cred-
into the trust fund thus created the
itors. Held, that, under the facts ap-
full amount of their double liability
pearing in the record, in the distribu-
created by law, and such additions to tion of such assets depositors who
such fund are distributed to and re- were not parties to the agreement and
ceived by the creditors according to
the application for a surrender of the
their right to participate in the benefits
assets under the first receivership are
of such liability, it is thereby dis-
entitled to priority over those who
charged. Killen v. State Bank, 105
were. Rumble v. Tyus, 133 Ga. 295, 51
Wis. 546, 82 N. W. 536. S. E. 420.
37. Priorities. —
Robinson v. Gardi- 38. Actions by creditors against as-
ner, 59 Ga. (18 Gratt.) 509. —
signee. Depositors and creditors of a
A chartered bank may make a vol- bank that has failed may, in an equi-
untary assignment for the benefit of table proceeding against the assignee,
its creditors, but neither the assignee seek satisfaction of their claims out
nor the creditors whom he represents of the assets, and also obtain a decree
stand in any better situation than the against the bank for the full amount
assignor in respect to prior equitable of their debts. City Bank v. Cross-
liens. Seay v. Bank, 66 Ga. 609. land, 65 Ga. 734.
Right of depositors to priority. — Bill of discovery against assignee. —
bank was placed in the hands of a re- Where a bill was filed by a judgment
ceiver. Pending the receivership pro- creditor of a bank against the assignee
ceeding the bank filed a motion al- thereof, to account for the assets of
leging that it was solvent and able to the bank, which came into his hands,
pay all of its creditors, set forth a as such assignee, it is held, that when
scheme under which it claimed that it the defendant has in his power the
could be reorganized to the advantage means of acquiring the information
of its creditors, and prayed that its necessary to make the discovery called
assets be surrendered to it for this for, he is bound to make use of such
purpose. Certain of its creditors and means, whatever pains or trouble it
depositors agreed in writing to the al- may cost him. Green f. Carey, 12 Ga.
leged reorganization scheme, and 601.
may make the assignee a party to a suit to enforce the personal liability
of stockholders.^^
§ 78 (7) Proof of Assignment. —

A person relying upon an assign-
ment by a bank must prove it.** But the existence of the common seal
to a deed of assignment by a bank is prima facie evidence that it was made
bona fide to secure the payment of a just debt.*i
§ 78 ( 8 ) Vacating and Setting Aside Assignment. If the grounds —

are sufficient,* ^ any party interested** in the method pointed out in the
statute,** may vacate and set aside the assignment.
But pending a bill to set aside the assignment, the assignee, if sol-
vent, will not be enjoined, at the instance of creditors, from controlling the
assets.* °
39. Right to sue assignee. The cred- — should be returned to the bank. Held,,
itors and stockholders of a bank will in an action by the receiver of the
not be enjoined, at the instance of its bank whose charter had been forfeited
general assignee, from instituting suit to set aside such assignment, that it
against him, the creditors not having was competent to attack the assign-
accepted the assignment, nor reduced ment upon the ground of fraud in fact,,
their demands to judgment against the and that any fact within the allega-
bank, and they having a clear right to tions in complainant's bill mit;ht be
proceed in order to fix a personal lia- proven, which would go to show ihat
bility on the stockholders, imposed the bank intended to perpetrate a fraud
by the charter, to which proceeding in making the assignment. Carev v.
they may desire to make the assignee Giles, 10 Ga. 9.
a party in order to reach the assets 43. Who may set aside assignment.
in his hands. Gresham v. Crossland, — Any shareholder may bringan ac-
59 Ga. 270. tion to set aside an assignment for the
40. Proof of assignment. Where the — benefit of creditors made by the di-
rights of a party plaintiff depend upon rectors of an insolvent bank as ultra
the facts that an assignment was -.nade vires. Descombes v. Wood, 91 Mo.
by a bank to the defendant, and that 196, 4 S. W. 82, 60 Am. Rep. 339.
the defendant is the assignee, he must It is laches for a shareholder and
prove them, notwithstanding they are creditor to delay bringins: his suit to-
recited in a public act of the legisla- set aside the assignment for four years
ture. Dougherty v. Bethune, 7 Ga. 90. after 'the appointment of the assignee,
Judicial knowledge of assignment. — during which he was engaged in ad-
The court while taking judicial notice ministration, if no excuse is alleged..
of 'the Act of February 16, 1866, re- Descombes v. Wood, 91 Mo. 190, 4 S.
quiring the president and directors of W. 82, 60 Amx. Rep. 239.
the Bank of Tennessee to execute an 44. Remedy for setting aside assign-
assignment of its effects, could not ment. — Code, § 1494, providing the
judicially know that when this action method by which an assignment by a
was brought, in 1866, the assignment bank may be set aside at the instance
has been made, and Samuel Watson of creditors, applies only to a case-
appointed trustee, and that he had ac- where there has been a voluntary sur-
cepted the trust, given the bond, and render of the charter. Milliken v..
been duly qualified. Topp v. Watson, Steiner, 56 Ga. 251.
59 Tenn. (12 Heisk.) 411. 45. Powers of assignee pendente
41.Import of seal. Hopkins — v. lite. —Where the assignee is solvent,
Gallatin Turnpike Co., 23 Tenn. (4 honest, and competent, and a case of
Humph.) 403. real danger to the assets in his hands
42. Grounds for vacating assign- is not made, and where the creditors-
—
ment. An assignment was made by have the security of ultimate liability
an insolvent bank of a portion of its by solvent stockholders, the assignee
effects to pay an existing debt, and will not be enjoined, at the instance of
it was stipulated that the amount of the creditors, from controlling the as-
such effects in excess of the debt due sets, pending a bill to set aside the
§ 79 (lb) INSOLVENCY AND DISSOLUTION. 575
§ 79. Rights of Holders of Circulating Notes— § 79 (1) Payment

Out of Assets in General— § 79 (la) Right of Bill Holders to Share
in Assets. —
The holder of the bills of an insolvent bank is entitled to share
in the distribution of its assets,*® and for the purpose of subjecting these
assets to his demand he may proceed against the assignee or trustee in a
court of equity.*'^ But the circulating notes issued by a bank are not "claims
against the bank."**
§ 79 (lb) Payment in Bills, Notes or Other Obligations of the

—
Bank. In the absence of statute, the receiver or assignee of an insolvent
assignment and to recover f'om the Right of holders to be subro-

bill
bank, etc., and a receiver will not be gated. —Under bill to wind up the
a
appointed to supersede the assiijnee affairs of the Bank of the State of
in his functions before a final decree. South Carolina, the bill holders have
Gresham v. Crossland, 59 Ga. 370. no equity to be subrogated to the
46. Rights of bill holders to payment rights of the holders of fire loan
—
out of assets. In adjusting the claims bonds, issued by the state and guar-
antied by the bank, upon said holders
of creditors of an insolvent bank
whose assets are in the hands of a re- sharing in the assets of the bank, the
ceiver, the claims of the holders of state being liable, by the terms of the
bills, issued by the bank under an un- bank charter, for all the debts of the
lawful agreement that they should be bank, no matter how contracted. Dab-
kept from circulation for a limited ney V. Bank, 3 S. C. 134.
time or not be returned to the bank Bona holders of the bills of an
fide
for redemption within a limited time, insolvent bank hold them, as against
should be allowed. Atlas Bank v. Na- the bank, at their face value, no matter
hant Bank (Mass.), 3 Mete. 581. at what price they were purchased.
Stockholders who hold bills of an

Dabney v. Bank, 3 S. C. 124.
47. As any holder of the bills of the
insolvent bank are entitled to share in
Real-Estate Bank had a right of ac-
the distribution of its assets, as other
tion at law against the bank for a
bill holders. Belcher v. Willcox, 40
breach of the contract to pay on de-
Ga. 391.
mand, he is entitled to follow the as-
Amount payable to bill holders. In — sets in the hands of the trustees,
the distribution of the fund of a bank under the deed of assignment for cred-
among bill holders, it was held by the itors, and subject them, by proceed-
court that the holders should be al- ing in equity, to the payment of his-
lowed only the amount paid by each demands. Ringo v. Biscoe, 13 Ark.
for his bills, and not the face of the 563.
bills. After that decision the holder
of the bills filed in the case assigned
48. "Claims" provable. Circulating —
notes issued by a bank under its char-
them. Held, that the amount paid by ter (Laws 1849, p. 352), secured by
the holder at the time of the former stocks deposited with the state treas-
decision, and not the amount paid by urer, and which he is directed, on affi-
the present holder, was what he was davit of any holder that the bank,
entitled to receive for them. Griffin v. upon due demand, has refused, to re-
Central Bank, 3 Ga. 371. deem out of the proceeds of the se-
Rights of bill holders to object to curity or other assets coming to his
—
other claims. Under a bill to wind up hands from the bank, or its duly-ap-
the affairs of the Bank of the State pointed receivers, are not claims
of South Carolina, the holders' of bills against the bank, within a provision of
of the bank have no equity to compel the charter (§ 12) providing for the
the holders of the fire loan bonds, is- appointment of a receiver, and requir-
sued by the state and guarantied by ing him to notify all persons having
the bank, to show that their claims claims against the bank to file proof
against the state on the bonds will be thereof, and authorizing him, at the
delayed or denied, before they shall expiration of one year from the no-
be permitted to share in the distribu- tice, to distribute funds in hands
tion of the bank's assets. Dabney v. ratably among proved claims. People
Bank, 3 S. C. 124. V. Holmes, 3 Mich. 544.
bank may not receive the bills or notes of the bank in the payment of debts
due to it, especially where the statutes in the particular jurisdiction provide
for a pro rata distribution among creditors.*^ In one jurisdiction, however,
it has been held that by the general law of the land, the notes and bonds
payable at and discounted by any bank, may be paid in the bills of that
bank; and that too, notwithstanding such notes or bonds may be trans-
ferred to any other bank.^** But by express statute in most jurisdictions,
the holders of the bills and the circulating notes of a bank may tender the
same in payment of debts due by them to the bank.î A debtor of the bank
49. Debts due bank not payable in Bank, even though such notes were
circulating notes in absence of statute. in judgment; that, independent of the
— There is no obligation on a bank, in statutes, it is doubtful whether debtors
making an assignment of its effects, to of such bank did not possess the right
provide that its notes shall be received of discharging their debts with the
in payment of debts due to it. On the notes of the bank. Robinson v. Bank,
contrary, if the object is, in contem- 18 Ga. 65.
plation of insolvency, an equal and
51. Debts due bank solvable in its
fair distribution among its creditors,
the notes can not be so received, un-
—
circulating notes. Moise v. Chapman,
34 Ga. 349; Belcher v. Willcox, 40 Ga.
less so held by the debtors of the bank
391; Dunlap v. Smith, 13 111. 399; Ex-
as to become legally the subject of
set-off. Ringo v. Biscoe, 13 Ark. 563.
change & Banking Co. v. Mudge
(La.), 6 Rob. 397; Basehore v. Rhodes,
The assignee of a bank instituted 85 Pa. 44.
suit and recovered judgment, and the
defendants paid the notes of the bank —
Requirements of Ga. statute. Code,
into court, and made a motion to have § 1496,provides that where the assets
the execution which issued on the of an insolvent bank are to be col-
judgment entered satisfied. Held, that lected and distributed by a receiver,
the assignee was not bound to re- the debtors are not allowed to pay
ceive the bank notes in payment, and their debts to the receiver in bills of
that a judgment ordering an entry of the bank at par value, unless accom-
satisfaction was erroneous. Commer- panied by an affidavit that they are the
cial Bank v. Thompson (Miss.), 7 identical bills received from the bank
Sm.edes & M. 443. by which the debt was created. Held,
Where, on an application by the that each bill holder takes his propor-
bank commissioners, the assets and af- tion of the whole assets of an insolvent
fairs of a bank had been placed in the bank only in proportion to the quan-
hands of an assignee,- the assignee tum of consideration paid by him for
should not be allowed to receive bills such bills, and each should be re-
of the bank in payment of debts due quired to state on oath in writing that
to the bank, as to do so would inter- he was a bona fide holder of the bills,
fere with the express injunction of the and state as nearly as possible the
statute that such bills are to be paid amount he paid for them, and when,
pro rata. In re White Mountains and to whom, and in what it was paid;
Bank, 46 N. H. 143. every other claimant having the right
50. Act 1841, repealing the charter to contest the statement made by each
of the Bank of Darien, and authorizing as to the quantum or true value of the
the Central Bank to v/ind up the af- consideration paid by him for bills.
fairs of the Darien Bank, provided Belcher v. Willcox, 40 Ga. 391.

that, in all payments to be made on Receivable "at par" in Pennsylvania.
notes originally due the Darien Bank, — Act May 5, 1841, providing for the
the maker shall be authorized to pay assignment of the Bank of the United
in bills issued by such bank. This States, directed the trustees to re-
provision was a re-enactment of § 15 ceive the notes or other evidences of
of the Act of 1832. Held that, under debt issued by the bank in pa3'ment of
these acts, creditors the
of Darien debts due it at par. Held, that the
Bank can not complain that bills of term "at par" meant the amount really
that bank were received by the Cen- due on the security, including interest,
tral Bank in payment of debts founded and that a claimant might sell the
on notes originally due the Darien principal of his claim, and retain his
§ 79 (lb) INSOLVENCY AND DISSOLUTION. 577
can not, however, pay his debt with bills or notes of the bank acquired
after notice of the insolvency and assignment by the bank of its assets,^^
light to receive the interest. Appeal draft in favor of F. on another bank,

of Hogg, 22 Pa. 479. and the draft was protested. Subse-
In a suit by judgment creditors of quently F. indorsed the draft to de-
a state bank to subject judgments in fendant, who had notice of the assign-
favor of the bank against others to ment by the drawer. Held, that the
payment of their judgments, where it draft was not an "obligation" which
appeared that by Act 1840 state banks the assignee was bound to accept in
must accept their own bank notes in payment of a claim against F. Shr-
payment of all claims due to them, and yock V. Bashore (Pa.), 11 Phila. 565, 33
that, when suit was begun, the issues Leg. Int. 56.
of the bank were worth fifty-six cents
on the dollar, the liabili'ty of the judgment
Debts reduced to judgment. Judg-
creditors of a bank brought their
—
ment debtors is limited to fifty-six bill in equity against the bank and judg-
cents for every dollar represented by ment debtors of the bank, praying that
the judgments in favor of the bank. the judgment debtors be required to
Robson V. Benton, etc., Banking Co. pay the amount of their judgment
(Miss.), 7 Smedes & M. 724. against the bank, and the debtors were
Character of debts solvable in notes enjoined from paying the bank. Held,
—
of bank. Act March 26, 1842, No. 157, that the creditors were not boimd to
which gives the right of paying notes receive the issues of the bank, and
due banks in liquidation in their own nothing but gold and silver, notwith-
notes, though it mention only "notes," standing the statute of 1840, requiring
should, by a fair construction, be ex- banks to receive their own issues in
tended to all debts, though not in the payment of debts. Robson v. Benton,
form of notes. Exchange & Banking etc..Banking Co. (Miss.), 7 Smedes &
Co. V. Mudge (La.), 6 Rob. 387. M. 724.
Debts for unpaid subscriptions. — But in other states the bills of the
debtor of the Bank of Illinois, at the bank must be received in payment even
time it became insolvent, is authorized of debts reduced to judgment. Robin-
to discharge his indebtedness, in the son V. Bank, 18 Ga. 65; Farmers' Bank
notes and certificates of the bank, un- V. Willis, 7 W. Va. 31.
less it appears that the indebtedness 52. Notes acquired after insolvency
arose as a subscription for the stock —
not receivable. 3 McLean (U. S.) 397;
of the bank. Dunlap v. Smith, 12 111. J 6 B. Mon. (Ky.) 351; 1 Duval (Ky.)
399. 84; King Elliott (Miss.), 5 Smedes
v.
Debt due on stock note. Under Acts — & M. 34 Barb. (N. Y.) 224; 1
428;
March 14 and 26, 1842, and April 5, Paige Ch. (N. Y.) 585; Haxton v. Bis-
1843, relating to the liquidation of hop (N. Y.), 3 Wend. 13; McDougal v.
banking corporations whose charters Holmes, 1 Ohio 376, 381; Northamp-
have been forfeited, and providing that ton Bank v. Balliet, 8 Watts & S. (Pa.)
debtors to the bank may give in pay- 311; Housum v. Rogers, 40 Pa. 190;
ment the obligations of such bank held Saunders v. White, 61 Va. (20 Graft.)
by them, one indebted to a bank on a 327; Farmers' Bank v. Willis, 7 W. Va.
stock note may payment there-
turn in 31; 1 Law Reg., N. S., 238.
of a bond bank held by him.
of the The provision that all "notes shall
Saunders v. Smith, 4 La. Ann. 232. be received in payment of debts to the
—
Payment of drafts. ^Where a draft bank," applies only while the debts re-
may be payable in bills of the bank to main due and payable to the bank.
a bank itself, it is also so payable to When they have been endorsed or as-
the receiver of the bank. Moise v. signed and the title has passed from
Chapman, 24 Ga. 249. the bank to another holder or owner,
But in Pennsylvania the Act of 1850, they are no longer debts to the bank
declaring that the assignees of an in- or payable in the notes of the bank, or
solvent bank shall receive, in payment subject to extinguishment by the set-
of debts due the bank, "its own notes ofif of notes, unless the latter were ac-
and obligations and the checks of its quired by the debtor before endorse-
depositors at par," does not apply to ment and delivery or assignment of the
a protested draft. Basehore v. Rhodes, bills of exchange or promissory notes,
85 Pa. 44. and notice thereof to him. Farmers'
A bank, just prior to its assignment Bank v. Willis, 7 W. Va. 31.
for the benefit of creditors, drew a The provision in the Code of Vir-
1 B & B— 37
because the rights of all creditors attach equally after insolvency-^*
§ 79 (2) Preference. —By constitutional and statutory provisions in

most jurisdictions the holders of the bills or notes of a bank are to be pre-
ferred to all other creditors in the distribution of the assets of the bank.s*
ginia, that, "though a bank had a as a garnishee, could not afterwards

branch * * * all its notes should be procure the notes of the bank and pay
received in payment of debts to the them or set them off, in satisfaction or
bank, whether contracted at the parent discharge of the debt. can not see We
bank, or a branch," applied only while that the right of the assignee in trust
the debts remained due to the bank. for creditors is inferior to that of an
When a negotiable promissory note attaching creditor." Farmers' Bank v.
discounted by the Farmers' Bank of Willis, f W. Va. 31.
Virginia had been assigned by the —
Rule in Maryland. Under Acts 1818,
bank to trustees, for the payment of c. 177, and Act 1824, c. 199, debts due
antecedent debts, and the maker, hav- insolvent banking corporations may be
ing notice of the assignment, after- paid in the notes of the bank, and in its
wards acquired notes of the bank, he certificates of deposit, without refer-
could not, with these, pay his debt so ence to the time when such
notes or
assigned, or set them ofiE against it. certificates were
acquired. Union
Farmers' Bank v. Willis, 7 W. Va. 31. Bank v. Ellicott (Md.), 6 Gill & J. 363.
A bank which had been forced into 53. —
Reason of rule. "It is true that
an assignment by failure to pay its a bank, as long as it is solvent, or
notes in specie, afterwards recovered rather, as long as it has control of its
a judgment, to the use of its assignee, assets, is bound to take its own bills
against defendant, who had converted in payment of debts due to it; but
a portion of the bank's assets. Held, when it becomes insolvent, and goes
that the judgment was not a debt to into liquidation, making an assignment
the bank, but to assignee for creditors, of all its assets for the benefit of its
and he'nce could not be paid in the de- creditors, the rights of all its creditors
preciated notes of the bank. North- attach equally, and a debtor then takes
ampton Bank v. Winder (Pa.), 3 Clark the bills of the bank subject to the
384. rights of other creditors to enforce his
After a note made payable at a bank, obligations against him for the equal
and negotiated there, had been trans- benefit of all. Diven v. Phelps (N. Y.),
ferred by the bank, and notice given 34 Barb. 224; 9 Cowen 413, notes; 1
to the maker of the transfer, a tender Paige Ch. 585; Haxton v. Bishop (N.
by him to the cashier of the bank of Y.), 3 Wend. 13." Farmers' Bank v.
the notes of the bank not procured in Willis, 7 W. Va. 31.
the usual course of business nor before 54. Holders of circulating notes are
notice of transfers is invalid. Reed v. —
preferred creditors. Taylor v. Hutch-
Mitchell, 18 Pa. 405. inson, 145 Ala. 202, 40 So. 108; Robin-
Where, in a suit in the United States son V. Bank, 18 Ga. 65; Dobbins v.
circuit court, the court ordered that Walton, 37 Ga. 614, 95 Am. Dec. 371;
the receiver take the notes of defend- :Miller v. Andrews. 43 Tenn. (3 Coldw.)
ant bank in payment of the debts due 380; Marr v. Bank, 44 Tenn. (4 Coldw.)
to it, and afterwards the court set 471; Moseby v. Williamson, 52 Tenn.
aside such order, a plea of tender of (5 Heisk.) 278; Bank v. Bank, 56 Tenn.
the notes in payment of the debts of (9 Heisk.) 408; Smith v. Moseby, 56
the bank, filed in a case pending in a Tenn. (9 Heisk.) 501; Moses v. Ocoee
state court, after the rescinding of the Bank, 69 Tenn. (1 Lea) 398; Foulker
order of the United States court, the V. Union Banking Co. (Pa.), 6 Wkly.
notes having been obtained after the Notes Cas. 109.
execution and recording of the deed of The holder of a certificate of de-
the bank and notice thereof to the deposit not placed by
is law on the same
fendant, was not a valid defense to the footing as the holder of the notes of
action. Bank v. Marshall, 66 Va. (25 the bank. The holder of certificates is
Gratt.) 378. only a creditor of the bank entitled to
Rights of attaching
creditors. "It — pro rata distribution. Moseby v. Wil-
was held by the supreme court of ap- liamson, 52 Tenn. (5 Heisk.) 278.
peals of this state, in the case of the Priority over judgment creditors. —
Farmers' Bank v. Gettinger, 4 W. Va. The statutory lien of bill holders, un-
305, that a debtor of a bank, summoned der the charter of the Monroe Railroad
except in the payment of the expenses of settling the concern,'^ and this
preference may be set forth in an assignment by the bank.s*^ But as between
& Banking Company, attaches equally vency, to the prior right of its note
upon all the property and effects of holders over all other creditors to pay-
that company, to the exclusion of judgment of its assets, it is essential that
ment creditors. Woodward v. Central the fact of insolvency be positively al-
Bank, 4 Ga. 323. leged. McCrae v. Bank, 46 Tenn.
Priority over holders of certificates (6 Coldw.) 474.
—
of deposit. In re Pennsylvania Bank, Rule for distribution. — In the distri-
39 Pa. 103. bution of the assets of an insolvent
Construction of Tennessee statute. — bank special preference is given by law
The Act of 1860, ch. 27, § 30, provides, to bill holders over other creditors of
that, in all cases of insolvency of any the bank, and the distribution is to be
bank, or banking association, the bill made among all bill holders whose
holders shall be entitled to preference bills have been brought in before dis-
in payment, to all other creditors of tribution made, in proportion to the
such bank or association, and no trans- amount of the just claim of each.
fer or assignment of any note, bill of Belcher v. Willcox, 40 Ga. 391.
exchange, or other evidence of debt by 55. Eastern Bank v. Capron, 23
the bank, shall'prevent the debtor from Conn. 639.
paying the same into the hands of the 56. In re Pennsylvania Bank, 39 Pa.
assignee in the currency of the bank. 103.
Held, that this law applies to a general Act 1860, § 30', provides that,
c. 27,
assignment by the bank, and, also, to in all cases of insolvency of any bank
any assignment made by the bank, of or banking association, the bill holders
its notes, bills of exchange, or other shall be entitled to preference, in pay-
evidence of debt. Miller v. Andrews, ment, to all other creditors of such
43 Tenn. (3 Coldw.) 380. bank or association, and no transfer
Construction of Georgia statute. or assignment of any note, bill of ex-
Section 1495 of the Revised Code change, or other evidence of debt by
which prescribes the order of paying the bank shall prevent the debtor from
off the debts of an insolvent bank, and paying the same into the hands of the
par. a, § 1493, which gives the bill assignee, in the currency of the bank.
holders a priority over creditors in Held, that this law applies to a gen-
the payment of debts, apply only where eral assignment by the bank; and also
there has been a forfeiture of the to any assignment made by the bank
charter and a receiver appointed by the of its notes, bills of exchange, or other
court; they do not apply in the case of evidence of debt. Miller v. Andrews,
an assignment by the bank of its assets 43 Tenn. (3 Coldw.) 380.
to pay its debts according to the re- Afirm of bankers having issued and
quirements of the law. Dobbins v. circulated notes payable to bearer of
Walton, 37 Ga. 614, 95 Am. Dec. 371. less denominations than five dollars,
Note holders not entitled to priority. and subsequently having made an as-
— In Virginia the note holders of an signment giving a priority or prefer-
insolvent bank, having no lien, stands ence in payment to the holders of these
upon the same footing as depositors notes, it was held that such holders
and other general creditors, and are en- were entitled to the preference in the
titled to nopriority. Robinson v. distribution of assets, notwithstanding
Gardiner, 59 Va. (18 Gratt.) 509, ap- Act July 7, 1838 [5 Stat. 309], which
proved in Exchange Bank v. Knox, 60 prohibits the issue of any note or other
Va. (19 Gratt.) 739; Saunders v. White, paper currency of a less denomination
61 Va. (20 Gratt.) 337; Bank v. Mar- than five dollars within the District of
shall, 66 Va. (35 Gratt.) 378. Columbia. Tucker v. Fowler, Fed.
And in Massachusetts^ bill holders Cas. No. 14,219, 1 Hayw. & H. 67.
are not entitled to a priority over other But in Georgia it has been held
creditors, in the distribution ofthe as- that the statute providing that, where
sets of an insolvent bank, receivers of a receiver is appointed for an insol-
whose property have been appointed vent bank, bill holders shall be paid
under St. 1851,' c. 137. Stockholders v. in preference to other creditors, does
Colt, 67 Mass. (1 Gray) 383. not apply where the bank makes a
Enforcement of right of priority. — voluntary assignment for the payment
In a proceeding under Act of February of all the debts of the bank. Dobbins
6, 1860, ch. 27, to subject the assets of V. Walton, 37 Ga. 614, 95 Am. Dec.
a bank, on the ground of its insol- 371.
each other they share equally in the distribution.^'^
§ 79 (3) Penalties and Interest. —

If bill holders of an insolvent
bank demand payment of their claims and are refused, they are entitled to
interest from the time of such demand.^^
§ 79 (4) Set- Off against Bank or Receiver. —

Persons holding the
circulating notes of a bank at the time it becomes insolvent may set the same
off against their indebtedness to the bank.^^ This set-ofF, however, will
only be allowed against the bank,®" and circulating notes acquired after the
insohency of the bank can not be set off against the holder's indebtedness
to the bank,®i nor will bills purchased in at a discount be allowed as a
57. Holders of circulating notes pelling banks to receive in offset their

—
share pro rata. The assets of an in- own debts, when liquidated and due,
solvent banking corporation under the from whatever source arising, and
laws and statutes of this state consti- whenever acquired, may be considered
tute a trust fund in the hands of the as declaratory of the former intention
officers of the bank for the equal bene- of the legislator. Exchange & Bank-
fit of all the note holders of the bank. ing Co. V. Mudge (La.), 6 Rob. 387.
No diligence on the part of one can Plaintiffs' agent drew a time bill of
defeat the others' right to a pro rata exchange in favor of the Bank of
distribution of the fund. Marr z>. Florida, which said bank discounted,
Bank, 44 Tenn. (4 Coldw.) 471. paying therefor in its own notes, and
58. Penalties and interest.— In ad- sending the draft to its New York
justing the claims of an insolvent bank agent, who had the same accepted.
whose assets have been put into the Afterwards the bank failed, and its
hands of a receiver, those creditors agent transferred the bill to defendant
-who have demanded payment of the for the use of its creditors. Plaintiffs
bank's bills, and been refused, are not still held a large portion of the bank's
entitled to twenty-four per cent in- notes, which it had received on the
terest on such bills, under Rev. St. c. discount of the draft, and also other
36, § 39, which allows interest at that notes which it had received in the due
rate when payment has been demanded course of business. Held, in an action
on the bank and refused, but they are to restrain the enforcement of the
entitled to six per cent interest from draft, that said notes constituted an
the time of such demand. Atlas Bank equitable set-off. Mel v. Holbrook
V. Xahant Bank (Mass.), 3 Mete. 581. (N. Y.), 4 Edw. Ch. 539.
Eight of bill holder's assignee to in- —
Rule in Virginia. Under Act Feb.
terest. —Where the holder of bank 12, 1866, placing all creditors of an in-
bills has obtained the right to legal solvent bank on the same footing, the
interest thereon by making demand of holder of circulating notes has no right
payment, an assignee of such bills is of set-off. Exchange Bank v. Knox,
entitled to interest out of the assets 60 Va. (19 Gratt.) 739.
of the bank which has become insol- 60. Where a note made payable to
vent. Atlas Bank v. National Bank a bank for discount was not discounted
(Mass.), 3 Mete. 581. by the bank, but was afterwards dis-
59. Set off of notes against claims of counted by another person, and suit
—
bank. Williams v. Planters' Bank is brought in the name of the bank
(La.), IS Rob. 125; American Bank v. for the use of the holder, such holder
Wall. 56 Me. 167; Mandeville v. Bracy, may resist a set-off of notes of the
31 Miss. 460; Niagara Bank v. Rosevelt bank by proof that the note in suit
(N. Y.), 9 Cow. 409; Bruyn v. Middle never belonged to the bank. Trible
Dist. Bank (N. Y.), 9 Cow. 413; 1 Paige V. Bank (Miss.), 2 Smedes & M. 523.
584, note; In re Middle Dist. Bank Notes acquired after bank's in-
61.
(N. Y.), 9 Cow. 414, 19 Am. Dec. 452, 1 —
solvency. American Bank v. Wall, 56
Paige 585; Mann v. Blount, 65 N. C. Me. 167; Niagara Bank v. Rosevelt
99; Blount v. \^'indley, 68 N. C. 1, 12 (N. Y.), 9 Cow. 409; In re Middle Dist.
Am. Rep. 616; Clarke v. Hawkins, 5 R. Bank (N. Y.), 9 Cow. 414, 1 Paige 585,
I. 219. 19 Am. Dec. 452; Haxton v. Bishop
Act April 5, 1843, § 2, No. 92, com- (N. Y.). 3 Wend. 13; Diven v. Phelps
set-off.«2
§ 79 (5) Rights against Officers of Bank. — It seems that the bank

officers are not answerable in an action at law to the holders of circulating
notes.®^
§ 79 (6) Actions by Bill Holders. —No proof of execution of the

bills is necessary in a suit by bill holders against the bank, in the absence of
a plea of non est factum by the defendant.^*
Plea in Suit by Bill Holder against Stockholder. Where stockhold- —
ers in a bank are personally liable for the ultimate redemption of its bills, to
a suit by a bill holder against a stockholder, a plea that the bank has assets
(N. Y.), 34 Barb. 334; Clarke v. while it is doing business against the
Hawkins, 5 R. I. 319; Exchange Bank debts due from them to the bank, but
V. Knox, 60 Va. (19 Gratt.) 739; Saun- not even the bills of the bank, pur-
ders V. White, 61 Va. (30 Gratt.) 337. chased by them after an injunction has
The bank notes of the Pennsylvania issued against it preliminary to its
Bank of the United States can not be winding up, and especially if the
set off to a note sued upon by the debtor be a director of the bank, and
trustees of the bank, to whom it had has purchased in the bills at a dis-
been assigned for the payment of its count; the allowance of a set-off of
creditors. Gee v. Bacon, 9 Ala. 699. bills so purchased being in derogation
of the rule of equality in payment,
A depositor in a bank, as it was
established by statute as between the
about to suspend, obtained, on account
bill holders of an insolvent bank.
of his deposit from an officer, an undue
Clarke v. Hawkins, 5 R. I. 319.
note, which had been discounted; and
63. Liability of bank officers to note
afterwards, receiving other securities
in excess of his deposit, paid back part
holders. —A bank officer, through
whose mismanagement the bank has
of the excess in bills of the bank. In
become insolvent, is not liable to the
an action by him on the note, it was holders of its notes, though he is liable
held that the drawers could not set off
to the bank. Hinsdale v. Larned, 16
against the note bills of the bank ob-
Mass. 65.
tained after the plaintiff's payment on
Proceedings in equity by note hold-
account of the excess, except as to the
balance remaining; and, as that balance
ers.— ^The note holders of a foreign
banking corporation, which has sus-
arose out of other securities subse- pended payment, and become insol-
quently given to the plaintiff by the vent, may, without first obtaining a
bank, and not from the note, which se- judgment at law, proceed in equity
curities were not shown to have been
against the bank, its directors, stock-
fully paid, the set-off as against that
holders, and agents, charging them
balance was not admissible. Struthers with fraud and misapplication of the
V. Brown, 44 Pa. 469.
assets, and seeking a discovery and
In an action by the receivers of a account. Such a bill may be maintained
bank, appointi.d under the statute of under the general powers and jurisdic-
1835, to "prevent fraudulent bank- tion of the court, which regard the
ruptcies by incorporated companies," capital stock of the company and all
etc., to recover a note discounted at the its assets as a trust fund for the pay-
bank, and falling due after the re- ment of its creditors, and the direct-
ceivers are appointed, the notes of the ors, stockholders, and agents as trus-
same bank, received by the defendant tees. Bank v. St. John, etc., Co., 35
before his note fell due, can not be set Ala. 566.
off, though he reasonably tendered 64. Proof of execution of bills
them in payment. Haxton v. Bishop Where a bill holder sues the assignee
(N. Y.), 3 Wend. 13. of a bank upon
its notes, and no plea
G2. purchased at discount.
Bills — of non est factum is filed, the plaintiff
Debtors of an insolvent bank in the need not prove the execution of the
hands of a receiver will be allowed to bills. Bethune v. Dougherty, 30 Ga.
set off debts due to them by the bank 770.
582 BANKS AND BANKING. § 80 (laa)
which have not been appropriated, without specifying what they are, is
demurrable for uncertainty.*'
§ 80. Presentation and Payment of Claims««— § 80 (1) Claims

—
Provable and Estoppel to Claimfi'^ § 80 (la) Claims Provable
§ 80 (laa) In General. —
Of course, only the obligations of the bank
are provable claims against it.^* But a claim for rent service which became
due after the appointment of a receiver,®* for damages for breach of a lease
by the bank,''*' for expenses in winding up the affairs of the bank.'î and
even the claims of bank officers''^ are provable claims against the bank,
65. Lane v. Morris, 8 Ga. 468. for damages for the loss so sustained
66. Holding bank as trustee with re- allowed by the bank's receiver as a
gard to moneys collected, see post, claim against the bank's estate in in-
§ 166 (1). solvency. McGraw v. Union Trust Co.,
On dissolution of hank, see post, 135 Mich. 609, 98 N. W. 390.
"Payment of Forged or Altered Where an insolvent banking corpo-
Paper," § 147. ration is proceeded against under Gen.
Payment of debts from safety fund, St. 1894, c. 76, § 5900, and is restrained
see ante, "Reports and Statements," from exercising any of its corporate
§ 16. functions, and its executory contract
Right of depositor of check or draft of leasing for a term of years is repu-
on insolvency of bank, see post, "For- diated by its receiver, and the leased
feiture of Charter and Dissolution," premises are abandoned, there is a
§ 308. finalbreach of such contract, for which
67. Rights of holders of circulating the lessor is entitled to damages. Min-
notes, see post, "Restrictions upon neapolis Baseball Co. v. City Bank, 74
Issue or Circulation," § 198. Minn. 98, 76 N. W. 1024.
68. Claims provable.În proceedings Where an executory contract of
to establish a claim against an insol- leasing for a term of years is repu-
vent bank, it appeared that claimant diated by a receiver of an insolvent
sold to the president of the bank cer- banking corporation, and there is a
tain securities, and in payment took final breach of such contract, the lessor
certificates of deposit. The president should immediately declare the breach
testified that the transaction was his to be total, and in the insolvency pro-
individual venture. The claimant de- ceedings must be allowed to establish
nied. The certificates were never en- his claim for damages against the es-
tered on the books as liabilities of the tate. Minneapolis Baseball Co. v. City
bank, but four were afterwards paid Bank, 74 Minn. 98, 76 N. W. 1034.
by the bank and charged to the presi- 70. Damages for breach of lease. —
dent's account. Held, that the certifi- Where a bank operated a savings and
cates were prima facie those of the commercial department in its banking-
bank. State v. Farmers', etc., Bank, 36 house, which it held under a lease, a
Neb. 675, 54 N. W. 974. claim for damages for breach of the
—
What law governs. In a suit in the lease on the bank's insolvency was
federal courts praying for the appoint- chargeable pro rata against the assets
ment of a receiver of an insolvent bank of each department. McGraw v. Union
organized under the state laws, the Trust Co., 135 Mich. 609, 98 N. W. 390.
winding up of its affairs, and the dis- 71. All reasonable and proper ex-
tribution of its assets, the question as penditures incurred by a receiver or
to what are and are not provable other agent, in winding up the affairs
claims must be governed by the laws of an insolvent bank, are legitimate
of the state. New York Security, etc., charges against the trust fund, and
Co. V. Lombard Invest. Co., 73 Fed. should be allowed, unless shown to be
537. overcharged or wrongfully charged.
69. —
Claim for rent. Where a bank Robinson v. Bank, 18 Ga. 65.
broke its covenant in a lease of its 72. Claims of bank officers. —
An offi-
banking house on its becoming insol- cer of an insolvent bank is entitled to
vent, and the lessor re-entered and participate as a creditor in the distri-
relet the premises in accordance with bution of its assets, when he has been
the terms of the lease, at a loss, the guilty of no fraud. In re Insurance
lessor was entitled to have his claim Co. (Pa.), 9 Lane. Bar. 119.
§ 80 (Ice) INSOLVENCY AND DISSOLUTION. 583
although it did not mature until after the appointment of the receiverJ^
Claims of Individual Creditor of Private Banker. —Creditors of an
individual doing business as a private banker may participate in the distribu-
tion of the assets of the bank in the hands of a receiver.'^*
§ 80 (Ibb) Claims for Taxes. —

If before the liability for a tax on
capital stock of a bank has attached the bank becomes insolvent, the tax on
the stock can not be collected from the receiver, because the stockholders
are primarily liable for the tax and the liability of the bank is secondary.
And manifestly if its capital stock becomes valueless there is nothing be-
longing to the stockholder upon which a lien could attach in the bank's
favor.'^s But taxes assessed against the receiver upon all personal property
in its possession, and all of the assets of the insolvent bank, must be paid by
the receiver from the assets in his possession.'^^
§ 80 (Ice) Claims of Depositary. —

Where a bank which has money
on deposit with another becomes insolvent, being at the time indebted to the
depositary upon promissory notes, the depositary may, after crediting the
deposit upon the notes it holds against the failing bank, share in the bal-
ance still due, pro rata with the depositors of that bank, in a general
distribution of its assets in the hands of a receiver appointed to take charge
of and administer the same.'^''
73. A
claim against a bank maturing provides that corporation shall
the
after the date of the receivership will have a lien on the shares
in the corpo-
nevertheless be allowed, provided it ration, and in the rights and property
has sufficiently matured before an> of the shareholders, for the payment
order of distribution is made. New of the taxes. Held, that the receivei
York Security, etc., Co. v. Lombard of an insolvent bank is not liable for
Invest. Co., 73 Fed. 537; Hussey v. taxes assessed against its capital stock
Crawford, 152 Mass. 596, 26 N. E. 424; before it became insolvent. Hewitt v.
Hoyle V. Scudder, 33 Mo. App. 3J2. Traders' Bank, 18 Wash. 326, 51 Pac.
74. Individual creditors of private 468, following Baker v. King, 17 Wash.
banker.—Under Laws 1891, c. 43, § 35, 622, 50 Pac. 481.
providing that any individual receiving 76. Tax on personalty. — Hewitt v.
money on deposit shall be considered Traders' Bank, 18 Wash. 326, 51 Pac.
as doing a banking business, and § 26, 468.
making it the duty of the bank com- The
receiver of an insolvent bank is
missioner, on insolvency of a bank, to liable for taxes on the full amount of
have a receiver appointed to wind up personal property and assets of the
its business for the benefit of its de- bank, and can not deduct therefrom
positors, creditors, and stockholders, a the of debts owing by the
amount
creditor holding notes given by the bank. Hewitt v. Traders' Bank, 18
sole owner and manager of a bank for Wash. 336, 51 Pac. 468.
individual indebtedness, the bank being 77. Claims of depositary. — Georgia
conducted in the owner's personal Seed Co. v. Talmadge & Co., 96 Ga.
name, is not prevented from sharing 254, 33 S. E. 1001.
in the distribution of the assets of the A bank which applied a deposit be-
bank after insolvency equally with its longing to another bank on notes due
depositors and other creditors. Mc- it by the latter, on the latter's sus-
Dermott v. Halleck, 61 Kan. 486, 59 pension, could share with the deposi-
Pac. 1074. tors of the suspended bank in the gen-
75. Tax on capital stock. —
Laws 1893, eral distribution of the latter's assets,
p. 333, §provides that, if the tax
22, on the balance due on the notes.
on capital stock of a bank is not paid, Georgia Seed Co. v. Talmadge & Co.,
the bank shall be liable for it, and § 23 96 Ga. 254, 22 S. E. 1001.
§ 80 (Idd) Paid-Up Stockholders.— On the distribution of the as-

sets of an insolvent bank, the personal liability of stockholders to depositors
under the statute, being in the nature of a guarantee, can not be set up to
prevent paid-up stockholders from participating, as creditors, in the distribu-
tion. ''^
§ 80 (lee) Incidental Expenses in General. The rent for the bank —

and may be allowed by the receiver.''*
clerk's hire
—
Expenses of Collecting Assets. And the reasonable and necessary
cost and expense incurred by a creditor in collecting collateral security held
by the bank also may be allowed by the receiver.so
§ 80 (lb) Estoppel to Claim. —Creditors, of course, are only entitled

to a single satisfaction of their claims. ^^ But a receipt of part of his claim
by a creditor does not preclude him from recovering the balance. ^^
—
Claims of Accommodation Makers. Persons lending their credit to
a bank by making an accommodation note payable to the bank, thereby en-
abling the bank to obtain money, can only claim reimbursement on the sub-
sequent insolvency of the institution ; they can not also claim a credit in their
favor on the books of the bank for that same debt.^^
78. In re Humboldt Safe-Deposit, ceedings against the assets of the bank

etc., Co., 3 Pa. Co. Ct. R. 631. or the stockholders, though he has pre-
79. Incidental expenses such as rent, viously ratified the deed of assignment
etc.— The receiver is authorized to by the bank. City Bank v. Crossland,
allow such sum for the use of the 65 Ga. 734.
banking room, and to the clerk for at- A creditor of an insolvent bank, who
tending to demand payment, and pro- recovers a portion of his debt from
test notes which fall due, as he may stockholders on their personal liability,
deem reasonable. Bruyn v. Middle is not thereby prevented from sharing
Dist. Bank (N. Y.), 9 Cow. 413, 1 with other creditors on the basis of
Paige 584. his entire debt in the assets of the cor-
80. Expenses incurred in collecting poration, to the extent of the balance
collateral. —
Hanover Nat. Bank v. due. Sacramento Bank v. Pacific Bank,
Brown (Tenn.), 53 S. W. 306 (may re- 134 Cal. 147, 56 Pac. 787, 45 L. R. A.
cover attorney fees). 863. 71 Am. St. Rep. 36.
In a receivership proceeding to wind The receipt by a person of a divi-
up the affairs of an insolvent bank, a dend from the assignee of an insolvent
creditor of a bank holding collateral bank does not estop him from demand-
security was entitled to an allowance, ing payment in full of his claim against
for his reasonable and necessary costs the bank, on the ground that a trust
and expenses of collecting the collat- was imposed on the assets in his favor
eral. Brown v. Sheldon State Bank, as against the general creditors. Wal-
139 Iowa 83, 117 N. W. 389. lace V. Stone, 107 Mich. 190, 65 N. W.
81. Estoppel to present claims.— 113.
depositor in a bank who recovers a 83. Claims of accommodation makers
judgment, which is satisfied, against —
of notes. Complainants, on the re-
one who held himself out as its_ presi- quest of a national bank needing funds,
dent, can not afterwards prove his debt signed an accommodation note for
against the bank's assets. Dobson v. $10,000, payable to its order, with the
Simonton, 95 N. C. 313. understanding that it would discount
82. Receipt of part of claim by cred- the same, and use the proceeds in its
itor of bank.^Receiving a portion of business. The bank at the same time
his claim against an insolvent bank, by agreed to place to the credit of com-
a creditor thereof, does not impair his plainants on its books an amount
right to seek the entire satisfaction of equal to the proceeds of the note, com-
his claim by legal or equitable pro- plainants stipulating that they would
§ 80 (2) Presentation and Proof— § 80 (2a) Presentation

§ —
80 (2aa) In General. The statutes in most jurisdictions require
creditors, desiring to share in a distribution of the shares of an insolvent
bank, to bring in and prove their claims,** within a prescribed time.*^
§ 80 (2bb) Notice to Creditors to Present Claims. —By statute in

most jurisdictions, it is provided that upon the appointment of a receiver
notice shall be given, usually by advertisement, calling on all persons who-
may have claims against the bank to present the same to the receiver and
make legal proof thereof.**
§ 80 (2cc) Time for Presentation or Filing of Claim. The time —

within which a creditor must file or deposit his claim is usually prescribed
not check against this credit except —

Application for claim. Where a re-
to pay the note or to reimburse them- ceivership of a bank was extended over
selves for paying it. The credit was a fund recovered in an action to en-
accordingly made, and the bank, after force a stockholders' statutory liabil-
continuing business for some time, ity, and a notice to creditors of such
failed, and complainants were com- action stated that an order would be
pelled to pay the note. They there- applied for, directing the receiver of
after recovered a judgment at law the bank to apply to the applicant's
against bank's receiver for the
the claim dividends out of the funds in
amount paid to take up the note, and his hands accruing from such stock-
then sued in equity for the amount holders' actions, which designation of
placed to their credit according to the the receiver was the same as in the
agreement. Held, that they were not judgment appointing him receiver in
entitled to two judgments for the same the action, and disclosed that it had re-
debt, and to dividends on both judg- lation to the fund held by him as such
ments until one of them was satisfied, receiver, the application should be re-
and that the bill must, therefore, be garded as having been properly made
dismissed. Latimer v. Wood, 20 C. C. in the stockholders' action. In re
A. 251, 73 Fed. 1001. Ziegler, 98 App. Div. 117, 90 N. Y. S.
84. The mere service of a copy of 681.
the writ, in a suit then pending, upon 85. Time
for presentation of claims.
the receivers of the effects of an in- — See post, "Time for Presentation
solvent bank, is not a compliance with or Filing of Claim,'' § 80 (2cc).
the provisions of Act April 16, 1841, 86. Notice to creditors to present
that creditors must bring in and prove
their claims if they would receive their
—
claims. McGraw v. Union Trust Co.,
135 Mich. 609, 98 N. W. 390.
share of the effects. Read v. Frank- In pursuance of a decree to dis-
fort Bank, 23 Me. 318. tribute the assets of an insolvent bank,
Under the New York General Corpo- advertisement was made for creditors
ration Law, creditors of a bank,
§ 261, to prove their claims by a certain day,
who after due notice failed to assert on pain of being thereafter barred.
their claims forfeited their right to Held, that a creditor who had no in-
share in the distribution. People v. formation of the advertisement, and
German Bank (Sup.), 136 N. Y. S. who was not guilty of laches in
311. presenting his claim, was entitled to
It is unquestionably the practice in prove after the day named. Glenn v.
New York that as to an application by Farmers' Bank, 80 N. C. 97.
a depositor or other creditor for leave The banking Act of 1887, § 56, which
to prove a claim against a bank, or in requires the receiver of an insolvent
any other aspect in which the fund in bank to give twelve weeks' notice by
the receiver's hands is sought to be publication for presentation of claims
charged, it is essential that the appli- by creditors, is for their benefit, ana
cation be made in the action in which does not prevent the receiver from
the receiver is appointed. In re passing on a claim presented to him
Ziegler, 98 App. Div. 117, 90 N. Y. S. on a briefer notice. Bissell v. Heath,
681. 98 Mich. 472, 57 N. W. 585.
by statute.*^ But a court may, in its discretion, permit a creditor to share in

the assets of an insolvent bank, though his claim was not filed with the re-
ceiver within the time which was by a general order limited for the presen-
tation of claims.*®
§ 80 (2b) Proof. —Where a creditor claims expenses for collecting

the bank's assets, he must produce proof thereof.*^ The manner of prov-
ing claims against the bank is largely in the court's discretion. ô
Time for presentation or

87. filing of who afterwards received only ninety
claim. —
The Act of December 13, 1866, per cent of thei.r claims. He after-
entitled, "An act to expedite the dis- wards found the assets which he re-
tribution of the effects of banks which ceived were not collectible, and asks
have made or may make assignments to file claim with the receiver,
his
among their creditors," is not a statute though the time for such filing has
of limitations. The statute is uncon- expired. Held not an abuse of discre-
stitutional and void. Fogg v. Union tion to deny the motion. Howe v.
Bank, 60 Tenn. (1 Baxt.) 435. Bankers' Exch. Bank, 75 Minn. 286, 77
"This statute makes the trustee both N. W. 967.
legislator and judge. To him it is The penalty which attaches to a
given to prescribe the time within failure to prove the claim does not
which the creditor shall file or deposit operate to deprive a creditor of all
his claim, and to him it is given to benefits derived from the judgment un-
determine whether he has brought less there has been a final distribution
liimself within the time, creating of the fund, based upon claims proven
branches to the legislature and judicial thereunder. At any time before such
departments unknown to the constitu- distribution a creditor may come in
tion. The act is an attempt on the and be permitted to prove his claim,
part of the legislature to delegate its even though a schedule of those who
law-making power to individuals, and are entitled to share in the fund and
is prohibited by the constitution, of the amounts has been made up for
which the legislature is the creature. distribution. Under such circumstances,
It is as competent for the legislature the court has the power to open the
to enact that each court in the state proceeding for the purpose of estab-
shall declare that time shall bar the lishing the claim; and the applicant,
collection of a debt after a given in moving the court to its exercise, is
period, as it was to have enacted this required to show an excuse, by satis-
statute. To do either is to create as factory proof, for failing to prove her
many new legislatures, with
limited claim before the referee within the
powers as there are trustees or courts. prescribed period. In re Ziegler, 98
The statute is unconstitutional and App. Div. 117, 90 N. S. 681.
89. Proof of expenditures by credit-
void." Fogg V. Union Bank, 60 Tenn.
(1 Baxt.) 435.
ors. —
It could not be claimed, by the
receiver in such case, that the creditor
Discretion of court as to time of
88.
failed to introduce proof as to his ex-
filing State v. Bank, 61 Neb. 22, 84
penditures in the collection of such
N. W, 406.
collateral security, where he had pre-
A
creditor of an insolvent bank, sented a complete statement of the
whose assets are in .custodia legis account, including such expenses, and
under decree of court, will be let in the court might have examined the ac-
to prove his debt after the day fixed count, and allowed such of the items
for proofs, if he is not guilty of laches; as were proper. Brown v. Sheldon
but if he fail to make application to State Bank, 139 Iowa 83, 117 N. W.
do so until after the fund is distributed, 289.
having full knowledge of the proceed- 90. Manner of proving claims. —
ing, he will be barred of his right. Code, §§ 670, providing that
669, in
Glenn v. Farmers' Bank, 84 N. C. 631. winding up the affairs of insolvent cor-
Excuses for failure to file in time. — porations the court shall make such
A stockholder in a bank, with the help orders as justice and equity shall re-
of its president, obtained, as he sup- quire, and direct how claims shall be
posed, assets in full payment of his proved, apply to the adjustment of the
claim in preference to other creditors. claim of an insolvent bank and its
§ 80 (3c) INSOLVENCY AND DISSOLUTION. 587
The burden of proof is on the bank to show the invalidity of the claims
of depositors. "1
§ 80 (3) Allowance and Payment— § 80 (3a) By Whom Al-

lowed. —The court and not the receiver is the proper party to allow or dis-
allow claims, nor is it necessary to appeal from the action of the receiver in
the premises.82
§ 80 (3b) To Whom Allowed. — Money deposited by a husband in the

wife's name belongs to the wife and upon presentation
will be allowed her
of a proper claim, and no promise or agreement which the husband makes
in her absence will bind her.^^
§ 80 (3c) Bights and Liabilities of Creditors Holding Collateral.

—Although there is irreconcilable conflict in the cases, the better rule, and
that sustained by the great weight of authority is that collateral security,
by mortgage or otherwise, held by the claimant, does not affect the claim-
ant's right to prove up for the full amount of his claim nor does the fact
;
that he has realized a part of his claim from the subjection of such collateral,
since the date of the receivership; but he is entitled in such case to receive
distributions or dividends from the general estate, until such dividends,
debtor, who is also a depositor. Davis state and the assignee brought pur-
V. Industrial Mfg. Co., 114 N. C. 321, suant to such statute, that defendants,
19 S. E. 371, 23 L- R. A. 333. showing themselves to be depositors
Necessity for verification. In the — in such bank, were prima facie credit-
absence of a statute requiring that a ors of the bank, and the burden of
claim against the receiver of a bank proof was on the bank or trustee to
should be verified by affidavit, the show the invalidity of their claims.
failure to make such proof will not State V. Bank, 64 Tenn. (5 Baxt.) 1.
bar the right to sue on the claim. 98. By whom claims to be allowed. —
Arnold v. Penn, 11 Tex. Civ. App. 325, The receiver appointed to sequester
32 S. W. 353. the assets has no authority to allow or
91. Burden of proving invalidity of disallow the claims of creditors, such
—
claims. Act Feb. 16, 1866, providing power resting with the court. Palmer
for the appointment of directors to V. Bank, 72 Minn. 366, 75 N. W. 380.
put the Bank of Tennessee in liquida- 93. Claims by wife. —
In proceedings
tion, required them to collect the debts for the allowance of a claim against
due the bank, and receive in payment an insolvent bank, based on a deposit
United States currency or notes of in claimant's name, the cashier stated
such bank issued prior to May 6, 1861, that claimant's husband, when he de-
but to refuse all issues of such bank posited the money, stated that it was
made after May 9, 1861, etc., and also the proceeds of land claimed by his
to cause an assignment of all the prop- wife. The testimony of claimant
erty in trust to secure $1,500,000 of showed that it was her money. The
the school fund deposited in such bank husband deposited the money in claim-
pursuant to prior acts of the legisla- ant's name, and in her absence told
ture, with interest from May 6, 1861, the cashier that it would be used as a
and to secure just creditors, ex-
all credit on a debt due by him and her,
cluding all claims of date after May 6, and the deposit was entered as a
1861, as null and void; and directed the credit thereon. When claimant saw
attorney general to file a bill in chan- the entry, her husband told her that
cery to execute such deed of trust, en- the credit was not to be made. Held,
join all creditors from suing, make all that no agreement made by the hus-
persons interested parties by publica- band in the wife's absence would bind
tion, etc., to "come in under one de- her, and the claim of the wife was
cree, and equal justice be done to all." properly allowed. Peach v. Grubbs,
Held, .in an action in the name of the 145 Ala. 685, 40 So. 110.
added to the amount realized from the collateral, are equal to or sufficient
to satisfy his debt. 9*
§ 80 (3d) Hearing and Determination —§ 80 (3aa) In General.

—The report of the auditor appointed to distribute the funds is conclu-
sive on a finding of facts, unless plain error is shown.^** If a claim is dis-
94. Rights of creditors holding col- 13 Iowa 515, in South Carolina, Wheat
lateral. —
Lewis V. United States, 92 U. V. Dingle, 32 S. C. 473, 11 S. E. 394,
S. 618, as L. Ed. 513; Tod v. Kentucky 8 L. R. A. 375, and in Washington, In
Union Land Co., 57 Fed. 47; Chemical re Frasch, 5 Wash. 344, 31 Pac. 755, it
Nat. Bank v. Armstrong, 8 C. C. A. was held that the rule in equity is the
155, 59 Fed. 372, 28 L. R. A. 331; New same as the rule in bankruptcy, and
York Security, etc., Co. v. Lombard that the secured creditor can prove
Invest. Co., 73 Fed. 537; Findlay v. only for the balance of his debt after
Hosmer, 3 Conn. 350; In re Bates, 118 the collateral shall have been applied.
111. 534, 9 N. E. 357, 59 Am. Rep. 383; It was so held by Sir John Leach, mas-
Logan V. Anderson (Ky.), 18 B. Mon. ter of the rolls, in Greenwood v. Tay-
lU; Bank v. Patterson, 78 Ky. 291; lor, 1 Russ. & M. 185.
Southern Michigan Nat. Bank v. Byles, 'There is one authority, and only one,
67 Mich. 296, 34 N. W. 702; T-hird Nat. which upholds the view that a creditor
Bank v. Haug, 83 Mich. 607, 47 N. W. who has once proved his claim shall
33; Fifth Nat. Bank v. Clinton Circuit reduce that claim by all collections
Judge, 100 Mich. 67, 58 N. W. 648; made before the declaration of each
People V. Remington & Sons, 121 N. dividend, on the theory that he is en-
Y. 328, 24 N. E. 793, 8 L. R. A. 458; titled to a ratable distribution on his
Brown v. Bank, 79 N. C. 244; Kellogg debt as it is at the time of distribution,
V. Miller, 32 Ore. 406, 30 Pac. 229, 39 and the collections made after proof
Am. St. Rep. 618; Miller's Appeal, 35 of claim and before each dividend must
Pa. 481; In re Patten's Appeal, 45 Pa. reduce the debt pro tanto. This author-
151, 84 Am. Dec. 479; Graeff's Appeal, ity is Third Nat. Bank v. Lanahan, 66
79 Pa. 146; In re Miller's Estate, 83 Pa. Md. 461, 7 Atl. 615.
113, 22 Am. Rep. 754; Allen v. Daniel- 94a. Conclusiveness of auditor's re-
son, 15 R. I. 480, 8 Atl. 705; Citizens' port. —A depositor of an insolvent
Bank ii. Kendrick, 92 Tenn. 437, 21 S. bank, whose pass book, as well as the
W. 1070; West v. Bank, 19 Vt. 403; books of the bank, showed an over-
Walker, etc., Co. v. Baxter, 26 Vt. 710. draft, presented a claim to the auditor
Compare, also, Kortlander v. Elston, appointed to distribute the funds, and
? C. C. A. 657, 52 Fed. 180; Bank v. testified that the books did not show
Cases, 92 Tenn. 437, 21 S. W, 1070, 36 the true state of the accounts; that,
Am. St. Rep. 96. in order to apparently swell the assets
The great weight of authority in of the bank in anticipation of an ex-
England and this country is strongly amination by the auditing committee,
opposed to the view that a creditor the president had induced claimant to
with collateral shall be thereby de- draw several checks for large amounts
prived of the right to prove for his full on another bank, and in favor of the
claim against an insolvent estate. insolvent bank, to be offset by checks
Greenwood v. Taylor, 1 Russ. & M. to an equal amount to be drawn on
185, was questioned by Lord Cotten- the insolvent bank, and deposited with
ham in Mason v. Bogg, 2 Mylne C. & such other bank for collection; that
443, 448, and was expressly repudiated the checks drawn in favor of the in-
as authority in the court of chancery solvent bank were not credited to
appeals in Kellock's Case, 3 Ch. App. claimant, but that one of those drawn
—
769 a case which, upon this point, is on it was charged to him. Held, that
cited with approval in Lewis v. United a report by the auditor that he was
States, 92 U. S. 618, 23 L. Ed. 513. In not able to say as a matter of fact
this country, the Massachusetts doc- that the check had been improperly
trine was dissented from by the su- charged, or that claimant had not re-
preme court of NewHampshire in the ceived credits to balance it, was a find-
early case of Moses v. Hanlet, 2 N. H. ing of fact, which, unless shown to be
488. plain error, was conclusive of the case.
In Massachusetts, Amory v. Francis, In re Penn Bank, 152 Pa. St. 65, 25 Atl.
16 Mass. 308, in Iowa, Wurtz v. Hart, 310.
§ 80 (3e) INSOLVENCY ANI> DISSOLUTION. 589
allowed by a receiver, the court appointing him will frame an issue between
the receiv.er and the creditor to determine the validity of the claim. ^^
§ 80 (3bb) Raising and Waiving Objections to Allovsrance ol

— —
Claims. Who May Interpose. In some jurisdictions any creditor,
whether preferred or not, may object to the allowance of a claim against
an insolvent bank.^^
—
Waiver of Objections. But a creditor who appears at the hearing
and makes no objections to the allowance of claims is thereafter precluded
by the order of allowance. Nor can the question of the insufficiency of
8'''
objections to the allowance of a claim against an insolvent bank be raised

for the first time on appeal.®^
§ 80 (3e) Payment. —What Constitutes Payment. —Where a

bank surrenders the. original collateral given to secure a loan and takes a
different kind of security in its place, this surrender will not be considered
a payment, upon failure to collect the substituted security. ^^
—
Demand for Payment. Where a bank is in the hands of a receiver,
a demand for payment of a deposit due by the bank is properly made by
drawing a check on the bank and demanding payment thereof of the re-
95. Issues to the jury. —

The receiver hearing of the report one creditor ap-
peared, but no objections were filed,
of an insolvent state bank, appointed
by the circuit court on petition of the and the claims were allowed. Held,
commissioner of banking, as provided that the creditor appearing was pre-
in the general banking Act of 1887 cluded by the order then made from
(§§ 55-57), who is in express terms afterwards contending that certain of
placed under the direction of the court the claims allowed were invalid, as
in taking possession of the bank's as- representing an unauthorized and ille-
sets and administering its affairs, is an gal deposit of public funds. Baker v.
officer of the court; and hence, on the Williams, etc., Banking Co., 42 Or. 313,
disallowance of a claim by the receiver, 70 Pac. 711.
the court appointing him should per- 98. Raising objections on appeal. —
mit an issue to be framed between him Taylor v. Hutchinson, 145 Ala. 303, 40
and the creditor, in which the validity So. 108.
of the claim may be determined, and 99. Novation.—A bank held several
not remit the creditor to an action notes as collateral security for a note
against the insolvent bank. Citizens' given it by a second bank, which after-
Sav. Bank v. Ingham Circuit Judge, 98 wards failed, and the maker of one of
Mich. 173, 57 N. W. 121. the pledged notes immediately con-
veyed his property to a bona fide cred-
96. Objections to allowance of
—
claims. Taylor v. Hutchinson, 145
itor, and the pledgee then surrendered
this maker's note and took in exchange
Ala. 203, 40 So. 108.
therefor a note for an equal sum from
A
creditor who has not been deprived the cashier of the insolvent bank, it ap-
of anylegal right by the allowance of pearing that such note was of more
a belated claim against an insolvent value than the one surrendered. It
bank can not complain of the order afterwards transpired that the cashier's
of the court allowing such claim. State note could not be collected, while the
V. Bank, 61 Neb. 33, 84 N. W: 406. note exchanged therefor was paid in
97. Waiver of objections to allow- full. Held, there was no negligence by
—
ance of clciims. The receiver of an in- the holder as against other creditors of
solvent bank advertised for presenta- the insolvent bank, and it could not
tion of claims, and for the filing of be charged with having received pay-
objections thereto, and afterwards ment of the note surrendered. Hanover
made a report recommending the al- Nat. Bank v. Brown (Tenn.), 53 S. W.
lowance of certain claims. On the 206.
ceiver.i
Estoppel. —A creditor assenting to the mode of payment prescribed in
the dissolution proceedings is thereafter estopped to object.
§ 80 (4) Preferences and Priorities in General § 80 (4a) Or- —

—
der of Liability of Assets. When a bank becomes insolvent the distri-
bution of its assets in the hands of a receiver is to be made in the same
order as prescribed in the case of administration of insolvent estates, ex-
cept when special preference or postponement is provided by law.^
§ 80 (4b) Claims Preferred— § 80 (4aa) In General.—The cred-

itors have the first claim against the bank's assets.* And this right is su-
perior to those of the stockholders, or the assignee of an insolvent stock-
holder.5 The mere fact that the security given a creditor is annulled does
not destroy his privileges as creditor.^ But as between the creditors them-
selves, the statutes in most jurisdictions require that the assets be ratably
distributed.'''
1. Demand for payment. —Wylie v. 3. Order of liability of assets. —

Commercial, etc., Bank, 63 S. C. 406, Georgia Seed Co. v. Talmadge & Co.,
41 S. E. 504. 96 Ga. 354, 33 S. E. 1001, citing
But the appointment of the tempo- Belcher v. Willcox, 40 Ga. 391.
rary receiver under the N. Y. laws and 4. Creditors have first claim on as-
the taking possession of the assets by sets. —
A receiver of a state bank, ap-
him operates to prevent the bank from pointed in proceedings under Comp.
paying the claims of the creditors, and St. c. 8, § 34, takes possession and
thereby obviates the necessity of a holds the assets of a bank in favor of,
formal demand for payment on their and to assert and guard the claims of,
part. People v. Merchants' Trust Co., the depositors and other creditors, as
187 N. Y. 393, 79 N. E. 1004; Richmond the paramount and superior claims
V. Irons, 131 U. S. 37, 30 L. Ed. 864, against the assets. State v. Bank, 58
7 S. Ct. 788; Sickles v. Herold, 149 N. Neb. 818, 80 N. W. 50.
Y. 333, 43 N. E. 852. 5. State V. Commercial State Bank,
38 Neb. 677, 44 N. W. 998.
2. Estoppel to object to mode of pay-
—
ment. By Act 111. Jan. 34, 1843, the The assets of an insolvent banking
corporation are always liable for its
Bank of Illinois was dissolved, and its
debts, and, if distributed among stock-
assets directed to be divided among its
holders, or transferred to others than
creditors. Section 3 provided that a
large portion of the bank's specie
bona fide creditors or purchasers, such
should be paid to its creditors pro rata, holders take them charged with the
trust in favor of creditors, and a court
and that, for the balance of their
claims, they should receive certificates of equity will follow the assets, and
"receivable by the bank in payment
compel their application to the corpo-
of any debt due it, or for any property
ration debts. Marr v. Bank, 44 Tenn.
which the bank might sell, and en- (4 Coldw.) 471.
titling the holder to the proper propor- 6. Where

the stock and other assets
tion of all dividends made to credit- of one bank had been transferred to
ors." Held, that a creditor, though another bank, to secure it against ex-
residing in another state, who had ac- isting liabilities, and such transfer was
cepted the benefits of the act, and re- set aside as fraudulent,it was held,
ceived his proportion of the bank's that the debt was not thereby ren-
specie, together with partial payments dered void. It lost the benefit of the
on such certificates issued to him, security, but was entitled to the privi-
thereby assented to the mode of pay- leges of other creditors. Johnston v.
ment prescribed by the act, and could South Western R. Bank (S. C), 3
not thereafter maintain an action Strob. Eq. 263.
against the bank on the certificates. 7. Creditors share ratably. Richards —
State Bank v. Corwith, 6 Wis. 551. V. Osceola Bank, 79 Iowa 707, 45 N. W.
80 (4aa) INSOLVENCY AND DISSOLUTION. 591
—
Creditors of Branch Bank. Since the relation existing between a
principal bank and its agency or branch is that of principal and agent, and
all the assets of the agency belong to the principal, and all the debts of the
agency are debts of the principal, it follows that the depositors and cred-
itors of thebranch bank may share equally and ratably with the depositors
and creditors of the principal bank.s
Crediting Amount of Note to Owner without His Consent. The —
delivery of notes to a bank in payment for land, and the crediting of the
294; St. Mary's Church v. National 8. Rights of creditors of branch

Bank, 23 Misc. Rep. 588, 52 N. Y. S.
802; Union Nat. Bank v. Lyons, 220
—
bank. Prince v. Bank, 3 App. Cares,
(Eng.) 325; Garnett v. McKewan. L. R.
Mo. 538, 119 S. W. 540; Robinson v. 8 Exch. (Eng.) 10; Irvin v. Bank, 38
Gardiner, 59 Va. (18 Gratt.) 509; Ex- U. C. Q. B. (Eng.) 375; Webb v. Bank,
change Bank v. Knox, 60 Va. (19 50 N. C. 288.
Gratt.) 739.
The provisions of the Act of 1841, A bank chartered by an act of the
general assembly, with the usual
for the surrender of the charter of the
powers of a banking corporation,
Washington County Bank, that the as- establishing a branch bank thereot,
sets of the bank should be distributed
stands to such branch bank in the re-
among all creditors pro rata, did not lation of principal to agent, and all
prevent a creditor from bringing a suit
assets and debts of the branch bank
to ascertain the amount due on a dis-
are assets and debts of the principal
puted claim. Emerson v. Washington
bank. So an assignment by the prin-
County Bank, 24 Me. 445.
cipal bank of all its property of every
Construction of order of court. An — description, wherever situated, includ-
order of court directing a receiver to
ing all that belongs to the branch
make a pro rata distribution of the bank, forces the depositors and cred--
money of an insolvent bank among itors of the branch bank to share
the creditors, does not entitle the
equally and ratably with the deposi-
creditors, who fails to avail himself
tors and creditors of the principal bank.
of the order, to a preferred lien upon
the remaining assets of the bank.
Worth V. Bank, 122 N. C. 397, 29 S. E.
775.
Rockwell V. Portland Sav. Bank, 31
Or. 431, 50 Pac. 560. A bank chartered by an act of the
When creditors are preferred over general assembly ratified January 12,
one another. —
In the adjustment and 1872, with the usual powers of a bank-
ing corporation, establishing a branch
settlement of claims, those of deposi-
tors and other general creditors who bank under section 9 thereof, stands
trusted the bank in the course and to such branch bank in the relation of
transaction of its legitimate business principal to agent, and all assets and
may be preferred over claims which debts of the branch bank are assets
originated in the pursuit and conduct and debts of the principal bank. So
of a business by the bank in which it an assignment by the principal bank of
had no legal authority or power to en- all its property of every description,
gage. State V. Bank, 58 Neb. 818, 80 wherever suited, including all that be-
N. W. 50. longs to the branch bank, forces the
An incorporated bank went into liq- depositors and creditors of the branch
uidation, being solvent, and turned bank to share equally and ratably with
over assets to another incorporated
its
the depositors and clreditors of the
bank to pay the creditors and stock- principal bank. Worth v. Bank, 132
holders. Before the liabilities of the N. C. 397, 29 Sv E. 775.
liquidating bank were paid, the pur- An estoppel, if there could be one,
chasing bank became insolvent. Held, on a principal bank, from dealings
that a creditor of the liquidating bank with its branch bank, could not affect
has a prior lien over the assets in the the creditors of the principal bank,
possession of the receiver of the pur- since they are entitled to have its prop-
chasing bank belonging to the liq- erty of every description applied
uidating bank as against creditors of ratably to the payment of their claims.
the purchasing bank. Ex parte Sav. Worth V. Bank, 122 N. C. 397, 29 S. E.
Bank, 73 S. C. 393, 53 S. E. 614, 5 L. R. 775.
A., N. S., 520.
592 BANKS AND BANKING. § 80 (4ff)
amount thereof to the owner, without his knowledge or consent, held to

render the notes a trust, which could be followed as a preference into the
hands of a receiver.^
§ 80 (4bb) Expenses of Insolvency Proceedings. —As a general

and expenses of the proceeding to winding up and dissolving
rule, the costs
the bank are to be first paid from the assets.^"
§ 80 (4cc) Claim for Taxes. —A claim for taxes is usually pre-

ferred.ii
§ 80 (4dd) Pre-Existing Liens and Equities. Of course liens and—

bank became subject to the juris-
equities arising before the assets of the
diction of the court are not prejudiced or affected by the insolvency pro-
ceeding.i^
§ 80 (4ee) Debts Lawfully and Unlawfully Contracted. In the —

settlement of claims against an insolvent bank, the claims of depositors and
other general creditors who trusted the bank in the transaction of its legiti-
mate business may be preferred over claims which originated in the con-
duct of a business, by the bank, in which it had no legal authority to engage,
and it makes no difference that amounts claimed by the latter creditors are
shown by the books of the bank to have come to it, as a bank, from the un-
authorized business it conducted.^^
§ 80 (4ff) Claims of Firm and Individual Creditors. — Social or
9. Crediting amount of note to prejudice of the creditors. Hume v.

owner without his consent.— Covey v. Miller 75 Neb. 800, 106 N. W. 1006.
Cannon (Ark.), 149 S. W. 514. '^}- paim for taxes.—The assets ot
.,. T, r 1 J a bank being in the hands of a re-
10. Expenses of ^solvency proceed-
^^^ ^^^ |^^^^ ^^^^^^^ ^^^ ^jî^^
ing.-Complied Laws of Mich., § 6146. ^^^j^^^ -^ ^^ ^^ gj^^ ^^ ^ ^^^^î^ ^^^^^
. Attorneys fees.— For the prosecu- or be barred. After that time the coi-
tion of the bill and amended bill filed lector of taxes intervened, and asked
to wind up the affairs of a banking the court for an order for the receiver
corporation, and for valuable services to pay the same. Held, that the state
rendered in the general litigation, having, under Sess. Acts 1881, p. 180,
counsel should be paid out of the ag- § 7, a paramount right to be paid out
gregate recovery— all petitioning cred- gf those assets, it was error for the
itors who have come in to claim the court not to issue the order as re-
benefit of the suit to contribute pro quested. Oreeley 7}. Provident Sa^.
rata; while counsel who represent or Bank, 98 Mo. 458, 11 S. W. 980.
perform services only for petitioning 12. Pre-existing liens and equities.—
creditors, must be paid by their own Richards v. Osceola Bank, 79 Iowa 707,
clients out of the funds recovered for 45 N W. 294.
them. Moses v. Ocoee Bank, 69 Tenn. 13. State v. Bank, 58 Neb. 818, 80 N.
(1 Lea) 398. W. 50.
Construction of Nebraska statute. Between legal and ultra vires con-
By the execution of a bond to the tracts. —
As between the creditors of
state, as provided by Cobbey's Ann. an insolvent bank, those whose debts
St. 1903, § 3735, conditioned on the were created under the lav/ful power
full settlement of all the liabilities ot given by the charter must be pre-
such bank, the officers and sureties ferred to those who claim under a
assume the burdens of the bank's contract that the bank, under its char-
liquidation, and can not use the assets ter, had no power to make. Bank v.
in paying the expenses thereof, to the Bank, 56 Tenn. (9 Heisk.) 408.
§ 80 (4gg) INSOLVENCY AND DISSOLUTION. 593
firm liabilities are to participate in the distribution of the assets before in-
dividual liabilities.^*
§ 80 (4gg) Claims of State and County. —While the state, on ac-

count of its prerogative right, has a preference over other creditors and
depositors in the distribution of the assets of an insolvent bank,i5 this right
does not apply to the counties of the state in the absence of statute, but the
county must stand upon an equal footing with other depositors.^® But
though the stock of a bank is altogether owned by a state, if the bank is
insolvent, its assets can not be appropriated by legislative act or otherwise
topay the debts of the state, from the debts of the bank.
as distinguished
Those assets are a trust fund first applicable to the payment of the debts of
the bank.i'^ Any preference, however, over general creditors of an insol-
14. Claims of firm and individual 16. Preferences allowed counties

creditors. —
Laws 1897, c. 47, § 43, pro- County of Glynn v. Brunswick Termi-
viding that the assets of any private nal Co., 101 Ga. 244, 28 S. E. 604.
bank shall be exempt from execution Where a bank in which county funds
by any creditor of the individual or are deposited fails, the county is not
firm doing business as such bank until entitled to a lien on the assets in
after the liabilities of the bank have preference to the individual depositors.
been paid in full, does not apply to the County of Glynn v. Brunswick Termi-
individual debt of such a banker con- nal Co., 101 Ga. 244, 28 S. E. 604.
tracted before the passage of the act. 17. Effect where state is sole owner.
McDermott v. Halleck, 61 Kan. 486, 59 —Baring v. Dabney (U. S.), 19 Wall.
Pac. 1074. 1, 23 L. Ed. 90.
15. Preferences allowed state and Although the capital of a bank is

—
county. Robinson v. Bank, 18 Ga. 65; furnished by the state under the laws
of which it was incorporated, and the
Seay v. Bank, 66 Ga. 609.
profits thereof inure to the benefit of
There is nothing in the acts estab-
that state, and the faith of that state
lishing state depositories, and providing
is pledged to its support,! yet such
for bonds and rules for regulating
such depositories, that abrogates or
bank is a distinct corporation, having
the ordinary powers and rights, and
modifies the sovereign right of the
subject to the ordinary obligations, of
state to priority in the assets of an
banking corporations, with liability to
insolvent bank which is a state de-
pository. Booth V. State, 131 Ga. 750, suits by creditors, and holding its
property subject to the claims of these
63 S. E. 502.
in preference to the claims of the
Custodianof public funds. -Under — state as the only stockholder. State v.
Code 3845, making money de-
1906, § State Bank, 1 S. C. 63.
posited by or for a custodian of pub- The state, being the owner and sole
lic funds prima facie a trust fund, not" stockholder of the Bank of the State
liable to be taken by the custodian's of South Carolina, a moneyed corpo-
or the depositary's creditors, a custo- ration with usual banking powers, and
dian of public funds deposited in a wishing to borrow money, passed an
bank which has become insolvent is
act for that purpose, and thereby di-
entitled priority of payment, as
to rected the money when borrowed to be
against general creditors, out of as- deposited in the bank as so much addi-
sets acquired before such deposit. tional capital, and directed the bank
Green v. Cole, 98 Miss. 67, 54 So. 65. to keep a separate account of the an-
And in Metcalfe v. Merchants', etc.. nual profits thereof, to constitute a
Bank, 89 Miss. 649, 41 So. 377, it was fund "solemnly pledged and set
held that under this statute public apart" for the payment
of the interest
moneys deposited by a tax collector and principal of the loan. The other
were to priority of payment
entitled profits of the bank were also pledged
over general creditors, in case of an for the same purpose, after specified
assignment by the bank for the bene- claims, afterward paid, should be satis-
fit of creditors. fied. Aportion of the money was bor-
1 B & B—38
vent bank which the state has at common law as successor to the sov-
ereignty is lost by a valid assignment for the benefit of creditors, executed
before action is taken to enforce the priority.^^
§ 80 (4hh) Claims of Forwarding or Collecting Banks. Where —

a collecting bank forwards a check to the bank. on which
it was drawn with
directions as to the application of the proceeds, but before the drawee bank
has assented to the directions of the collecting bank in reference to its deal-
ing with the check, the drawee bank ceases to do business and passes into
the hands of a receiver, the refusal of the latter bank to accept and pay the
check will give only a right of action against it on the instrument.i^ But
a correspondent is entitled to a preference in any security held to protect
overdrafts. 2"
§ 80 (4c) Effect of Fraud. —Fraud does not alone create equities

superior to those of general creditors. Hence the fraudulent receipt of
deposits in a bank, or the fraudulent acquirement of goods, does not give
the depositor or the vendor a lien upon the entire estate or entitle him to a
preference.2^ Accordingly, a creditor of an insolvent national bank, whose
rowed on bonds of the state, guaran- sue the collecting bank, or entitle him
teed by the bank, known as the "Fire to priority over the otlier creditors of
Loan bonds," and the residue on stock the drawee bank. Romanski v. Thomp-
of the state known as the "Fire Loan son (Miss.), 11 So. 828.
stock." The bank neglected to keep 20. A bank, by agreement with the
a separate account of the profits, and agent of its foreign correspondent,
afterwards became insolvent; its debts pledged to the latter certain state
being evidenced principally by its bonds as security for its overdrafts.
guaranty of the bonds, its bills, and Subsequently, in 1861, it drew bills on
its deposits. Held, that the assets, the correspondent on the faith of its
not being sufficient to pay the debts, entire credit and cash deposit. The
were not subject to the lien created business relations between them were
by the act in favor of the holders of closed in 1863, the bank having be-
the loan bonds and fire loan stock,
fire come insolvent, indebted to the corre-
but were subject to equitably distri- spondent. The bills of 1861 were not
bution among all the creditors of the presented until 1864. Held, that the
bank. Dabney v. Bank, 3 S. C. 124. correspondent was entitled to pay-
18. Effect of assignments for credit- ment, out of the bonds, of the balance
—
ors on state's priority. State v. Fos- due it, in preference to the holders
ter, 5 Wyo. 199, 38 Pac. 926, 39 L. R. . of such bills. Garvin v. State Bank,
A. 226, 63 Am. St. Rep. 47. 7 S. C. 366.
19. Rule where drawee bank becomes Abank pledged to its foreign cor-
—
insolvent before collection. A check respondent certain state bonds to se-
was forwarded by a collecting bank cure any overdrafts arising, and
to the bank on which it was drawn, subsequently became insolvent, in-
with directions to collect, and apply debted to the correspondent. Held,
the proceeds to a debt owing to the that the holders of bills drawn by the
drawee bank by the collecting bank. bank on such correspondent prior to
Held that, where the drawee bank the insolvency, but not presented for
failed on the day it received the check, acceptance until afterwards, were en-
and before it had assented to the di- titled to a lien on the bonds in
rection of the collecting bank, the re- preference to the general creditors of
fusal to accept and pay the check out the bank. Garvin v. State Bank, 7 S. C
of the funds of the drawer then to his 266.
credit gives only a right of action 21. Effect of fraud.— Cadwell v.
against the drawee bank on the check, King, 84 Iowa 228, 50 N. W. 975; Mc-
and does not enable the drawer, who Henry v. King, 85 Iowa 717, 50 N. W.
subsequently paid the check, either to 977; Elwell v. Kimball, 103 Iowa 720,
§ 80 (4aa) INSOIvVENCY AND DISSOLUTION. 595
demand grows out of a fraudulent transaction perpetrated by the officers of

the bank in contemplation of tlie immediate wrecking of their corporation,
does not thereby become entitled to a preference over the general creditors
of the bank. 22
§ 80 (4d) Transfer of Right to Priority. —A person entitled to

priority in the distribution of the assets of a bank may sell and assign this
privilege to another, thereby substituting such other in his place; nor is it
necessary for such authority to be given by a statute, for under the common
law one may transfer whatever right he has which is the subject of sale and
transfer whether acquired by virtue of the statute or common law.^s
—
80 (4e) Allowance of Preferences § 80 (4aa) In General.
§
—
Where there are a large number of depositors and general creditors who
have a common interest in the allowance of preferences by a bank, one or
69 N. W. S86; Seeley v. Seeley-Howe- 23. Transfer of right to priority. —

Le Van Co., 128 Iowa 294, 103 N. W. Commercial Bank v. Hardy, 97 Miss.
961; Stilson v. First State Bank, 149 755, 53 So. 395.
Iowa 662, 129 N. W. 70. The preference which the tax col-
Fraud in receiving a deposit of lectorand treasurer of a county have,
checks or drafts after bank officials on insolvency of a bank in which they
know that it is insolvent, will' not give have deposited county funds, under
the depositor a preferential claim Code 1906, § 3485, declaring them trust
against assets in the hands of the re- funds and not liable to be taken by
ceiver of the bank if the bank before general creditors of the bank, is as-
its failure, had received the proceeds signable by them to one who, in con-
of such paper, or credit therefor from sideration thereof, pays the indebted-
a correspondent, although the bank had ness due them by the bank; it not
no hand when failed, and always
it being necessary that there be any statu-
after the deposits were made then the tory authority therefor. Commercial
amount thereof in cash. Bruner v. Bank v. Hardy, 97 Miss. 755, 53 So. 395.
First Nat. Bank, 97 Tenn. 540, 37 S. W. In Fogg V. Bank, 80 Miss. 750, 32 So.
286, 34 L. R. A. 532. 285, this court held that, under § 3077,
Accordingly, where a general depos- Code 1892 (g 3485, Code 1906), funds
itor presented his check to a bank, ac- deposited in bank by a tax collector
companied with a demand for payment, were trust funds, and, in case of an as-
but, by reason of the false representa- signment by such bank for the benefit
tions of the president as to the sol- of creditors, the tax collector had a
vency of the bank, was induced to with- preference over other creditors to be
draw said check, and to allow his paid in full, although he had settled
money to remain in the bank, he can with the state and county, and the pref-
not, as a preferred creditor, maintain erence sought to be enforced was for
a bill to recover the amount of said his individual benefit, and that, by vir-
check, against a receiver appointed tue of his having made settlement out
after the bank was declared insolvent. of his own funds, entitled him to be
Venner v. Cox (Tenn.), 35 S. W. 769. subrogated, as an individual, to his
22. Fraud alone does not give a pref- right as tax collector to the preference,
—
erence. Plaintiff, having received in and that he was required to settle
the course of business checks on a bank, monthly, and if by such settlement his
took in payment checks of the latter right to the preference was destroyed
on a bank in New York. The presi- the. statute would be practically value-
dent of the bank knew when he signed less, and that it was presumed that the
such checks that they would not be bank as trustee did its duty by preserv-
honored, and was making preparations ing the trust fund until all the other
to abscond with the assets of his bank. assets were exhausted, and "the trust
Held, that plaintiff is not entitled to moneys, so far as possible, are repre-
any preference over other unsecured sented in the remaining assets of the
creditors. Citizens' Nat. Bank v. bank."
Dowd, 35 Fed. 340.
more may appear for the benefit of the whole.^*

Burden on Person Seeking Preference. A person — seeking to have a
preference in funds of an insolvent bank held bound to show that the re-
ceiver has in his possession trust funds or property obtained therewith. ^^
§ 80 (4bb) Funds or Assets Available to Preferred Creditors. —

A preferred creditor is not entitled to a preference in the distribution of a
fund raised from assessment on stockholders under the double liability act,
more especially where the provisions of the statute are specific that the
fund derived from the assessment of stockholders shall be distributed
equally among all the creditors of such corporation in proportion to the
amount due to each.ê But, if prior to an order establishing the claim as
entitled to preference, assets of the bank which should have been applied to
the satisfaction of a preferred claim have been distributed to general cred-
itors, then undoubtedly to that extent the proceeds of the stockholders'
double liability, which would otherwise be distributed to general creditors,
might be applied to the satisfaction of the preferred claim because no ulti-

mate injustice would thereby be done to general creditors. ^'^
24. Where the assets of an insol- to the amount due each, the holder of
vent bank are insufficient to meet all a preferred claim is not entitled to
the claims of creditors and depositors, have the same paid from such double
though no preference is allowed, the liability fund to the exclusion of other
allowance of preference to some cred- creditors. Sioux City Stock Yards Co.
itors is prejudicial to other creditors V. Fribourg, 131 Iowa 230, 96 N. W.
and depositors who have a common in- 747.
terest in defeating the preference, and, Where an order establishing a claim
where they are numerous, a few may against an insolvent bank directed that
appear and defend for the whole, as au- it should be treated as a preferred
thorized by Code, § 3464, providing claim, and should be paid "out of any
that, when the question is one of com- funds of said estate remaining in the
mon interest to many persons, one or receiver's hands applicable thereto,"
more may defend for the benefit of tht and at the time of the allowance the
whole, and those appearing in the trial entire assets of the estate had been
court, contesting the right to a pref- distributed among creditors, or applied
erence, are proper parties to the pro- to receivership expenses, such order
ceedings, and may appeal from a judg- did not entitle the preferred creditor
ment awarding a preference. Stilson to have the claim paid out of the stock-
V. First State Bank, 149 Iowa 662, 129 holders' liability fund subsequently ac-
N. W. 70. cumulated, to the exclusion of other
Burden on persons seeking pref-
25. creditors. Sioux Ci±y Stock Yards Co.
—
erence. Covey t'. Cannon (Ark.), 149 V. Fribourg, 121 Iowa 230, 96 X'. W.
S. W. 514. 747.
Rule stated as to right to recover 27. Sioux City Stock Yards Co. v.
trust funds mingled with the bank's Fribourg, 121 Iowa 230, 96 N. W. 747,
own funds, after the reduction of the citing Standard Oil Co. v. Hawkins, 20
mingled fund below the amount of the C. C. A. 468, 74 Fed. 395, 33 L. R. A.
trust fund. Covey v. Cannon (Ark.), 739.
149 S. W. 514. Where aclaim of a creditor of a
26. Fund
derived from assessment bank was entitled to preference from
—
on stockholders. Under Code, §§ 1882, the general assets, and a large portion
1883, authorizing a double liability as- thereof had been used to enforce a
sessment on stockholders of an insol- stockholders' double liability assess-
vent bank, and providing that the fund ment for the benefit of general cred-
derived from such assessment shall be itors, without any part of such pre-
distributed equally among all the cred- ferred claim being paid, such claim is
itors of the corporation in proportion entitled to a preference out of such
§ 80 (4f) INSOLVENCY AND MSSOLUTION. 597
Money Paid to Cover Protested Draft. —A return of a portion of

money paid by an insolvent bank to cover a protested draft held not to
entitle owners of a trust fund to a preference therein over general cred-
itors.^*
—
Proceeds of Return Pledges. A receiver of a bank, who collected re-
turn pledges made by the bank to secure a loan, must prorate the proceeds
between depositors according to the amount of their several deposits. ^^
§ 80 (4f) Estoppel and Election. —

An equitable estoppel can not be
interposed against the claim to a preference by the cestui que trust, because
an essential element to constitute such an estoppel is wanting, namely, that
of prejudice to the creditors.^" But where a creditor in one state makes
himself a party to the dissokttion proceedings in another under which no
preferences are given, and shares in the distribution of assets, he is estopped
to claim a preference as to assets in his own state.* ^
Election of Remedies. —The allowance, however, in favor of the plain-

tiffs of their claim as a debt against the general assets of the bank, estops
them to claim in equity for the conversion of a trust fund, because the two
remedies are inconsistent.*^ Hence
a depositor of a trust fund, through
if
its proper officials, presents its claim for allowance on account of the deposit
as a general creditor, and obtains an allowance of any part thereof, he is

estopped to maintain an action against the assignee or receiver to subject all
of such assets to the payment of the trust fund, because of the well-settled
double liability fund to the extent that The fact that a tax collector required
the general assets were so used. Sioux by Code 1892, § 3840, to settle monthly,
City Stock Yards Co. v. Fribourg, 131 has accounted for public funds de-
Iowa 230, 96 N. W. 747. posited in a bank, which has become
28. Money paid to cover protested insolvent, does not preclude him from
draft. — Covey v. Cannon (Ark.), 149 afterwards maintaining a suit to es-
S. W. 514. tablish such deposit as a trust fund.
29. Hall 11. Burrell (Colo.), 124 Pac. Fogg v. Hebdon, 80 Miss. 750, 32 So.
751; Hall V. Mcintosh (Colo.), 124 Pac. 385.
753; Hall v. Hardy (Colo.), 124 Pac. 31. Rights of foreign creditors. —
753; Hall v. Rocky Ford, etc., Co. proceeding was begun in North Caro-
(Colo.), 134 Pac. 754. lina to wind up the affairs of an insol-
30. Estoppel to claim preference. vent bank in that state, under which
A county whose funds have been un- no creditors were to be preferred. Its
lawfully deposited in a bank is not es- creditors in South Carolina appeared,
topped from claiming such funds as a a receiver was appointed to collect and
trust fund after the appointment of a disburse its assets, and they shared in
receiver for such bank, by reason of a partial distribution. Held, that they
its treasurer having received a pro rata were estopped from claiming, in pref-
payment on such deposits in common erence to foreign creditors, the pro-
with general creditors. First Nat. ceeds of a real-estate mortgage be-
Bank v. Bunting & Co., 7 Idaho 27, 59 longing to the bank, on which the
Pac. 929, rehearing denied, 59 Pac. 1106. receiver had obtained judgment in
Where a guardian wrongfully depos- South Carolina. Wilson v. Keels, 54
its his ward's money in a bank which S. C. 545, 33 S. E. 702, 71 Am. St. Rep.
becomes insolvent, his acceptance of 816.
a dividend from the assignee does not 32. Stoller v. Coates, 88 Mo. 514, dis-
estop the ward from demanding a re- tinguishing and explaining First Nat.
turn of the full amount as a preferred Bank v. Coates, 8 Fed. 540, 3 Mc-
claim. In re Knapp, 101 Iowa 488, 70 Crary 9.
N. W. 636.
general rule that an election between two inconsistent remedies, if know-

ingly made, is an estoppel to claim the other.^^
§ 80 (5) Deposits— § 80 (5a) In General.3*—A general depos-

itor is merely a general creditor of a bank, and is not entitled to a preferred
claim against the assets in the hands of the receiver,^^ unless equitable con-
33. Larned
v. Jordan, 55 Kan. 124, 39 banks, see post, "Insolvency and Re-
Pac. 1030; Plow Co. v. Rodgers, 53 ceivers," § 309.
Kan. 743, 37 Pac. 111. 35. Right of general depositors to
Where a bank having possession of —
preferences. Otis v. Gross, 96 111. 612,
a trust fund belonging to a city, which 36 Am. Rep. 157; Wetherell v. O'Brien,
it had received on deposit from the 140 111. 148, 29 N. E. 904, 33 Am. St.
city treasurer, makes an assignment of Rep. 221; McLain v. Wallace, 103 Ind.
all of property for the benefit of its
its 562, 5 N. E. 911; Fletcher v. Sharpe,
creditors, and subsequently the city 108 Ind. 276, 9 N. E. 142; Schmelling
demands of the city treasurer the pay- V. State, Neb. 562, 78 N. W. 279;
57
ment of the money, which he deposited Bruyn v. Middle Dist. Bank (N. Y.),
in the insolvent bank, and when this is 9 Cow. 413, 1 Paige 584, note; Bank v.
refused also makes a demand upon the Dean, 9 Okl. 626, 60 Pac. 226; Moseby
bondsmen of such treasurer, and there- V.Williamson, 53 Tenn. (5 Heisk.) 278.
upon one of the bondsmen presents to The depositors of money in a bank,
the assignee of the bank a demand for unless in case of a special deposit of
the amount of the deposit, and alleges money in a box or bag, or otherwise
therein "that the bank is justly in- identified, which the bank has no right
debted to this affiant as bondsman for to sue, are general creditors, and, in
the amount of the deposit upon the case of insolvency of the bank, are not
following claim, to wit: Upon the de- entitled to be preferred to other cred-
posit account as above stated, in the itors. In re Franklin Bank (N. Y.), 1
sum of $4,645.18, which this affiant Paige 249, 19 Am. Dec. 413.
claims as bondsman of F. J. Mathias, A cotton buyer shipped cotton to
city treasurer aforesaid;" and further Xew York, receiving a draft on the
alleges: "This certificate of proof be- consignees in payment, and delivered
ing made in behalf of G. Krouch and the draft to defendant bank, which ob-
the other bondsmen of said F. J. Ma- ligated itself to pay his checks in fa-
thias, city treasurer;" and the assignee vor of the vendor. Complainant bank
allows to the bondsman the full amount acquired the buyer's check in favor of
of the demand presented by him, and the vendor, and, on presentation to de-
thereafter issues to such bondsman a fendant, accepted in lieu of cash a bill
check for the amount of the firsl divi- of exchange on defendant's New York
dend made upon the claim, and the correspondent, and thereafter defend-
bondsman turns this over to the city ant failed. Held not to impress de-
treasurer, and it is credited upon the fendant's assets with a trust to the
account of the defaulting treasurer amount of the bill of exchange, nor to
held, that the city thereby does not charge defendant's correspondent as
become a general creditor of the in- trustee for the amount thereof. Citi-
solvent bank, nor is it estopped from zens' Bank v. Bank, 71 Miss. 271, 14
pursuing the trust fund in the hands So. 456.
of the assignee of such bank. Larned The P. bank complied with a re-
V. Jordan, 55 Kan. 124, 39 Pac. 1030. quest of the S. bank to place a certain
In an action by the draftholders amount of money to the credit of the
against such assignee to enforce pay- S. bank, and in pursuance thereof t'ne
ment of their drafts in full, held, that S. bank delivered to the P. bank cer-
they had not barred themselves from tificates, reciting that the "P. bank has
recovering in this action by present- deposited in the S. bank" a certain
ing their drafts to the assignee as sum, "payable to the order of itself 3
claims against the estate, having them months after date with interest at 6
allowed, and accepting dividends per cent." Thereafter the P. bank
thereon. First Nat. Bank v. Coates, honored the checks of the S. bank to
8 Fed. 540, 3 McCrary 9. the amount of the certificates. Held,
34. See. also, post, "Special or Seg- that the transaction amounted to a loan
regated Deposits," § 80 (6). by the P. bank to the S. bank, and the
Preference of depositors in savings P. bank did not stand in the relation of
siderations justify it.^^ And a cashier's check, payable to the order of a

depositor for the amount of his funds on deposit, is merely evidence of an
indebtedness of the bank to the depositor, and does not entitle the depositor
to any preference over other creditors of the bank at the hands of a re-
ceiver.^'^But by express statute in some jurisdictions depositors are given
a preference over all other creditors in the distribution of assets of an in-
solvent bank^* unless they are liable to the bank, in which case they must
a depositor to the S. bank, so as to was more than enough money in the

give the P. bank a preference on the bank at the time to pay the claim.
distribution of the funds of the S. bank St. Mary's Church v. National Bank,
on its insolvency. Brown v. Sheldon 23 Misc. Rep. 588, 52 N. Y. S. 803.
State Bank, 139 Iowa 83, 117 N. W. 37. Effect of cashier's check. Clark —
289. V. Chicago Trust, etc., Co., 85 111. App.
One who acquiesced in the entry of 293, judgment affirmed in 186 111. 440,
money paid to a bank to discharge an 57 N. E. 1061, 53 L. R. A. 232, 78 Am.
unmatured note held elsewhere, to his St. Rep. 294.
credit until the note should be pro- 38. Depositors preferred in some
cured, has no standing in equity on a states. —
Taylor v. Hutchinson, 145 Ala.
liquidation other than that of a general 202, 40 So. 108.
depositor. Peterson v. Grapser (Iowa), Code, § 1877, provides that on the
118 N. W. 411. insolvency of a bank a receiver shall
Where a bank for its own accomino- be appointed at the instance of the
dation ships currency to another bank, state auditor, and the bank's assets
and makes a draft against such ship- ratably distributed "among the cred-
ment, the transaction will be, in the itors thereof, giving preference in pay-
absence of an express stipulation to ment to depositors," and §§ 1878-1883
the contrary, deemed a general deposit declare that, in case a deficiency still
of the currency, and in event of the remains, a ratable assessment may be
failure of the correspondent the first- made, on stockholders, the sum re-
mentioned bank will share in the assets alized to be distributed equally "among
on the same footing as other general all the creditors in proportion to the
creditors. Bank v. Dean, 9 Okl. 626, several sums due them." Held, that on
60 Pac. 226. the insolvency of a bank the deposit-
Construction of New York statute. ors were entitled to be first paid in
—The which the depositors of
relation full before other creditors were entitled
an insolvent bank bear to the funds to share in the general assets. State
which have been or are to be distributed V. Corning State Sav. Bank, 127 Iowa
by order of court is fixed as of the ]98, 103 N'. W. 97.
time when the superintendent of banks Where a bond with sureties has
closed the bank and took possession of been given to secure a deposit on
its assets. People v. Bank, 70 Misc. which judgment has been obtained,
Rep. 633, 127 N. Y. S. 908. and a receiver appointed for the bank,
Deposit by court of funds in court. the sureties, as to assets of the bank
— Where a court deposits funds with a in the hands of the receiver other
bank, and the bank assigns for the ben- than securities assigned to the de-
efit of its creditors, the court can not positor as additional security before
order the assignee to pay into court the failure, have no prior rights over
the balance due on its claim under the other creditors; since Code, § 1572,
penalties of contem.pt, as the court is declares that the assets in such case
simply a creditor, with no greater shall be "ratably distributed among
rights than other creditors. In re the creditors, * * * giving preference
Western Marine, etc., Ins. Co., 38 111. in payment to depositors." Richards
289. V. Osceola Bank, 79 Iowa 707, 45 N.
36. A preferential trust can not be W. 294.
established, in favor of a depositor, be- A bank, having solicited accounts
cause just prior to the failure of the from banks in other cities, received
bank the claimant demanded payment, checks and drafts for collection, which
and was told by the cashier to indorse were credited to them upon their col-
his certificates, and had already in- lection.Cash was also frequently sent
dorsed two when payment was forbid- to it, and interest was allowed upon
den by the president, although there balances exceeding $1,000. These laal-
discharge this Hability before they can claim the preference.^^ And a bank
which by its charter is authorized to receive deposits, and give security
therefor, may provide a system for securing loans and deposits generally,
by establishing an investment department, in which certificates issued there-
for are secured by a transfer to a trustee of negotiable paper, to be held by
him solely for the benefit of depositors and others dealing with the bank,
and thereby give them precedence over its general creditors, not so secured.*"
Where checks on another bank are deposited the bank is, until
collection, a mere bailee of the checks deposited or agent of its customer's
depositor. Accordingly, the proceeds of the check must be paid to the
ances were used by the bank in the terest coupons, and for no other pur-
course of its business, and were not pose, when bank assigns is a gen-
the
remitted except upon checks or draft. eral creditor, and not a "depositor,"
Held, on failure of the bank, that sucli within the meaning of Act April 16,
remitting banks were depositors, within 1850, § 39 (P. L. 492), making deposi-
Act April 16, 1850, which provides tors preferred creditors. In re Brand5'-
that the assignees of insolvent banks wine Bank (Pa.), 1 Chest. Co. Rep.
shall pay liabilities in the following 431.
order: (l) Note holders; (2) deposi- A holder of a bank's certificate of
tors; and
(3) other creditors. Foulker deposit, payable on a fixed date with
V. Union Banking Co. (Pa.), 6 Wkly. interest, is a creditor of the bank on
Notes Cas. 109. a loan made to it for a fixed period
—
Who are depositors. A depositor, on which interest is stipulated for,
within the meaning of Act April 16, and is not a depositor, within Const.,
1850, providing preferences in the dis- § 250, giving depositors who have not
tribution of the assets of banks in stipulated for interest a preference in
the hands of assignees, is one who case of the bank's insolvency. Taylor
places his money on deposit for safe- V. Hutchinson, 145 Ala. 202, 40 So. 108.
keeping, to be paid out on demand, What are deposits.—Under Banking
upon his checks or drafts. Appeal of Act May 13, 1876, providing that in
Parkesburg Bank, 6 Wkly. Notes Cas. case of insolvency of a bank its de-
394. posits are to be paid first, balances
A bank, being in need of funds, bor- due banks as the result of mutual ac-
rowed securities to be used as col- counts with the insolvent bank are
lateral in securing money. Jt borrowed not deposits. In re State Bank, 18 Pa.
the money, giving the securities, and Co. Ct. Rep. 433.
entered the amount so borrowed as An interest-bearing time deposit is
a deposit to the credit of the owner not a deposit, within Banking Act May
of the securities, who, upon subse- 13, 1876, providing that in case of in-
quent failure of the bank, paid the insolvency of a bank its deposits shall
debtedness, and took the securities, and be paid first, but is a loan to the bank,
then claimed preference as a depositor. a deposit being money placed in the
Held, that he was not a depositor. Ap- bank to be drawn on at pleasure; es-
peal of Parkesburg Bank, 6 Wkly. pecially as the act prohibits the pay-
Notes Cas. 394. ment of interest on deposits, but al-
Where bills are forwarded by one lows banks to borrow money and pay
bank to another for collection, and interest thereon. In re State Bank,
the proceeds are credited to the re- is Pa. Co. Ct. Rep. 433.
mitter, the usual mode of settlement
39. Banking Act May 13, 1876, pro-
of such proceeds being by weekly
drafts for the balance due, such re-
viding that in case of insolvency of a
mitter is not a depositor, within Act bank deposits shall be paid first, does
April 16, 1850, which provides that,
not authorize the payment of depositors,
in any way liable to the bank, till such
upon insolvency of a bank, the as-
liability is discharged, nor payment
signee shall pay (1) note holders, (2)
to a stockholder of his deposit, till
depositors, and (3) other creditors, in ,_^
Appeal of Parkes- all other creditors are fully paid. Irt

the order named.
re State Bank, 13 Pa. Co. Ct. Rep.
burg Bank, 6 Wkly. Notes Cas. 394.
433.
A corporation which makes a de-
posit to be used in paying maturing in- 40. Ward v. Johnson, 95 111. 215.
§ 80 (Sa) INSOI,V]eNCY AND DISSOLUTION. 601
But the relation

depositor although not collected until after insolvency.'*^
of debtor and creditor is bank and a depositor therein
established between a
of a check, where such check is delivered to and accepted by the bank as
cash, and treated as such, and so charged up to the bank to which it was
sent for collection. In such case the depositor can not follow the check or
its proceeds where the bank becomes insolvent. ^^ And the right to follow
41. Checks deposited for collection. agreement that his checks should be
—Akin V. Jones, 93 Tenn. 353, 27 S. treated as cash, or that he should draw
W. 669, 25 L. R. A. 523, 42 Am. St. against them before collection. Tlie
Rep. 921; Sayles v. Cox, 95 Tenn. 579, bank became insolvent before the
32 S. W. 626, 32 L. R. A. 715, 49 Am. checks were collected, and their pro-
St. 940; Showalter v. Cox, 97
Rep. ceeds passed into the hands of a re-
Tenn. 547, 37 S. W. 286. ceiver. Held, that no title passed to
The title to a check does not pass the bank except as a bailee, and that
to a bank to which it is delivered by the depositor was entitled to the pro-
the holder, without any special agree- ceeds."
ment, express or implied, in regard 42. When check deposited for col-
thereto, when it is not entered up to lection a general deposit. —
Friberg v.
the latter's credit, and the bank, at the Cox, 97 Tenn. 550, 37 S. W. 283.
time of receiving it, was hopelessly "In sucli case, in the absence of anj'-
insolvent, to the knowledge of its offi- thing more, the customer can not fol-
cers; and a receiver of such bank sub- low up the check or its proceeds as his
sequently appointed, who forwards own property, but the relation of
such check to the drawee, and collects debtor and creditor is established by
the amount, will be compelled to re- such transaction, and the customer and
fund same to the depositor. Akin v. his assignee have merely demands
Jones, 93 Tenn. 353, 27 S. W. 669, 25 against the bank upon their certifi-
L. R. A. 523, 42 Am. St. Rep. 931; cates of deposit and credit on the
Sayles v. Cox, 95 Tenn. 579, 32 S. W. books. Akin v. Jones, 93 Tenn. 353,
626, 32 L. R. A. 715, 49 Am. St. Rep. 27 S. W. 669, 25 L. R. A. 523, 42 Am.
940; Showalter v. Cox, 97 Tenn. 547, St. Rep. 921; Sayles v. Cox, 95 Tenn.
37 S. W. 286. 579, 32 S. W. 626, 32 L. R. A. 715, 49
Indorsement for collection. "In the — Am. St. Rep. 940; Williams v. Cox, 97
case of Akin v. Jones, 93 Tenn. 353, Tenn. 555, 37 S. W. 282; Morse on
27 S. W. 669, 25 L. R. A. 523, 42 Am. Banking, § 568, and subsections." Fri-
St. Rep. 921, the general rule is held berg V. Cox, 97 Tenn. 550, 37 S. W.
to be that an indorsement for collec- 283.
tion vests no title to the paper in the "The check having been treated and
bank, etc., and it 'may be recovered in received and credited as cash, the re-
specie before collection made; * * * lation, of creditor and debtor between
but, if the bank made collection be- the customer and bank arose out of the
fore it makes an even
assignment, deposit, and the customer is not, there-
though it be in fact insolvent, it simply fore, entitled to recover the proceeds
becomes as ordinary contract debtor of of the check as his own money. Akirr
the owner, and he can not impress any V. Jones, 93 Tenn. 353, 27 S. W. 669,
trust character upon the proceeds.' 25 L. R. A. 533, 42 Am. St. Rep. 921;
Citing Morse on Banking, vol. 1, p. Sayles v. Cox, 95 Tenn. 579, 32 S. W.
248." Sayles v. Cox, 95 Tenn. 578, 32 626, 33 L. R. A. 715, 49 Am. St. Rep.
S. W. 626, 32 L. R. A. 715, 49 Am. St. 940; Morse on Banking, § 568, and sub-
Rep. 940. sections." Williams v. Cox, 97 Tenn.
Indorsement "for deposit." — In Beal 555, 37 S. W. 383.
V. Somerville, 1 C. C. A. 598, 50 Fed. "In Morse on Banking, § 583, it is
647, 17 L. R. A. 291, the circuit court said that, when there is no usage, or
of appeals, first circuit, laid down the course of dealing between the parties
following proposition: "A city treas- to decide the matter, and a check is
urer deposited checks in a bank, in- received without instructions, the bank
dorsed by him 'for deposit,' and the may elect to receive it for collection
checks were immediately credited to or as cash, and the depositor is the
him on his bank book, though not in owner until the bank makes it its own
pursuance of any agreement to that by crediting it as cash. There is an
effect. He had been a depositor in evident difference between a deposit
the bank for some years, but had no of money without instructions, and of
and reclaim a check received for deposit by a bank after it is insolvent to

the knowledge of its officers, is lost where, before the bank fails, another
bank, to which it is sent for collection, credits the check to the former bank.*^
And a credit, for a draft given by one bank to another on the same day
that the latter failed, will not be presumed, in the absence of proof, to have
been given after the failure, in order to entitle one who deposited the
draft in the insolvent bank after its officers knew it was insolvent, to re-
claim the proceeds of the draft out of the assets in preference to other
paper, such as checks, drafts, etc., the note and giving the credit failed
without such instructions. Morse on on the daj* it was so credited.' Ran-
Banking, §§ 186, 187. When the check dolph on Com. Paper, vol. 3, §§ 1395,
came to the hands of the bank ex- 1456. The doctrine has been extended,
aminer it was still the property of and collecting banks have been rec-
complainant, and when its proceeds ognized as authorized to receive their
were sent to the receiver he took own certificates of deposit in payment,
them for complainant as the owner, and the debtor is discharge.d, even
and not as assets or property of the though the bank fails before remitting.
bank." Showalter v. Cox, 97 Tenn. See Howard v. Walker, 92 Tenn. 452,
547, 37 S. W. 286. 21 S. W. 897." Akin V. Jones, 93 Tenn.
Acustomer for whom a bank makes 353, 27 W. 669, 25 L. R. A. 523, 42
S.
a collection and remits the funds col- Am. Rep. 921.
St.
lected by check upon another bank, Check with unrestricted indorse-
which is not paid upon presentation,
becomes a mere creditor of the col-
—
ment. The deposit with a bank of a
check with an unrestricted indorse-
lecting bank for the amount of such ment, which the depositor directs to
fund, and entitled to share only pro have placed to his credit, will be
rata with other general creditors under treated as a cash deposit which the
a general assignment subsequently
depositor is not entitled to reclaim
made by the bank, unless, by special
otherwise than as a general liability on
contract, express or implied, the bank the bank becoming insolvent, where
was constituted trustee of such fund the bank treated it as credited, and
for its customer, and the fund remains
immediately advised the depositor of
susceptible of identification. Akin t'. such fact, and the latter's check,
Tones, 93 Tenn. 353, 27 S. W. 669, 25 drawn on same day for part of the
i.. R. A. 523, 42 Am. St. Rep. 921.
amount, was paid by the bank. Akin
And the collecting bank, not its as- 1'. Jones, 93 Tenn. 353, 27 S. W. 669,
signee, has, as between itself and cus-
25 L. R. A. 523. 42 Am. St. Rep. 921;
tomer, effected the collection of the Sayles v. Cox, 95 Tenn. 579, 32 S. W.
latter's debt, and become debtor for
626, 32 L. R. A. 715, 49 Am. St. Rep.
the fund, where the bank, before mak-
940; Williams v. Cox, 97 Tenn. 555,
ing a general assignment, accepted, in 37 W. 282.
S.
absolute payment of the debt, the
check of its customer's debtor upon it- 43. Jones, 93 Tenn. 353, 27
Akin v.
self, overdrawing his deposit, and this

S. W. R. A. 523, 42 Am. St.
669, 25 Iv.
overdraft was subsequently collected Rep. 921; Sayles v. Cox, 95 Tenn. 579,
32 S. W. 626, 32 L. R. A. 715, 49 Am.
•of the drawee by the assignee of the
Isank, for benefit of all its creditors. St. Rep. 940; Klepper v. Cox, 97 Tenn.
Akin V. Jones, 93 Tenn. 353, 27 S. W. 534, 37 S. W. 284, 34 L. R. A. 536, 56
669, 25 Iv. R. A. 523, 42 Am. St. Rep.
Am. St. Rep. 823; Friberg v. Cox, 97
921.
Tenn. 550, 37 S. W. 283.
"In his work on commercial paper In the absence of proof to the con-
Mr. Randolph says: 'If the holder of trary, it will be presumed in favor of
a bill be paid to a cer-

directs that it the creditors of an insolvent bank that
tain banker, procuring credit with such its failure occurred after the entry of
banker will amoimt to a payment of a credit by its correspondent for a
the bill. So if the amount of a note is deposited check sent for collection and
credited to a bank holding it for col- credit, where both the entry of the
lection (according to the custom of credit and the failure occurred on the
dealing between the banks), it will be same day. Friberg v. Cox, 97 Tenn.
a payment, although the bank making 550, 37 S. W. 283.
§ 80 (5b) INSOLVENCY AND DISSOIÛTION. 603
creditors who seek to have them distributed pro rata.** But if the identity
of the check is lost, and the bank, at the time its doors are closed, has on
hand no money or property which represents them or which was received in
exchange for them, and simply used the checks in paying its debts, the de-
positor will not be permitted to take property or the proceeds from it, no
part of which was received in exchange for the checks he will be limited ;
to an unpreferred claim.*^
§ 80 (5b) Priorities as between Themselves. —Since general de-

positors are merely general creditors they are only entitled to share pro
rata with other general creditors in the distribution of the funds of an
insolvent bank.*® But where the assets of a bank in the hands of a re-
ceiver are released upon the false representations of some of the depositors
that it is solvent, the nonassenting depositors are entitled to be first paid
out of the assets when finally distributed.*^
44. Klepper v. Cox, 97 Tenn. 534, Tenn. 579, 32 S. W. 636, 32 L. R. A.

37 S. W. 284, 34 L. R. A. 536. 715, 49 Am. St. Rep. 940.
"If such credit was entered before 45. Loss of identity of check de-
the Johnson City bank failed, then the posited for collection. Where a bank —
proceeds became mingled with the gen- accepts checks for deposit when it is
eral funds of the banks, and can not in a failing condition, and afterwards
be reclaimed. Aiken v. Jones, 93 fails, the checks may be followed by
Tenn. 353, 27 S. W. 669, 25 L. R. A. the depositor and recovered, unless
523, 42 Am. St. Rep. 931; Sayles v. they have passed into the hands of
Cox, 95 Tenn. 579, 32 S. W. 636, 32 L- innocent parties; or, if they have been
R. A. 715, 49 Am. St. Rep. 940. In such changed for other property, it may
case the proceeds can not be followed, be impressed with the equities of the
separated, or identified." Klepper v. depositor. But if the insolvent bank
Cox, 97 Tenn. 534, 37 S. W. 284, 34 did not receive other property in lieu
L. R. A. 536, 56 Am. St. Rep. 823. of the che'cks deposited, the depositor
"There may be special facts in a will be limited to an unpreferred claim.
case which will take it out of the or- Willoughby v. Weinberger, 15 Okl. 226,
dinary rule, and create a trust in the 79 Pac. 777. See post, "Special or
funds collected. Such special facts Segregated Deposhs," § 80 (6).
were found in the case of Continental 46. Pro rata
distribution between
National Bank v. Weems, 5 Am. State general depositors. McLain v. Wal- —
Reports, page 85, cited by counsel for lace, 103 Ind. 562, 5 N. E. 911; Butcher
defendant. In this case the agree- V. Butler, 134 Mo. App. 61, 114 S. W.
ment between the two banks in refer- 564; Bank v. Dean, 9 Okl. 626, 60 Pac.
•ence to proceeds was that 'they
the 226.
should be preserved by said bank as 47. A
bank was placed in the hands
the property of the complainant, and of a and filed a motion al-
receiver,
returned to it as such.' The court leging that it was solvent, set forth
thought these special facts settled the the scheme for reorganization, and
question of trust in favor of the com- prayed for the surrender of its assets.
plainant. But the rule undoubtedly is, The motion was granted, and it pro-
that unless there is some agreement ceeded to do business under a dif-
or course of dealing whereby the funds ferent name, but again made an as-
are to be held separate and the iden- signment, and was placed in the hands
tical proceeds remitted, the owner of of the receiver. Held, in the distri-
the drafts stands upon no higher bution of its assets, depositors v>rho
ground than the other creditors of the were not parties to the agreement for
bank in a case where the bank collects reorganization and the application for
the drafts prior to making a general a surrender of the assets under the first
assignment." Akin v. Jones, 93 Tenn. receivership were entitled to priority
?53, 27 S. W. 669, 25 L. R. A. 523, 42 over those v/ho were. Runible v. Tyus,
Am. St. Rep. 921; Sayles v. Cox, 95 133 Ga. 395, 51 S. E. 420.
§ 80 (5c) Deposits by Savings Banks. Under the laws — of New

York deposits made by savings banks have preference over other creditors
of an insolvent bank in the distribution of its assets.*^
§ 80 (6) Special or Segregated Deposits— § 80 (6a) In Gen-

eral.** —A special deposit or deposit that is to be segregated and kept
48. —
Savings banks. Laws 1875, c. posit with defendant. The latter ap-
providing that all the assets
371, § 48, plied to the savings bank for a loan,
of an insolvent bank, after the pay- on call, of $40,000. The loan was
ment of its circulation, shall be ap- agreed upon, a formal agreement pre-
plied to the payment of moneys de- pared, and defendant gave securities
posited with it by any savings cor- for repayment of the loan. The presi-
poration, applies only to deposits, dent of the savings bank borrowed
property so called, and not to any $65,000 on its own securities, and de-
other description of indebtedness. posited $40,000 to defendant's credit
Rosenback v. I\Ianufacturers', etc., in the C. Bank, which was defendant's
Bank, 69 N. Y. 358, affirming 10 Hun
148. correspondent, and where its account
The provision of Laws 1875, c. 371, was overdrawn. The amount bore in-
§ 48 —savings banks shall have a pref- terest from the time of deposit.this
erence for moneys deposited over It was entered in the cash book of the
other creditors of an insolvent bank savings bank as a "deposit," but was
only applies to deposits made in the thereafter entered in the journal as a
ordinary course of business, and sub- call loan; and $5,000, paid on the day
ject to the drafts of the depositors. of such entry, was entered as made on
Loans, whether on time or payable on account of the loan. In defendant's
call, are not deposits, within the mean- books it was entered to the credit of
ing of the provision; and a loan can the call-loan account of the savings
not be changed into a deposit by rea- bank. Held, that the transaction was
son of any want of authority in the a loan, not a deposit (Laws 1875, c.
managers of the savings bank to make 371, § 48), and that the savings bank
the loan, or for the reason that it was not entitled to a preference.
may have been made in violation of Rosenback v: Manufacturers', etc.,
law. Rosenback v. Manufacturers', Bank, 69 N. Y. 358.
'etc.. Bank, 69 N. Y. 358. Conflictbetween state and federal
The provision of Laws 1875, c. 371, statute. —The
question whether a sav-
§ 48, directing assets of insolvent banks ings bank should be paid in full by
to be applied to refund deposits by an insolvent national bank, pursuant
savings banks, applies to deposits to the state law, Laws N. Y. 1882, c.
made before, as well as since, the pas- 409, § 282: Elmira Sav. Bank v. Davis,
sage of the act, and extends to 73 Hun 357, 26 N. Y. S. 200, or pro
moneys received under a general agree- rata, as provided by the Revised Stat-
ment and course of business for the utes (§§ 5236, 5243), held, upon a mo-
savings bank to pay in funds from tion to remand, to be a controversy
day to day, by pass book, like a de- "arising under the laws of the United
positor, the same to be repayable, on States." Tehan v. First Nat. Bank, 39
call, with interest. Upton v. New Fed. 577, distinguished. Auburn Sav.
York, etc.. Bank (N. Y.), 13 Hun 269. Bank v. Hayes, 61 Fed. 911.
—
What a deposit is. Money paid by Laws N. Y. 1853, c. 257, and Laws-
a savings bank to the M. Bank in pur- N. Y. 1858, c. 136, which provide that,
suance of an agreement to deposit with after paying the circulating notes of an
the M. Bank one-fourth of all moneys insolvent bank of deposit, its assets
received, the M. Bank to pay interest shall be first applied to the payment
on the daily balance at 4 per cent per of deposits made with it by savings
annum, and at the end of three years banks, do not entitle a savings bank
pay over to the savings bank all money to be preferred to other creditors in
belonging to it, and also pay at sight the distribution of the estate of a
any checks or drafts drawn upon it, bank of deposit under the federal
held to be a "deposit," within the bankrupt law. Sixpenny Sav. Bank v.
meaning of Laws N. Y. 1875, c. 37, Stuyvesant's Bank, Fed. Cas. No.
§ 48, and thereby entitled to priority 12.919, 12 Blatchf. 179, 49 How. Prac.
over other claims. In re Patterson, 133.
18 Hun 221, affirmed in 78 N. Y. 608. 49. Special or segregated deposits.
A savings bank had $50,000 on de- —Whether deposit is special so as to
separate from the other property or funds in the bank, will be entitled to
priority of payment on a distribution of the bank's assets upon its insol-
vency. But a deposit is presumed to be general and the burden is on the

person claiming the contrary to prove it.^" It is, however, a well-established
entitle depositor to preference, see pressed with a trust which entitled it

post, "Special Deposits," § 153. to be preferentially paid out of the
50. Special or segregated deposits. funds of the assigning insolvent bank.
— Minard v. Watts, 186 Fed. 345; We think the decided weight of au-
thority is to the contrary. The cases
Butcher v. Butler, 134 Mo. App. 61,
114 S. W. 564; Bank v. Dean, 9 Okl. of Continental Nat. Bank v. Weems,
626, 60 Pac. 336. 69 Tex. 489, 6 S. W. 803, 5 Am. St.
A deposit of money in a bank by Rep. 85; First Nat. Bank v. Hum-
one who sustains fiduciary relations mel, 14 Colo. 359, 23 Pac. 986, and
to the funds, and who deposits the Roca V. Byrne, 145 N. Y. 183, 39 N.
money for the benefit of another with E. 813, 45 Am. St. Rep. 599, are lead-
the knowledge of the banker, was not ing cases upholding the doctrine of
entitled to any priority at the dis- trusts with respect to funds deposited
tribution of the assets on the banks or placed with parties for designated
insolvency, where there was no un- purposes. But this case, in its facts,
derstanding that the deposit should is covered by the principle announced
be treated as a special deposit. Butcher in the cases of Mutual Acci. Ass'n v.
V. Butler, 134 Mo. App. 61, 114 S. W. Jacobs, 141 111. 261, 31 N. E. 414, 16
564. L. R. A. 516, 33 Am. St. Rep. 303, and
Whatconstitutes special deposit. — authorities cited. Grisscm v. Commer-
The complainant, a corporation, had cial Nat. Bank, 87 Tenn. 350, 10 S. W.
a large deposit in the defendant bank, 774, 3 L. R. A. 273, 10 Am. St. Rep.
it being in a sense a depositary of the 669; Akin v. Jones, 93 Tenn. 353, 27
complainant. There was an under- S. W. 669, 35 L. R. A. 533, 43 Am. St.
standing or agreement between the Rep. 931, and Howard v. Walker, 93
Tjank officials and the officers of the Tenn. 452, 21 S. W. 897; 1 Morse,
complainant that the latter would not Banks, § 348." State Bldg., etc., Ass'n
draw out all of its money at once, but V. Mechanics' Sav., etc., Trust Co.
-would do so only as it needed it in its (Tenn.), 36 S. W. 967.
current business. The president of A railroad company, being required
the bank believing that the com- by the court to give security for the
plainant was not observing its agree- payment of certain outstanding bonds,
ment about not checking on its deposit gave an undertakmg, signed by the
except as it needed its money in its president of a bank, in which it was a
current business, saw the secretary of depositor, as security. At the same
the complainant, about it, and told time it gave him a check on the bank
liim that a number of his stockholders for the amount of the bonds, taking
were borrowers from his bank, that from him a certificate, signed by him
they had deposited their certificates of for the bank, that it had deposited such
stock as collaterals to secure these sum in his name as trustee to secure
notes, and that the complainant ought him as surety. The bank then charged
to have enough money on deposit to complainant with
the check, and
protect its stock thus deposited. The credited the amount to the president
directors passed a resolution to the ef- as trustee. Held, that the bank did
fect that they would keep enough not become a trustee, and on its in-
money on deposit to protect their solvency the company was only en-
stock hypotheticated by their stock- titled to the same dividend as other
holders to secure the payment of creditors. Cleveland, etc., R. Co. v.
notes given by them to the bank, and Hawkins, 79 Fed. 39, reversed. Haw-
the bank officials were notified of this kins V. Cleveland, etc.. R. Co., 33 C.
action. "There is not the slightest C. A. 198, 89 Fed 366, motion to
evidence that the deposit was to be modifv mandate denied, 39 C. C, A. 538,
changed from a general to a special 99 Fed. 332.
deposit, or that the bank was not to Deposit to abide event of suit. —
-use it as it did its other funds in its Complainants being in litigation con-
current business. Under these facts, cerning the title to certain lands in the
we are aware of no well-considered possession of a tenant, it was agreed
authority ihat would hold it to be a that the landlord's share of the rentals
special deposit, or that it was im- accruing pendente lite should be de-
rule that moneys received by a bank to be applied to a particular purpose, or

to be remitted to some creditor of the person paying such sums, are regarded
as trust funds, and a claim therefor is ordinarily entitled to preference over
the claims of general creditors in the distribution of the assets of the in-
solvent bank.51 Thus, where money is deposited with a bank, to be applied
posited in a bank to abide the final Cal. 598, 44 Pac. 1063, 32 L. R. A. 479,
determination of the controversy, pur- 53 Am. St. Rep. 228; Davenport Plow
suant to which agreement various Co. V. Lamp, 80 Iowa 732, 45 N. W.
sums were so deposited, there being at 1049, 20 Am. St. Rep. 443; Nurse v.
no time any agreement or understand- Satterlee, 81 Iowa 491, 46 N. W. 1102;
ing between any of the parties and Brooke v. King, 104 Iowa 713, 74 N.
the bank that the deposits were to be W. 683; Officer v. Officer, 130 Iowa
held or kept separate from the gen- 389, 94 N. W. 947, 98 Am. St. Rep.
eral funds of the bank. Held, that 365; Officer v. Officer, 127 Iowa 347,
such deposit was general in its na- 101 N. W. 484; Whitcomb v. Carpen-
ture, and did not constitute a trust ter (Iowa), 111 N. W. 825, 10 L. R.
fund, so that, on the failure of the A., N. S., 928; Peak v. Ellicott, 30
bank, complainants were only en- Kan. 156, 1 Pac. 499, 46 Am. Rep.
titled to share in the bank's assets as 90; Sherwood v. Milford State
general creditors. Minard v. Watts, Bank,- 94 Mich. 78, 53 N. W. 923;
186 Fed. 345. Sherwood v. Central Michigan Sav.
Package of money placed in separate Bank, 103 Mich. 109, 61 N. W. 352;
—
box. A bank teller, knowing the bank Anheuser-Busch Brew. Ass'n v. Mor-
to be insolvent, received from plain- ris, 36 Neb. 31, 53 N. W. 1037; Capital
tiff, as a deposit, a package of money, Nat. Bank v. Coldwater Nat. Bank, 49
which he put into a box by itself, en- Neb. 786, 69 N. W. 115, 59 Am, St. Rep.
tering the amount in plaintiff's pass 572; Continental Nat. Bank v. Weems,
book. On the same day the bank failed. 69 Tex. 489, 6 S. W. 802, 5 Am. St.
Held, that the title to the package of Rep. 85; McLeod v. Evans, 66* Wis.
money never vested in the bank, and 401, 28 N. W. 173; Francis v. Evans,
Ihat plaintiff could maintain replevin 69 Wis. 115, 33 N. W. 93; Foster v.
therefor. In re Assignment, 1 N. P. Rincker, 4 Wyo. 484, 35 Pac. 470.
358, 3 O. Dec. 304. Where a town supervisor deposited
Securities deposited for safe-keep- town funds with a private banker
ing. —
Where a banker has sold bonds without any agreement that he should
deposited with him for safe-keeping, hold and keep the money separate from
the proceeds of which were applied to his other funds or that he should not
his general banking business, and came use them in the usual course of his
into the hands of his assignee for banking business, the relation was that
benefit of creditors, the depositor has of debtor and creditor only, so that
a paramount right to be first paid out en the insolvency of the banker the
of the assets. Bowers v. Evans, 71 supervisor had no preference over
Wis. 133, 36 N. W. 639, following other creditors. In re Nichols, 166
Francis v. Evans, 69 Wis. 115, 33 N. Fed. 603.
W. 93; overruled in Nonotuck Silk Co. Deposit for special purpose. Where —
V. Flanders, 87 Wis. 337, 58 N. W. money was deposited in a bank to
383. secure payment of compensation un-
—
Waiver. The fact that a special de- der a well drilling contract, and, while
positor, on being falsely told that the depositor had no right to check
there were not sufficient funds in bank against the deposit, there was no
to pay the amount held in trust by agreement that the money should be
thebank for him. receives in part pay- kept separate from the other funds
ment a draft, which is never paid, is of the bank, it was a general and not
not a waiver of his right to impress a special deposit, though the transac-
on the assets of the bank a trust in tion was called a "trust fund account"
his favor. In re Johnson, 103 Mich. on the bank's books, and hence, on
109. 61 N. W. 352. the insolvency of the bank, the de-
51. Deposits received for a special positor was not entitled to a priority
or —
designated purpose. Central Nat. over general creditors. Butcher v.
Bank v. Connecticut Mut. Life Ins. Butler, 134 Mo. App. 61, 114 S. W.
Co., 104 U. S. 54, 26 L. Ed. 693: Boone 564.
County Nat. Bank v. Latimer. 67 Fed. A depositor drew a check on his
27, 30; Anderson v. Pacific Bank, 113 bank, requesting it to place proceeds
§ 80 (6a) INSOI,VENCY AND DISSOLUTION. 607
in the payment of a note on which the depositor is liable, the bank holds it
as a trust fund and not as the assets of the bank and it may be followed and
reclaimed from the assignee or receiver.^^ The reason of the rule is that
the relation between the depositor and the bank as to such deposits is that
of principal and agent, or trustee and cestui que trust and not simply that
of depositor and depositary. Nor will the mere fact that the bank credits-
to the plaintiff the amount received change this relationship and create
simply that of debtor and creditor. ''^ But the mere unperformed agree-
in its correspondent bank to the credit between the bank and the indorser is
of a third person, which the bank not that of debtor and creditor, but
agreed to do. The bank then drew is a fiduciary relation, entitling the in-
a memorandum draft to the corre- dorser, on the bank becoming insol-
spondent bank, stating that its ac- vent without applying the money on
count had been credited with the the note, or procuring its surrender, ta
amount of the check to the use of the have the assets in the hands of its re-
third person, but, before the memo- ceiver applied in payment thereof.
randum reached the correspondent, Massey v. Fisher, 62 Fed. 958, follow-
the bank assigned for creditors, after ing People V. City Bank, 96 N. Y. 32;
which the correspondent refused to ac- Peak V. Ellicott, 30 Kan. 156, 1 Pac.
cept the credit. Held, that the amount 499, 46 Am. Rep. 90.
of the check remained in the bank in Where one indebted to a bank on a
trust for the depositor, and not as gen- note before the insolvency of the
eral assets for creditors. Stoller v. bank deposits with it a part of the
Coates, 88 Mo. 514. amount of his indebtedness, that it
52. Money deposited to meet a note. may be applied on the note when
— In re West of England, 11 Ch. Div. due, the "debt" taken by the receiver
773; Knatchbull v. Hallett, 13 Ch. Div. of the bank is the difference between
690; St. Louis V. Johnson, Fed. Cas. the amount of the note and the amount
Xo. 13,235, 5 Dill. 241; National Bank of the deposit. Clots v. Dickson (N.
V. Insurance Co., 104 U. S. 54, 26 L. Y.), 5 Alb. L. J. 286.
Ed. 693; Peak v. Ellicott, 30 Kan. 156, A, before the maturity of a note,
1 Pac. 499, 46 Am. Rep. 90.
delivered money to a bank cashier to-
One who gives the cashier of a bank pay the note which was held by an-
a sum of money to pay his note made other bank. The cashier gave A a
to the bank, the cashier saying that special receipt, but the nbte was not
he will send for the note, and return paid, and the bank failed, and as-
it to the maker, and who, notwith- signed its property in trust for cred-
standing, is sued by one holding the
note, and jud.grnent recovered, may itors. Held, that A could reclaim the-
amount as impressed with a trust.
follow the amount given to the cash- Peak V. Ellicott, 30 Kan. 156, 1 Pac.
ier as a trust fund into the hands of
499, 46 Am. Rep. 90.
an assignee for creditors of the bank.
Ellicott V. Barnes, 31 Kan. 170, 1 Pac.
When money is paid to and accepted
767.
by a bank for the purpose of transmis-
sion to the holder of the note made by
A banker receiving money from the the person so paying, and is mingled
maker of a note to be applied on the
note made payable to the banker, by the bank with its assets, and is not
transmitted, and the bank thereafter
and failing to make the proper in-
dorsement, if holding the note, or to assigns for the benefit of its creditors,
if the holder of the note adopts the
turn over the payment to the person
trust thereby created in his favor, and
holding it, but mingling, the money
with the funds of his bank, is a trus- no other rights thereto intervene, he
tee of the money received, and the
may maintain an action to compel the
maker is entitled, on the insolvency of execution of the trust by the assignee
the banker, to a preference for the of the bank. Ryan v. Phillips, 3 Kan.
amount paid. Whitcomb v. Caroenter App. 704, 44 Pac. 909.
riowa). 111 N. W. 825, 10 L. R. A., 53. Reason of rule making special
N. S 928.
.
deposits a trust fund.— Harrison v.
Where an indorser pays a note to a Smith, 83 Mo. 210, 53 Am. Rep. 571 r
bank, and takes a receipt containinff State V. State Bank, 43 Neb. 896, 61
an order for a surrender of the note N. W. 252.
on return of the receipt, the relation In Anheuser-Busch Brew. Ass'n w..
ment on the part of the bank to create a specific fund which shall possess
a separate identity, and to hold the same in trust does not entitle the
depositor to any preference where such promise was never complied with
and the money never separated from the general funds of the bank by
either placing the deposit in a distinct parcel or by making any entry upon
the books of the bank indicating the withdrawal from the general funds
of the firm, or by giving a receipt containing even an intimation of a
special deposit."* This rule, however, may well be doubted, because to
make one depositor of a bank and in case of its insolvency to limit such
person's rights against the assets thereof to those of an ordinary creditor,
it must appear that such person became a depositor of such bank vol-
tintarily.55
Morris, 36 Neb. 31, 53 N. W. 1037, this and depositor can be credited only by
court held that "where a bank col- consent of both parties. If A, without
lects money for another, it holds the the knowledge or consent of B, de-
same as trustee of the owner; and, posits a sum of money in a bank to
on the making of an assignment by the latter's credit, then, until B shall
the bank for the benefit of its cred- be informed thereof, and expressly or
itors, the trust character still adheres by implication recognize the deposit
to the fund in the hands of the as- as such, the bank will hold such money
signee, and the owner is entitled to in trust for B, and not as his banker.
have his claim allowed as a preferred State V. State Bank, 42 Neb. 896, 61
claim." N. W. 252.
In McLeod v. Evans, 66 Wis. 401, by arrangement with de-
Plaintiff,
28 N. W. 173, 214, it was held that a fendant's a banking house,
assignor,
banker who accepts for collection a was accustomed, on receipt from it of
draft, and in fact collects the money a statement that a certain amount of
thereon, holds the same as trustee of money could be advantageously loaned
the owner; and after his assignment to a specified person on described
for the beneiit of creditors the trust security, to send a check for the
character still adheres to the fund in amount, payable to the bank, to be
the hands of the assignee, irrespective turned over on completion nf the ne-
•of other creditors.
gotiation. A
check thus sent had been
collected of plaintiff's bank, and the
These cases were decided upon the banking house, having led plaintiff to
correct principle that to make one a believe that the loan had been per-
depositor, as such, of a bank, and, in
fected, made as assignment for bene-
case of its insolvency, to limit his
fit of creditors. Held, that the money
rights against the assets thereof to
so received was on special trust, and
those of an ordinary creditor, it must
plaintiff entitled to preference over
appear that such person became a de- general creditors. Harrison v. Smith,
positor of such bank voluntarily. See
83 Mo. 210, 53 Am. Rep. 571.
State V. State Bank, 42 Neb. 896, 61
Where one makes a loan to a pur-
N. W. 252.
chaser of land of the amount neces-
54.Effect of agreement to separate sary to pay therefor, receiving a mort-
—
deposit. A depositor who receives an gage to secure it, and deposits the
ordinary certificate of deposit, and money in a bank, to be paid over to
whose money is mingled with the other the vendor, and the cashier of the
funds of a bank, is not entitled, on the bank falsely states to the vendor that
insolvency of the bank, to any prefer- he has the right to hold the money
ence over other creditors, even though until a defect in the title can be cured,
the banker promised him to keep his and sends the vendor a certificate of
money separate from the other funds. deposit payable when the title is
Bayor v. American, etc.. Sav. Bank, 157 straightened, and in a few days the
111. 62, 41 N. E. 622. bank becomes insolvent, the vendor is
55. State v. State Bank, 42 Neb. 896, not a voluntary creditor of the bank,
61 N. W. 252. and the money is held in trust for him,
One may involuntarily become the and the title thereto does not pass to
creditor of another, but, from the very the receiver. State v. State Bank, 43
nature of things, the relation of banker Neb. 896, 61 N. W. 252.
§ 80 (6b) Checks Deposited for Collection.— Where there are cir-

cumstances of a special nature indicating an intention to make money
received upon a collection a special deposit, such money has sometimes been
held to be a trust fund, and the trust attaches to any actual fund into which
the money received can be traced ; and there have been cases which seem to
go so far as to hold that this extends to all of the property of the bank,
although it be evident that the actual fund into which the money was
traced has been exhausted, and notwithstanding the fact that what re-
mains could not, by reason of its diflferent nature, by any possibility,
include it.^® And if a check is deposited with a banker for collection only
and he collects it, and the money so collected by him passes into the hands
of his assignee or receiver, the plaintiff may reclaim it, nor is this right
affected by any unauthorized act of the trustee in destroying its identity
by intermingling own it But where a check is sent for
with his funds. s'^
collection by a bank to the bank on which it is drawn, and the latter bank
cha.rges it upon its books against the drawer, but no money is received by
the bank, no trust fund is thereby created.^*
§ 80 (6c) Identification of Fund Deposited. —See post, "Deposit of

Trust Funds," § 80 (7).
§ 80 (7) Deposit of Trust Funds— § 80 (7a) In General.ss-

The is that when a bank, in which trust funds have been de-
general rule
56. Checks deposited for collection. collection, a number of checks on the

-
— Sherwood v. Central Michigan Sav.
latter, is
the M. bank
not entitled to preference, on
becoming insolvent; the
Bank, 103 Mich. 109," 61 N. W. 352;
Sunderlin v. Mecosta County Sav. Bank, M. bank having received no money on
116 Mich. 281, 74 N. W. 478; People the checks, but merely charged them
V. Merchants, etc., Bank, 78 N. Y. 269,
on its books against the drawers. Be-
34 Am. Rep. 532. cause the mere sending by one bank
to another, in payment of a collection,
Proceeds of notes sent for collec-
tion. —
^Where, for two years, the gen-
of a draft on a third, is not an equi-
table assignment of part of the fund
eral agent of a corporation had been
standing to the drawer's credit in such
accustomed to send notes due the cor- third bank. Sunderlin v. Mecosta
poration to a bank for collection, and County Sav. Bank, 116 Mich. 281, 74
the bank, as it collected the notes at
N. W. 478.
different times, gave the agent credit
But other cases hold that it is not
on its books, sometimes retaining the necessary to show that there was an
collections as long as two months be- actual receipt of money, but that it
fore remitting the balance due the is sufficient if, through a charge against
corporation, the corporation was a depositor, the bank takes credit for
merely a creditor of the bank, and the the amount, where the depositor has
proceeds of collections made by it
a credit equal to his check, a fact by
could not be regarded as trust funds. the way which does not appear in this
McCormick Harvesting Mach. Co. v. case. McLeod v. Evans, 66 Wis. 401,
Yankton Sav. Bank, 15 S. Dak. 196, 28 N. W. 173, 214.
87 N. W. 974. 58. Sherwood v. Milford State Bank,
57. Check deposited for collection. 94 Mich. 78, 53 N. W. 923.
— Meldrum v. Henderson,
7 Colo. 59. Deposit of trust funds. Hold- —
App. 256, 43 Pac. 148; First Nat. Bank ing bank as trustee with regard to
V. Hummel, 14 Colo. 259, 23 Pac. 986. money collected, see ante, "Special or
Checks sent for collection. —The P. Segregated Deposits," § 80 (6); post,
bank, which sent to the M. bank, for "Holding Bank as Trustee," § ]66 (l).
1 B & B— 39
posited, becomes insolvent, the cestui que trust can recover such funds to
the prejudice of other general creditors of the bank. But, as will be seen
later on, in some jurisdictions this right of recovery is contingent on the
claimant's ability to trace and identify the deposit.^" Thus, if a deposit of
trust funds wrongful and the bank has notice of the character of the
is
funds, the claim should be given a preference.®^ But the mere fact that the
60. Deposit of trust funds. Daven- — refused for want of funds. Held, that
port Plow Co. V. Lamp, 80 Iowa 733, the proceeds of the draft constituted
45 N. W. 1049, 20 Am. St. Rep. 442; a trust fund, and the correspondent
In re Knapp, 101 Iowa 488, 70 N. W. bank was entitled to a preferred claim,
626 (deposit of ward's money); Dowie against tlj,e assets in the hands of the
V. Humphrey, 91 Wis. 98, 64 N>. W. receiver, to the amount thereof. Brown
315. V. Sheldon State Bank, 139 Iowa 83,
An
insolvent banker sold a draft on 117 N. W. 289.
his correspondent bank, though he Payment of a dej)t due a trust es-
knew that he had no funds there. The tate, whose collecting agent was a
draft was dishonored, and the banker banker, was made by the banker's
failed to return the money received charging the sum against the debtor's
from the buyer, but mingled the same account and crediting it to the estate.
with his own funds. Held, t^ât the Held that, in the absence of proof that
buyer, on the insolvency of the banker, there were funds of the debtor to
was entitled to a preference for the make the payment, the estate could
amount of his claim. Whitcomb v. not, on the banker's subsequent in-
Carpenter (Iowa), 111 N. W. 835, 10 solvency, collect the amount of the
L. R. A., N. S., 928. payment as a preferred claim, on the
A banking partnership, being in- ground that it had become impressed
solvent, executed a number of deeds with the trust. Brooke v. King, 104
and mortgages to secure different Iowa 713, 74 N. W. 683.
creditors, and a trust deed to secure 61. Notice by bank of charter of de-
depositors. Held, construing the posit. — Independent Dist. v. King, 80'
deeds as an assignment for the benefit Iowa 497, 45 N. W. 908; Davenport
of creditors, that the claims of the de- Plow Co. V. Lamo, 80 Iowa 723, 45 N.
positors were not trust obligations, en- W. 1049, 20 Am.' St. Rep. 442; District
titling them to priority over the gen- Tp. V. Farmers' Bank, 88 Iowa 194, 55
eral creditors. Elwell v. Kimball, 102 N. W. 342; In re Knapp, 101 Iowa 488,
Iov,ra 720, 69 N. W. 286. 70 N. W. 626; Jones v. Chesebrough,
Where an administrator mixes the 105 Iowa 303, 75 N. W. 97; Bradley v.
money of the estate virith his own and Chesebrough, 111 Iowa 126, 82 N. W.
makes a bank,
a general deposit in 472; Page County v. Rose, 130 Iowa
where remains on an assignment by
it 296, 106 N. W. 744, 5 L. R. A., N. S.,
the bank, the fund will be impressed 886; Wiggins v. Stevens, 33 App. Div.
with a lien in favor of the estate. 83, 53 N. Y. S. 90.
Judgment, 56 P. 412, affirmed on re- If a bank receiving a deposit from
hearing. Shute V. Hinman, 34 Or. a trustee has notice that such trustee
578, 56 Pac. 412, 58 Pac. 882, 47 L. R. has no right to make such deposit
A. 265. that is to say, to lend the trust moneys
A payment to a bank by draft is —
to a bank then such deposit would be
within the rule that, when trust money a wrongful conversion, and the bank,
is paid into a bank for deposit without having notice, could be treated as con-
authority, it becomes a preferred claim structively a trustee. Hawkins v.
on the bank's subsequent insolvency. Cleveland, etc., R. Co., 33 C. C. A. 198,
Brooke v. King, 104 Iowa 713, 74 N. 89 Fed. 266.
W. 683. A woman engaged to marry the
A bank collected a draft sent to it cashier of an insolvent bank, who is
by a correspondent, and remitted to told by him that the bank is in trouble
the correspondent by a draft on a third and needs money or securities imme-
bank, and the proceeds of the collec- diately, and is induced by him to
tion passed into the hands of the re- furnish securities for a loan to the
ceiver of the collecting bank. The bank, but is not told that the bank's-
correspondent bank, within a reason- capital is gone, and more, as a result
able time, presented the draft drawn of defalcations by the cashier and oth-
on such third bank, and payment was ers, is entitled to recover from the re-
'deposit is of a trust fund, and known to the bank to be such, will not of
itself make the bank a trustee of the fund for the benefit of the cestui que
trust, so as to him a preference over other creditors. In order to have
give
that effect, there must be something in the circumstances of the deposit to
constitute it a special, as contradistinguished from a general, deposit, into
which two classes all deposits in commercial banks may' be divided. If the
deposit belongs to the former class, the fiduciary relation might well arise if ;
to the latter, in the absence of mala fides, it could not do so, for by a general
deposit in good faith the title to the fund deposited passed. The bank be-
came the owner thereof. The relation of debtor and creditor, and not that
of trustee and cestui que trust, was created.*^ In other words by a general
ceiver, as a preferred creditor, the ever be their form, provided only he

amount of the loan paid by her
to save can identify them. National Bank v.
her securities. Hallett v. Fish, 120 Insurance Co., 104 U. S. 54, 26 L. Ed.
Fed. 986. 693." Thuemmler v. Barth, 89 Wis.
A sold land to B, and forwarded the 381, 62 N. W. 94.
deed and abstract of title to a banker, Afraudulent receipt of deposits by
to be delivered to B on payment of a bank, or the fraudulent acquisition
$2,000, which was to be immediately of property by it, does not give the
remitted to him. The banker delivered depositor or seller a lien on the entire
the deed to B on payment by him of estate or entitle him to a preference,
four $100 bills and certain certificates nor cin a preference be based on the
of deposit which the banker had presupposed greater sacredness of one
viously issued to him and others. The debt, or the fact that it arose out of a
banker failed the same night, and be- violation of duty, or that its loss in-
fore the $2,000 had been remitted to A. volves greater apparent hardship in
Held, that it was a fraud on A for the one case than in another, unless there
banker to receive certificates instead is some specific recognized equity,
of cash, and that the assets in the founded on agreement, or the relation
hands of his assignee were impressed of the debt to the property, which en-
with a trust in favor of A to the ex- titles the claimant to an equitable
tent of $2,000, and that his claim for preference. Stilson v. First State
that amount should be paid in prefer- Bank, 149 Iowa 663, 139 N. W. 70.
ence to all other claims. Francis v. 62. Mere deposit of trust funds gives
Evans, 69 Wis. 115, 33 N. W. 93; —
no preference. Morse on' Banks (3rd
Bowers v. Evans, 71 Wis. 133, 36 N. Ed.), §§ 187, 567, 568, 573; Marine
W. 629. Bank v. FuUon Bank (U. S.), 2 Wall.
Wrongfulact of bank. "While we
— 353, 17 L. Ed. 785; Thompson v.
have held that where a bank receives Riggs (U. S.), 5 Wall. 663, 18 L. Ed.
money wrongfully, 'a trust arises as 704; National Bank v. Millard, 10 Wall.
between it and the true owner of the 152, 153, 19 L. Ed. 897; Central Nat.
money" (Smith v. Des Moines Nat. Bank v. Connecticut Mut. Life Ins.
Bank, 107 Iowa 620, 78 N. W. 338) we Co., 104 U. S. 54, 36 L. Ed. 693; Ringo
have never held that the wrongful act V. Field, 6 Ark. 43; American Trust,
of the bank will alone create a prefer- etc., Co. V. Boone, 102 Ga. 202, 29 S.
ence as against general creditors." E. 182, 40 L. R. A. 350; Wetherell v.
Stilson V. First State Bank, 149 Iowa O'Brien, 140 111. 146, 39 N. E. 904, 33
662, 129 N. W. 70, 73. Am. St. Rep. 321; Fletcher v. Sharpe,
Some cases, however, seem to deny 108 Ind. 276, 9 N. E. 142; McAfee v.
the necessity for any wrongdoing, and Bland, 11 Ky. L. Rep. 1, 11 S. W. 439;
hold that the right to this preference Little V. Chadwick, 151 Mass. 109, 33
is based on a right in the particular N. E. 1005, 7 L. R. ~A. 570; State v.
fund or property and the manner of Powell, 67 Mo. 395, 29 Am. Rep. 512;
acquiring it is immaterial. Stilson v. State V. Moore, 74 Mo. 413, 41 Am.
First State Bank, 149 Iowa 662, 129 N. Rep. 323; Ayres v. Farmers', etc.,
W. 70. Bank, 79 Mo. 431; Phillips v. Over-
"Whether the disposition of the fund field, 100 Mo. 466, 13 S. W. 705; Paul
be rightful or wrongful, the beneficial V. Draper, 158 Mo. 197, 59 S. W. 77,
owner is entitled to the proceeds, what- 78, 81 Am. Rep. 296; Cavin v. Gleason,
deposit of the trust fund, whereby no misappropriation is intended or ac-'

compUshed, the owner of the fund becomes a creditor of the bank and
stands upon precisely the same footing as the other general creditors in the
bank who are creditors thereof, and who is entitled to no preference over
them.83 The reason for this rule is found in the fact that upon a general
105 N. Y. 256, 11 N. E. 504; O'Connor signments by the bank for the benefit
V. Mechanics' Bank, 124 N. Y. 324, 26 of creditors. McAfee v. Bland, 11 Ky.
N. E. 816; Shaw -J. Baunnan, 34 O. St. L. Rep. 1, 11 S. W. 439.
25: Nonotuck Silk Co. v. Flanders, 87 Deposits by agent in his own name.
Wis. 237, 58 N. W. 383. — When an agent, in accordance with
Trust funds may often be properly- a long course of business, deposits in
put into a bank as a deposit, that be- his own name as agent moneys of his
ing in such instances a prudent dis- principal, with his knowledge and con-
position of such funds by the trustee; sent, in a bank which becomes in-
but the bank becomes simply a bor- solvent,such moneys will not be de-
rower, and the trustee a depositor, clared a trust fund in favor of the
like any other depositor, and in case latter,and established as a preferred
the bank does become insolvent the claim. State v. Midland State Bank,
trustee has no preference over other 53 Neb. 464, 73 N. W. 923, distinguish-
creditors. He and those beneficially ing State V. State Bank, 43 Neb. 896,
interested must take simply a distrib- 61 N. W. 352, on the ground that in
utive share of the assets. Hawkins v. that case the money was deposited
Cleveland, etc., R. Co., 32 C. C. A. 198, without the knowledge or consent of
89 Fed. 266. the owner, and there was no subse-
Where a general deposit of a trust quent ratification.
fund is rightfully made in bank as part The mere fact" that an agent de-
of the trust estate, the relation of posits money in a bank in another
debtor and creditor is created between than his own name, with notice to the
the bank and the trustees, and the lat- bank that it is the money of third par-
ter are not entitled to be preferred ties, does not, on the insolvency of
over other creditors on the bank be- the bank, impress on its assets a trust
coming insolvent. Fletcher v. Sharpe, in favor of the principal, thereby giv-
108 Ind. 276, 9 N. E. 142. ing him a preference over its other
Deposits of school funds made by creditors. Henry v. Martin, 88 Wis.
the treasurer of a school district in a 367, 60 N. W. 363.
private bank are not wrongful, and The funds of a receivership were de-
the banker does not become a trustee posited in a bank, and subsequently in
ex maleficio as to such deposits so as litigation between the bank and an-
to give the school district a prefer- other creditor of the insolvent it was
ential claim against the assets of the decreed that the bank, upon execution
bank on the death insolvent of the of a bond, should be paid the amount
owner of the bank. Hansen v. Roush, decreed to it, the bond to be condi-
139 Iowa 58, 116 N. W. 1061. tioned that the bank would pay any
Since it is not unlawful for the treas- party who might be found entitled to
urer of a school township to deposit the fund on appeal, but the bank did
the school funds in a bank in his name not avail itself of the privilege, and
as treasurer, a general deposit of such the money continued on deposit as be-
funds in the name of the treasurer does fore, and the bank became insolvent,
not constitute a trust fund; and on the and thereafter the othei' creditor ob-
failure of the bank neitherthe treas- tained a reversal and a judgment.
urer, nor the school township, has any Held, that there was no ground for de-
claim, on the assets of the bank in claring a preference against the bank
the hands of a receiver, superior to in favor of such creditor or the re-
that of other general depositors. ceiver.. State V. Corning State Sav.
Brown v. Sheldon State Bank, 139 Bank, 128 Iowa 597, 105 N. W. 159.
Iowa 83,117 N. W. 289. 63. Paul V. Draper, 158 Mo. 197, 59
Where a trust fund is left with a S. W. 77, 81 Am. St. Rep. 296, citing
banking firm as a general deposit, the Cavin V. Gleason, 105 N. Y. 256, 11 N.
fact that the bank kn-ew that it was a E. 504; Fletcher v. Sharpe, 108 Ind.
trust fund can not give to the claim 276, 9 N. E. 143.
against it for such fund priority over Where a guardian deposited a trust
the claims of other depositors on as- fund with a bank as an ordinary de-
money in a bank it becomes the property of the latter, and, when

deposit of
mixed and mingled with the other money of the bank
indiscriminately
which becomes insolvent, its identity is wholly lost when any portion of it
is checked out, in which case it is impossible to trace the fund into the hands
of the bank's assignee or receiver.^* The mere fact that the trustee and
the bank officer are one and the same person, so that the bank must have
known the character of the fund so deposited, affords no reason for chang-
ing the rule that a general deposit can not be impressed with a trust after
the bank in which it is placed has become insolvent.*^
Thus, where an executor deposits the trust fund of an estate in a

bank to the account of such estate and subject to check, without any promise
on the bank to keep the identical money and return it to the executor, such
deposit is a general and not a special deposit, and therefore the executor or
his cestui que trust can not recover the fund as a preferred claim. He is
simply a creditor of the bank, and has no peculiar claim or right over other
creditors.*^ And if a fund was never paid or received upon trust condi-
tions, it is not entitled to a priority.®''' Any agreement or understanding or
posit, and it was mingled with the posit as such in a bank of which he
other funds of the bank, on the in- was cashier, drew a check, as assignee,
solvency of the bank the cestui que for the amount of the deposit, and
trust was not entitled to a preference placed it on the spindle where paid
over other creditors merely because checks were placed by the paying
the bank was aware that the fund was teller, and the check was entered in
a trust fund, but, in order to entitle the bank's books. Held, that the cash-
the cestui que trust to a preference, it ier knew, and the bank had notice
must have been a special deposit creat- from the check itself, that the at-
ing a trust relation, and not merely the tempted payment by the check, if such
relation of creditor and debtor. Paul payment were intended, was a pay-
V. Draper, 158 Mo. 197, 59 S. W. 77, 81 ment of trust funds; and the cestui
Am. St. Rep. 296. que trust may follow trust funds into
64. Reason for rule. —
Shute v. Hin- the assets of the bank, and reclaim
man, 34 Or. 578, 56 Pac. 412, 58 Pac. them, as aeainst the general creditors
882, 47 L. R. A. 265. of the bank. Wiggins v Stevens. 33
65. Effect of identity between trus- App. Div. 83, 53 N. Y. S. 90, citing
tee —
and bank officer. Shute v. Hin- Kirch V. Tozier, 143 Nl Y. 390, 38 N.
E. 375; Le Marchant 7'. Moore, 150
man, 34 Or. 578, 56 Pac. 412, 58 Pac.
882, 47 L. R. A. 265, citing Shields v. N. Y. 209, 44 N. E. 770; Roca v. Byrne,
Thomas, 71 Miss. 260, 14 So. 84, 42 145 N. Y. 182, 39 N. E 813. 45 .Am, St.
Am. St. Rep. 458. Rep. 599; Deobold t. Oppermann, 111
66. Deposit by executor of funds of N. Y. 684. 19 N. E. 94; Impovter^;'. etc.,
estate. —
Officer v. Officer, 120 Iowa Nat. Bank v. Peters, 123 N Y. 272,
25 N. E. 319; Suarez v. De Montisnv,
389, 94 N. W. 947, 98 Am. St. Rep.
365. 1 Adp. Div. 494, 37 N. Y S. 503. 73
Where an executor makes a general N. Y. St. Reo. 95, affirmed in 153 N. Y.
deposit of money belonging to the es- 678. 48 N. E. 1107.
tate in an apparently solvent bank, 67.A deposit of money to purchase
neither he nor his cestui que trust is a letter of credit, the depositor's name
entitled to any preference ov'er the being entered on a signature card on
other creditors of the bank merely be- which is written, "Guaranty for a Let-
cause the deposit was a trust fund to ter of Credit," does not constitute a
the knowledge of the bank. Officer v. trust fund for the benefit of other
Officer, 120 Iowa 389, 94 N. W. 947, bankers honoring drafts drawn against
98 Am. St. Rep. 365. the letter of credit, the entry on the
Where trustee is also officer of bank. card being explained as not giving the
— But in a New York case the assignee depositor any peculiar rights; and
of an insolvent estate, who had a de- hence a bank honoring such a draft is
614 BANKS AND BAJTKING. § 80 (7b)
course of dealing whereby a bank is not to use the identical money, and is
to substitute its own obligation in its and

stead, destroys all idea of a trust,
simply establishes the relation of debtor and creditor between the bank
and its patron.^^
§ 80 (7b) Deposits of Public Moneys. — Public money deposited by

its custodian is so impressed with the character of a trust fund that it can
be followed and the trust enforced against the bank's assets in the hands
of the assignee or receiver to the prejudice of other general creditors, pro-
vided the bank had notice of the character of the funds and the deposits
have increased the funds in the hands of the Receiver. And in some ju-
risdictions the fact that the funds are mingled with other money so that
the identity of that deposited is lost, will not destroy the trust character of
the deposits, nor prevent the enforcement of the trust against property to
which they have contributed,®^ though in a few jurisdictions the failure to
not entitled to priority over other county treasurer without such au-
creditors of the issuing bank. Kuehne thority, unlawful, and, as between
is
V. Union Trust Co., 133 Mich. 602, 95 the county and the bank, the deposit
N. W. 715. constitutes a trust fund, and the county
68.Effect of stipulations or customs. is entitled to a preference over other
—Akin V. Jones, 93 Tenn. 353, 37 S. general depositors, in the distribution
W. 669, 25 L. R. A. 523, 42 Am. St. of the assets of the bank in the hands
Rep. 921. of a receiver. Brown v. Sheldon State
Plaintiff requested a bank to pur- Bank, 139 Iowa 83, 117 N. W. 289.
chase for him certain stock on mar- Where an insolvent bank gives a
gins. The bank purchased it, through bondsman for a city treasurer a check
brokers, and made a draft on plaintiff for the amount of the first dividend
for the margins, which was paid. The made on the claim of the city for a
bank remitted the amount by draft to deposit of city funds by such treasurer,
its correspondent, and sent a check which check is turned over to the city
on such correspondent to the brokers, treasurer and credited on his account
but, by reason of the bank's failure, the with the city, the amount of the check
brokers did not obtain the money, and is a trust fund which the city may re-
resold the stock. The amount recover from the assignee of the bank.
mitted was eventually recovered back City V. Jordan, 55 Kan. 124, 39 Pac.
by defendant, as the banker's assignee. 1030.
Held, that the transaction between Limitations of general rule. —Public
plaintiff and the bank did not contem- moneys deposited in a bank in viola-
plate the purchase of the stock with tion of law are trust funds, do not be-
plaintiff's own money, but by the come the property or assets of such
bank with its own funds, and created bank, and remain trust funds, with the
the relation of creditor and debtor be- title in the true owner, in which the
tween them, and not of principal and creditors of the bank are not entitled
agent, and that plaintiff could not re- to share, after the appointment of a
cover the amount paid from the de- receiver and insolvency of the bank.
fendant assignee as a trust fund, First Nat. Bank v. Bunting Co., 7 &
though traced into his hands. Down- Idaho 27, 59 Pac. 929, rehearing denied,
ing V. Lellyett (Tenn.), 36 S. W. 890. 7 Idaho 27, 59 Pac. 1106.
69. Deposits of public money. — A deposit of public funds on which,
,
Myers v. Board, 51 Kan. 87, 32 Pac. under -the law, interest must be paid,
658, 37 Am. St. Rep. 263; Board v. can not be special or in trust, and, in
Wilkinson, 119 Mich. 655, 78 N. W. case of insolvency of the depositary,
S93, 44 L. R. A. 493. stands on the' same footing with other
Since Code, § 1457, expressly for- deposits. McNulta v. West Chicago
bids the deposit of public funds by a Park Comm'rs, 40 C. C. A. 155, 99 Fed.
county treasurer in a bank, unless au- 900.
thorized to do so by the board of su- A bank accepting deposits of county
pervisors, and a bond has been given money, made by a county treasurer in •
by the bank, a deposit, made by a violation of Code, § 1457, forbidding

§ 80 (7b) INSOLVENCY AND DISSOLUTION. 615
identify the funds or its equivalent in other property into which it has been
converted is fatal to the preferenceJ" On the other hand, deposits of pub-
lic funds by officers to whom they are intrusted by law, where the fact that
such deposits without the order of the depositors, and credited the proceeds
board of supervisors, does not stand to the county treasurer's account in
in the position of a trustee as far as his representative capacity, knowing
the county treasurer is concerned, and that the funds belonged to the county,
where such treasurer is compelled, by it was chargeable as a trustee thereof,
the county, to make good the loss re- entitling the county to a preferred
sulting from the failure of the bank, claim for the amount due against the
such treasurer can not claim that the bank's estate in insolvency. Page
deposit constitutes a trust fund, and County V. Rose, 130 Iowa 296, 106 N.
that he is entitled to preference over W. 744, 5 L. R. A., N. S., S86.
other general depositors of the bank. The bank was equally chargeable as
Brown v. Sheldon State Bank, 139 a trustee of the proceeds of such col-
Iowa 83, 117 N. W. 289. lections, which were made with knowl-
Deposit of school funds. Where the — edge of the county's right thereto,
treasurer of a school district without though the deposit of the receipts by
authority deposited its moneys in a the treasurer with the bank for col-
bank in his own name, but with notice lection was rightful. Page County v.
to the banker that they were school Rose, 130 Iowa 296, 106 N. W. 744, 5
funds, the banker became a trustee of L. R. A., N. S., 886.
the school district, and his insolvent
estate in the hands of an assignee is
—
Tracing the fund. Where money has
been deposited by a treasurer of a
subject to the repayment of such township in a bank which subsequently
moneys to the prejudice of all other makes an assignment for the benefit
creditors. Independent Dist. v. King, of itscreditors, it is not necessary,
80 Iowa 497, 45 N. -W. 908. in order to follow the money as a
A banker, by receiving on deposit trust fund, to trace the deposit into
from a school-district treasurer funds specific property; but it has no greater
known to be held by the latter in his interest than an ordinary creditor in
official capacity, becomes thereby a land purchased before any money was
trustee for the beneficial owner with deposited by its treasurer, and to
respect to such funds; and the same which its deposits in no way con-
may, upon his insolvency, be recov- tributed.- District Tp. v. Farmers'
ered by the owner as a preferred claim Bank, 88 Iowa 194, 55 N. W. 342.
against his estate. State v. Midland
The word "municipal," in Code 1906,
State Bank, 52 Neb. 1, 71 N. W. 1011,
§ 3485, providing that deposit in banks
66 Am. St. Rep. 484.
of public funds may not be taken by
The funds of a township can be re- the general creditors of the bank, em-
covered from the assignee of an in-
braces only municipal corporations,
solvent bank, in which they were
represented by cities, towns, and vil-
deposited by the township clerk in
lages, and does not apply to the board
his own name, though known to the
of drainage commissioners. United
bank to be township funds. Bunton
States Fidelity, etc., Co. v. First State
V. King, 80 Iowa 506, 45 N. W. 1050.
Bank (Miss.)", 60 So. 47.
Public moneys deposited by sheriff.
—Under Ann. Code 1893, § 3077, mak- 70. Necessity for identifying deposit
ing moneys deposited in bank by any of public money. — State v. Foster, 5
officer having the custody of public Wyo. 199, 38 Pac. 926, 29 L. R. A. 226,
funds a trust fund, and not liable to 63 Am. St. Rep. 47.
the claims of general creditors of the A county treasurer is a trustee of
bank, public moneys deposited by a moneys which come into his hands by
sheriff have priority of payment on an virtue of his office; and if he wrong-
assignment for the benefit of creditors. fully deposits them to his own credit
Metcalfe v. Merchants', etc., Bank, 89 in a bank aware of their character,
Miss. 649, 41 So. 377. which afterwards becomes insolvent,
Deposit of tax receipts for collec- the county is entitled to have its claim
tion. —Where a county treasurer, with- decreed a first lien upon any asset of
out legal authority, deposited tax re- the insolvent bank which it shows is
ceipts with a private bank for collec- the product of its moneys, though it
tion, and the bank collected the same has no such lien on the other assets
from the taxpayers, either in cash or of the bank. State v. Bank, 54 Neb.
by charging them to the accounts of 725, 75 N. W. 28.
the deposits are of public funds is not known to the bank, creates the re-
lation of debtor and creditor and gives the sovereign no right of priority in
a distribution of the assets J ^
§ 80 (7c) Right to Follow and Reclaim- Fund— § 80 (7aa) In

General. —
The rule in equity is well established that, so long as trust prop-
erty can be traced and followed which it has been
into other property into
converted, it remains subject to the and may be recovered provided
trust,'' ^
the fund has come to the hands of the assignee or receiver and the assets in
his hands have been increased by the funds so received.''^ To illustrate If :
71. Long V. Emsley, 57 Iowa 11, 10 The fact that the assets which passed
N. W. 380; Lowry v. Polk Co., 51 Iowa into the hands of an assignee of an in-
50, 49 N. W. 1049, 33 Am. Rep. 114; solvent banker are less than those
"School Dist. V. First Nat. Bank, 102 which the banker had on hand when
Mass. 174. he wrongfullyobtained money from
li. Right to follow and reclaim another, and mingled the same with
—
trust property. McLeod v. Evans, 66 his own funds, does not overcome the
Wis. 401, 28 N. W. 173. See, also, Peo- presumption that the money passed
ple V. City Bank, 96 N. Y. 32; Third into the hands of the assignee and the
Nat. Bank v. Stillwater Gas Co., 36 person paying the same is entitled to
Minn. 75, 30 N. W. 440. a preference for the amount thereof.
73. Fund must come to receiver's Whitcomb v. Carpenter (Iowa), 111 N.
hands and increase, the assets. 'Phil- — W. 835, 10 L. R. A., N. S., 928.
adelphia Nat. Bank v. Dowd, 38 Fed. Where assets not augmented by de-
172; 2 Am. Sa Eng. Dec. in Equity posit. —
Where money was delivered to
558, 659; In re Hallett's Estate, 13 Ch. a bank, to be transmitted by it to the
Div. 696; Oswego Millins? Co. v. Skil- depositor's creditors for payment of
lern, 73 Ark. 324, 84 S. W. 475; Hill v. his obligations, the use of such money
Miles, 83 Ark. 486, 104 S. W. 198; by the bank in the payment of its debts,
Jones V. Chesebrough, 105 Iowa 303, and failure to transmit it as directed,
75 N. W.
97; Bradley v. Chesebrough, does not entitle such depositor to pref-
111 Iowa
136, 82 N. 472; Whitcomb
W. erence over the bank's other creditors
V. Carpenter (Iowa), 111 N. W.
825, 10 on insolvency, where the assets of such
L. R. A., N. S., 928; Stilson v. First bank were not in any way augmented
State Bank, 149 Iowa 663, 129 N. W. thereby. Moore v. Chesebrough
70; Hubbard v. Alamo, etc., Mfg. Co., (Iowa), 81 N. W. 469.
53 Kan. 637, 36 Pac. 1053, 37 Pac. 625; Where bank takes a chattel mort-
a
Insurance Co. v. Caldwell, 59 Kan. ]56, gage on merchandise to secure a loan
52 Pac. 440; Little v. Chadwick, 151 on the day the mortgage is executed,
Mass. 109, 23 N. E. 1005, 7 L. R. A. but does not record thg same until
570; In re Irish- American Bank, 70 after four months, and it is agreed that
Minn. 238, 73 N. W. 6; State v. Bank, the mortgage can retain possession of
54 Neb. 735, 75 N. W. 28; Cavin v. the merchandise and sell it at retail, ap-
Gleason, 105 N. Y. 356, 11 N. E. 504; plying the proceeds on the mortgage,
Atkinson v. Rochester Printing Co., and before record another creditor
114 N. Y. 168, 21 N. E. 178. without notice takes a mortgage to se-
Before such a preference can be sus- cure a bona fide de,bt on the same
tained, it must appear that the estate goods, and takes possession, and the
has been so benefited by the misappro- bank brings replevin against the sec-
priation of the trust fund that its re- ond mortgage, and judgment is ren-
moval or its equivalent from the estate dered for defendant, and the value of
will be without prejudice to creditors; the property is fixed, and an appeal is
in other words, that the conditions taken to the district court and dis-
must be such that the creditors have missed, arid the bank retains possession
the same protection as if the trust under the replevin writ and collects
money had been retained in the bank the proceeds, and shortly thereafter
in a way that it could be identified and becomes insolvent and a receiver is ap-
taken, which latter would be the right pointed, unless it is shown that the
of a cestui que trust under all author- property or the proceeds thereof went
ities. Jones V. Chesebrough, 105 Iowa into the hands of the receiver, such
303, 75 N. W. 97. creditor is not a preferred creditor as
§ 80 (7aa) INSOI,VENCY AND DISSOLUTION. 617
A., as trustee, wrongfully places trust funds in a bank, regularly doing

business, and that money — say, $1,000 — is paid out in the usual course of
business to discharge a debt of the bank, when, had it not been so paid out,
other money of the bank would have been so used, and that is the last busi-
ness transaction of the bank before assignment, it is clear that the assets
of the bank are $1,000 more than if the trust money had not been placed
there, and that, when $1,000 of other money is used to replace it with the
to the general assets of the bank. In Held, that plaintiff was not entitled to
re Bank, 17 Okl. 605, 89 Pac. 196. payment of the amount of the draft by
Where deposited checks with
plaintiff the receiver of the C. Bank as a pre-
an insolvent bank a few hours before ferred claim, the amount of the assets
it closed its doors, and these checks for distribution among creditors not
were used by it in settling its accounts having been increased in that amount
with the clearing house, and after such by the deposit of the draft. City Bank
settlement there was still a balance due V. Blackmore, 21 C. C. A. 514, 75 Fed.
the clearing house, which was settled 771.
in another way, as the bank, before it A county treasurer is not entitled to
closed its doors, used the checks to recover school warrants of the receiver
pay a debt, and such checks did not of a bank on the ground that they
come into the hands of a receiver, or were purchased with public funds in
any property received in exchange for the receiver's hands, where it not only
them, plaintiff would be denied prefer- is not shown that any of the public
ence as to them, but his rights as to funds came into the hands of the re-
such checks were on equality with the ceiver, but is shown that the bank at
general creditors. Willoughby v. We- the time of its failure was without
inberger, 15 Okl. 326, 79 Pac. 777. funds, nor what became of the public
In Nonotuck Silk Co. v. Flanders, 87 funds, or that such funds came back
Wis. 237, 58 N. W. 383, it was held into the hands of the receiver. Hill v.
that one for whom a banker had col- Miles, 83 Ark. 486, 104 S. W. 198.
lected a draft before making a volun- An executor deposited estate funds
tary assignment, was not entitled to a with a bank in 1893. The officers of
preference over other creditors of the the bank had knowledge of the nature
proceeds of such collection were dis- of the deposit, but used the money
posed of by the banker prior to the asso received in payment of the bank's
signment, so that no part thereof came debt. The bank made a general as-
in any form to the hands of the assignment It had not increased
in 1896.
signee, and, in substance, that the right its assets the deposit, and no
after
of tracing trust funds has its basis in property had been acquired with such
the right of property, and never was funds. Held not sufficient to impress
based upon the theory of preference a trust on such, as it does not appear
by reason of an unlawful conversion, that the deposit has been preserved,
and that the complainant had in that and came to the assignees in such a
case no legal right to a preference over form that it could be taken therefrom-
the assignor's other creditors, in the without injuring the rights of credit-
distribution of his estate in the hands of ors. Bradley v. Chesebrough, 111 Iowa
the assignee, and into whicli no part 126, 82 N. W. 472.
of the complainant's money could be The reason for the rule of the text
traced. To the same effect is In re is that trust funds deposited in a bank
Plankinton Bank, 87 Wis. 378, 58 N. do not constitute a general lien on as-
W. 784; Thuemmler v. Barth, 89 Wis. sets superior to that of general credit-
381, 62 N. W. 94. ors. Hill V. Miles, 83 Ark. 486, 104 S.-
Plaintiff bank sent a New York draft W. 198.
to the C. Bank, to be deposited to creditor who is given a preference
"A
plaintiff's credit; and the C. Bank, in the distribution of the assets of a
which was insolvent, sent the draft to bank, on the ground that the fund
the N. Bank, in New York, to be de- which he claims as a trust fund was
posited to its credit. The N. Bank ap- wrongfully received by the officers of
plied the draft to reduce a debt due it the bank, and should be returned to
by the C. Bank, the draft being paid him before the assets are used in the
by the drawees, after some delay, un- payment of general creditors, is given-
der express directions from plaintiff. such preference because the trust fund
618 BANKS AND BANKING. § 80 (7dd)
owner, the creditors are in no sense prejudiced^* And a creditor claiming a

preference must prove that his contribution to the bank has increased the as-
sets of the estate and may be taken therefrom without impairing the rights
of general creditors/^
§ 80 (7bb) Notice of Character of Deposit. —If the cashier or

other officer of the bank has notice that the money was received as a trust
lund, this knowledge is imputable to the bank.'^^
§ 80 (7cc) Effect of Beneficiary Taking Collateral Security.—

The owner of the fund has taken collateral security
fact that the beneficial
for the payment of the deposit after insolvenc^^ and before it is known
whether the trust money can be recovered, does not prevent the complain-
ant from following and recovering the trust fund, especially where the
rights of no creditor of the bank have been prejudiced by the taking of
'"'^
the security.
§ 80 (7dd) Identification of Fund or Deposit. Although there is —

considerable conflict in the decisions of the courts, yet according to the
better rule the plaintiff may follow and reclaim a deposit which is impressed
with the character of a trust fund, even though it has been mingled with
other funds of the bank so that the identity of that deposited is lost, pro-
vided it has passed into and swelled the funds of the bank. And the doc-
has swelled the general assets, and the bank's funds nearly nine months before
creditors of the bank will not be de- the bank went into the hands of a re-
prived of anything to which they arc ceiver,, the affidavit of the plaintiff's at-
entitled, if, to the extent to which the torney, stating that the fund in ques-
general assets have been increased by tion "has passed into the hands of said
including the trust fund, they are in receiver, and he now has possession
turn diminished by the return .of such of same as such receiver," is not suffi-
fund to the beneficiary entitled there- cient to show that the trust fund came
to." Sioux City Stock Yards Co. v. into the hands of the receiver, so as to
Fribourg, 121 Iowa 230, 96 N. W. 747. entitle plaintiff to a preference over
"But where the trust fund has been other creditors, even conceding that a
diverted or squandered, and the assets trust relation existed between plaintiff
Tiave been in any way derived from or and the bank. In re Irish-American
swelled by it, then a beneficiary is in Bank, 70 Minn. 238, 73 N. W. 6.
no situation to ask that the funds of 76. Peak v. Ellicott, 30 Kan. 156, 1
the bank be diverted from the payment Pac. 499, 46 Am. Rep. 90.
of general creditors and applied to the The cashier of a bank which became
return of the trust fund." Sioux City insolvent forged notes payable to. the
Stock Yards Co. v. Fribourg, 121 Iowa bank, and delivered them to another
230, 96 N. W. 747; Jones v. Chese- bank for rediscount, and stole from
brough, 105 Iowa 303, 75 N. W. 97; Jhis own bank the money so received.
Bradley v. Chesebrough, 111 Iowa 126, He had full charge of the affairs of the
82 N. W. 472. bank, and none of its officers knew of
the forgery or the misconduct. Held,
74. Jones v. Chesebrough, 105 lov/a
that the creditor bank was not enti-
303, 75 N. W. 97.
tled to a preference based on its claim
75. Trust fund must come to receiv- for rediscounting the forged notes.
er's —
hands. Stilson v. First State Stilson V. First State Bank, 149 Iowa
Bank, 149 Iowa 662, 129 N. W. 70. 662, 129 N. W. 70.
Proof that fund came to assignee's 77. Effect of beneficiary taking col-
—
hands. Where a check for a trust fund lateral security. — Myers v. Board, 51
was deposited in bank, and the pro- Kan. 87, 32 Pac. 658, 37 Am. St. Rep.
ceeds thereof were mingled with the 263.
§ 80 (7dd) INSOLVENCY AND DISSOLUTION. 619
trine that one can not follow trust money mixed with other money in an
•indistinguishable mass, because of its having no ear-mark, must be taken
subject to the application of this ruleJ^ And it is not material whether the
78.Identification of fund or deposit. States in the case of National Bank v.

— Pennell v. Deffell, 33 Eng. L. & Eq. Insurance Co., 104 U. S. 54, 36 L. Ed.
460; Foley v. Hill, 3 H. L. Cas. 38; 693, decided in 1881, where it is held
Sims V. Bond, 5 Barn. & Adol. 389; that as long as trust property can be
Tassell v. Cooper, 9 C. B. 509; Knatch- traced and followed, the property into
bull V. Hallett, 13 Ch. Div. 696; Marine which it has been converted remains
Bank V. Fulton Bank (U. S.), 3 Wall. subject to the trust, and if a man mixes
253, 17 L. Ed. 785; Thompson v. Riggs trust funds with his own money the
(U. S.), 5 Wall. 663, 18 L. Ed. 704; whole will be treated as trust property,
Bank v. Millard, 10 Wall. 153, 19' L. except so far as he may be able to dis-
Ed. 897; National Bank v. Insurance tinguish what is his.
<::o., 104 U. S. 54, 26 L. Ed. 693; San It would seem to be immaterial
Diego County v. California Nat. Bank, whether the property with which the
53 Fed. 59; First Nat. Bank v. Hum- trust funds were mingled was moneys
mel, 14 Col. 259, 23 Pac. 986, 20 Am. or whether it was bills, notes, securi-
St. Rep. 257; Independent Dist. v. King, ties, lands, or other assets. Myers v.
80 Iowa 497, 45 N. W. 908; Davenport Board, 51 Kan. 87, 33 Pac. 658, 37 Am.
Plow Co. V. Lamp, 80 'Iowa 723, 45 N. St. Rep. 263.
W. 1049, 30 Am. St. Rep. 443; Officer The fact that a bank, which receives
V. Officer (Iowa), 90 N. W. 826; Peak v. money as the agent of another, mingles
Ellicott, 30 Kan. 156, 161, 1 Pac. 499, it with its own funds, does not prevent
46 Am. Rep. 90; Myers v. Board, 51 the imposition of a trust therefor on
TCan. 87, 32 Pac. 658, 37 Am. St. Rep. the insolvency of the bank, if the
263; In re Johnson, 103 Mich. 109, 61 money on hand at no time prior to the
N. W. 352; Pomeroy v. Benton, 57 Mo. bank's failure is reduced below the
531; Harrison v. Smith, 83 Mo. 210, 53 amount so received in trust by the
Am. Rep. 571, overruling Mills v. Post, bank. In re Johnson, 103 Mich. 109,
76 Mo. 426; Smith v. Combs, 49 N. J. 61 N. W. 352.
Eq. 420, 24 Atl. 9; In re Franklin Bank An indorser paid the amount of a
(N. Y.), 1 Paige Ch. 249, 19 Am. Dec. note to a bank, and received a receipt
413; Aetna Nat. Bank v. Fourth Nat. containing an order for a surrender of
Bank, 46 N. Y. 83, 7 Am. Rep. 314; the note upon return of the receipt.
People V. City Bank, 96 N'. Y. 32; The bank subsequently failed, without
Frazier v. Bank, 8 Watts & S. (Pa.) 18; taking up the note. There was at all
Bank v. Jones, 42 Pa. 536; Stair v. York times more than enough inoney in the
Nat. Bank, 55 Pa. 364; Farmers', etc., vaults of the bank to pay the note.
Nat. Bank v. King, 57 Pa 202; Knight Held, that the fact that the money was
V. Fisher, 58 Fed. 991; Continental Nat. not marked, and, by a mingling with
Bank v. Weems, 69 Tex. 489, 6 S. W. other funds of the bank, lost its iden-
802, 5 Am. St. Rep. 85; Frith v. Cart- tity, did not affect the indorser's right
land, 13 Va. (2 Hen. & M.) 417; Mc- to recover the amount from the re-
Leod V. Evans, 66 Wis. 401, 28 N. W. ceiver of the bank. Massey v. Fisher.
173. 03 Fed. 958.
In Downing v. Lellyett (Tenn.), 36 The fact that public moneys depos-
S. W. 890, the court said: "The cases ited with a bank by the tax collector
of Continental Nat. Bank v. Weems, are intermingled with its funds, and in-
69 Tex. 489, 6 S. W. 803, 5 Am. St. Rep. capable of identification, does not pre-
85; First Nat. Bank v. Hummel, 14 vent its collection as a trust fund from
Colo. 259, 23 Pac. 986, and Roca v. the assets of the bank, on its insol-
Byrne, 145 N. Y. 182, 39 N. E. 812, 45 vency before the judgment of unpre-
.Am. St. Rep. 599, on the one side, and ferred debts; such deposit being a trust
Wetherell v. O'Brien, 140 111. 146, 29 fund from its nature and by the express
N. E. 904, 33 Am. St. Rep. 331, and provision of Code 1893, § 3077. Fogg
cases there cited, on the other, pre- V. Hebdon, 80 Miss. 750, 32 So. 285.
sent a somewhat conflicting phase of
judicial thought on this multiform sub-
What is the Michigan rule. The re- —
ceiver of an insolvent bank can not be
ject." required to repay the beneficiary in a
The same
subject has been discussed trust deposit in preference to general
in an exhaustive and elaborate opinion creditors, unless the claimant can
of the supreme court of the United show, by a clear preponderance of the
balance was preserved in the form of money or other property. It is only

necessary that appear by presumption of law, or otherwise, that it has
it
been preserved in the hands of the defendant.^ ^ The reason for this ruk
is that the creditors are deprived of no right, for the bank never acquired
any title to the property and therefore it was never subject to the claims
of its creditors.*" Hence where trust money of the depositor is mingkd
,
evidence, that there remains in the 79. Story, Ag., § 231; Thompson v.
hands of the receiver either the specific Perkins, 3 Mason, 232, Fed. Cas. No.
deposit, or specific funds or property 13,972; Robson v. Wilson (Ky.), 1
into which the deposit can be traced. Marsh. Ins. 295; Independent Dist
Board v. Wilkinson, 119 Mich. 655, 78 V. King, 80 Iowa 497,N. W. 908;
45
N. W. 893, 44 L. R. A. 493, reviewing Van Allen v. American Nat. Bank, 52
and attempting to distinguish many N. Y. 1; Importers', etc., Nat. Bank
cases. The court seems to return to V. Peters, 123 N. Y. 272, 35 N. E. 319;
the Wisconsin rule. Roca V. Byrne, 145 N. Y. 182, 39 N. E.
—
Rule in Oregon. Where a trustee 812, 45 Am. St. .Rep. 599.
deposited the trust funds to his credit To give a deposit in a bank trust
in his own bank, and such funds were character so as to render the deposit a
commingled with, and used as a part preferred claim against the assets of
of, the general funds of the bank, in the bank on its insolvency, it must ap-
the ordinary course of its business, so pear, by presumption or otherwise,
that the identity of the trust fund was that the deposit has been preserved in
wholly lost, the trust creditor is not the assets of the bank; and, while it
entitled to a preference over other is not necessary to identify the particu-
creditors in respect to money left in lar money deposited, it must apoear
the bank upon an assignment by the that the assets of the bank have been
trustee for creditors, unless he can increased by the deposit, and that such
show that it has been mingled into a deposit may be withdrawn without
common mass, and forms a part prejudice to the rights of the other
thereof. Shute v. Hinman, 34 Or. 578, creditors. Hansen v. Roush, 139 Iowa
56 Pac. 412, affirmed 58 Pac. 882, 47 L. 58, 116 N. W. 1061.
R. A. 265. 80. Reason of rule. —
National Bank
Where money bears no ear mark, it V. Insurance U. S. 54, 26 L.
Co., 104
is sufficient in such cases to show that Ed. 693; Lowry v. Polk Co., 51 Iowa
the assets of the bank have been in- 50, 49 N. W. 1049, 33 Am. Rep. 114;
creased thereby. Knight v. Fisher, 58 Long V. Emsley, 57 Iowa 11, 10 N. W.
Fed. 991. 280; Davenport Plow Co. v. Lamp, 80
It is not important that the plain- Iowa 722, 45 N. W. 1049, 20 Am. St.
tiffs' money bore no mark, and can Rep. 442; Peak v. EUicott, 30 Kan. 156,
not be identified. It is sufficient to 1 Pac. 499, 46 Am. Rep. 90; Thompson
trace it into the bank's vaults, and find V. Gloucester Sav. Inst. (N. J.), 8 Atl.
that a sum equal to it (and presuma- 97; People v. City Bank, 96 N. Y. 32;
bly representing it), continuously re- Farmers', etc., Nat. Bank v. King, 57
mained there until the receiver took Pa. 202; McLeod v. Evans, 66 Wis.
it. The modern rules of equity require 401, 28 N. W. 173, 214; Francis v.
no more. KnatchbuII v. Hallett, 13 Ch. Evans, 69 Wis. 115, 33 N. W. 93;
Div. 696; National Bank v. Insurance Bowers v. Evans, 71 Wis. 133, 36 N.
Co., 104 U. S. 54, 26 L. Ed. 693; Farm- W. 629.
ers', etc., Nat. Bank v. King, 57 Pa. Areason on which the rights of the
202; Stoller v. Coates, 88 Mo. 514; Mc- cestui que trust are preserved in the
Leod V. Evans, 66 Wis. 401. 28 N. W. first instance is that by the wrongful
173, 214; People v. City Bank, 96 N. Y. act the assets of the bank have been
32; Continental Nat. Bank v. Weems, enhanced to the amount of the wrong-
69 Tex. 489, 6 S. W. 802, 5 Am. St. and to deny the preference
ful deposit,
Rep. 85; Harrison v. Smith, 83 Mo. is to permit the creditors to profit to
210, 53 Am. Rep. 571; Beech, Eq. Jur., the extent of the deposit at the ex-
§ 285; Fisher v. Knight, 9 C. C. A. pense of one who has never assented
582, 61 Fed. 491; Massey v. Fisher, 62 to the relationship of creditor of the
Fed. 958; Compare Philadelphia Nat. insolvent bank; and hence the ri^ghts of
Bank v. Dowd, 38 Fed. 172, and see the other creditors are limited to the
criticism of case in Massey v. Fisher, assets of the bank, less the amount of
62 Fed. 958. the unlawful deposit, to no part of
§ 80 (7dd) INSOIvVENCY AND DISSOLUTION. 621
wrongfully, if not fraudulently, with funds of the bank and goes into its
business operations a very short time previous to the assignment of its
effects, and while not clearly traceable to any particular asset of the bank,
yet the fact remains that it went into its assets and to the extent of the
deposit increased and swelled the volume of its assets, such, sum will be
,
decreed by a court of equity to be a lien on the assets to be paid out of
such assets before the same or any part thereof is used for the benefit of
the general creditors. *i But in other jurisdictions, in order to impress a
trust upon moneys deposited in a bank so that they may be reclaimed as
against the general funds of the bank, they must be susceptible of identi-
fication as distinct from other funds, and must not be so mixed up or
mingled with other moneys as to be incapable of specific separation other- ;
wise the plaintiff will occupy the position of a general creditor. In other
words, the court will go as far as it can in tracing and following trust
which they have a right. The accept- V. Smith, 83 Mo. 310, 53 Am. Rep. 571.
a-nce the dividend, in no way af-
of Where one delivered money to a
fected or prejudiced their interests. It bank to pay his note when presented
was but a partial payment or restora- for payment, and the identity of the
tion of the trust fund. In re Knapp, money is found in the increased
ioi Iowa 488, 70 N. W. 636. See In- amount of the assets at the time of
dependent Dist. V. King, 80 Iowa 497, the failure of the bank by the amount
45 N. W. 908; Davenport Plow Co. v. of such money left with it, he is en-
Lamp, 80 Iowa 723, 45 N. W. 1049, 30 titled to such sum in preference to
Am. Rep. 442.
St. the general creditors of the bank.
Harrison v. Smith, 83 Mo. 210, 53
81. Bergstresser v. Lodewick, 37 App.
Am. Rep. 571. Div. 629, 59 N. Y. S. 630.
"If A, holding $1,000 in coin in trust —
School funds. The treasurer of a
for B, place it in a bag or box and board of education without authority
mingle with it $1,000 in coin of his placed the school funds in a bank of
own, whereby the particular $1,000 of which he was manager, and the owner
coin of trust money can not be dis- of which had knowledge of the char-
tinguished from the $1,000 of private acter of the funds. They were wrong-
money, it is more consonant with fully used in the business of the bank,
equity for the chancellor to say he will and for the payment of indebtedness
put his hand in the bag and take from against it. Afterwards the owner of
it and restore to B his $1,000 of trust the bank became insolvent, and made
money, than for him to say because of an assignment of his property for the
the fact that the money is not ear benefit of creditors. The assets which
marked and the fact that because of came into the hands of the assignee
A's wrongful act in thus mixing the consisted of real property, securities,
funds one can not be distinguished and cash. But the amount of the
from the other, that B can take noth- school money wrongfully converted,
ing in virtue of the trust, but must and which was impressed with a trust,
take his chances with the general cred- was largely in excess of the cash on
itors of A." Harrison v. Smith, 83 Mo. hand at the time of the assignment.
210, 53 Am. Rep. 571. The trust fund could not be clearly
"While it may be impossible to fol- traced to any particular asset in the
low the fund in its diverted uses, it hands of the assignee, but it was
is always possible to make it a charge shown to have gone into and been
upon the estate or assets, to the in- used lor the benefit of the estate. Held,
crease or benefit of which it has been that the trust fund became a charge
appropriated. The general assets of upon the entire assets with which it
the bank having received the benefit was mingled, and that the board of
of the unlawful conversion, there is education has a preferred right to the.
nothing inequitable in charging them assets over general creditors to the
with the amount of the converted extent of the fund converted. Myers
fund, as a preferred demand." Stoller V. Board, 51 Kan. 87, 32 Pac. 658, 37
V. Coates, 88 Mo. 514, citing Harrison Am. St. Rep. 263.
BANKS AND BANKING. § 80 (7dd>
money, but when, as a matter of fact, it can not be traced, the equitable
right of the cestui que trust fails. Hence, when the trust fund has been
dissipated, or so confounded and mixed up with the other property of the
insolvent that it can not be traced or identified, the owner of the fund or
property is not entitled to prove for it as a trust debt, and obtain a prefer-
ence over the other creditors of the insolvent bank, out of the property to,
which no part of the trust fund or property or proceeds of it is traceable.^^
82. Rule requiring identification of Draper, 158 Mo. 197, 59 S. W. 77, 81

deposit. — Mechem, Ag., §§ 780, 781; Ex \m. St. Rep. 396; Perth Amboy Gas-
parte Blane, 2 Q. 5. Div. 237, 273; Ex light Co. V. Middlesex County Bank,
parte Hardcastle, 44 Law T. (N. S.) 60 N. J. Eq. 84, 45 Atl. 704; Kip v.
534; Whitcomb v. Jacob, 1 Salk. 160; Bank (N. Y.),. 10 Johns 62; People
Xational Bank v. Insurance Co., 104 U. V. Merchants, etc., Bank, 78 N. Y. 269;
S. 54, 26 L. Ed. 693; Peters v. Bain, 133 Cavin V. Gleason, 105 N. Y. 256, 11
U. S. 670, 33 L. Ed. 696, 10 S. Ct. 354; N. E. 504; Roca v. Byrne, 39 N. E.
Illinois, etc., Sav. Bank v. First Nat. 812, 145 N. Y. 183, 39 Am. St. Rep.
Bank, 15 Fed. 858, 31 Blatchf. 275; 599; Willoughby v. Weinberger, 15
Philadelphia Xat. Bank v. Dowd, 38 Okla. 226, 79 Pac. 777; Ferchen v.
Fed. 172; Commercial Nat. Bank v. Arndt, 26 Or. 131, 37 Pac. 161, 29 L.
Armstrong, 39 Fed. 684; Cecil Nat. R. A. 664, 46 Am. St. Rep. 603; Muh-
Bank v. Thurber, 8 C. C. A. 365, 59 lenberg V. Northwest, etc., Trust Co.,
Fed. 913; Multnomah v. Oregon Nat. 26 Or. 132, 38 Pac. 933, 39 L.' R. A.
Bank, 61 Fed. 912; City Bank v. Black- 667; In re Thompson's Appeal, 33
more, 21 C. C. A. 514, 75 Fed. 771; Pa. 16; Freiberg v. Stoddard, 161 Pa.
Beard v. Independent Dist, 31 C. C. A. 259, 38 Atl. 1111; In re Lebannon
563, 88 Fed. 375; Case v. Beauregard, Trust, etc.. Bank, 166 Pa. 623, 31 AtL
Fed. Cas. No. 2,487, 1 Woods 125; 334; Slater v. Oriental Mills, 18 R. L
Trecothick v. Austin, Fed. Cas. No. 353, 27 Atl. 443; State v. Bank, 64 Tenn.
14,164, 4 Mason 29; In re Coan (5 Baxt.) 1; Downing v. Lellyett
Mfg. Co., 13 N. B. R. (U. S.) 203; (Tenn.), 36 S. W. 890; Nonotuck Silk
Bank v. Russell, 2 Dillon (U. S.) 215; Co. 6'. Flanders, 87 Wis. 337, 58 N. W.
Goldsmith v. Stetson' & Co., 30 Ala. 383; In re Plankinton Bank, 87 Wis.
164; Maury v. Mason, 8 Port. (Ala.) 378, 58 N. W. 784; Thuemmler v.
212; Parker v. Jones, 67 Ala. 234; Mc- Barth, 89 Wis. 381, 62 N. W. 94; Burn-
Call V. Rogers, 77 Ala. 349; St. Louis ham V. Barth, 89 Wis. 362, 63 N. W. 96;
Brewing Ass'n v. Austin, 100 Ala. 313, Dowie V. Humphrey, 91 Wis. 98, 64
13 So. 908; First Nat. Bank v. Hum- N. W. 315; State v. Foster, 5 Wyo.
mel, 14 Colo. 259, 23 Pac. 986; Mel- 199, 38 Pac. _936, 39 L. R. A. 336, 63
drum V. Henderson, 7 Colo. App. 256, Am. St. Rep. 47. Compare Shute v.
43 Pac. 148; School Trustees v. Kir- Hinman, 34 O'r. 578, 56 Pac. 412, 58
win, 25 111. 73; Bayor v. Schaffner & Pac. 882, 47 L. R. A. 265.
Co., 51 111. App. 180; Kneisley v. Weir, When money which is delivered to a
81 111. App. 251; Union Nat. Bank v. bank, even though it be for some speci-
Goetz, 138 111. 127, 37 N. E. 907, 32 fied purpose, as, for instance, invest-
Am. St. Rep. 119; Wetherell v. O'Brien, ment in a mortgage security, has been
140 III. 146, 29 N. E. 904, 33 Am. St. mingled with the funds of the bank,
Rep. 221; Mutual Acci. Ass'n v. Jacobs, there is no reason why the depositor
141 111. 261, 31 N. E. 414, 16 L. R. A. should be preferred above any other
516, 33 Am. St. Rep. 302; Bayor v. creditor. Wetherell v. O'Brien, 140
American, etc., Sav. Bank, 157 111. 62, 111. 146, 29 N. E. 904, 33 Am. St. Rep.
41 N. E. 622; Lanterman v. Travous, 221.
174 111. 459, 51 N. E. 805; Little V. A depositor in a bank drew a certi-
Chadwick, 151 Mass. 109; 23 N. E. fied check thereon to the order of the
1005, 7 L. R. A. 570; Sherwood v. Mil- president, and the amount of the
ford State Bank, 94 Mich. 78, 53 N. W. check was credited to a special ac-
933; Westfall v. Mullen, 58 Minn. 5, count, its proceeds being used to pay
59 N. W. 633; Shields v. Thomas, 71 semi-monthly charges which the de-
Miss. 360, 14 So. 84, 42 Am. St. Rep. positor was bound to pay for the hire
458; Mills V. Post, 7 Mo. App. 519; of a ship. Before this money was all
S C 76 AIo. 426; Midland Nat. Bank paid out, the bank went into the hands
V. Brightwell, 148 Mo. 358, 49 S. W. of receivers, and on the day when the
994, 71 Am. St. Rep. 608; Paul v. receivers were appointed there ap-
§ 80 (7dd) INSOLVENCY AND DISSOIvUTION. 623
EflFect of Confusion of Trust Fund. —

In other words when the trust
fund can not be identified or traced into some specific estate or substituted
peared on the books of the bank to be in the distribution of the assigned

in other banks and on hand less than estate. New Farmers' Bank's Trus-
$5,000, of which amount only about tee V. Cockrell, 106 Ky. 578, 31 Ky. L.
$3,000 was received by the receivers in Rep. 177, 51 S. W. 3.
currency and checks. This latter Where a banker received a check to
amount was deposited on the day that take up a mortgage, and thereafter in-
the receivers were appointed, and noth- formed the holder that the maker of
ing was ever realized from the bal- the check desired to pay the mortgage,
ances in other banks. Held that, since whereupon the holder sent it to the
the special trust fund created by the bank for collection and received tne
drawing of the certified check had not banker's receipt therefor, without
been kept separate by the bank, but knowledge that he had already re-
the only money on hand at the time ceived the amount of the mortgage,
it stopped business did not belong to
and three days thereafter the banker
that fund, so that the money belonging having made no distinction be-
failed,
thereto could not be traced or identi- tween the money so received and other
fied, the depositor was not entitled to moneys paid in in the course of his
receive the balance belonging to such business, all of which the banker de-
fund in preference to other creditors posited to the credit of a general de-
of the bank. Italian Fruit, etc., Co., posit account in another bank, the
V. Penniman, 100 Md. 698, 1 L. R. A.,
amount so received, though a trust
N. S., 252, 61 Atl. 694. fund, was thereby so mingled that it
D employed A, a private banker, to could not be identified; and hence the
look after property in Lansing, giving owner of the mortgage was not en-
him a draft on Boston for $1,000, out titled to be paid as a preferred cred-
of which to pay for certain repairs. A itor by the banker's receiver. Moninger
credited D for $1,000, and sent the V. Security Title, etc., Co., 90 111. App.
draft to a New York bank, in the 246.
usual course, for collection, and the
proceeds were placed to A's general
A county whose funds are deposited
in a bank that fails has no preference
credit. The drafts and deposits between
over other depositors, to the bank as-
the two banks were constantly chang-
sets, where the identity of the funds
ing. Held, that -D, on the insolvency of
has been lost. San Diego County v.
A, was not entitled to full payment as a
California Nat. Bank, 52 Fed. 59, dis-
trust fund, but must share pro rata
approved. Multnoman v. Oregon Nat.
with other creditors. Edson v. Angell,
Bank, 61 Fed. 912.
58 Mich. 336, 25 N. W. 307.
Where a receiver was appointed for —
Deposits by state officers. Where a
an insolvent bank pendente lite, and check payable to two persons as gov-
funds ordered to be distributed were, ernment officers is indorsed by one of
on dismissal of the suit, returned to them for both, by indorsement show-
the bank, and expended by it in the ing their official character, and depos-
usual course of its business, and the ited in a bank to be credited to his
bank itself afterwards declared other individual account, and thereby be-
dividends in favor of the same credit- comes mingled with the funds of the
ors, which were not claimed, and were bank, the fact that the check was in-
also expended, all such dividends lost trusted to them as officers can not be
their identity as a trust fund, and did urged by the payees to charge the pro-
not pass to a subsequent receiver of ceeds as a trust fund in the hands of
the bank as a particular fund. Rock- an assignee in insolvency of the bank,
in an action to which the government
well V. Portland Sav. Bank, 31 Or.
is not a party, and in which the author-
431, 50 Pac. 566.
Where a fund held by a bank as ity of the depositing payee to act for
trustee has been mingled with the gen- his copayee is not denied. Meldrum
eral assets of the bank, the benefi- V. Henderson, 7 Colo. App. 356, 43
ciaries of the fund have no lien upon Pac. 148.
the assets of the bank therefor, ana Rule in Wisconsin The better rule,
under a general assignment by the as stated above, was the rule estab-
bank for the benefit of its creditors lished by a number of cases in the
prior to the Act of March, 1894, regu- supreme court of Wisconsin until a
lating voluntary assignments, such return to the above rule was announced
beneficiaries are not entitled to priority in Nonotuck Silk Co. v. Flanders, 87
property, and the means of ascertainment fail, the trust wholly fails, and
Wis. 237, 58 N. W; 383, and the former should be put in a separate package,
cases were overruled. subject to his order, but this was not
The rule in Wisconsin now is that done. Held, that the money was not
where, on failure of a bank, it appears sufficiently distinct from the other
that money deposited in trust has funds of the bank to impress a trust
been dispersed, the cestui que trust in his favor on the insolvency of the
must prove his claim as a general cred- bank. Bayor %. Schaffner & Co., 51
itor. Dowie V. Humphrey, 91 Wis. 98, 111. App. 180.
64 N. W. 315; In re Plankinton Bank, Public funds invested in state bonds.
57 Wis. 378, 58 N. W. 784; Henry v. —Act Jan. 19, 1838 (chartering the Bank
Martin, 88 Wis. 367, 60 N. W. 263; of Tennessee), §§ 3, 3, provided that
Burnham v. Earth, 89 Wis. 362, 62 N. the capital of such bank should con-
W. 96; Thuemmler v. Earth, 89 Wis. sist in pSrt of the common school
381, 62 N. W. 94. fund, "whether the same is vested in
Sufficiency of identification. —While stock in the present banks of the state,
it may not be necessary to point to or in the hands of the superintendent
the particular pieces of money or the of public instruction, or in the hands
particular bank bills that were depos- of the county agents or other per-
ited with the trustee, if the trust prop- sons;" and that the "money belonging
erty be money, yet there must be a to the common school fund which now
preservation of the distinctiveness of may be in the possession of" such su-
the trust fund. The means of ascer- perintendent, etc., should be handed
taining the identity of the fund fails over to the officers of such bank. Held
where the money has "been mixed and that, in the liquidation of such bank
confounded in a general mass of prop- pursuant to Act Feb. 16, 1866, such
erty in the bank of the same descrip- counties as deposited school funds in
tion." Doyle V. Murphy, 32 111. 502, ihe bank were entitled to receive from
74 Am. Dec. 165; Trustees v. Kirwin, itsuch state bonds as could be identified
25 111. 73; Wetherell v. O'Brien, 140 as bonds bought with such school
111. 146, 29 N. E. 904, 33 Am. St. Rep. funds in pursuance of law, but, as to
221; Union Nat. Bank v. Goetz, 138 such of those funds as should not be
111. 127, 27 N. E. 907, 32 Am. St. Rep. so traced into state bonds held by
119. the bank, the counties entitled to such
That a banker, who has since as- funds were creditors of the bank, hav-
signed for the benefit of creditors, ing no priority over other depositors
knew that moneys deposited with him or general creditors. State v. Bank,
by plaintiff were county moneys, and 64 Tenn. (5 Baxt.) 1.
that the assignee came into possession Presumption as to identity. Where —
of moneys in the bank at the time of a bank mingles trust funds witji its
the failure, does not sufficiently iden-
tify the moneys in the hands of the
own, and disperses all the money part
of it by investing in securities or other
—
assignee, so as to entitle plaintiff to a property, taking the legal thereto
title
preference. Stevens v. Williams, 91 in its own name —
and subsequently be-
Wis. 58, 64 N. W. 422. comes insolvent, there is no presump-
It makes no difference whether the tion that the trust funds are repre-
fund be traced into a bank account, sented by the securities or property,
into the hands of an individual, or a the legal title to which is in the bank.
firm; if its identity can be established, Burnham v. Barth, 89 Wis. 363, 62 N.
and no superior rights of innocent W. 96.
parties have intervened, it will be held The
identification must be made
for the benefit of the cestui que trust. without the aid of a legal presumption.
Nor does the fact that it has been Cadwell V. King, 84 Iowa 228, 50 N.
changed or altered in its nature or W. 975; Seeley v. Seeley-Howe-Le Van
character affect the relation between Co., 128 Iowa 294, 103 N. W. 961;
the cestui que trust and the trustee or Bruner v. First Nat. Bank, 97 Tenn.
those claiming under him. Italian 540, 37 S. W. 286, 34 L. R. A. 532, and
Pruit, etc., Co. v. Penniman, 100 Md. see note in connection therewith; At-
698, 61 Atl. 694, 1 L. R. A., N. S., 352. kinson V. Rochester Printing Co., 114
Aperson holding a certificate of a N. Y. 168, 21 N. E. 178; Farwell v.
bank, being suspicious of the bank's Kloman, 45 Neb. 434, 63 N. W. 798;
standing, contemplated withdrawing Stilson V. First State Bank, 149 Iowa
the money, but only withdrew a part, 662, 129 N. W. 70.
taking a certificate for the balance; But where a banker takes on de-
and it was agreed that the balance posit trust funds, knowing their char-
80 (7d) INSOLVENCY AND DISSOLUTION. 625
•theparty can only prove as a general creditor. ^3 The beneficial owner,

however, always has a remedy against the wrongdoing trustee to hold him
personally liable for mingling these funds-^**
§ 80 (7d) Proceedings to Establish Trust. —In a proceeding

against an assignee or receiver to have a deposit in a bank declared a trust
fund in the hands of the defendant and paid in full as a preferred claim,
the plaintiff need not allege or prove that the assets were transferred to
the defendant, as this is a matter of defense.^' And in such proceeding
the general rules as to the relevancy, competency and admissibility obtain. ^^
acter, and, after mingling- them with a city, receiving in payment checks
his own funds, draws on the whole in and cash. The treasurer of the water
the usual course of business, it will board was the president of the bank,
be presumed that the money so with- and the deposit of such collections con-
drawn isthat of the banker, and not stituted a trust fund. The evidence
the trust money. State v. Foster, 5 showed from a certain day to
that,
Wyo. 199, 38 Pac. 926, 39 L. R. A. the day on which the bank closed its
226, 63 Am. St. Rep. 47, following doors, one-third of the amount paid in
Knatchbull v. Hallett, 13 Ch. Div. 696. for the water board was paid by
Where a bank holds funds on deposit checks, and the balance in cash. The
for a customer, and likewise trust amount of money on hand at the time
funds to be used for a particular pur- the bank closed its doors was greater
pose, the presumption is that pay- than the amount of cash received for
ments made by it for the customer are the water board. Held, in the ab-
from the deposit and not from the sence of proof to the contrary, that it
trust funds, and the person entitled to will be presumed that the amount m
such trust funds has the preference cash on hand, to the amount deposited
over the general creditors therefor. in cash to the credit of the water
National Life Ins. Co. v. Mather, 118 board, was the trust fund. Board v.
111. App. 491. Wilkinson, 119 Mich. 655, 44 L. R. A.
Plaintiff deposited $80 with a bank at 493, 78 N. W. 893.
about 12 o'clock, when the bank was 83. Effect of confusion of trust funds.
insolvent, closed its doors at
and it —Bank v. Smith, 31 Blatchf. 275;
about 3 o'clock the same day. There Bayor v. American, etc., Sav. Bank,
was deposited during the day about 157 III. 62, 41 N. E. 633; Burnham v.
$13,000 and the bank had on hand in Barth, 89 Wis. 362, 62 N. W. 96.
cash when it closed $20,000. Held, 84. Remedy beneficial owner.
of —
in an action by plaintiff against the re- Pom. Eq. 1058.
Jur., §
ceiver, in the absence of evidence that But it does not affect the question
the bank had paid out the $80, that it of identification that an action may lie
would be presumed that it had used its against the defaulting trustee for his
own money and did not appropriate wrongful act. Moninger v. Security
money, which had been re-
plaintiff's Title, etc., Co., 90 111. App. 246; Lan-
ceived by fraud, so that he was en- terman v. Travous, 170 111. 459, 51 N.
titled to have his claim paid in prefer- E. 805.
ence to the general creditors. Wil- Proceeding to impress a trust on
85.
loughby V. Weinberger, 15 Okl. 226, 79 deposits. —
In a proceeding against an
Pac. 777. assignee for creditors to have a de-
Where the evidence discloses that a posit made with the assignor before
fund on hand in a bank showed a bal- the assignment declared a trust fund
ance in excess of the amount of the and established as a preferred claim, it
trust fund each day from the receipt need not appear that the assignee has
of the money until the doors of the any of the assets transferred to him
bank were closed, there is no reason by the assignment. In re Knapp, 101
for indulging in a presumption that at Iowa 488, 70 N. W. 626.
some time during those days the fund 86. Evidence in suit to establish
was lower, especially, if such fact were trust. —
Where for two years the gen-
true, the fact would be demonstrable eral agent of a corporation had been
from the books of the bank. In re accustomed to send notes to a bank
Johnson, 103 Mich. 109, 61 N. W. 352. for collection, and the bank as it col-
A bank collected the water rates of lected the notes at different times gave
1 B & B— 40
§ 80 (8) Holders of Checks or Drafts— § 80 (8a) In General.—

Though there is some conflict in the cases, yet by the great weight of au-
thority, an unaccepted check or sight draft on a bank does not operate as
an assignment of the drawer's deposit at law or in equity, and upon the
insolvency of the bank the holder of the draft or payee must share pro rata
with other creditors, unless he can trace into the hands of the receiver
money or property which belongs to the drawer, or which had, before the
receivership, been set apart and appropriated to the payment of the check,
so as to constitute a trust fund.^'^ Nor does the mere charging the check
the agent credit on its books, from Minn. 208, 63 N. W. 373, 51 Am. St.
time to time remitting all the balance Rep.. 536.
due the corporation, in an action by This rule has frequently been en-
the corporation, on the insolvency of forced in controversies between the
the bank, to have the proceeds of the holder of a draft and the assignee or
notes declared a preferred claim as receiver of its insolvent drawer.
trust funds, it was not error to re- Fourth St. Nat. Bank v. Yardley, 165
fuse to allow a witness to answer a U. S. 634, 41 L. Ed. 855, 17 S. Ct. 439;
question as to the manner in which Covert V. Rhodes, 48 O. St. 66, 37 N.
the corporation collected its accounts E. 94, and cases cited; Attorney Gen-
in the state, is not being shown that eral V. Continental Life Ins. Co., 71 N.
the bank had any knowledge of the Y. 3S5, 37 Am. Rep. 55; Akin v. Jones,
manner in which the corporation did 93 Tenn. 353, 27 S. W. 669, 25 L. R. A.
business with other banks, and such 533, 43 Am. St. Rep. 931; Harrison v.
question not being material. Mc- Wright, 100 Ind. 515; Guthrie Nat.
Cormick Harvesting Mach. Co. v. Bank v. Gill, 6 Okl. 560, 54 Pac. 434;
Yankton Sav. Bank, 15 S. Dak. 196, Reviere v. Chambliss, 120 Ga. 714, 48
87 N. W. 974. S. E. 123.
In an action against the receiver of Wherea depositor in a bank obtains
a bank to have the proceeds of certain from it two drafts upon another bank,
notes collected by the bank declared paying therefor by checks against his
a preferred claim as a trust fund, the deposit, the relation between the bank
funds in the bank at the time of its and the depositor with respect to such
insolvency having amounted to less drafts remains that of debtor and cred-
than plaintiffs claim, it was proper to itor, and is not changed to a fiduciary
admit the evidence of judgments re- relation, entitling the depositor, upon
covered by certain preferred creditors the bank becoming insolvent before
of the bank, in order to show that the drafts are paid, to have the assets
there were preferred creditors, en- in the hands of its receiver applied
titled to share pro rata in the funds by preference to the payment of such
in the bank at the time of its insol- drafts in full. Jewett v. Yardley, 81
vency. McCormick Harvesting Mach. Fed. 920.
Co. V. Yankton Sav. Bank, 15 S. Dak. A
banker's draft, drawn and payable
196, 87 N. W: 974. within the county, is not in legal effect
It was not error to sustain an ob- a check; and where, before presenta-
jection to a question as to whether tion to the bank on which it is drawn,
the corporation kept or authorized a and which has funds to meet its pay-
general account with any bank outside ment, the drawer fails, and payment is
of certain ones, inasmuch as the ques- refused on that account by the drawee,
tion in issue was whether the trans- and the funds are paid over to the re-
action between the corporation tind ceiver of the drawer, the payee is not
defendant bank was such that the re- entitled to payment in full out of such
lation of debtor and creditor existed. funds, but must prorate with the other
McCormick Harvesting Mach. Co. v. creditors. Grammel v. Carmer, 55
Yankton Sav. Bank, 15 S. Dak. 196, 87 Mich. 201, 21 N. W. 418, 54 Am. Rep.
N. W. 974. 363.
87. Rights of holders of checks and Draft on correspondent bank. —
—
drafts. Fourth St. Nat. Bank v. Yard- Where a bank fails and passes into the
ley, 165 U. S. 634, 41 L. Ed. 855, 17 S. hands of a receiver after it has issued
Ct. 439; Sunderlin v. Mecosta County a draft on a correspondent bank, in
Sav. Bank, 116 Mich. 281, 74 N. W. which it has funds on deposit, and the
478; Northern Trust Co. v. Rogers, 60 drawee has notice of the receivership
§ 80 (8a) INSOI<VENCY AND DISSOIÛTION. 627
to the drawer in his account with the bank and returning the check to the
drawer as paid, amount
to a payment of the check and appropriation of a
specific fund or property of the bank or of the drawer for the payment
of the check. By charging the check in account, the bank merely reduced
its indebtedness to the depositor by the amount of the check, and consti-
tuted itself debtor to the holder of the check to a corresponding amount.^*

And it makes no difference whether the check is sent by mail to the bank
upon which it is drawn, or is presented over the counter, provided it is sent

for payment and not merely for collection.**
before the draft is presented for pay- are certified, does not make the de-
ment, the title to the deposit passes to posit a special fund to meet such
the receiver, and the holder of the checks, in the absence of a special
draft has no priority over other credit- agreement to that eflfect. People v.
ors of the insolvent bank. Clark v. To- St. Nicholas Bank, 77 Hun 159, 38 N.
ronto Bank, 72 Kan. 1, S L. R. A., N. Y. S. 407, 58 N. Y. St. Rep. 712; S. C,
S., 83, 115 Am. St. Rep. 173, 83 Pac. 77 Hun 611, 28 N. Y. S. 421, 423, 59 N.
582. Y. St. Rep. 881.
The petitioner bank received a check The certification of a check by a
drawn on defendant bank and mailed bank is in eflect merely an acceptance,
it to defendant for payment. Defend- and creates no trust in favor of the
ant charged and returned the check to holder of the check, and gives no lien
the drawer as paid, and sent petitioner on any particular portion of the assets
a draft on a third bank for the amount of the bank. People v. St. Nicholas
of the check. Two days afterwards Bank. 77 Hun 159, 28 N. Y. S. 407, 58
defendant passed into the hands of a N. Y. St. Reo. 732; S. C. 77 Him fill.
receiver, the draft remaining unpaid. 28 N. Y. S. 421, 423, 59 N. Y. St. Rep.
Petitioner prayed an ord^r for the re- 881.
ceiver to pay to it the amount of the —
Conflict in authorities. It is true
draft, on the alleged ground that de- that there is great conflict with regard
fendant's assets came to the receiver to the question whether or not a check
impressed with a trust in favor of pe- is an assignment of the drawer or his
titioner. It was held that the order funds. Of late years some text writers
should be denied, since no separate and a few courts, while admitting the
appropriation of a part of defendant's correctness of the doctrine as applied
assets to the payment of the draft was to drafts or ordinary bills of exchange,
traceable. People v. Merchants', etc.. have expressed a strong dissent from
Bank, 78 N. Y. 269, 34 Am. Rep. 532, its applicability to checks. Any one
distinffuishina' In re Le Blanc, 14 Hun interested in examining the arguments
8, 4 Abb. N. C. 221. of that side of the question will find
Theholder of a cashier's check them fully presented in 2 Daniel Nego-
drawn on a bank in another state on tiable Instruments, § 1635, et seq., and
no particular fund is not, on the insol- Barnes v. Coates, 23 Am. Law Reg
vency of the drawee, entitled to prefer- N. S., 188.
ence over general creditors. Harrison 88. A check drawn on a bank by a
V. Wright, 100 Ind. 515. depositor who has funds enough on
A ssienment for creditors — Notice. deposit to cover it, when presented is
—A check on a bank, given by a de- presented for payment, and not for
positor, does not bind the fund against collection, and its payment by draft,
which it is drawn until the bank has and charging the drawer's account
notice thereof; and, therefore, where with the amount of the check and re-
a general assignment is made by such turning it to him as paid, do not con-
drawer, and notice of the assignment stitute such a setting apart of specific
is received by the bank before it has funds that its property will pass into
notice of the prior check, it is not the hands of a receiver impressed with
liable to the holder for such fund. La- a trust in favor of the payee of the
clede Bank v. Schuler, 120 U. S. 511, draft, in the event that the draft is
30 L. Ed. 704, affirming 37 Fed. 424, dishonored. People v. Merchants', etc..
7 S. Ct. 644. Bank, 78 N. Y. 269, 34 Am. Rep. 532.
Certified —
checks. Drawing checks 89. Where the holder of a bank check
on a bank at the time of making a de- mails it to the drawee for payment,
posit therein, some of ^which checks with instructions to remit the pro-
628 BANKS AND BANKING. § 80 (8/2a)
§ 80 (Bb) Rule in Equity. —But in equity a check operates an equi-

table assignment pro tanto of the fund on which drawn, and hence a re-
ceiver or assignee of the bank takes the assets subject to this superior
claim. 9"
§ 80 (8c) Holders of Protested Paper. —The holders of protested

paper of an insolvent bank, organized under the general banking law, are
not entitled to priority in payment of the funds in the hands of the comp-
troller over the holders of paper not protested.î
§ 80 (8d) Drawers of Drafts on Consigjinient. Where the plain- —

tiffs make a consignment, and at the same time send their bill to bankers
at the point of consignment for collection, upon the insolvency of the bank
the complainants may impress a trust on so much of its assets in the hands
of the receiver as consist of the debt due from the consignee.^^
§ 80 (8i) Officers and Stockholdersss— § 80 (8ia) Bank Offi-

cers. —
Bank ofHcers to whom the bank is indebted have no other or greater
rights than the other creditors of the institution, 9* and they may even be
ceeds, the drawer being in funds, and bank. Held, that plaintiffs were en-
the check is charged and returned to titled to recover from the receiver of
the drawer as paid, and the bank's as- G. & Co. the amount of the check
sets pass to a receiver before the pro- drawn by H. out of the assets in the
ceeds of the check are remitted, the receiver's hands, as against attaching
holder is not entitled to a preference creditors. Ryan v. Paine, 66 Miss. 678,
as to assets in the receiver's hands, un- 6 So. 320.
less the drawee had separated from A person directed his bank to pay
its general assets and placed in the certain debts. Which would mature
hands of some depositary a sum suffi- during his absence, and gave a check
cient to pay the check, for the express to cover the amount. The bank paid
purpose of being so applied, and this one creditor with a sight draft on its
fund came to the receiver in some own correspondent, and failed before
form. People v. Merchants', etc., the draft was paid. A
receiver was ap-
Bank, 78 N. Y. 269, 34 Am. Rep. 532. pointed, and plaintiff, holder of the
90. Rule in equity as to draft on a draft, filed a bill to have the receiver
—
fund. A bank made an assignment, declared a trustee of the assets for its
after drawing a draft on a fund, which benefit. Held, that a trust was not
the drawee delivered to the assignee created by the mere revocable direc-
before ihe draft was collected. Held, tion of the debtor, to which plaintiff
that the holder of the draft might en- was not a party. Louisville Banking
force his lien on such fund in the Co. V. Paine, 67 Miss. 678, 7 So. 462,
hands of the assignee, though he had distinguishing Ryan v. Paine, 66 Miss.
previously presented his draft to such 678, 6 So. 320, on the ground, that there
assignee as a claim against the estate, was no trust but a mere direction to
which was allowed, and he had ac- the bankers which was revocable cit-
cepted dividends thereon. First N5t. ing as authority Van Eaton v. Napier,
Bank v. Coates, 8 Fed. 540, 3 Mc- 63 Miss. 220; Trustees v. Pace, 15 Ga.
Crary 9. 486; Mayer v. Chattahoochee Nat.
91. Shepherd v. Guernsey (N. Y.), 9 Bank, 51 Ga. 335; Bollies, Banks, § 44;
Paige 357. 1 Morse, Banks, § 398.
92. Plaintiffs consigned some meat 93. See, also, ante, "Rights of Hold-
to H., and sent the
to G. Co.,
bill & ers of Circulating Notes," § 79.
bankers, for collection. H., who had Right to participate in distribution,
an overdrawn account with G. Co., & see ante, "Claims Provable and Estop-
gave his check on them for the amount, pel to Claim," § 80 (1).
and they sent exchange on New York 94. No priorities allowed bank offi-
to plaintiffs, but failed, and payment cers. —Onthe insolvency of a bank,
thereof was refused by the New York the cashier has no lien upon the money
§ 80 (8>^b) INSOI^VENCY AND DISSOI<UTION. 629
postponed to other creditors, if it appears that the insolvency of the bank

is due to their misfeasance or nonfeasance. ^^
§ 80 (8-^-b) Stockholders. — In the settlement of the affairs of an in-

solvent bank, nothing is to be repaid to stockholders, until after payment
of all the debts of the bank.^" Even though the capital stock of thebank
in the bank, for the payment of his stockholders of such bank, or their
deposit or salary. Bruyn v. Middle legal representatives in proportion to
Dist. Bank (N. Y.), 9 Cow. 413, 1 the stock by them respectively held."
Paige 584. McGraw v. Union Trust Co., 135 Mich.
95. who are
In a suit by creditors, 609, 98 N. W. 390.
also directors and officers of an in- Where the stockholder is an estate.
solvent banking corporation, to mar-
shal and distribute the assets, and to
— The fact that a bank president in-
vests, without authority, in the stock
charge the stockholders with their of the bank, money which he holds as
statutory liabilities to creditors for de- executor of an estate, and a few days
ficiency of assets, where it appears before the suspension of the bank
that the insolvency of the bank is due causes the stock to be resold to the
to the gross mismanagement and neg- bank at par, and a certificate of de-
lect of such directors and officers, posit to be issued, does not confer upon
rendering them liable to creditors the estate any greater rights than those
and stockholders for losses incurred of a stockholder, or allow it to recover,
thereby, they may, in a proper case, be as against creditors, the price agreed
postponed as creditors until the debts upon. In re Columbian Bank, 147 Pa.
of all other creditors have been fully 433, 23 Atl. 636, distinguishing Farm-
paid. Elliott V. Farmers' Bank, 61 W. ers', etc., Nat. Bank v. King, 57 Pa.
Va. 641, 57 S. E. 342. 203.
96. Stockholders postponed until Where the stockholder is the state.
—
creditors paid. New Orleans v. Bank, —A stockholder of an insolvent bank,
S La. Ann. 96; Hollister v. Hollister even though the state itself is a stock-
Bank, 41 N. Y. (3 Keyes) 245, 3 Abb. holder, can receive, as such, none of
Dec. 367. the assets until the creditors are fully
"The holders, and other credit-
bill satisfied.Dabney v. Bank, 3 ,S. C. 124.
ors, of a bank have the first claim Persons lending bank money and re-
upon its stock and the stockholders ceiving a pledge of its stock are cred-
have no right, until all the other creditors. —
The board of directors of a
itors are satisfied. They have the full bank, by resolution, authorized the
benefit of all the profits made by the president and cashier to issue to the
establishment, and can not take any latter 400' shares of stock in considera-
portion of the fund, until all the other tion of his two notes for $20,000 each,
claims on it are extinguished. Their the resolution reciting that the purpose
rights are not to the capital stock, but was to enable the cashier to borrow
to the residuum, after all demands are money on the stock as collateral for
paid. In a disposition of the corpora- the use of the bank, and that the bank
tion, the bill holders and the stock- would "take care to protect him in
holders have, each, equitable claims; the transaction." The stock was issued
but those of the bill holders possess, to the cashier and money borrowed by
as I conceive, a prior exclusive equity." him from E. & Sons, the stock being
Marr v. Bank, 44 Tenn. (4 Coldw.) 471. pledged as collateral. The money thus
Section 6146, Comp. Laws of Michi- obtained by him was deposited in the
gan 1897, provides that: "From time bank to his credit, less the discount,
to under the direction of the
time, which was restored to him. In an ac-
commissioner of the banking depart- tion by the stockholders of the bank
ment, the receiver shall make ratable for a settlement and distribution of
dividends of the money
realized or col- the bank's assets, E. & Sons appeared
lected by him on such
clairns as
all and sought to make the bank liable as
may have been proved to his satisfac- its creditors, and the directors per-
tion or adjudicated in a court of com- sonally liable on the ground of fraud.
petent jurisdiction, and the remainder Held, that whether the stock was sold
of the proceeds, if any, after the costs toenable the cashier to raise money
and expenses of such proceedings and topay his debt to the bank, or for
all debts and obligations of the bank the purposes of the bank, it is apparent
are satisfied, shall be paid over to the that the bank resorted to this means
630 BANKS AND BANKING. § 80 (9aaa)
is legally reduced, such action does not of itself authorize a distribution of

the bank's assets in any form among the stockholders in a sum equal to the
difference between the original and the reduced amount of capital. Such
a distribution must be limited to the extent that there will still be left with
the bank assets equal in value to the reduced capital stock.^^ But stock-
holders may by subrogation succeed to the priority accorded creditors.^*
And stockholders, after dissolution, may buy up outstanding claims of
creditors and become entitled thereby to be substituted in their place in the
distribution of the assets, even though they may be officers of the insolvent
bank.99
§ 80 (9) Dividends and Interest— § 80 (9a) Dividends— § 80

(9aa) Right to Dividends— § 80 (9aaa) In General.^- The creditors^
of raising money for its own benefit, 98. Rights of stockholders to subro-
and, therefore, E. &
Sons have the —
gation. Stockholders who have paid
right as creditors of the bank to pri- the claims of depositors are subro-
ority over stockholders. Jones v. John- gated to their right to administer the
son, 86 Ky. 530, 9 Ky. L,. Rep. 789, 6 S. assets in the hands of the assignee.
W. 582. City Bank v. Crossland, 65 Ga. 734.
Necessity for presenting checks^ 99. Abank became insolvent, and
One to whom the tax collector and
made an assignment for the benefit of
treasurer of a county transfer the
creditors. The charter made stock-
holders personally liable for an amount
preference they have, under Code
equal to the capital stock. After the
1906, § 3485, on insolvency of a bank
assignment, the vice president and a
in which they have deposited county
director, both stockholders, bought up
funds, loses none of his rights by
claims of depositors at a discount of.
failure to present to the bank for pay-
50 per cent., with a fund raised from
ment checks on it, which, with the as- contributions of stockholders, and
signment, they have given him; they,
contended that they were entitled to
with the assignment, operating to
a pro rata distribution, based upon the
transfer the deposits, with the right of This con-
face value of these claims.
priority of payment, and it not being
tention was objected to, on the
intended they should be presented for grounds (1) that, at the time of the
payment, according to the usual course purchase of the claims, the purchasers
of business, as the bank had sus- were officers of the bank; (2)' that the
pended. Commercial Bank v. Hardy,
stockholders owning the claims so
97 Miss. 755, 53 So. 395.
purchased could not participate in the
97. Effect of reducing capital stock. distribution until all of the depositors
— 1 Cook, Stock, Stockh. Corp. & Law should be paid. Held, that neither
(3d Ed.), § 289; Strong v. Brooklyn, objection was tenable. Appeal of
etc., Co., 93 N. Y. 426; McCann v. Craig, 92 Pa. 396.
First Nat. Bank, 113 Ind. 354, 14 N. E. 1. Estoppel to claim preference by
_
251; Kassler v. Kyle, 38 Colo. 374, 65 acceptance of dividend by depositor of

Pac. 34. trust funds, see ante, "Deposit of
A
stockholders' resolution reducing Trust Funds," § 80 (7).
—
the capital stock of a bank one-half, 2. Right" of creditors to dividends.
and providing that each stockholder National Bank v. Mechanics' Nat.
should surrender one-half of his stock, Bank, 94 U. S. 437, 34 L. Ed. 176;
and receive long-time certificates ol Chemical Nat. Bank v. Armstrong, 8
deposit therefor, could only operate C. C. A. 155, 59 Fed. 379, 38 L. R. A.
to distribute to the stockholders the 331; In re Ziegler, 98 App. Div. 117, 90
excess ot the bank's assets over its N. Y. S. 681 (effect of failure to prove
and stock as reduced; and
liabilities claim).
hence, where the bank was insolvent A depositor of an insolvent state
at the time the resolution was passed, bank drew its check on the bank on
a holder of such certificates of deposit the day the superintendent of banks
was not entitled to payment in priority took possession thereof. On the next
over other creditors. Kassler v. Kyle, business day, a national bank, which
38 Colo. 374, 65 P. 34. was the clearing bank in the clearing
§ 80 (9aaa) INSOLVENCY AND DISSOLUTION. 631
but not the stockholders* may be entitled to a dividend on their claims

after the principal of the debts allowed is paid. A stockholder in an in-
solvent bank, with knowledge of its insolvency, can not sell his stock
to and in the distribution of its assets, claim a dividend on the price or
it,
sum the bank agreed to pay him for it, because an allowance of this claim
will injure the creditors of the bank by reducing the dividends they would
otherwise receive from its assets, and proportionately increase their losses.*
house association for the state bank, the funds of such a corporation in the
paid the checks, which were drawn in way of assessments, he is not as a
the ordinary course of business and stockholder permitted to share in its
without anticipation of the insolvency dividends either by subrogation or
of the state bank. Held that, since otherwise. Civ. Code, § 309. Sacra-
the assets of the state bank in the mento Bank v. Pacific Bank, 124 Cal.
hands of the national bank as clearing 147, 56 Pac. 787, 45 L. R. A. 863, 71
house agent were pledged only to save Am. St. Rep. 36.
it harmless under its contract to clear, Injunction against dividends. The —
the depositor was only entitled to the separation of the banking from the
same percentage on its whole claim other business of a corporation, foi
as other depositors who drew no the purpose of winding up the former,
checks received, and the right of the can not change the obligations of the
depositor to any dividend on his claim company to creditors or stockholders;
must be postponed until such time as and an injunction will be granted to
the other creditors have received a arrest a dividend to stockholders if
percentage on their claims equal in there are any debts created by former
amount to the percentage of the claim banking ope'rations unpaid or unpro-
of the depositor received by the pay- vided for. New Orleans v. Commer-
ment of its checks. People v. Bank, cial Bank, 3 La. Ann. 96.
70 Misc. Rep. 633, 127 N. Y. 908. In re Columbian Bank, 147 Pa.
4.
—
Payment of dividend. -When a de- 433, 33 Atl. 636.
positor is entitled to dividends from Where the director of a bank, after
the assignee of the bank, which have an examination of its affairs, finds it
not been declared or paid by reason of insolvent, and consults with the presi-
the controversy in the suit, he will be dent in refer-ence to a sale of his stock,
entitled to be paid out of the fund re- and the only persons known to him
covered from his dividends on his de- in the transaction, or mentioned as
posit equal to those paid to the other probable purchasers, are the president
depositors with interest on the same and cashier, to whom he delivers the
from the time the same would have stock, and from whom he receives in
been paid if there had been no contro- exchange the interest-bearing obliga-
versy or suit. Lamb v. Cecil, 28 W. tion of the bank, the sale must be
Va. 653, approved and applied in Lamb deemed to have been made to the bank,
V. Pannell, 28 W. Va. 663. and the fact that the stock is after-
Rights of holder purchasing bills at wards formally transferred to the
discount.— Where the road of a bank- cashier for his worthless note is only
ing and railroad company, on which confirmatory of this view. In re Co-
bill holders had a lien for the payment lumbian Bank, 147 Pa. 433, 33 Atl. 626,
of their bills, was sold under a decree 638.
to raise a fund for the payment of such Thevice president of a bank, after
bills, it was held that the bill holders it had
been running several years,
should be entitled to dividends only made an examination of its affairs,
on the amount actually paid by them, which "startled" him, and caused him
respectively, for their bills, and not on to resign his office. He determined
the amoiint originally received by the also to sell his stock at auction, but
bank. Collins v. Central Bank, 1 Ga. was induced, for the sake of the bank's
435. credit, to sell it privately to the bank.
3. It is clearly the law in California Shortly afterwards the bank sus-
that the funds of an insolvent banking pended, with liabilities, exclusive of
corporation are all to be dispensed the capital stock, amounting to $300,000,
solely for the benefit of its creditors, and assets of about one-third that
and, while the stockholder may be amount. The bills receivable and
compelled to put a great deal into other loans appraised as good were
632 BANKS AND BANKING. § 80 (9bbb)
The possession of collateral security does not affect the creditor's

right to a dividend upon the full amount of proved
his claim; but if he has
his claim he can collect his dividends without any deduction from his claim
as proven for collections made from collateral after his proof of claim is
filed. 5 But a creditor of an insolvent bank is not entitled as against other
creditors to receive dividends out of the general funds in the hands of a
receiver on notes held as collateral security and indorsed by the debtor, in
addition to dividends on the principal debt.^
—
Failure of Creditor to Claim Notice of Dividends. Under the —
Nev^rYork General Corporation Law, §§ 263, 266, where a receiver of a
bank had failed to give notice of prior dividends, creditors' failing to claim
the same did not forfeit their right thereto, but the dividends should be
paid into court, and notice given of such right.'^
§ 80 (9bbb) Rights of Purchasers of Claims. —AVhere the pur-

chaser of a number of the claims of creditors owes no fiduciary relation
to the bank or its stockholders, he is entitled to a dividend on the full face
only partially available, as in many in- But a creditor of an insolvent bank-

stances they were set off by the de- ing corporation in the hands of a re-
posit accounts of the debtors. The ceiver, holding, as collateral to his de-
cash resources remaining on hand posit in the bank, notes negotiated and
amounted only to $1,285.93. Held, that guaranteed by the corporation, will
the bank was insolvent when it bought only be allowed a dividend on the
the stock, and that, as the owner of amount remaining unpaid after he has
the stock was chargeable with notice exhausted such securities. Citizens''
of its in-solvency, he was not entitled Bank v. State, 8 Kan. App. 468, 54 Pac.
to claim, with creditors, a dividend on 510.
the amount agreed to be paid. In re 6. First Nat. Bank v. Williamson
Columbian Bank, 147 Pa. 422, 23 Atl. (Tenn.), 35 S. W. 573.
626, 638. Right to dividends both upon princi-
5. Possession of collateral as affect- pal indebtedness and collateral. —
ing right to a dividend. Chemical — creditor of an insolvent bank filed a
Nat. Bank v. Armstrong, 8 C. C. A. bill to compel the receiver to pay him
155, 28 L. R. A. 231, 59 Fed. 372; Third ratably with all of the creditors' divi-
Nat. Bank v. Eastern R. Co., 122 Mass. dends on its direct indebtedness to
240; Third Nat. Bank v. Haug, 82 him of $25,805.60, principal debt, and
Mich. 607, 47 N. W. 33, 11 L. R. A. also pro rata dividends on all the col-
337; In re Burke, 25 R. I. 302, 55 Atl. lateral notesand warrants he holds in-
825; First Nat. Bank v. Williamson dorsed by the insolvent bank. The
(Tenn.), 35 S. W, 573. court held, that the creditor was not
Amount of dividends. — In a special entitled to dividends out of the general
funds in the hands of the receiver on
proceeding under Gen. Laws 1896, c.
178, § 42, et seq., to wind up a bank the collateral he held, in addition to
through a receiver, the equity rule, al- the dividends he received on the prin-
lowing dividends to a secured creditor cipal indebtedness. First Nat. Bank
on fhe full amount of his claim, ob- V. Williamson (Tenn.), 35 S. W. 573.
tains, and not the insolvency rule The debt of a bank to a creditor who
(chapter 274, § 29), allowing dividends holds its note, and, as collateral, notes
only on the part of the claim in excess indorsed by it, as regards the credit-
of the value of the securities; chapter or's right to dividends, in a proceed-
340, § 1, providing that statutory pro- ing under Gen. Laws 1896, c. 178, § 43,
ceedings shall follow the course of et seq., is the bank's note only. In re
equity so far as it is applicable, and Burke, 35 R. I. 302, 55 Atl. 825.
the insolvency law being suspended by 7. Failure of creditor to claim
the national bankrupt law. In re —
Notice of dividends. People v. Ger-
Burke, 35 R. I. 302, 55 Atl. 825. men Bank (Sup.), 136 N. Y. S. 311.
§ 80 (9bb) iNsoi<vENCY and dissolution. 633
of the claims, though he purchased them for fifteen per cent of their face
value.
§ 80 (9ccc) Establishment of Right. Where a — creditor of a bank

whose claim is secured by a mortgage proves the entire claim, an order of
the court allowing the claim, made after execution of the mortgage, is final
and conclusive as to the right to participate in the dividends so far as the

effect of the mortgage is concerned.^
§ 80 (9bb) Distribution of Dividend.— Under the New York Code

an objection that the appointment of a receiver for an insolvent bank on
the attorney general's application will render it necessary for the depositors
judgment before receiving any dividends is not
to await the result of final
well taken, as Code Civ. Proc, § 1789, empowers thg court to direct the
temporary receiver to make distribution among depositors, creditors, and
stockholders before final judgment.^"
§ 80 (9b) Interest"— § 80 (9aa) Right to and Liability for.—

Creditors may receive interest on dividends paid to them, if they are dili-
gent in the presentation of their claims. i- If the assets of the corporation,

when fully administered, only suffice for the payment of the principal of
the debts of the corporation, the statutory liability of the shareholders may
be resorted to for the recovery of such interest as would have been re-
coverable from the corporation, had it continued solvent, without receiver-
ship. i^
§ 80 (9bb) Computation of. —As against the assets of an insolvent

bank, interest on a claim is calculated only to the date of the suspension and
8. Palmer v. Bank, 73 Minn. 266, 75 be allowed in favor of one who volun-

N. W. 380. tarily delayed presenting his claim
9. Establishment of right to divi- until long after the dividends were de-
dend.—A bank, after selling certain clared, although the delay was due to
notes and indorsing them, became in- a mistaken belief that he had a right
solvent; and the receiver appointed re- to pay his claim m full from col-
quested the purchaser to obtain a laterals m his hands. Chemical Nat.
mortgage from the maker of the notes Bank v. Armstrong, 8 C. C. A. 155, 59
as security, which he did. Subse- F^d. 372, 28 L. R. A. 331.

quently the claim of the purchaser Effect of receiving dividends.—
against the insolvent bank on the notes Where, m
proceedings against a bank-
was allowed, and the receiver was or- mg and trust company for the seques-
dered to pay it, with other liabilities. tration and division of its assets, the
Held, that the order of the court made sums received by its creditors from its
after the execution of the mortgage assets were received as dividends not
was final and conclusive, and the reas payments, and there was no action
ceiver could not refuse to pay the pur- to recover the principal and no ac-
chaser when a dividend was ordered. ceptance or even offer of payment of
Rockwell V. Portland Sav. Bank, 39 the principal m
full for the debt, the
Or 241 64 Pac 388 acceptance of such dividends to the

1^ r,\ rr, AT , 1 Ti- Tj 1 i .< ivT amouut of the principal did not bar
" '
the creditors from recovering interest.
^.ô8, I'âV^-
Y. 26 Abb. N. r^ ,^!7"
xt° C. 189.
^1^^^^^ ^^ American Banking, etc., Co.,
11. See post, "Presentation and Pay- io4 Me. 141, 69 Atl. 771.
ment of Claims," § 388. 13. Flynn v. American Banking, etc.,
12. Interest on dividends should not Co., 104 Me. 141, 69 Atl. 771.
634 BANKS AND BANKING. § 80 (9/2a)
the vesting of the title of the assets in the receiver/* unless there are sur-
plus assets after paying the indebtedness.^^
—
80 (9cc) Rate of. In an action brought by the attorney general
§
to wind up the affairs of an insolvent bank, interest at the contract rate
should be credited on the accounts of creditors to the date the receiver took
possession of the bank's assets, and thereafter interest is not allowable as
"between the creditors themselves, but is allowable against the bank, and,
if the assets are sufficient for the payment of the principal indebtedness as
•established at the time the receiver took possession, interest should be paid
at the legal rate before distribution of surplus to stockholders. ^^
§ 80 (9i) Set-Off— § 80 (9ia) In General. i^—Upon the insol-

vency of a bank, its debtors may avail themselves of any indebtedness of
the bank to them as a set-off against their indebtedness to the bank.^^ And
14. Interest on claims against bank. of assets it shall be applied to the pay-
—White
Ed. 603,
V.
4
Knox, 111 U. S. 784, 28 L.
S. Ct. 686; Richmond v.
ment of such interests before any dis-
tribution is made among shareholders.
Irons, 121 U. S. 27, 30 L. Ed. 864, 7 S. Flynn v. American Banking, etc., Co.,
Ct. 788; Sexton v. Dreyfus, 219 U. S. 104 Me. 141, 69 Atl. 771.
339, 55 L. Ed. 244, 31 S. Ct. 256; Chem- In Maine claims against insolvent
ical Nat. Bank v. Armstrong, 8 C. C. banks bear interest from the time they
A. 155, 59 Fed. 372, 28 L. R. A. 231; are filed, provided the assets are more
Bank Comm'rs v. New Hampshire than sufficient to pay the principal of
'Trust Co., 69 N. H. 621, 44 Atl. 130; all claims allowed. Rev. Stats. Maine
Bank Comm'rs v. Security Trust Co., 1883, ch. 47, § 66.
70 N. H. 536, 49 Atl. 113; Warrant Fi- That statute, however, was de-
nance Co.'s Case, 4 Ch. App. 643; In signed for banks of issue. Flynn v.
re Joint-Stock Discount Co., 5 Ch. American Banking, etc., Co., 104 Me.
App. 86. 141, 69 Atl. 771.
This rule is based both upon reason 16. People V. Merchants' Trust Co.,
and authority. If the rule were other- 187 N. Y. 293, 79 N. E. 1004, affirming
wise, the claimant who delayed until ] 16 App. Div. 41, 101 N. Y. S. 255, fol-
the last to file his claim would have lowing dictum in People v. American
his negligence rewarded by the in- Loan, etc., Co., 172 N. Y. 371, 65 N. E.
creased interest which he would re- 200.
ceive. New YorkSecurity, etc., Co. v. 17. Right to set off deposit against
Lombard Invest. Co., 73 Fed. 537. debt due insolvent bank, see post, "Set-
Interest does not run, as against the Off by Depositor," § 135.
estate, after the assignment or de- Set-ofI by receiver against claims
clared insolvency, unless there are against estate, see ante, "Presentation
funds sufficient on hand to pay all of and Payment of Claims," § 80.
-the demands and accrued interest; 18. Right of set off against a bank. —
otherwise, interest is to be allowed Finnell v. Nesbit (Ky.), 16 B. Mon.
up to the time of the declared insol- 351; Salladin v. Mitchell, 42 Neb. 859,
vency only. Chemical. Nat. Bank v. Arm- 61 N. W. 127; Davis v. Industrial Mfg.
strong, 8 C. C. A. 155, 59 Fed. 372, 38 Co., 114 N. C. 321, 19 S. E. 371, 23 L.
Iv. R. A. 231; White v. Knox, 111 U. S. R. A. 322. -
784, 28 E. Ed. 603, 4 S. Ct. 686; Rich- A bank received on deposit a check
mond V. Irons, 121 U. S. 27, 30 L. Ed. drawn by plaintiff on another bank,
•864, 7 S. Ct. 788; National Bank v. and carried the amount to the credit
Mechanics' Nat. Bank, 94 U. S. 437, 24 of his agent, upon the agreement that
L. Ed. 176; Home Sav. Bank v. Peirce, he would take for part of the sum a
-156 Mass. 307, 31 N. E. 483; New York draft drawn on another bank, and
Security, etc., Co. v. Lombard Invest. would not immediately check out the
€o., 73 Fed. 537. balance. Before the draft was pre-
15. Flynn v. American Banking, etc., sented the drawer bank, which was in-
Co., 104 Me. 141, 69 Atl. 771. solvent, passed into the hands of a
Moreover, where there is a surplus receiver, without having provided any
§ 80 (9/2b) INSOtVUNCY AND DISSOIÛTION. 635
this right of set-off against the bank is not affected by the appointment of
a receiver, whether the debt was due at that time or not, and whether equi-
table or legal. 1^
Set-OfF by Depositors. —Thus the right of a depositor to set off a

claim for his deposit on the insolvency of the bank against a debt due from
him to the bank is well settled.^"
§ 80 (9|b) Conditions Annexed to Exercise of Right. —But the

general rule that the right to a set off depends on whether the defendant
has a right of action against the plaintiff, applies in the case of set-off by
debtors to a bank.^^
funds with which to pay it. The check, bank must be held to be discharged by
payment of which had been stopped, compensation, pursuant to Act April
came to the possession of the receiver, 5, 1843, § 2, declaring that it shall be
and the draft belonged to plaintiff. the duty of banks to receive in offset
Held, that plaintiff was entitled in of debts due to it its own debts when
equity to have the amount of the draft liquidated and part due. Citizens'
set off against his liability on the Bank v. Steam Cotton Press (N. Y.),
check. Armstrong v. Warner, 49 O. 11 Rob. 286.
St. 376, 31 N. E. 877, 17 L. R. A. 46C. An appeal lies under Rev. St., p. 135,
The bank A, at the time of its fail- § 17, from the decision of receivers,
ure, was indebted to the bank B, which who refused to allow a set-off in a case
subsequently failed; the trustee of the where the applicants admitted that a
bank A having at the time, on deposit bank held their promissory note, but
with the bank B, funds of the trust es- claimed that the bank was largely in-
tate. Held, that the receiver of the debted to them for interest, commis-
bank B was not entitled to set off, sions, etc. Jackson v. Receivers, 9 N.
against the indebtedness due the trustee J. Eq. (1 Stockt.) 205.
of the bank A
on the deposits, the in- 19. In re Middle Dist. Bank (N. Y.),
debtedness due the bank B from the 9 Cow. 414, 1 Paige 585, 19 Am. Dec.
bank A; nor was the trustee of the 452.
bank A entitled to set off, against the 20. When
a bank stops payment or
pro rata share of the bank B in the becomes insolvent, a depositor's right
funds of the bank A, the indebtedness to repayment of his deposit immedi-
due from the bank B on account of the ately accrues without demand, so that
deposits; but each was only entitled at the time the assets vest in the cred-
to receive from the other a pro rata itors on insolvency, the deposit of each
share with the other creditors. Akin depositor is due and entitles its owner
r. Williamson (Tenn.), 35 S. W. 569. to use it as a set-off against any debt
Checks held for collection. In an — held by the bank at the time of the
action by an assignee for benefit of transfer, whether due then or not. In
creditors of a bank to recover a bal- one case, his right would be legal, in
ance due from another bank, a check the other, equitable, but none the less
drawn on the insolvent bank, which to be protected because the statute law
came into the hands of defendant prior of Ohio recognizes the existence of
to the assignment, and to which no de- equitable set-off (Rev. Stat., § 5076).
fense is should be allowed as a
set up, Armstrong v. Law, 27 Wkly. L. Bull.
set-off, though
defendant is not the 100, 11 O. Dec. 461; Armstrong v.
owner of the check, but holds it for Warner, 49 O. St. 376, 31 N. E. 877,
collection. Farmers', etc., Nat. Bank 17 L. R. A. 466 (affirming 21 Wkly. L.
V. Penn Bank, 123 Pa. 283, 16 Atl. 761, Bull. 136, 10 O. Dec. 434).
2 L. R. A. 273. 21. Inasmuch as the holder of a
Rule in —
In an action by
Louisiana. check, drawn by a third party on a
•a bank, inliquidation under the acts of bank, has no action against the bank
March 14 and 26, 1842, to recover the in case of refusal to pay, he can not
-amount of a dividend due on stock held set off such check against his note held
by it in another corporation to which by the bank. Case v. Henderson, 23
it was indebted in a larger sum for La. Ann. 49, 8 Am. Rep. 590; Case v.
money oh deposit, the claim of the Marchand,.23 La. Ann. 60.
536 BANKS AND BANKING. § 80 (9/2C)
§ 80 (9ic) Claims That May Be Used as Set-Offs.— Of course

only such debts or claims can be used as are contemplated by the statute
of set-off in the particular jurisdiction.^^
Claims against the bank acquired
after insolvency can not be used as set-offs against debts due by the
its
defendant to the bank.^s Nor can a debtor of a bank, after notice that his
creditor had assigned the debt to a third person, to secure the latter for
acceptances made for the creditor, the proceeds of which had been received
22. Debt due by contract.— In ad- in that manner, before the period of
justing the concerns of a bank by re- distribution arrives In re Van Allen
ceivers of its assets, the bank tax, im- (N. Y.), 37 Barb. 225.
posed by Rev. St., c. 9, § 1, and c. 36, Unascertained indebtedness.— On the
§ 45, and due from the bank, may be distribution of the assets of an insol-
set oflf against money due from the vent bank, only the direct and ascer-
commonwealth to the bank on loan. tained indebtedness of depositors can
Commonwealth v. Phcenix Bank be set oflf against their ascertained
(Mass.), 11 Mete. 129. claims for shares in the money to be
"Mutual credits." —Where, at the distributed. In re Humboldt Safe De-
time of the failure of the bank, one of posit, etc., Co., 3 Pa. Co. Ct. R. 621.
its customers was indebted to it on a
note not then due, but which matured
Aclaim for pay for services, due be-
fore a bank closes its doors, is a set-
a few days thereafter, and the bank
oflf to a liability on bills discounted.
was also indebted to him for deposits
Davis V. Industrial Mfg. Co., 114 N. C.
in a sum exceeding the amount of the
321, 19 S. E. 371, 23 L. R. A. 322.
note, such claims are "mutual credits,"
within 2 Rev. St., p. 47, § 36, under 23. Claims acquired after insolvency.
which it is the duty of the receiver of —Dyer v. Sebrell, 135 Cal. 597, 67 Pac.
the bank to set ofif the one against the 1036; American Bank v. Wall, 56 Me.
other. Jones v. Robinson (N. Y.), 26 167.
Barb. 310. In an action by the receivers of a
Where, on the insolvency of a bank, bank, appointed under St. 1851, c. 127,
the lessor of its banking house was in- upon a debt contracted before the in-
debted to it on a demand note, he was stitution of proceedings against the
not entitled to set off a claim for dam- bank, the defendant may set oflf debts
ages for breach of the lease by the due from the bank held by him before
bank against its claim on the note. the commencement of such proceed-
McGraw v. Union Trust Co., 135 Mich. ings, but not debts purchased since
609, 98 N. W. 390. their commencement, although before
Where the vice president and attor- the perpetual injunction. Colt v. Brown
ney of an insolvent bank was indebted (Mass.), 12 Gray 233.
to it on notes secured by mortgage, he —
Burden of proof. If a party wishes
was estopped to set up claims arising to avail himself of a set-off against the
from a liability accruing against him claim of a bank which has failed, and
as surety on an attachment bond, and filed a bill, asking to have its affairs
for money which he borrowed on his administered as an insolvent corpora-
personal credit and gave to the bank's tion, it is incumbent upon him to prove
cashier, as a set-oflf against his liabil- that he acquired his claim before the
ity on the debt due the bank; and filing of the bill, when the rights of the
hence he was not entitled to maintain creditors attached. Smith v. Moseby,
a bill to restrain the receiver of the 56 Tenn. (9 Heisk.) -501; Lanier v. Gay-
bank from foreclosing the mortgage. oso Sav. Inst., 56 Tenn. (9 Heisk.) 506.
Chapman v. Cutrer (Miss.), 29 So. 467. Where a defendant, who is sued on
—
Unliquidated claims. ^Where credit a note by the receiver of an insolvent
claims exist on both sides between an bank which has failed and filed a bill
insolvent bank and one of its custom- asking to be wound up, offers, as a
ers, and the customer's claim is not set-off, a certificate of deposit given
liquidated, and incapable of liquidation, by the bank, the burden is upon him
without the aid of a jury or extrinsic to show that he received it previous
evidence, the right to set-oflf is not ab- to the filing of the bill by which the
solute; but the receiver of the bank assets of the bank were impounded for
must act in good faith, and adopt all the benefit of all its creditors. Smith
proper measures to liquidate the claim V. Moseby, 56 Tenn. (9 Heisk.) 501.
§ 80 (9/2C) INSOLVENCY AND DISSOI.UTION. 637
by him, and after notice also of the insolvency of the assignor, purchase,
for a trifling consideration, desperate claims against the insolvent creditor,
for the purpose of tendering them in payment of the debt, in the hands of
the innocent assignee. 2* The purchase of depreciated notes, after knowl-
edge of such an assignment, is an act of bad faith, injurious to the rights
of others. It is immaterial in what manner the knowledge of the transfer
was acquired, so that it existed at the time of the purchase. ^^
—
Unpresented Checks. While the courts dififer as to the rights of a
holder of a check, where the drawer has become a bankrupt before the check
is presented, it seems to be well settled that in case of the insolvency of the
drawee bank before the payment of the check the holder will not be en-
titled to any preference, or to offset the unpresented check against his in-
debtedness to the insolvent bank. To allow such a set-off would open wide
the door for fraud and collusion. ^s
A correspondent bank, indebted to an insolvent bank on open account,
is entitled to apply the amount thereof on an indebtedness due to the cor-
respondent bank from the insolvent bank.^'''
24. Claims purchased to be used as of an insolvent bank purchased after

set-offs. —
N'otice having been given to notice of a gfeneral assignment for the
a debtor that his creditor, a bank, had benefit of its creditors, can be tendered
transferred the debt to another per- only in payment of debts "due to the
son as collateral security for accept- bank," to such as belonged to the
ances for the bank, the proceeds of bank at the time of its assignment, and
which had been received; that the which passed to the assignees; and not
bank had become insolvent; and that to such debts as were transferred by
it had made a general assignment in the bank before such assignment in
—
trust for its creditor the subsequent good faith and for a valuable consid-
purchase and the tender of the depre- eration, with the knowledge of the
ciated notes of the bank to the attor- debtor. Philips v. Bank, 18 Pa. 394.
ney, or agent thereof, or its general as- 26. A debtor of an insolvent bank,
signees in payment of the debt, will which has made an assignment for the
not defeat the claim against him of the benefit of creditors, can not set off
transferee. Philips v. Bank, 18 Pa. against his debt to the bank a check
394. See in accord Bank v. Marshall, drawn in his favor by a depositor of
66 Va. (25 Graft.) 378. the bank, and not presented for pay-
25. Philips V. Bank, 18 Pa. 394. ment until after the assignment.
It is not necessary that notice of the Greenebaum v. American, etc., Sav.
transfer be given to the debtor by the Bank, 70 111. App. 407.
person in whose favor the transfer was Accordingly, the debtor of an insol-
made, nor is it necessary that it be vent bank, which has assigned for the
given in writing. Philips v. Bank, 18 benefit of creditors, can not set off
Pa. 394. against his debt a check drawn in his
The second section of the Act of favor by a depositor, before the failure
March 13, 1843, provides that when a of the bank, but which had not been
bank has made a general assignment in presented for payment. Northern
trust for the benefit of all their^ cred- Trust Co. V. Rogers, 60 Minn. 208, 62
itors, "the assignees shall receive in N. W. 373, 51 Am. St. Rep. 526.
payment of debts due to said bank, its 27. Brown v. Sheldon State Bank,
own notes and obligations." If this 139 Iowa 83, 117 N. W. 289.
provision be limited to the notes and The S. bank, having cashed an ex-
obligations of the bank which the change for the L. bank, drew a draft
debtor had received in the usual course on the L. bank for the amount, and in-
of business before notice of the assign- dorsed the same to the N. bank. It
ment, its justice is so obvious as to re- thereupon wrote a letter of advice to
quire no aid from the statute. By the the N. bank, directing it to credit the
letter and spirit of the Statute the notes amount: of the draft on its open deposit
638 BANKS AND BANKING. § 80 (9J4)
§ 80 (9id) Estoppel to Interpose Set- Off .—A bank is not estopped

by judgment from interposing as a set-off in a suit by creditors the claim
of the bank for stock subscriptions and other liabilities, where such indebt-
edness was not involved in the former suit.^®
§ 80 (9i) Proceedings to Compel Payment. ^9—In General. —The

proceeding to compel payment of his claim by a creditor is by petition^" in
the court where the insolvency proceedings are pending, though proceedings
against the bank have been stayed.î It seems, however, that it is within
the discretion of the court either to determine claims against a bank re-
ceiver by petition in the original action in which he was appointed or by an
independent But where a trustee is empowered to pay claims only
suit.^^
after allowance by commissioners appointed therefor, he can not be com-
pelled by suit in a federal court to pay claims rejected by them.^s
account, but through inadverience the 30. Sufficiency of pleadings. —A peti-

draft was not inclosed in the letter. tion the allowance of a belated
for
While the draft was still in its hands, claim against an insolvent bank, which
the S. bank failed, and the draft passed in apt language charged that the de-
into the bands of its receiver, who re- fendant was indebted to the plaintiff
ceived credit for the proceed? thereof. in a sum named, was not demurrable
Held, that the letter of advice was not because it also alleged that the owner-
such an assignment of the draft as to ship of the claim was disputed and in
entitle the N. bank to receive the pro- litigation between the plaintiff and
ceeds thereof from the receiver, for another party. State v. Bank, 61 N'eb.
application on an indebtedness to it 22, 84 N. W. 406.
from the insolvent bank. Brown v. —
Intervention. A creditor of an in-
Sheldon State Bank, 139 Iowa 83, 117 solvent hank corporation organized
N. W. 289. imder the state law, for which a re-
Mutual debts between banks. If, at — ceiver has been appointed, should ap-
the time one bank failed, owing an- ply to the court in which the pro-
other bank, that bank also owed the ceedings are pending for leave to in-
first bank, obviously the proper method tervene before filing his petition
of settlement would have been to offset therein as a claimant. Stone v. Ing-
one debt against the other, under the ham Circuit Judge, 105 Mich. 234, 63
principles laid down in the case of N. W. 79.
Nashville Trust Co. v. Bank, 91 Tenn. 31. Proceedings to adjudicate claims.
336, 18 S. W. 822, 15 L. R. A. 710. —Though all proceedings have been
Akin V. Williamson (Tenn.), 35 S. W. stayed against a bank
in liquidation
569. under Act March 14, 1842, No. 98, § 29,
28. Estoppel to interpose set-off. — a creditor may sue in the court where
In a suit by creditors, who are also di- the proceedings are pending to have
rectors and officers, of an insolvent his claims recognized, to be paid in
corporation, to marshal and distribute course of administration. Gaillard v.
the assets, and to charge the stock- Citizens' Bank (La.), 11 Rob. 168.
holders with their statutory liabilities, Adjudication of claims against
32.
neither the bank nor its creditors or —
receiver. To recover moneys depos-
stockholders are estopped from offset- ited with an insolvent bank, the party
ting against the debts due other claim- may file his petition in the action
ants or their assignees, whether by wherein a receiver for said bank has
judgment or otherwise (no superior been appointed. Blake v. State Sav.
equities intervening), the indebtedness Bank, 12 Wash. 619, 41 Pac. 909.
of such claimants to the bank not in- 33. Allowance of rejected claims. —
volved or adjudicated in a former suit Two statutes of Mississippi, one passed
between the same parties or their in 1843, and the other in 1846, pro-
privies. Elliott v. Farmers' Bank, 61 vided that where the charter of a bank
W. Va. 641, 57 S. E. 242. should be declared forfeited, a trustee
29. See ante, "Assignments for Ben- should be appointed to take possession
efit of Creditors," § 78. of its effects, and commissioners ap-
§ 81. Distribution of Surplus. —A judicial forfeiture of the charter

of a bank does not extinguish the of debtors to the bank; but
liabilities
after such forfeiture, and a winding up of the affairs of the bank, the stock-
holders are entitled to any surplus that may remain after the payment of its-
debts. ^* And a delinquent debtor can not in such case plead the judgment
of forfeiture as against a trustee seeking to reduce his debt to money for
pointed to audit accounts against it. that, since those who paid their debts
Where these steps had been taken, and in stock prevented an accumulation of
the commissioners had refused to al- interest on their debts from the time
low a certain account, the circuit court of such payment, they should be re-
of the United States had no right to garded, upon subsequent distributions
entertain a bill filed by the creditors of the fund, as if they had received in-
to compel the trustee to pay the re- terest on their stock from the time it
jected account. There was a want of was applied upon their debts. Conoco-
jurisdiction. Peale v. Phipps (U. S.), cheague Bank v. Ragan (Md.), 7 Gill
14 How. 368, 14 L. Ed. 459: Applied, & J. 341.
Taylor v. Carryl (U. S.), 20 How. 583, Estoppel to deny title.—Where a
15 L. Ed. 1038; Green v. Creighton, judgment of forfeiture has been ren-
33 How. 90, 16 L. Ed. 419; Barton v. dered against a bank, and a trustee
Barbour, 104 U. S. 126, 26 L. Ed. 672. appointed to take charge of its assets,
A claim by the trustee, in reconven- his title to the assets, after payment
tion, was not a waiver of the exception of the debts, is subordinate to that of
to the jurisdiction, being made condi- the stockholders, and he was estopped
tionally, in case the exception to the to deny their right to a distribution
jurisdiction should be overruled. Peale of the remaining assets. Bacon v.
V. Phipps (U.. S.), 14 How. 368, 14 L- Robertson (U. S.), 18 How. 480, 15
Ed. 459. L. Ed. 499.
34. Distribution of surplus to stock-
And a bill can be maintained, filed
by a number of stockholders owing
—
holders. Bacon v. Robertson (U. S.),
one-fifth part of the capital stock, su-
18 How. 480, 15 L. Ed. 499, affirmed;
ing for themselves and such of the
Lum V. Robertson (U. S.), 6 Wall. 277, stockholders as were not citizens of
18 L. Ed. 742; Hollister v. Hollister
Mississippi, nor defendants in the bill.
Bank, 41 N. Y. (2 Keyes) 245, 2 Abb.
Bacon v. Robertson (U. S.), 18 How.
Dec. 367; Marr v. Bank, 44 Tenn. (4
480, 15 L. Ed. 499.
Coldw.) 471.
Rights ofecclesiastical societies.—
A trustee of the property of a bank- The charter of a bank provided that
ing corporation, appointed under a ecclesiastical societies might subscribe
judgment of forfeiture against the for its stock, with the privilege of
corporation, holds the surplus of the withdrawing their subscriptions at any
property, after paying the debts of the time, on giving six months' notice to
company and the costs of administer- the directors. Pursuant to this pro-
ing the trust, for the benefit of the vision, certain ecclesiastical societies
stockholders. Bacon v. Robertson (U. subscribed for stock, and afterwards
S.), 18 How. 480, 15 L. Ed. 499. gave the required notice of withdrawal.
Upon the dissolution of a bank, a The bank afterwards went into liquida-
resolution permitted debtors to the tion by the appointment of receivers,
bank to pay their debts ir Jtock at a and its assets proved sufficient for the
certain price, and also provided that payment of all liabilities, leaving in the
dividends should be paid to other hands of the receivers funds sufficient
stockholders at the same rale. From to refund to the privileged stockhold-
time to time dividends were allowed ers in full the amounts subscribed by
to nondebtor stockholders, extending them, with a balance for distribution
over a period of several years, whereby among the general stockholders. Held,
such stockholders suffered a disad- that the societies were stockholders,
vantage with respect to interest as and as such were entitled only to their
compared with debtors who turned proportion of the assets after the pay-
their stock upon their debts immedi- rrient of debts, and that no distinction
ately after the passage of the rpsolu- should be made in' their favor in the
tion. On a bill by the nondebtor stock- distribution of the funds. Stonington
holders to equalize the dividends, held Bank v. Baptist Soc, 38 Conn. 577.
the benefit of the stockholders.*^ But until all debts are fully paid there
will be no distribution of the assets among stockholders.**
§ 82. Civil Liability on Insolvency. — See ante, "Officers and Agents,"

§ 50-58 (6).
§ 83. Criminal Responsibility on Insolvency. —See ante, "Criniinal

Responsibility," §§ 60-62.
§ 84. Offenses.—See ante, "Criminal Responsibility," §§ 60-62.
§ 85. Prosecution and Punishment. — See ante, "Criminal Re-

sponsibility," § 60-62.
35. Suit by trustee.—Lum v. Robert- been levied on the stockholders of an

son (U. S.), 6 Wall. 277, 18 L. Ed. insolvent bank under Act April 5, 1849,
742. to enforce their personal liability for
Nor can a delinquent be permitted the bank's unsatisfied debts, there re-
. to show (not having a meritorious de- mains a sum in the receiver's hands
fense to the suit) that the former trus- arising from assets not anticipated at
tee, the nominal plaintiff, in whose the time of the assessment, tKat sum
name the suit is brought, is no longer will not be ordered distributed among
the real party in interest. Lum v. the stockholders until all creditors of
Robertson (U. S.), 6 Wall. 277, 18 L. the bank are fully paid. Pruvn v. Van
Ed. 743. Allen (N. Y.), 39 Barb. 354.
36. Where, after an assessment had
CHAPTER VII.
III. Functions and Dealings.
A. Banking Franchises and Powers, and Their Exercise in General.

§ 86. What Are Banking Powers in General.
§ 86 (1) Functions In General.
§ 86 (3) Mode of Exercise.
86 (3) Place of Exercise.
§
§ 86 (4) Incidental and Implied Powers.
§ 87. Construction of Charters and Banking Laws.
§ 88. Rules of Bank.
§ 89. Customs and Usages.
§ 89 (1) Admissibility of Evidenceand Its Sufficiency.
§ 89 (2) Character and Effect.
§ 89 (3) Presumption of Action by Directors.
§ 89 (4) Particular Customs.
§ 89 (4a) As to Notice of Maturity of Negotiable Paper.
§ 89 (4b) As to Deposits and Checks and Payment Thereof.
§ 89 (4c) As to Collections.
§ 89 (4d) As
to Loans and Discounts.
§ 90. Agency Bank.
of
§ 91. Purchasing and Holding Bank's Own Stock.
§ 93. Purchasing and Holding Stock in Other Corporations.
§ 93. Property and Conveyances.
§ 94. In General.
§ 94 (1) Acquisition and Holding.
§ 94 (2) Disposal of Property.
§ 95. Real Property.
§ 95 (1) Acquisition and Holding.
§ 95 (la) Right to Acquire and Hold Generally.
§ 95 (lb) Right to Raise Question of Authority.
§ 95 (Ic) Conveyance before Incorporation Complete.
§ 95 (Id) Mortgages.
§ 95 (le) Leases.
§ 95 (3) Disposal of Property.
§ 96. With Respect to Contracts in General.
§ 96 (1) Formality and Authentication.
§ 96 (3) Notice of Limitations.
§ 96 (3) Contracts under Seal.
§ 96 (4) Contracts between Banks Entered into by Contracting Officers
Common to Both.
§ 96 (5) Contract to Honor Drafts.
§ 96 (6) Subscription Contract.
§ 96 (7) Illegal Contracts.
§ 96 (8) Ultra Vires Contracts.
§ 96 (9) Termination.
§ 97. Borrowing Money.

§ 98. Bonds, Assignments and Negotiable Instruments.
§ 98 (1) Bonds and Assignments.
1 B & B— 41
§ 98 (3) Negotiable Instruments.

§ 98 (2a) Power to Make and Issue.
§ 98 (3b) Power to Deal Therein.
§ 99. Guaranty and Suretyship.
§ 100. Torts.
§ 101. Effect of Acts Ultra Vires.
§ 101 (3) Rights Acquired by Bank.
§ 101 (3) Rights Acquired against Bank.
III. FUNCTIONS AND DEALINGS.^

A. BANKING FRANCHISES AND POWERS, AND THEIR EXER-
CISE IN GENERAL. 2
§ 86. What Are Banking Powers in General— § 86 (1) Func-
tions in General. —The principal functions of a bank are: 1, To receive
and pay deposits ; 2, to issue notes of circulation redeemable on presentation

at its counter; 3, to buy and sell exchange; and, 4, to loan money .^
Banking Powers. Bank — charters contain an infinite variety of provi-
sions. Some are exceedingly restricted, while others are almost unlimited,
in the power which they confer; and the shades of difference between these
two extremes are so numerous that it would be impossible to form any defi-
nite idea of what were the powers intended to be granted in any particular
case. The consequence is that a body of men, to whom banking powers,
in the abstract, were conceded, would be placed in an infinitely better condi-
tion than any other corporation in the state. Their powers would, literally,
be unbounded, in consequence of the very defect which was inherent in
their creation. That they were without law would be a passport to the
exercise of all law.* The expression, "banking powers," has been held to
1. Functions and dealings. Of loan, — Powers of foreign banks, see post,

trust and investment companies, see "Place of Exercise," § 86 (3).
post, "Functions and Dealings,'' § 315. Effect of acts ultra vires, see post.
Of national banks, see post, "Bank- "Effect of Acts Ultra Vires," § 101.
ing Powers," § 358, et seq. What are banks or banking privi-
bf savings banks, see post, "Powers leges within prohibition of unauthor-
in General," § 395, et seq. ized banking, see ante, "What Are
2. Of national see banks,
post, ^^"'^f;''.? ?• , , . ^ ,,
"Banking Powers," 358; "Effect of
§ „3- Principal functions.-Godfrey v.
Acts Ultra Vires," § 361; "Powers in Terry 97 U. S. 171, 34 L Ed. 944

General " S ?95 Chafin v. L,incoln Sav. Bank, 54
Of sa'vin^s" banks, see post, "Powers Term. (7 Heisk.) 499, speaking of the
rights of banks to exercise the par-
in General"" S 395
t'C"'^'' f^^nctipns^ of banking, it is said:
Of branch bank's, see ante, "Pow-
"^ authorized to discount notes; to
crs " S 33 (3)
'.
, , p . i(T>- 1 buy and sell notes, stock and uncur-
Right to exercise.-See ante. Right .. J.
^^^^ ^^^^^ ^^^, ;„ exchange, gold

of Banking in General, § 1. _
^„j gjl^^r," bullion, etc. This is the
Transfer and sale of franchise. See — language by which the privileges of
ante, "Assignment and Transfer of banking have been given by the leg-
Rights, Franchises, etc.," § 30 (3). islature to the various banks which
Forfeiture of franchise, see ante, have been chartered."
"Grounds for Forfeiture of Franchise 4. Banking powers. —
State v. Wash-
or Dissolution," § 68. ington, etc., Library Co., 11 O. 96.
§ 86 (2) FUNCTIONS AND DEAIÎNGS. 643
connote the idea of issuing circulating notes only.^ And a bank, though
owned entirely by the state, is a mere corporation, possessing no greater
powers and privileges than other corporations,* unless privileges and im-
munities belonging to the state are expressly conferred by its charter.''
The purposes of an organization are very material in determining
whether its act is ultra vires.*
§ 86 (2) Mode of Exercise. —

A bank acts either by its president or
by its stockholders. In the exercise of its
directors, or their agents, or
ordinary functions by the former; in extraordinary matters, by its stock-
holders.
5. As connoting issue of notes only. posits. Corwin v. Urbana, etc., Ins.

—The term "banking powers" is broad Co., 14 O. 7.
enough to include the powers usually And the advancing of money by a
enjoyed by banking associations, such building association to its members
as making loans and discounts, re- is not the exercise of banking powers.
ceiving deposits and dealing in securi- Forrest City, etc., Bldg. Ass'n v. Gal-
ties, etc., as well as issuing bills and lagher, 25 O. St. 308.
notes for circulation as money; and at 6. Bank owned by the state. Bank—
the date of the adoption of the Ohio V. (S. C), 3 McCord 377.
Gibbs
constitution of 1851, and for a long time Where conferred by charter.—
7.
prior thereto, the commercial world Mahone v. Central Bank, 17 Ga. 111.
was familiar with banks of deposit and See post, "Construction of Charters
discount as well as banks of issue, of and Banking Laws," § 87.
which only the latter made and issred 8. Materiality of purposes of or-
notes to circulate as money, the pow-
ers of either class being properly de-
—
ganization. Judgment, Gause v. Com-
monwealth Trust Co., 124 App. Div. 438,
nominated "banking powers." The 108 N. Y. S. 1080, which .-affirmed in 55
phrase used by the constitution, "as- Misc. Rep. 110, 106 N. Y. S. 388; S. C,
sociations with banking powers," was 196 N. Y. 134, 89 N. E. 476.
susceptible, however, of another and And the courts treat the question as
restricted meaning, relating only to the it relates to a corporation organized
powers employed in making and is- for business purposes, where the only
suing paper money, and under the persons interested, other than its
Ohio constitution of 1851, and prior business creditors, are its stockhold-
thereto, "banking powers" meant only ers, and their only interest therein is
this power of issuing money. Dear- to secure dividends upon their invest-
born V. Northwestern Sav. Bank, 43 O. ment, very differently than they do in
St. 617, 51 Am. Rep. 851. the case of a banking corporation
The term "banking powers," as irsed which occupies a fiduciary position.
in Ohio
Const., 1851, art. 13, § 7, pro- Judgment, Gause v. Commonwealth
viding that no act of the general as- Trust Co., 124 App. Div. 438, 108 N.
sembly authorizing associations with Y. S. 1080, which affirmed in 55 Misc.
"banking powers" shall take effect un- Rep. 110, 106 N. Y. S. 288; S. C, 196 N.
til submitted to the people, relates Y. 134, 89 N. E. 476.
only to the power to issue notes or 9. By officers or stockholders. —
other obligations intended to circulate "When we speak of an act to be done
as money. Bates v. People's Sav., etc., by a bank or banks, we mean an act
Ass'n, 42 O. St. 655; Dearborn v. to be done by those who have the au-
Northwestern Sav. Bank, 42 O. St. 617, thority 1o do it. If it be an act within
51 Am. Rep. 851; Exchange Bank v. the franchise for banking, or the or-
Hines, 3 O. St. 1; State v. Granville dinary power of the bank to contract,
Alexandrian Soc, 11 O. 1. See, also, and it is done by the president and di^
Forrest City, etc., Bldg. Ass'n v. Gal- rectors, or by their agent, we say the
lagher, 25 O. St. 208. bank did it, and every one understands
Thus
the term "banking: powers," as what is meant. If, however, an act is
used a charter provision prohibit-
in to be done relative to the institution,
ing the exercise of banking powers, by which its charter is to be in any
does not prohibit the receiving of de- way changed, the stockholders must
§ 86 (3) Place of Exercise. i" —Foreign Banking Corporations. —

While, by comity, a foreign banking corporation may do business within a
state, this is only in the absence of legislation indicating a contrary inten-
tion,ii and if the law creating a banking corporation does not, by the true
construction of the words used in the charter, give it the right to exercise
its powers beyond the limits of the state, all contracts made by it in other
do it, unless another mode to effect it ated by the laws of one state, has ca-
has been provided by the charter." pacity to make a contract falling within
Gordon v. Appeal Tax Court (U. S.), its corporate powers in any other state,
3 How. 133, 11 L. Ed. 529. See post, unless its capacity to make such con-
"Grounds and Extent of Liability in tract is oftiosed to the laws or the
General," § 102, et seq., as to repre- settled policy of the state in which its
sentation of bank by officers and exercise is attempted. Such contracts
agents. are permitted upon principles of
Execution of bond as depositary. — comity between the different states of
See post, "Special Deposits," § 153. this Union, and in furtherance of the
10. Place of exercise. Right to sue — intimate commercial relations existing
in another state, see post, "Capacity to between their respective citizens. Pick-
Sue and Be Sued," § 213. away County Bank v. Prather, 12 O.
As to location and place of business, St. 497.
see ante, "Location and Place of Busi-
ness," § 32.
—
Michigan. Banking corporations and
corporations within the contemplation
Foreign corporation carrying on busi- of the banking laws of Michigan are
ness under name similar to domestic not within the provisions of the act
corporation, see ante, "Statutory Re- authorizing foreign corporations to
quirements," § 31 (l). transact business in Michigan. New
11. Rule of comity. It is well set-— York Mortg. Co. v. Secretary, 150
tled, that by the law of comity among Mich. 197, 114 N. W. 83.
nations, a banking corporation cre-
Virginia. — Enforcement of primary
ated by one sovereignty is permitted
to make contracts in another, and to
contract. — A bank of another state can-
not enforce a primary contract made
sue in its courts; and that the same in Virginia, as by discounting notes or
law of comity prevails among the sev- otherwise. Bank v. Pindall, 23 Va. (2
eral sovereignties of this Union. The
Rand.) 465.
public, and well-known and long-con-
It would not, therefore, be permitted
tinued usages of trade; the general ac- to a bank in Ohio, to establish an
quiescence of the states; the particular
agency in Virginia, for discounting
legislation of some of them, as well as
notes, or for carrying on any other
the legislation of congress; all concur
banking operations; nor could they
in proving the truth of this proposi-
sustain an action oxy any note thus
.
tion. Butthis comity is presumed acquired by them. But this would not
from the silent acquiescence of the
prevent borrowing money from a bank
state. Whenever a state sufficiently in Ohio, or restrain one citizen of Vir-
indicates that contracts which derive
ginia from executing to another citi-
their validity from its comity are re-
zen, or to a foreigner, a note payable
pugnant to its policy, or are considered
at the banking house of a bank legally
as injurious to its interests, the pre-
constituted in Ohio; nor prevent such
sumption in favor of its adoption can
bank from taking an assignment of
no longer be made. Bank v. Earle, 13
such note by discounting it in Ohio.
Pet. 519, 10 L. Ed. 274.
—
Alabama. There is nothing in the
No douDt, but the bank may recover by
suit in Virginia, a debt thus con-
constitution or laws of Alabama, from
tracted. Bank v. Pindall, 23 Va. (2
which this court would he justified in
Rand.) 465.
concluding that the purchase of bills
of exchange by a foreign banking cor- Wisconsin. —Kennedy v. Knight, 21
poration within the state of Alibama, Wis. 340, 94 Am. Dec. 543.
was contrary to its policy. Bank v. Prohibition of carrying on business
Earle (U. S.), 13 Pet. 519, 10 L. Ed. by agent. —
Mississippi. —
A bank of an-
274. other state can not, by an agent, carry
—
Ohio. General right to transact on the business of banking in this
—
business. A banking corporation, cre- state. Bank v. Stegall, 41 Miss. 143.
§ 86 (3) FUNCTIONS AND DEALINGS. 645
states would be void.^^ But it has been held that, in the absence of any
statute limiting its authority, a bank organized under the laws of one state
may transact any business within the scope of its charter in other states. ^^
The Bank of the United States, had, constitutionally, a right to es-
tablish its branches of offices of discount and deposit within any state. ^*
In State of Incorporation.—They may be freely exercised anywhere

therein, if unrestricted. ^^
What Constitutes Doing Business in State Contrary to Laws
—
Thereof. Where a note and mortgage were given in Wisconsin to secure
payment of principal and interest to a bank in New York, it was not an
attempt on the part of the bank to exercise its powers of banking within this
state; especially as the liability might have been prior to the note and
mortgage, and as the laws of Wisconsin did not forbid a foreign bank to
take securities there for a loan previously made.^® And under a statute by
12. Right must be given by law of pose of doing business chieily in Ohio,
creation. — BankEarle (U. S.), 13
v. having an office and holding their an-
Pet. 519, 10 L. Ed. 374. See, also. nual meetings in the incorporating
Metropolitan Bank v. Godfrey, 23 111. state, all their business meetings, how-
579. ever, being held, for convenience, in
Restriction in charter or general law. Ohio, will not be treated as mere as-
— Although a general law prohibiting sociations or partnerships, but as cor-
corporations from exercising banking porations. Second Nat. Bank v. Lovell,
powers unless expressly granted would 3 Cin. R. 397, 13 O. Dec. 972.
have no force beyond the limits of the Estoppel to deny corporate exist-
state, a similar restriction of its char-
ter would restrain the action of the
—
ence. An officer of a bank, purport-
ing to be incorporated under the laws
corporation wherever, by comity, it of another state, who has dealt with
might be permitted to exercise its the bank as a corporation, as by lend-
powers and functions. Ohio Life Ins., ing money to it, can not, in a suit for
etc., Co. V. Merchants' Ins., etc., Co the money, deny the corporate exist-
30 Tenn. (11 Humph.) 1. ence of the bank. Second Nat. Bank
13. Outside of state of incorporation. V. Lovell, 2 Cin. R. 397, 13 O. Dec.
— Fawcett 'd. Mitchell, etc., Co., 133 972.
Ky. 36], 117 S. W. 956. See, ho-,vever, 14. Location of branch of United
Lane & Co. v. Bank, 56 Tenn. (9 —
States bank. McCulloch v. Maryland
Heisk.) 419, where it was held that
(U. S.), 4 Wheat. 316, 4 L. Ed. 579.
though the assets of a bank be forced As to construction of § 5:90, U. S.
out of the state by military power, yet Rev. Stat., providing where the "Usual"
its corporate rights and franchises still
business of a national bank shall be
—
remain these can not be expelled;
transacted, see post, "Location and
nor can the bank exercise them or Place of Business," § 239.
transplant its corporate entity beyond
the bounds of the sovereignty, which 15. Anywhere in state. —Where a
created it. banking corporation, whose location
Yet this case holds that a bank may, and place of business is at Columbus,
by the comity of states, if not forbid- Ohio, has power by its charter to deal
in bills of exchange, without restric-
den by its charter, make a contract in
another state, but the general fran- tion as to place, it may purchase such
bills at Cleveland, Ohio, for the pur-
chises conferred by its charter can
only be exercised within the govern- pose of remitting to New York the
ment whose creature it is. Lane & Co. proceeds of paper belonging to the
V. Bank, 56 Tenn. (9 Heisk.) 419. And
bank, collected at Cleveland. City
see Talmadge v. North American Coal, Bank v. Beach, Fed. Cas. No. 2,736,
etc., Co., 40 Tenn. (3 Head) 337; Mc-
1 Blatchf. 425. See ante, "Location
Cullough V. Moss (N. Y.), 5 Dcnio 567. and Place of Business," § 32.
Corporate existence recognized. — 16. What
constitutes doing business
Banks incorporated under the laws of in contrary to laws thereof.
state —
another state, without any intent to Kennedy v. Knight, 21 Wis. 340, 94
evade the laws of Ohio, for the pur- Am. Dec. 543.
which foreign corporations are prohibited from keeping an office within the
state to receive deposits, or discount notes, etc., where such a corporation
authorizes an agent to attend at known places within the state for the
purposes specified, such places are offices of discount and deposit.^'^
Compliance with Conditions Prescribed. A foreign corporation pur- —
chasing a note in the state, and having no purpose to do any other act in the
state, is not "transacting business" in the state, within a statute providing
that a foreign banking corporation, "before transacting business'' in the
state, must record a power of attorney in each county where it has "a resi-
dent agent,'' which, so long as the company has "places of business" in the
state, shall be irrevocable. i* Nor is bringing an action doing business under
a similar statute requiring a certificate to be obtained and the appointment
of an agent for service of process. i® And a statute prohibiting any one,
except a body corporate expressly authorized by law, from keeping any
office to receive deposits, or discount notes, etc., includes foreign banking
corporations. 2"
§ 86 (4) Incidental and Implied Powers. The incidental powers —

necessary to carry on a banking business 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 bank to incur liabilities
in the regular course of its business, as well as to become the creditor of

others. Its own 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 assumed that result unfortunately. Loans
or discounts may be made that can not be met at maturity. Compromises
to avoid or reduce losses are often the necessary results of this condition
of things. These compromises come within the general scope of the powers
committed board of directors and the officers and agents of the bank,
to the
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
17. Statute forbidding foreign cor- tion shall not transact business in the
poration to keep office of deposit or state without a written certificate from
—
discount in state. Taylor v. Bruen (N. the superintendent of banks, and the
y.), 3 Barb. Ch. 301. appointment by such corporation of
18. Compliance with conditions pre- the superintendent as its agent for
—
scribed. Commercial Bank v. Sher- service of process. Judgment, Citi-
man, 28 Ore. 573, 43 Pac. 658, 52 Am. yens' State Bank v. Cowles, 39 Misc.
St. Rep. 811, construing Oregon stat- Rep. 571, 80 N. Y. S. 598; S. C, 89
ute. App. Div. 281, 86 N. Y. S. 38, reversed
19. Bringing of action not doing in 180 N. Y. 346, 73 N. E. 33, 105 Am.
—
business. The mere bringing of an ac- St. Rep. 765, but on other grounds;
tion on a negotiable instrument by a Western Nat. Bank v. Kelly, 95 N. Y.
foreign bank is not doing business S.574, 48 Misc. Rep. 366.
within the state, under the banking 20. Statute requiring incorporation,
law (Laws 1892, p. 1861, c. 689, §§ 31, —Taylor v. Bruen (N. Y.), 2 Barb.
32), providing that a foreign corpora- Ch. 301.
§ 87 FUNCTIONS AND DEAI,INGS. 647
behalf, whatever natural persons could do under like circumstances.^^

Implied Powers. — In the absence of any denial thereof in the charter,
a bank has certain implied powers which are as complete as if they were
expressly given. ^^
Definition and Regulation by Legislature.
The legislature, by whose —
fiat whose creation it is, may prescribe and reg-
the corporation exists, and
ulate the mode of its operation, and in what manner its powers shall be
exercised. It may by special restriction in the charter define and limit the
incidental powers which the corporation shall possess; and so far as this
is done, the statute and not the common law will determine what those
powers are 23
§ 87. Construction of Charters and Banking Laws.^* — Charter

as Limit of Powers. —The powers of a banking corporation are limited by
its charter, both as to what it can do, and how and by whom it can act,^^ or
Incidental and implied powers.

21. As to locality for transaction of
— First Nat. Bank v. National Exch. business, see ante, "Location and Place
Bank, 92 U. S. 122, 127, 23 L. Ed. 679, of Business," § 32.
51 How. Prac. 320. Results of incorporation, see ante,
22. Implied powers.^Wroten v. "Results of Incorporation," § 23 (3).
Armat, 72 Va. (31 Gratl.) 228. Charter as contract, and amendment
or repeal, see ante, "Charter as Con-
23. Definition and regulation by leg-
islature. —
Crocker v. Whitney, 71 N. tract, and Amendment or Repeal,"
§ 23 (3b).
Y. 161; citing Bank v. Dandridge (U.
S.), 12 Wheat. 64, 6 L. Ed. 552; Head
Of foreign corporations. Sec ante, —
"Foreign Banks," § IS; "Location and
V. Providence Ins. Co. (U. S.), 2 Cranch
Place of Business," § 32; "Place of
127, 2 L.Ed. 229.
Exercise," § 86 (3).
Construction of charters
24.
—
banking laws. Construction of
and
spe-
25. Charter as limit of powers. —
Thweatt v. Bank, 81 Ky. 1, 4 Ky. L.
cial ante, "N'ature
charters, see and Rep. 557; Wroten v. Armat, 73 Va. (31
Formation General," § 22; "Special
in Gratt.) 228; Lofford v. Wyckoff, 4
Charters or Acts," § 25; "Extension or Hill 442.
Renewal," § 30 (1). A banking corporation can make no
Creation of banks by general law, contracts, and do no acts, either within
see ante, "General Laws," § 26. or without the state which creates it,
In reference to contracts of bank, except such as are authorized by its
see post, "Contracts in General," § 96, charter; and those acts must also be
et seq. done, by such officers or agents, and
In reference to power of bank to in such manner, as the charter au-
borrow money, see post, "Borrowing thorizes. Bank v. Earle (U. S.), 13
Money," § 97. Pet. 519, 10 L. Ed. 274. See Waters-
In reference to power of bank to Pierce Oil Co. V. Texas, 177 U. S. 28,
hold and convey property, see post, 44 L. Ed. 657, 30 S. Ct. 518; Pacific R.
"Property and Conveyances," § 93, Removal Cases, 115 U. S. 1, 29 L. Ed.
et seq. 319, 5 S. Ct. 1113; Bartholomew v.
In reference to purchasing and hold- Bentley, 1 O. St. 37.
ing bank's own stock, see post, "Pur- The correct doctrine as to the
chasing and Holding Bank's Own power of corporations to engage in
Stock," § 91. banking is that, even in the absence
In reference to purchasing and hold- of statutory restriction, a corporation
ing stock in other corporations, see has no right to exercise banking func-
post, "Purchasing and Holding Stock tions unless such right be conferred
in Other Corporations," § 92. by its charter, either directly or by
Statutes concerning right of bank- necessary implication. Morris v. Way,
ing, see ante, "Construction, Charter 16 O. 469; Miami Exporting Co. v.
and By-Laws," § 34. Clark, 13 O. 1; State v. Washington,
where the charter has been amended, by the amended charter.^^

Like other corporations, banking associations can only exercise the
powers, and carry on the business, which the statute under which they are
created has authorized them to exercise and carry on, either in terms or by
necessary impHcation.^'^
Power of Legislature to Restrict. —Under a clause, in an act of in-
corporation, that the action of the corporation shall be "subject to such rules
and regulations as the legislature from time to time may think proper to
make," the legislature may restrict such corporation from exercising the
franchise of banking; it not being expressly granted.^*
Under Charters Granted for Other Purposes. And banking powers —
can not be exercised under charters granted for other purposes, whether
prohibited or merely not mentioned.^^
etc., Library Co., 11 O. 96; State v. privileges. State v. Granville .Mexan-

Granville Alexandrian Soc, 11 O. 1. drian Soc, 11 O. 1; State v. Washing-
Continuation of incorporation under ton, etc.. Library Co., 11 O. 96.
state —
government. A constitutional 26. Amendment enlarging powers of
provision (of Ind.), that the Bank of savings bank so as to do general bank-
Vincennes shall be considered as an ing. —
An act reciting that a corpora-
incorporated bank, gives no new pow- tion since its organization had con-
ers or privileges to that bank, but ducted a savings bank, but that it
merely continues it under the state desired to have its corporate powers
government, as it was under that of increased and enlarged to enable it to
the territory. State Bank v. State conduct a general banking business,
(Ind.), 1 Blackf. 367. and then authorizing and empowering
Provision conferring the like privi- it to borrow money, receive money on
—
leges as another bank. A provision deposit, and pay interest thereon, to
in a bank charter under Const. 1813, lend money on real or personal
"that it shall have the like privileges, security, discount, buy or sell com-
etc., as are now accorded by law to" mercial paper, and to do or transact a
another bank, will confer on the general banking business, gives the
former all privileges granted the lat- bank adequate authority to transact a
ter. Mechanics', etc., Bank v. Rowly, general banking business, notwith-
2 La. Ann. 373. standing ambiguity and inconsistency
Charter authority to grant evidences in provisions of the act, including a
—
of debt. The charter of a railroad provision that the bank should be sub-
company authorized it to grant such ject to the statutory provisions relat-
evidences of debt incurred by the coming to security and guarantee com-
pany as might by the by-laws thereof panies. State V. German Sav. Bank,
be directed, to such an amount as 103 Md. 196, 63 Atl. 481, construing
might be deemed necessary for trans- Maryland Acts 1898, p. 808, c. 266.
acting its business. Held, that this 27. Like other corporations in this.
provision did not authorize the com- — Safford v. Wyckoff (N. Y.), 4 Hill
pany to issue notes for general cir- 442.
culation, or otherwise exercise bank- 28. Power of legislature to restrict.
ing powers. People v. River Raisin, — State V. Granville Alexandrian Soc,
etc., R. Co., 12 Mich. 389, 86 Am. 11 O. 1.
Dec. 64. Charters for other purposes.

29. —
Power to hold any estate, real or State V. Stebbins (Ala.), 1 Stew. 299;
personal, and dispose thereof. — Morris v. Way, 16 O. 469; Miami Ex-
grant of power, in an act of incorpora- porting Co. V. Clark, 13 O. 1.
tion, "to hold any estate, real or per- Under insurance charters. Banking —
sonal, and the same to sell, grant, or does not pertain to the functions of an
dispose of, or bind by mortgage, or insurance company, and can not be ex-
in such other manner as they shall ercised by such a company simply be-
deem most proper for the best in- cause not included in the grant; and
terests of the corporation," does not a fortiori, if prohibited by the very
confer upon such corporation banking terms of the charter whose "rights
§ 87 FUNCTIONS AND DEALINGS. 649
Provisions Conferring on State Bank the State's Rights and Priv-

ileges. —A charter provision conferring on a state bank the rights, powers,
privileges and immunities of the state has been held applicable to all evi-
dences of debt owned by the bank.ô
and privileges" are conferred upon it, of the United States, having been
as well as by general law. Ohio Life passed before any restraining act ren-
Ins., etc., Co.Merchants' Ins., etc.,
v. dering banking illegal if carried on by
Co., 30 Tenn. Hiunph.) 1; Mem-
(11 corporations not specially created for
phis V. Memphis City Bank, 91 Tenn. banking purposes, said company has
574, 19 S. W. 1045. the of doing banking business,
right
An act incorporating an insurance com- and not affected by the restraining
is
pany, giving the directors power to acts, the original act having never
make such by-laws, rules, and regu- been repealed. People v. Manhattan
lations as they shall deem proper, Co. (N. Y.), 9 Wend. 351.
touching the management of the stock Power to hold, sell and encumber
and eflfects of the corporation and the
investment of its funds which the busi-
any estate. —A
grant of power, in an
act of incorporation, "to hold any es-
ness of insurance may not actively em- tate, real or personal,and the same tO'
ploy, gives no right to invest such sell,grant, or dispose of, or bind by
surplus funds in banking operations. mortgage, or in such other manner as
People V. Utica Ins. Co. (N. Y.), 15 they shall deem most proper, for the
Johns. 353, 8 Am. Dec. 343. best interest of the corporation," does
And charter autliority to make not confer upon such corporation
loans, create
to debts, and make banking privileges. State v. Granville
promissory negotiable notes, does not Alexandrian Soc, 11 O. 1.
confer the right to carry on banking.
Under power to draw and sell hills
People V. Utica Ins. Co. (N. Y.), 15
Johns. 353, 8 Am. Dec. 343.
—
of exchange. The provision of a char-
ter that the corporation "shall have
Although the preamble to -the act
power to draw and sell drafts cr bills
incorporating the Utica Insurance
of exchange on the different cities to
Company states that, the objects of
which they may ship their merchan-
said company being laudable, it should
dise" does not confer any banking
be liberally encouraged. People v.
privileges upon it. Smith v. State, 21
Ulica Ins. Co. (N. Y.), 15 Johns. 353,
Ark. 294.
S Am. Dec. 343.
Under building and loan charter. — Power to receive trusts and to loan
A building and loan association, can —
surplus funds. The grant to a cor-
not engage in the banking business. poration of the power to receive, in
State V. Oberlin Bldg., etc., Ass'n, 35 trust for any person, moneys or other
O. St. 258. See, also, State v. Green- valuable things, and to give an ac-
ville Bldg., etc., Ass'n, 39 O. St. 93. knowledgment therefor, and to loan
Under social club charter. The — its surplus funds, does not authorize it
to conduct a general banking business.
charter of a social library club which
merely gave the corporation capacity Memphis City Bank v. Tennessee, 161
of suing and being sued, of making U. S. 186, 40 L. Ed. 664, 16 S. Ct. 468,
contracts, a common seal, the power affirming 19 S. W. 1045.
to make by-laws, and of acquiring, 30. Charter conferring on state bank
holding and disposing of, by mortgage the rights and privileges of the state.
or in such other manner as it should — The provisions of Act 1829, § 13,
deem most proper for its best interest, amending the charter of the Central
any estate, real or personal, did not Bank, and vesting in the corporation
give the corporation banking pOAvers. the rights, powers, privileges, or im-
State V. Washington, etc.. Library Co., munities reserved by law or accruing
11 O. 96. to the state in virtue of its sovereign
Under power to employ capital in capacity in regard to the collection of
any lawful moneyed transaction. The — bonds, notes, etc., due to it or to be-
act incorporating a company, authoriz- come due, does not apply only to such
ing the employment of its surplus bonds, notes, etc., as were originally
capital in the purchase of public or transferred to the bank by the state,
other stock, or in any other moneyed or the renewals thereof, but to all evi-
transactions not inconsistent with the dence of debt owned by the bank.
constitution and laws of the state or Mahone v. Central Bank, 17 Ga. 111.
Construction Strict. —The charter will be construed strictly against the

stockholders and in favor of the state, and no privileges or powers will be
implied.^ ^
As Question for Jury. —Whether a bank used its power of collecting its
debts as a pretext for embarking in a business foreign to that for which it
was created and which it was authorized to conduct, or whether it made a

proper use of it in furtherance of its legitimate business is a proper ques-
tion for the jury.^2
§ 88. Rules of Bank.*^ —As to Banking Hours. —Banks may es-

tablish reasonable hours for transacting business. at the bank,^* but such a
rule is to be construed as referring to ordinary banking business only.^^
§ 89. Customs and Usages^s— § 89 (1) Admissibility of Evi-

—
dence and Its SuflB.ciency. Evidence of the custom and usage of a bank
in the transaction of business with its customers is admissible to raise a
prima facie presumption of fact in aid of other testimony.^'^ And it would
Construction. Bank v.
31. —
Com- "Failure to Fix Liability of Indorser
monwealth, 19 Pa. 144. or of Drawer of Check or Draft,"
32. As question for jury. Reynolds — § 173.
V. Simpson, 74 Ga. 454. 37. Evidence of custom and usage.
33. Rules of bank. —
Constitution and — Knickerbocker Life Ins. Co. v. Pen-
by-laws, see ante, "Constitution, Charter dleton, 115 U. S. 389, 29 L. Ed. 432, 6 S.
and By-Laws," § 34. Ct. 74; Renner v. Bank (U. S.), 9
Rules of bank as to receiving
34. Wheat. 581, 6 L. Ed. 166; Mills v.
general deposits, see ante, "Offenses Bank, 11 Wheat. 431, 6 L. Ed. 512;
of Persons Dealing with Bank," § 21. Bank v. Triplett (U. S.), 1 Pet. 25, 7
Rules as to special deposits, see L. Ed. 37; Fowler v. Brantly (U. S.),
post, "Special Deposits," § 153. 14 Pet. 318, 10 L. Ed. 473; Bank v.
Customs and usages, see post, "Cus- New England Bank (U. S.\ 1 How.
toms and Usages," § 89. 234, 11 L. Ed. 115; Thompson v. Riggs,
As to banking hours. Jones v. — 5 Wall. 663, 18 L. Ed. 704.
Coos Bank (N. H.), Smith 249; Mar- "The public charter of the business
shall V. Wells, 7 Wis. 1, 73 Am. Dec. of a bank, the strict regulations under
381. which its business is usually trans-
"Day" banking parlance. The
in — acted, the care required of its officers
"daj-" banking parlance,
in means and agents in performing their duties,
simply the few hours set apart by bring the case fully within the opera-
usage as banking hours. Banking tion of the rule which allows usage
hours are so far recognized by the and the course of business to be shown
courts that any transaction in the or- for the purpose of raising a prima facie
dinary course of banking business, presumption of fact in aid of collateral
which is to be had with the bank on testimony." Knickerbocker Life Ins.
any day, must be had within banking Co. V. Pendleton, 115 U. S. 339, 29 L.
hours upon that day. First Nat. Bank Ed. 432, 6 S. Ct. 74.
V. Payne, 85 Va. 890, 9 S. E. 153, 3 "A bank is a quasi public institution.
L. R. A. 284. Its officers have regular and set duties
35. Construction. —
A rule of a bank to perform, directly affecting the fi-
that business therewith must be trans- nancial transactions of the entire pub-
acted in banking hours, must be con- lic. It is essential to the public in-
strued as referring to the ordinary terest that these duties should be per-
business of the bank, and not to the formed with invariable certainty and
sending or receiving of packages or exactness. The business community
messages. Marshall v. Wells, 7 Wis. relies upon such performance, and, at
1, 73 Am. Dec. 381. least after the lapse of a considerable
36. Customs and usages. Defense — time, it should be presumed that these
of custom in action against bank for duties have been performed and busi-
failure to fix endorser, see post, ness done in accordance v/ith the cus-
§ 89 (2) Functions and dealings. 651
seem that if a custom could be established by the uniform course of busi-

ness of several banks in a given locality, it might be done by one where
there was but one.^* But a single case is not sufficient to establish a gen-
eral usage of a bank.^^
AQuestion of Pact, Not of Opinion of Witnesses. The existence —
of a general usage prevailingamong banks must be established as a fact,
and not as a matter of judgment or opinion of witnesses deduced from the
manner of dealing in a few instances in particular banks.*"
§ 89 (2) Character and Effect. —

But an usage, to be binding, must
be general, as to place, and not confined to a particular bank, and, in order
to be obligatorymust have been acquiesced in, and become notorious, and
must be reasonable.*^ It^must be certain and uniform, and there must be
torn and course of business of the a bank against its agent for a failure
bank. The degree of exactness with to account for money of which the
which they have been performed by a agent had been robbed by a burglar
particular bank is matter of proof, de- who entered his office in the night,
pending upon the custom and course evidence is not admissible on the part
of business of that bank, and is mat- of the agent to show that it was the
ter of consideration for the jury." custom of another bank to furnish its
Knickerboclcer Life Tns. Co. v. Pen- agents with safes in which to keep its
dleton, 115 U. S. 339, 39 L. Ed. 433, money, but he may show that it is on
6 S. Ct. 74. their safes and vaults, and not the
The testimony of the president of fastenings of their rooms, that banks
the bank, explanatory of the conduct generally rely for protection. Wright
of its officers when certain drafts V. Central R., etc., Co., 16 Ga. 38.
came back protested, stating the usage Custom of bankers to borrow money
of the bank in such matters, is admis- —
on time notes. Evidence of the cus-
sible. Goetz V. Bank, 119 U. S 55], 30 tom of bankers of a particular place to
L. Ed. 515, 7 S. Ct. 318. borrow money on time notes is admis-
The usage of issuing certificates of sible to show that the execution of
deposit by a teller of a bank is not such a note by a banking firm of that
evidence to prove a usage of certify- place would be in the ordinary course
ing checks. Mussey v. Eagle Bank of business. Crain v. First Nat. Bank,
(Mass.), 9 Mete. 306. 114 III. 516, 3 N. E. 486.
Custom to pass exchange to credit —
As to "day." See ante, "Rules of
of foreign customers. The general — Bank," § 88.
custom of a bank to pass exchange 38. Sufficiency of evidence to estab-
drawn by shippers of cotton, on their lish.— Bank V. Triplett (U. S.), 1 Pet.
foreign customers, to their credit and 35, 7 L. Ed. 37; Morse on Banks, vol.
allow them to pay for the cotton by 1, § 32] Sahlien v. Bank, 90 Tenn,
;
their local checlcs was not only admis- 331, 16 S. W. 373.

sible as evidence on the question as to 39. Single case insufficient. —Duvall
whether such drafts were deposited to V. Farmers' Bank (Md.), 9 Gill & J. 31.
the credit of the shippers or to their 40. A
question of fact, not of
opinion
sellers, but was conclusive against the of witnesses. Chesapeake —
Bank v.
right of the bank to claim the profits Swain, 29 Md. 483.
of the shippers on their sale by reason 41. Character of usage. Grissom v. —
of a lien which they claimed on the Commercial Nat. Bank, 87 Tenn. 350,
cotton for a debt due the bank by 10 S. W. 774, 3 L. R. A. 373, 10 Am.
the seller. Farmers', etc., Bank v. St. Rep. 669; Mussey v. Eagle Bank
Slayden, 8 Tex. Civ. App. 63, 37 S. W. (Mass.), 9 Mete. 306.
434, citing Wootters v. Kaufman, 73 Thefederal supreme court, by sev-
Tex. 395, 11 S. W. 390. See post, "Re- eral decisions, have sanctioned the
lation between Bank and Depositor usages of banks, in making demand and
for Collection," § 156, as to collection a:iving notice of nonpayment, varying
generally. from the law merchant. Renner v.
Custom of banks as to means for Bank (U. S.), 9 Wheat. 581, 6 L. Ed.
—
safe-keeping of funds. In an action by 166; Mills v. Bank (U. S.), 11 AVheat.
reasonable ground to suppose that the custom was known to both parties
to the contract, as it is upon this supposition that the parties are presumed
to have contracted with reference to it.*^ And a party dealing with a bank,
with knowledge of its usage in contravention of the general commercial
law, will be bound by the usage.*^ But not to contradict a rule of law,**
431, 6 Ed. 312, and in some in-

L. 43. Notice of — Merchants'
usage.
stances where, in this respect, notes Bank v. Central Bank, 1 Ga. 418, 44
left in a bank for collection, have been Am. Dec. 665.
placed on a different footing from The known custom of a bank, and
notes discounted. Cookendorfer v. its ordinary modes of transacting
Preston (U. S.), 4 How. 317, 11 L. Ed. business, enter into the contract of
992. But these usages had been of those giving notes, for the purpose of
long standing and of general notoriety. having them discounted at the bank,
Rights had grown up under them and the parties to such notes must be
which could not be disregarded with- understood as having agreed to govern
out injury to commercial transactions. themselves by such customs and modes
Adams v. Otterback (U. S."), 15 How. of doing business, whether they had
539, 14 L. Ed. 805. actual knowledge of them or not. Ren-
Where a note was made payable at ner v. Bank (U. S.), 9 Wheat. 581, 6
a certain bank, and by the agreement L. Ed. 166; Mills v. Bank (U. S.), 11
between the parties it was moreover Wheat. 431, 6 L. Ed. 512; Bank v.
expressly stipulated, that it should be Triplett (U. S.), 1 Pet. 25, 7 L. Ed. 37;
sent to that bank for collection; if, Fowler V. Brantly (U. S.), 14 Pet. 318,
then, any custom or practice other 10 L. Ed. 473; Wiseman v. Chiappella
than general commercial usage were (U. S.), S3 How. 368, 16 L. Ed. 466.
to control the management of the A reasonable custom or usage of a
note, it was the usage of that bank, bank in the transaction of business
certainly not the particular usage of with its customers, may be binding
other banks not mentioned in the con- upon such customers, though not upon
tract, and perhaps never within the third persons unless known and as-
contemplation of the parties to that sented to by them. Renner v. Bank (U.
contract. Camden v. Doremus (U. S.), S.), 9 Wheat. 581, 6 L. Ed. 166; Yeaton
3 How. 515, 11 L. Ed. 705. V. Bank (U. S.), 5 Cranch 49, 3 L.
A custom of banks not to correct Ed. 33.
mistakes in the receipt or payment of A reasonable usage or custom of a
money, unless discovered before the bank in the transaction of business
person leaves the room, is illegal and with its customers, particularly whert
void. Gallatin v. Bradford (Ky.), 1 universal among the banks of the lo-
Bibb 209. cality, binding upon parties who
is
A
usage that a bank which has cer- have resorted to the bank governed by
tifiedby mistake a note as good can such usage, to make paper negotiable,
not correct such mistake is unreason- whether such usage is known to them
able. Second Nat. Bank v. Western or not. Bank v. Triplett (U. S.), 1
Nat. Bank, 51 Md. 128, 34 Am. Rep. Pet. 25, 7 L. Ed. 37, citing Renner v.
300. Bank (U. S.), 9 Wheat. 581, 6 L. Ed.
As to appointment of discount and 166; Mills V. Bank, 11 Wheat. 431, 6-
examining committees. The custom — L. Ed. 512.
—
of appointing discount and examining 44. Can not contradict rule of law.
committees to attend to the details Allen V. St. Louis Nat. Bank, 120 U.
of the management of the business of S. 20, 30 L. Ed. 573, 7 S. Ct. 460; Ver-
a bank is a reasonable one. Stone v. milye i'. Adams Exp. Co. (U. S.), 21
Rottman, 183 Mo. 553, 82 S. W. 76. Wall. 138, 22 L. Ed. 609; Thompson
42. Certainty, uniformity and notice. V. Riggs (U. S.), 5 Wall. 663. 18 L.
— Grissom i>. Commercial Nat. Bank, 87 Ed. 704; First Nat. Bank v. Nelson,
Tenn. 350, 10 S. W. 77-t, ^ L. R. A. 105 Ala. 180, 16 So. 707; Mussey v.
273, 10 Am. St. Rep. 669, citing Dabney Eagle Bank (Mass.), 9 Mete. 306;
V. Campbell, 28 Tenn. (9 Humph.) Corn Exch. Bank v. Nassau Bank, 91
680; Saint v. Smith, 41 Tenn. (l N. Y. 74, 43 Am. Rep. 655; Shaw v.
Coldw.) 51; Adams v.Otterbach (U. Jacobs, 89 Iowa 713, 55 N. W. 333, 56
S.), 15 How. 539, 14 L. Ed. 805; Allen N. W. 684, 21 L. R. A. 440, 48 Am.
V. St. Louis Nat. Bank, 120 U. S. St. Rep. 411.
20, 30 L. Ed. 573, 7 S. Ct. 460. "Banicers, brokers, and others can
not, as was attempted in this case, es- the plaintiff offered evidence to show
tablish by proof a usage or custom in "that the usage and mode of dealing
dealing in such paper, which, in their between the said parties as set out
own interest, contravenes the estab- in the testimony of the teller was uni-
lished commercial law. If they have formly used and practiced by all the
been in the habit of disregarding that banks and bankers of the District of
law, this does not relieve them from Columbia with their customers." It
the consequences nor establish a dif- was held, that the evidence was rightly
ferent law." Vermilye v. Adams Exp. excluded. Thompson v. Riggs (U. S.),
Co. (U. S.), 31 Wall. 133, 23 L. Ed. 5 Wall. 663, 18 L. Ed. 704.
609. As to relation arising from deposit
As to days of grace on drafts. — —
of money. "The general rule of law
is, that if a merchant deposits money
"Evidence of the usage of banks to
regard drafts drawn upon them, pay- with a bank, the title to the money
able at a day certain, as checks, and passes to the bank, and the latter be-
not entitled to days of grace, is inad- comes the debtor of the merchant to
missible as evidence to control the that amount; and it is not perceived
rules of law in relation to such pa- that the evidence offered, if it had
per." Thompson v. Riggs (U. S.), 5 been admitted, could have had any
Wall. 663, 18 E. Ed. 704. other effect than to control that gen-
As to payment of checks. —Acus-
eral rule of law, as it is not pretended
that the evidence showed a special de-
tomer of certain bankers at Washing-
posit or any special contract. Viewed
ton, D. C, in times when, specie pay-
in any light consistent with the other
ments having been lately suspended,
evidence in the record, the testimony
coin was acquiring one value and cur-
rency (paper money) another and less,
was either entirely immaterial or in-
admissible, as tending to control the
deposited with them both coin and pa-
per money; the different deposits be-
well-settled rules of law." Thompson
V. Riggs (U. S.), 5 Wall. 663, 18 L.
ing entered in his pass book, the one
Ed. 704. See post, "Relation between
as "coin" the other as "currency," etc.
Bank and Depositor in General," § 119,
Debts being at this time payable by
as to relation arising.
law only in coin, the bankers requested
their customer to make his full bal-
To change values fixed by law. The —
special custom of bankers in a par-
ance coin, which he did. Congress
ticular locality can not change values
passed, about eight months afterwards,
as fixed by law; and can not, there-
an act making certain treasury notes
fore, give a right to enforce payment
lawful money for the payment of
in depreciated paper. Marine Bank
debts. The depositor went on de-
V. Chandler, 27 111. 525, 81 Am. Dec.
positing "coin,"and "treasury notes"
249.
then regarded as currency, and both
were entered accordingly. He after-
A usage for a teller to certify a
check as "Good," to enable the holder
wards drew for "coin," for a part of
to use it at his pleasure, is bad, even
his deposit, exceeding the coin de-
posited after the legal tender act, and
if such a usage is shown. Mussey v.
He after- Eagle Bank (Mass.), 9 Mete. 306.
his check was paid in coin.
—
wards drew for "coin" the bulk of Usage to discount at illegal rate. —
his coin balance deposited before the Evidence of a usage with other banks
legal tender act. Coin was refused and organized under the same law, to dis-
tender made of the notes declared by count more than the legal rate of in-
congress a legal tender. On suit terest, upon the acquisition of busi-
brought to recover the market value ness paper, isnot admissible in a suit
of the coin drawn for—rthe bank teller by a bank upon the paper so dis-
having testified among other things counted. Niagara County Bank v.
that "after the suspension, and par- Baker, 15 O. St. 68.
ticularly after the act making treas- To change legal character of power
ury notes a legal tender, his employers —
of attorney. Evidence of a custom
uniformly made with customers de- among banks and brokers in a par-
positing with them a difference, in re- ticular city to treat registered Virginia
ceiving and paying their deposits, be- consols as negotiable, when accom-
tween coin or specie and paper panied by a power of attorney authoriz-
money, and in all cases v/hen the de- ing the agent to sell, is not admis-
posit was in coin they paid the checks sible in an action by the owner of the
of their customers in coin when they consols against a bank to which they
called for coin, otherwise they paid have been pledged by the agent as a
currency, treasury or bank notes" security for his own debt, as no cus-
or to dispense with documentary evidence, where such is necessary .*5

Effect of Custom for Transacting Banking Business. —The courts
recognize and enforce, and the public and individuals must, at their peril,
take notice of the reasonable and lawful customs adopted for the transac-
tion of commercial business.*^
Abandonment. —A bank which has ceased to follow a custom can not
rely thereon.*'''
§ 89 (3) Presumption of Action by Directors. The ordinary —

usage and practice of a bank, in the absence of counter proof, must be sup-
posed to result from the regulations prescribed by the board of directQjs;
to whom the charter and by-laws submit the general management of the
bank, and the control and direction of its officers. It would be not only
inconvenient, but i)erilous, for the customers, or any other persons dealing
with the bank, to transact their business with the officers, upon any other
presumption.*^
torn can change the legal character of the bank. Weld v. Gorham, 10 Mass.
the power of attorney. First Nat. 366.
Bank v. Taliaferro, 72 Md. 164, 19 Atl. Effect of nonobservance As to —
364. character and form of transfers No- —
45. Or dispense with documentary
— tice 6t irregularity. —The custom
evidence. "Of course, proof of such among bankers, as to the form and
custom and course of business can not character of transfers of a particular
dispense with documentary evidence class of securities, when not complied
when such evidence is requisite in law with as to securities of that class re-
to verify the act done, or to make it ceived by a bank, is sufficient to put
complete, such as protest and notice the bank on inquiry as to ownership.
of dishonor, when these are necessary; Taliaferro v. First Nat. Bank, 71 Md.
and, in all cases, it is the province of 200, 17 Atl. 1036.
the jury to determine, under all the 47. Abandonment. —
Isbell v. Lewis, 98
circumstances of the case, the weight Ala. 550, 13 So. 335.
to be given to the evidence. See Rosen- 48. Presumption of regulation of di-
thal V. Walker. Ill U. S. 1S5, 28 L,. rectors. — Minor v. Mechanics' Bank
Ed. 395, 4 S. Ct. 382." Knickerbocker (U. S.),Pet. 46, 7 L. Fjd. 47.
1
Life Ins. Co. v. Pendleton, 115 U. S. The established usage and practice
339, 39 L. Ed. 432, 6 S. Ct. 74. of the bank, for a long period, known
46. Effect of custom for transacting to the president and directors, does,
—
banking business. Howard v. Walker, in a general view, in reference to the
92 Tenn. 452, 21 S. W. 897, citing principles of the law of evidence, af-
Sahlien v. Bank, 90 Tenn. 221, 16 S. ford a presumption of the approba-
W. 373; First Nat. Bank v. McClung, tion, assent and acquiescence of the
75 Tenn. (7 Lea) 492, 40 Am. Rep. president and directors, as to such
66; Bank v. Triplett (U. S.), 1 Pet. 25, usage and practice; though the bal-
7 L. Ed. 37; Mills v. Bank (U. S.), 11 ances resulting therefrom were not
Wheat. 431, 6 L. Ed. 512; Commer- formally communicated to the direct-
cial Bank v. Union Bank, 11 N. Y. 303, ors. Minor v. Mechanics' Bank (U.
213; Briggs v. Central Nat. Bank, 89 S.), 1Pet. 46, 7 L. Ed. 47.
N. Y. 182, affirming 61 How. Prac. 350. "In the case of the Bank of the
An agent is liable to suit for devia- United States v. Dandridge, 12 Wheat.
tion from a custom which one who 64, 6 L. Ed. 552, the subject was under
deals with him is presumed to con- the consideration of this court; and
tract to have followed. Sahlien v. circumstances, far less cogent than the
Bank, 90 Tenn. 221, 16 S. W. 373. present, to found a presumption of the
As to manner of notice to directors. official acts of the board, were yet
— An established custom that notice, deemed sufficient to justify their being
etc., to directors of a bank shall be laid before the jury, to raise such a
left on the cashier's desk, is binding on presumption. If, therefore, the usage
the directors whose notes come into and practice alluded to, in the instruc-
89 (4b) FUNCTIONS AND DEAIÎNGS. 655
§ 89 (4) Particular Customs"— § 89 (4a) As to Notice of Ma-

turity of Negotiable Paper. —Banks often give notice to their customers
of the approaching maturity of their promissory notes or bills of exchange
but they are not obliged to give such notice, and their neglect to do it would
furnish no excuse for nonpayment at the day.^'^
§ 89 (4b) As to Deposits and Checks and Payment Thereof. si

As to Time of Deposit and Return of Unpaid Check. The usage of —
depositors in certain banks to deposit a check on, or the next day after, the
day on which it was received, and of the bank immediately to return any
checks from the clearing house which the bank has not funds to cover, held
to be reasonable.s^
Custom of Passing Checks Payable to Persons or Bearer by De-
livery Only. —A custom of passing checks payable to a person "or bearer"
by delivery only does not affect the operation of a statute, requiring such
checks to be construed as payable to a person "or order."^^
Usage Dispensing with Cashier's Signature to Certificate of De-
posit. —Such a usage, allowing the certificate to be signed by another offi-
cer, as the president, has been sustained. ^^
tion, were within the legitimate au- instead of demanding payment. Bank
thority of the board, and such as its V. Deneale, Fed. Cas. No. 846, 2
written vote might justify, there would Cranch C. C. 488.
be no question, in this court, that it In an action by a bank on a note
ought to have been given." Minor v. held by it as collateral, it was not er-
Mechanics' Bank (U. S.), 1 Pet. 46, ror to reject evidence of a custom of
7 L. Ed. 47. banks to send notices to persons
49. Particular —
customs. As to means whose names were on notes held as
for safe-keeping of funds, see ante, collateral, and that no such notice had
"Admissibility of Evidence and Its l.ieen seat to defendant, as no rule of
Sufficiency," § 89 (1). law required the sending of such no-
As to borrowing money on time tice, and plaintiff had not adopted such
notes, see ante, "Admissibility of Evi- custom. Williams v. National Bank,
dence and Its Sufficiency," § 89 (1). 70 Md. 343, 17 Atl. 382., See, also, ante,
As to "day," see ante, "Rules of "Character and Efifect," § 89 (2).
Bank," § 88. As
to giving notice of dishonor, see
As to issue of certificate of deposit post, "As
to Collections," § 89 (4c).
by teller, see ante, "Admissibility of 51. As to deposits, checks and. pay-
Evidence and Its Sufficiency," § 89 (1). —
ment thereof. See, also, ante, "Char-
As to passing exchange to credit of acter and Efifect," § 89 (2), as to chang-
foreign, shippers, see ante, "Admis- ing rule of law.
sibility of Evidence and Its Suffi- As to medium for repaying deposits.
ciency," § 89 (1). — See post, "Repayment in General,"'
As to notice to directors, see ante, § 133.
"Character and Efifect," § 89 (2). And As to correcting mistakes, see ante,
see, generally, "Admissibility of Evi- "Character and Efifect," § 89 (2).
dence and Its Sufficiency," § 89 (1); 52. As to time of deposit and return
"Presumption of Action by Directors," of unpaid check. —
Marrett v. Brackett,
§ 89 (3). 60 Me. 524.
50. Custom to give notice of ma- 53. Custom of passing checks pay-
turity of paper not binding. Thomp- — able to person or bearer by delivery
son V. Knickerbocker Life Ins. Co., —
only. First Nat. Bank v. Nelson, 105
104 U. S. 252, 26 L. Ed. 765. Ala. 180, 16 So. 707, construing Ala.
The indorser on a note discounted Code, § 1761.
by a bank is not bound by a usage of 54. Usage dispensing with cashier's
the bank to merely notify nonresident signature to certificate of deposit. In —
makers of the maturity of the note. an action against the indorser of a
Usage Modifying^ Usual Rule as Checks for

to Transmission of
Collection. — Such a usage, held was held in
to vary the usual rule of law,
an early case to be the custom of sending checks once a week to New York
City by steamer from an outlying point, Bridgeport, Conn.^^
As to Legal Effect of Transfer of Check. —The legal effect of the
transfer of a check under the law merchant can not be modified by usage.^^
Custom as to Mode of Opening Account with Unknown Party Not
Writing His Name. —In an action to recover money deposited by one
who could not write his name, which money had been paid by the bank to
a third person on a forged indorsement, it appeared that it was the general
custom of banks, where a person unknown to a bank brought money for
deposit, gave a name as his own, and asked for a certificate, there being no
suspicious circumstances, to issue to him such certificate in the name given,
on his signing the signature book, if he could write, without further inquiry,
and pay the money on return of the certificate indorsed with the name writ-
ten in the signature book but that, where the depositor could not write his
;
name, was the custom to ask questions, the answers to which were entered
it
in the signature book as a means of identification. It was held, that it was

error to refuse to instruct the jury that, if they found the custom so to be,
the action on the part of defendants' bank in following it was not neg-
ligences'^
Customs of Bookkeeping. — In an action against a bank to recover a
•deposit, the cashier testified that plaintiff had not made the alleged deposit.
He was then allowed to testify as to certain customs of the bank relative
to keeping its books, by reason of which the transaction would appear if it
had occurred as alleged. Such customs and usages may be shown to cor-
roborate the testimony already given.^^
Usage to Hold Checks until Receipt of Funds to Meet. —An oil
dealer left at his bank a check for $1,500, drawn in his favor by B. There
certificate of deposit issued by an as- in an action by the indorsee against

sociation in fact, organized under the the maker, evidence that, by a custom
general banking law of New York, among bankers, where a check is
which certificate was signed by the drawn on a bank and presented to an-
president, but not by the cashier, it ether bank, it is passed to the credit
was held that the want of a cashier's of the customer, but that the credit
-certificate was unavailing as a defense, so given is treated as a receipt for the
"because the association might, by a check, and not as a payment, is in-
course of practice, render itself liable admissible, as the indorsement and
-on such instrument, though not ex- check evidence the agreement between
-ecuted in the mode prescribed. Kil- the payee and indorsee, and the trans-
gore V. Bulkley, 14 Conn. 362. fer of the check is governed by the
55. Usage modifying usual rule as law merchant. Shaw v. Jacobs, 89
to transmission of checks for collec- Iowa 713, 55 N. W. 333, 56 N. W. 684,
-tion. —
Bridgeport Bank v. Dyer, 19 21 L. R. A. 440, 48 Am. St. Rep. 411.
Conn. 136. 57. Custom as to mode of opening
As to legal effect of transfer of
56. account with unknown party not writ-
—
check. Where a check is payable to —
ing his name. Fiore v. Ladd, 22 Or.
a named person or bearer, and the 802, 29 Pac. 435.
payee indorses it in blank, and delivers 58. Customs of bookkeeping. —
to a bank, and receives credit for it,
-it Meighen v. Bank, 25 Pa. 288.
§ 89 (4c) FUNCTIONS AND DEALINGS. 657
were no funds of B. at the bank at that time, and the check was left there
under an agreement with the bank officials that they would see it paid out
of the first unappropriated funds of B. coming in. Large sums were sub-
sequently deposited by B., but they were not unappropriated. Plaintiff of-
fered ,to show that it was the custom and usage of the banks of the city to
receive the checks of oil dealers, and hold the same for future payment as
soon as the drawees would deposit funds sufficient to meet them. The evi-
dence was properly excluded, as it was neither an offer to prove a special
custom nor a special course of dealing between the bank and plaintiff. 5''
As to Right of Bank to Apply Deposit to Depositor's Note. The —
note of a bank depositor payable at his bank is not equivalent to a check,
and the bank has no authority to pay such note to the holder in the absence
of authority from the maker so to do, or a general usage giving the bank
such authority; and where the evidence to prove such usage showed that it
was not uniform among banks, in some cases depending on circumstances,
and in others not existing at all, the depositor, having no knowledge thereof,
is not bound by it.^"
As to Duty of Bank Paying to Another Bank a Check with Forged

Indorsement to Detect Forgery. Where a bank pays a check drawn —
upon it to a bank in the same city, which has received it from a depositor,
with a forged indorsement, evidence that, by usage among banks in that
city it was the duty of the former bank to examine and satisfy itself of the
genuineness of the indorsement, and to return the check immediately to the
latter bank if not good, is incompetent as it contradicts a rule of law.î
As to Officer Authorized to Certify Check.Â usage allowing a teller
to certify a check as good, to enable the holder to use it afterwards at his
pleasure, is bad.^-
§ 89 (4c) As to Collections. —In General. —Where a payee of a

draft selects a bank as his collecting agent, he is presumed to know the
methods by which such transactions are effected through banking customs,
and actual ignorance of them is of no avail as an excuse.*^
59. Usage
to hold checks until re- ience of the bank or of its customers
ceipt of funds to meet. ^Johnston v. — required it, certified that checks were
Parker Sav. Bank, 101 Pa. 597. "good," which were drawn on the
60. As to right of bank to apply bank by its customers, when funds to
deposit to depositor's note.— Grissom the amount of such checks were to the
V. Commercial Nat. Bank, 87 Tenn. credit of the drawers, and that his so
350 10 S. W. 774, 3 L. R. A. 273, 10 doing was, in some instances, known
Am' St Rep 669.
'
' '° '^^ bank, and was not forbidden,
„' .' „„ and that was the usage of the tellers
of bank _
j :„„ 4.„
. , , , it
As to duty
61. paying to an- ^^ ^^^^^ ^^^^^ ^^ ^^ °j^^ ^^^^^ ^^.
other bank a check with forged in-
^^^^ ^^^ ^^^^^^^^ ^ ^^ .^^^^
.
^^l^
dorsement to detect forgery.-Corn ^^^ ^^^^ ^^ ^^ ^^.^' ^^^ ^^ original,
Exch. Bank J-. Nassau Bank, 91 N. Y. inherent, implied oower of the teller,
74, 43 Am. Rep. 655. ^^ ^^^j^ Musse'y v. Eagle Bank
62. As to officer authorized to car- (Mass.), 9 Mete. 306.
tify check.— Evidence that the
during the time of his
teller 63. —
In general. Howard v. Walker,
of a bank, all 93 Tenn. 453, 31 S. W. 897. See, also,
holding office, whenever the conven- ^nte, "Character and Effect," § 89 (3).
1 B & B—43
—
As to Giving of Notice. Plaintiffs, doing a banking business, after
abandoning a practice to give notice of the dishonor of notes by mail not-
withstanding that the indorser and holder lived in the same town, could
not rely on such custom, even though it continued to prevail among other
banks.^*
As to Right to Proceeds of Note Collected. —A custom among banks
of sending bills and notes from one to the other for collection, and of pass-
ing the avails, when paid, to the credit of the bank so sending it, and to
the debt of the bank receiving it, can not affect the claim of a third person
to the avails of a bill which he has committed to one of them for collec-
tion.^ s
Usage as to Holding for Collection after Presentation and Prom-
ise of —
Payment. A person sending paper to a bank for collection, without
special instructions, is bound by a custom of the bank to hold paper sent
to it for collection for some days after presenting it and receiving a promise
of payment, if such usage is not in violation of the general law.^^
§ 89 (4d) As to Loans and Discounts. «7—As to Effect of Pledge

of Property by Factor for Individual Benefit. A pledge of cotton by —
a factor to a bank as security for advances made by the bank to the factor
in his individual capacity, if not otherwise binding on the owner and con-
signor of the cotton, is not made so by a general usage of trade between
the banks and cotton factors in the place where they do business, not shown
to be known to the consignors or other owners of cotton.*®
As to Forwarding Draft for Acceptance after Discount. —A bank's
previous practice in this respect, of doing what the law did not require of it,
does not obligate it to continue so to act.*^
§ 90. —
Agency of Bank. A bank has power to act as agent in the col-
lection and remission of money, though it be due and payable under a lease,^"
64. As to giving of notice. Isbell v. — 68. As to effect of pledge of prop-

Lewis, 98 Ala. 550, 13 So. 335. See, erty by factor for individual benefit. —
also, ante, "As to Notice of Maturity Allen Louis Nat. Bank, 120 U.
v. St.
of Negotiable Paper," § 89 (4a), as to S. 20, 30 L. Ed. 573, 7 S. Ct. 460.
notice of maturity of negotiable pa- 69. As to forwarding draft for ac-
per. —
ceptance after discount. In an action
65. As to right to proceeds of note against a bank for not forwarding a
collected.— Lawrence v. Stonington draft for acceptance, after discounting
Bank 6 Conn 521 't for plaintiff, the fact that plaintiff
66. constant customer of the
'usage as to holding for coUec- l^^^^^^V^^
tion after presentation and promise of
''^"'^' ^'^'^^ has discounted for h,m
payment— Sahlien „v. -Rpnt 90 Tonn
many . drafts, and immediately for-'"'^-
them V
n=>,,m.ni-_R,V,1ipn Bank, on Tenn. """Y _
'""""l^'^^^y
001 c \T^T qâ warded "'l'"-"' for acceptance, when
ZiT., ifi
lb t>. W. il6. jjjg j^^ jjj
j^^j require it so to do, is
67. See, also, ante, Character and „£, reason why the bank should
jug^
Effect, § 89 (2). jjg compelled to pursue a similar course
As to discount at illegal rate, see in the future. Citizens' Bank v. Graf-
ante, "Character and Effect," § 89 (2). fin, 31 Md. 507, 1 Am. Rep. 66.
As to notice of maturity, see ante, 70. Agency of bank. Knapp v. —
"As to Notice of Maturity of Negoti- Saunders, 15 S. Dak. 464, 90 N. W.
able Paper," § 89 C4a). 137.
or as agent in the collection of drafts drawn against shipmentsJ^
§ 91. Purchasing and Holding Bank's Own Stock. —While a bank

may own and sell its own stock,'^^ a bank can not purchase its own stock,
except, perhaps, where the purpose is to secure a previously existing debt,'^^
and then it can, of course, sell it again, taking the purchaser's note.''* It
has, however, been held that a purchase of the bank's own stock, made with
capital which can not be usefully employed in loans, is legal.''" And a bank
may receive a transfer of its stock as collateral security without being a
purchaser thereof.''^
Under Particular Statutes and Charter Provisions. But sometimes —
there is an express statutory prohibition,'''' which may make an exception
in favor of .a right to purchase to prevent loss upon a debt previously con-
tracted in good on security deemed adequate.''^ Associations for bank-
faith
ing, organized under the New York Act of April 18, 1838, have been held
not "moneyed corporations," within the New York statute prohibiting
"moneyed corporations" from applying any of its capital to the purchase
of their own stock.''^ The provision of a bank charter prohibiting the cor-
71. First Nat. Bank v. Baken, 17 N. to the purchase of its own stock; and
Dak. 324, 116 N. W. 92. on the resale of such stock the stock-
As to agency for collection, see post, holders have no right to a preference
"Relation between Bank and Depos- in the purchase, nor can the directors
itor for Collection," § 156, et seq. be deemed as trustees, and on that
72. Purchasing and holding bank's ground restricted from the purchase
own stock.—Robison v. Beall, 36 Ga. 17. of the stock. Hartridge v. Rockwell
73. Can not purchase except to se- (Ga.), R. M. Charlt. 360.
cure debt. — German Sav. Bank v. Wul- 76. Transfer as collateral. Where —
fekuhler, 19 Kan. 60. R. gave his note to a bank in payment
In the absence of statutory restric- of 10 shares of capital stock, which
its
tion, a solvent banking corporation, were transferred back to the bank as
not in contemplation of insolvency or collateral security
for the note, the
dissolution, as against creditors, may transaction was not fraudulent, as con-
purchase its own stock in payment oi stituting a purchase by the bank of
a previously existing debt due from its own stock. Dalzell v. Commercial
the stockholder. Draper v. Blackwell, Bank, 83 Mo. App, 364.
138 Ala. 182, 35 So. 110. 77. —
Statutory prohibition. A stock-
Abank may receive its own stock holders' resolution reducing the
from stockholders in payment of debts amount of capital stock of a bank one-
previously contracted by them, and in half, and providing that long-time cer-
such case equity will not compel tificates of deposit should be issued to
former stockholders who so trans- the stockholders in payment for stock
ferred their stock to reinstate it after surrendered by them, amounted to a
the transaction has been long ac- sale of one-half of the capital stock
quiesced in by the company. Taylor to the bank itself, and was within the
V. Miami Exporting Co., 6 O. 176. prohibition of Mills' Ann. St., of Colo-
74. Power to sell on credit. Where — rado, § 510, declaring that no bank
a bank purchases its own stock to shall be the holder, as purchaser, of
protect itself from loss, it may sell any portion of its own stock. Kassler
said stock on credit, and take the pur- V. Kyle, 38 Colo. 374, 65 Pac. 34.
chaser's note with the stock as col- 78. To secure debt. —
Franklin Bank
lateral security. Union Nat. Bank v. V. Commercial Bank, 36 O. St. 350, 38
Hunt, 7 Mo. App. 42. Am. Rep. 594.
75. Purchasing bank's own stock 79. Under statute prohibiting mon-
with unemployed capital. — Where, eyed corporation from purchasing own
from the course of its business, the stock.— Leavitt v. Blatchford, 17 N. Y.
capital of a bank can not be usefully 521, reversing 5 Barb. 9, and overrul-
employed in loans, it may be applied ing the dictum to the contrary in Gil-
poration from dealing or trading, directly or indirectly, in buying or selling

any goods, wares, or merchandise, or commodities whatsoever, does not
prohibit the bank from making a bona fide purchase of its own stock.*"
§ 92. Purchasing and Holding Stock in Other Corporations. —

In general, a bank can not, without express authority, purchase or subscribe
for stock in other corporations,*^ and its action in doing so can not be vali-
dated by estoppel,*^ and certainly not where expressly prohibited from so
doing.** But if not prohibited, it has been held that a bank might accept
stock in another corporation; a railroad company, in satisfaction of
e. g.,
debts owing it;*ând the prohibitory clause usually makes this an excep-
tion,** but it does not include a receipt of stock in pledge for a contempo-
let Moody, 3 N. Y. 479. In that

V. not be validated by estoppel. Hence
case the decision was correct for such a corporation can not be held
another reason, i. e., that the purchase liable for an assessment as a stock-
of the stock by the insolvent bank holder of a national bank, where it
amounted to a gift of the amount paid purchased the stock as an investment,
to the stocliholder and affected credit- although it retained such stock until
ors' rights. the national bank became insolvent,
80.Charter prohibition of purchase and received dividends thereon. Scho-
of any commodities Farmers', etc., field V. Goodrich Bros. Banking Co.,
Bank v. Champlain Transp. Co., 18 Vt. 39 C. C. A. 76, 98 Fed. 371.
131. 84. Express prohibition. —Franklin
82. Purchasing and holding stock in Bank v. Commercial Bank, 5 O. Dec.
other corporations. One corporation — 339, affirmed in 36 O. St. 350, 38 Am.
can not hold stock in another unless a Rep. 594.
statute confers the power to do so, and Where a bank, which is prohibited
one hpnk organized under that act is by law from taking stock in another
not liable to another for refusing to corporation as a pledge for a contem-
transfer to it stock of which it holds porary loan, takes, in such manner,
the certificate by assignment. Frank- the stock of another bank, it has no
lin Bank v. Commercial Bank, 36 O. right of action against the latter bank
St. 350, 38 Am. Rep. 594. for its refusal to transfer the stock,
A banking corporation 'has no im- though the law provides that any
plied power to subscribe for railroad bank violating any provision of the
stock. Nassau Bank v. Jones, 95 N. act shall forfeit all its rights and
Y. 115, 47 Am. Rep. 14. See, also, De- franchises, which forfeiture can only
posit Bank v. Barrett, 11 Ky. L. Rep. be declared in a proceeding by the
910, 13 S. 337. W. state. Franklin Bank v. Commercial
And a banking corporation can not Bank, 36 O. St. 350, 38 Am. Rep. 594.
become a stockholder in an insurance 85. Acceptance of stock for debt. —
company. Bank v. Hart, 37 Neb. 197, It is consistent with the powers of a
55 N. W.
631, 20 L. R. A. 780, 40 Am. bank to either ov/n stock in a railroad
St. Rep. 479. company, or buy a railroad, or accept
But in Goddin v. Crump, 35 Va. (8 stock in a new company in satisfac-
Leigh) 120, it was held, that a statute tion of debts owing it, and, if the cor-
authorizing a bank to subscribe for poration in which it has accepted stock
stock in a company incorporated to ef- has violated its contract by consolidat-
fect a line of transportation from Ohio ing with another company, the bank,
to the city of Richmond (where the being a stockholder, may maintain an
bank was situated) was valid, since the action against the corporation. Deposit
purchase of such stock was germane to Bank v. Barrett, 11 Ky. L. Rep. 910,
the banking business. 13 S. W. 337.
83. Not validated by estoppel. The — 86.Franklin Bank v. Commercial
purchase by a corporation, only em- Bank, 5 O. Dec. 339, affirmed in 36 O.
pov/ered by its charter to transact a St. 350, 38 Am. Rep. 594.
banking business, of the stock of The Ohio free banking act, enacted
another corporation, as an investment, March 21, 1851, expressly provided that
and not as security or in payment ot no banking company organized there-
a debt, is ultra vires and void, and can under should be the holder or pur-
§92 FUNCTIONS AND DEALING. 661
raneous loan.®'^ And where such purchase is merely ultra vires and not
prohibited, it has been held that the bank gets title to the stock thereby.^*
Particular Statutory and Charter Provisions Considered. —Au-
thority to invest in personal securities, but limiting the stock held to ten
per cent of the capital, is sufficient,^^ and a contract to sell a greater amount
than this, within one year for a sum named, does not violate this limitation,
as it is not a purchase. ^^ A statutory requirement of reports to the state
auditor of the value of stock and bond investments does not confer any
such power.81 The fact that a banking law specially restricts the power
of the banks organized thereunder in the purchase and sale of real estate
does not justify the inference that the bank is not prohibited from purchas-
chaser of any portion of its capital agreed to sell for plaintifif certain cor-
stock or of tlie capital of any other porate within one jear, for a
stock
incorporated company, unless such sum named, is not in violation of the
purchase should be necessary to pre- New York Banking Law (Laws 1892,
vent loss upon a debt previously con- p. 1911, c. 689), § 159, prohibiting such
tracted in good faith, on security a corporation from holding stock iti
which, at the time, was deemed ade- excess of ten per cent of its capital;
quate to insure the payment of such the contract not showing that the stock
debt, independent of any lien upon was intended by the parties to con-
such stock. Franklin Bank v. Com- stitute part of the capital of the bank,
mercial Bank, 36 O. St. 350, 38 Am. or that it was intending, or that plain-
Rep. 594; S. C, 5 O. Dec. 339. As to tiff knew it was intending, to invest
grounds of forfeiture, see ante, any trust funds in the stock so to be
"Grounds Forfeiture of Franchise
for sold. Gause v. Commonwealth Trust
or Dissolution," § 68. Co., 14 Misc. Rep. 46, 89 N. Y. S. 723,
87. Pledge for contemporaneous loan reversed in 100 App. Div. 427, 91 N. Y.
—
not included. Under 1 Swan & C. St., S. 847, but on other grounds.
p. 170, § 13, prohibiting a banking cor- 91. Requirement of reports of value
poration from holding or purchasing of stock investments. — Consol. St.
any stock in another corporation un- Neb. 1891, 132, § 294, enacted in
p.
less necessary to prevent loss on a 1889, requiring state banks to make
debt previously contracted, a bank can reports to the state auditor containing
not take stock of another bank as specified information, did not add to
pledge for loan made at the same time. the powers of such banks; and the re-
Franklin Bank v. Commercial Bank, 36 quirement therein that such banks
O. St. 350, 38 Am. Rep. 594. should report, among other things,
88. Where purchase merely ultra "the par value and actual market value
—
vires title passes. That a bank's pur- of all stock or bond investments," did
chase of stock in another bank was not empower them to purchase the
ultra vires did not prevent it from get- stock of other corporations as an in-
ting title to the stock, both because vestment, where, under the prior stat-
an ultra vires contract is simply un- utes, as construed by the supreme
authorized and not forbidden iDy law, court of the state, they were without
and because the passing of title de- such powers. Schofield v. Goodrich
pends on the intention of the parties Bros. Banking Co., 39 C. C. A. 76, 98
and the performance of the requisite Fed. 271.
formalities by the parties, regardless of And the provisions of a general
whether they are engaged in an illegal banking law authorizing the state
enterprise. Metropolitan Trust Co. v. comptroller to change for other stocks
McKinnon, 172 Fed. 846. stocks deposited with him by the bank
89. Authority to invest in personal as security, and requiring the bank in
securities. — Gause v. Commonwealth its semi-annual return to state the shares
Trust Co., 44 Misc. Rep. 46, 89 N. Y. of stock held by it absolutely and as
S. 733, reversed on another point in collateral, does not authorize or tend
100 App. Div. 427, 91 N. Y. S. 847. to authorize the bank to purchase and
90. Agreement to take and sell. — sell stocks or bonds for profit, or to
contract whereby a banking corpora- pay liabilities with the proceeds
tion organized under the banking law thereof. Talmage v. Peil, 7 N. Y. 328.
ing and selling stocks or bonds.^^ Nor does the fact that all bank charters
granted by a state prior to the passage of a general banking law prohibited
the bank from dealing in stocks justify the inference that a bank has such
power as incidental to the banking business. ^^ A power to discount bills,
notes and other securities confers the power to buy from a stockholder in
another bank stock therein.^*
§ 93. Property and Conveyancesss § 94. in General?" —

§ —
94 (1) Acquisition and Holding. Implied Power. One of the im- —
plied powers of a bank is the power to acquire estate, real or personal.^'
Acquisition of Property Incident to Engaging in Unusual Occupa-

tion and Vice Versa.—While, generally speaking, a bank can not pur-
chase property for the purpose of engaging in an occupation foreign to the
business of banking,^*^ yet, where a banking corporation acquires possession
of property, either by a lien thereon or by the purchase of the same, for
the payment of a debt due and expends money on it, or furnishes sup-
to it,
plies either for its preservation or to carry on the business in which such
property is employed, with a view to rendering it productive, in order to
satisfy the debt the bank holds against the former owner of the property,
it is not chargeable with exceeding its corporate powers by engaging in a
business beyond the scope and purposes of its creation, s* and, to save itself
from loss, a banking corporation may, under its general powers, take an
assignment of an account due a debtor of the corporation, as well as other
things which it could not otherwise do,^ or may receive other property in
which it is not authorized to deal regularly.^
93. Implication from restriction of Abank may purchase any personal

power as to land. —Talmage v. Pell, property at a sale on an execution in
7 N. Y. 328. its own favor, or under a mortgage or
93. Implication from prohibition in pledge of the property taken by it as
all previous charters but not in this. — security for a loan. Farmers', etc.,
Talmage v. Pell, 7 N. Y. 328. Bank v. Detroit, etc., R. Co., 17 Wis.
94. Under power to discount bills, 372.
notes and other securities. Latimer v.— Where certain banks as creditors of
Citizens' State Bank, 103 Iowa 162, 71 a mining company obtained a trust
N. W. 225. deed of the mining company's property
Property and conveyances. Dis-
95. — to secure payment of their demand,
position of property by officers or they had power to buy in the property
agents, see post, "Disposition of Prop- at sales thereof to protect their rights
erty," § 104. under their security. Missouri State
Of national banks, see post, "Prop- Bank v. St. Louis Foundry (Mo. App.),
erty and Conveyances," § 259. 129 S. W. 433.
96. Branch banks, see ante, "Powers,'' Purchase of judgment prior to bank's
§ 33 (3). mortgage A bank, having a mort-
97. Imiplied power. —W
r o t e n v. gage on a tract of land, has a clear
Armat, 72 Va. (31 Graft.) 228. right to purchase a judgment being a
98. Unusual occupation. —
Veasey v. lien thereon, if the object was to pro-
Graham, 17 Ga. 99, 63 Am. Dec. 228; tect itself and secure the payment of
Morris v. Hall, 41 Ala. 510. its own claim. Brown v. Hogg, 14
99. When engaging in unusual occu- 111. 219.
—
pation proper. Reynolds v. Simpson, 2. Reception of property in which
74 Ga. 454. unauthorized to deal. Backer's Har- —
1. Steps to prevent loss. Bank if. — bor Bank v. Lewis County Bank
Tamblyn, 7 Mo. App. 571. (N. Y.), 11 Barb. 213.
§ 94 (1) FUNCTIONS AND DUMPINGS. 663
Part Ownership of Property Arising from Purchase of Partnership

Shares. —Where a national bank became the owner of nine shares in a
partnership, not having the power to become a partner, it became, in legal
efifect, a part owner of the property of the syndicate, which ownership is
in its nature several, and the bank, through its trustee, having managed this
several interest in connection with the trustees of the other shares as to
their interests, the bank became and was liable for its share of the expenses
of purchasing, managing, handling, holding, improving and disposing of
the property.^
Particular Charters and Statutes Construed. See note 4. —
—
Personal Property Generally. A statute which expressly empowers
banks to acquire real estate sold on execution in their favor, or under mort-
gages made to them as security for loans, or where such real estate is con-
veyed to them in satisfaction of debts previously contracted, does not, by
implication, abridge theirpower tp acquire personal property in like ways.^
—
State Stocks and Bonds. Under a banking law expressly empower-
ing the banks formed thereunder to deal in certain kinds of personal prop-
erty, among which state bonds are not mentioned, and giving the banks all
incidental powers as might be necessary to transact the business defined, a
bank has no authority to purchase state bonds, for sale and profit, or with
the proceeds to pay existing liabilities.^ But it may, ex necessitate rei, ac-
quire and hold such stocks as it is required by law to deposit from time to
3. Part ownership of property aris- of exchange between this state and

ing from purchase of partnership the place where the cotton was sold,
shares. —Merchants' Nat. Bank v. is not dealing in "goods, wares, or
Wehrmann, 69 O. St. 160, 68 N. E. 1004. merchandise," within this section of
See, also, ante, "Partnerships and the charter. Bates v. Bank, 3 Ala. 451.
Joint-Stock Companies," § 24. The act prohibiting banks from trad-
4. Particular charter provisions.— ing in bonds or judgments and pur-
charter provision that the "bank shall chasing pre-existing debts did not pro-
not deal in articles of goods, wares, or hibit a bank, which was closing its
merchandise, in any manner whatever, business, from taking an assignment
unless it be to secure a debt due the of a judgment against a third person
said bank, incurred by the regular {„ part payment for the sale of its
transactions of the same, as is pro- banking house. Harwood v. Ramsey
vided for in this act," means that the (Pa ) 15 gerg & R 31
bank shall not buy and sell goods, Charter provision authorizing buy-
'
wares, or merchandise for the purpose receiving and holding.-A bank,

j„
o gam, or do the ordinary business ^^^^^ ^ provision of its Charter that
of a merchant or trader or engage, in
the business of broker or commission
,.;
; J ^j ^ ^ ;
; ^^ ^^^y property and estate

merchant Bates v. Bank 3 Ala. 451.
^f Whatsoever nature, and the same
A contract, by which the State ^jj^^ ^^^ j; ^ pleasure,"
Bank lent a large sum of money, tak- ^^^^.^^ ^^^^^^ ^^ collateral se-
mg bills of exchange at nine months
^J ^^^ ^^. ^^^ ^û ^j^^ ^^^^^
for payment thereof, and recemng at Commercial Bank v. Nolan (Miss.), 7
the time, and as one of the conditions How '.,,',
508
of the loan, a quantity of cotton, with
authority to ship it to a foreign port, ^ 5- Personal property generaUy.—
and sell it for the account and at the farmers , etc.. Bank v. Detroit, etc.,
risk and expenses of the owners, and ^- '-o-. Wis. 372.

1'''
to credit his bill with the amount of 6. State stocks and bonds. —Talmage
the net proceeds, adding the difference v. Pell, 7 N. Y. 328.
time with the comptroller^
§ 94 (2) Disposal of Property.— A banking corporation may sell

any of its property, when not restricted by charter or previous law, as freely
as an individual, when not involved in the transaction of unauthorized
branches of business. ^ And the assets of an unincorporated bank may be
lawfully disposed of by the owner to secure of pay the just claims of any
of his just creditors.^
Transfer of Assets in Consideration of Assumption of Liabilities.
—An agreement by which one bank assigns and transfers to another all
its assets in consideration of the latter's assumption of all its liabilities is
valid, where the assets transferred are sufficient to satisfy all the debts
assumed. 1"
7. Right to acquire and hold stocks Lewis County Bank (N. Y.), 11 Barb.
for deposit with comptroller. The — 213.
general banking law, in its provision A banking corporation may make a
for the deposit, from time to time, valid transfer of a security held by it
with the comptroller, of state stocks to secure a debt owing by such corpo-
to an unlimited amount, assumes, and ration. Gillett V. Campbell (N. Y.), 1
therefore, in legal intendment, de- Denio 520.
clares, that the associations to be Release
of mortgage. —A
mortgage
formed under it, and who were to make to a bank is released, without being
such deposits, had, and were intended delivered up, where the directors of
to have, authority, in virtue either of the bank pass a resolution releasing it,
the specific or of the incidental bank- holding the personal security only, to
ing powers expressly conferred upon enable the mortgagor to improve the
them, to acquire and hold such stocks property, and he does so and conveys
in the same manner, and for the like the property, and no claim is made on
purpose, as other individuals, whether the mortgage till ten years later, and
singly or in partnership, carrying on then by the bank's assignee. In re
business as private bankers. Curtis v. Bank, 109 Wis. 672, 85 N. W. 501.
Leavitt (N. Y.), 17 Barb. 309. See 9. Assets of unincorporated bank.—
also, Comstock v. Willoughby (N. Y.), Longfellow V. Barnard, 58 Neb. 612, 79
Lalor's Supp. (Hill & Denio) 271; N. W. 255, 76 Am. St. Rep. 117, affirmed
Tracy v. Talmage, 18 Barb. 456, 9 on rehearing in 59 Neb. 455, 81
How. Prac. 530. N. W. 307.
8. Disposal of property. Planters' — 10. Transfer of assets in considera-
Bank v. Sharp (U. S.), 6 How. 301, 12 tion of assumption of liabilities.
L. Ed. 447. Mitchell V. Beckman, 64 Cal. 117, 28
The sale by a bank of a quantity of Pac. 110.
butter, which it had received in set- The City Bank of New Orleans,
tlement of a debt due to it is no vio- three days before the expiration of its
lation of the provision in its charter charter, in good faith, sold and trans-
that it shall not, directly or indirectly, ferred all its banking assets, by assign-
deal or trade in buying or selling any ment, to the Louisiana State Bank, in
goods, wares, merchandise, or com- consideration of an undertaking by the
modities whatever, unless in selling latter bank to discharge all the liabili-
the same when truly pledged by way ties of the former, which were war-
of security for debts due to the said ranted not to exceed a specified
corporation; and the purchase of the amount. Held, that this transaction
butter by another bank having a simi- was within the corporate powers of
lar restrictive clause in its charter, it the contracting parties, and that the
appearing to be an isolated transaction Louisiana State Bank thereby became
of buying on the part of such bank, is an assignee, within the meaning of the
not within the restriction which pro- statutes of this state, competent to
hibits dealing or trading in buying and prosecute an action in the name of the
selling any goods, etc., but is a lawful City Bank of New Orleans. Stetson
transaction. Sacket's Harbor Bank v. V. City Bank, 12 O. St. 577.
§ 95 (la) Functions and dealings. 665
95.
§ —
Real Property" § 95 (1) Acquisition and Holding
§ 95 (la) Right to Acquire and Hold Generally. While, generally —
speaking, an incorporated bank may lawfully be the owner of real estate
only in the cases and mode allowed by its charter or the law under which
it was incorporated,!^ such a bank is usually authorized to take and hold
land for its immediate accommodation or to acquire same in satisfaction

of debts. 1^ And it may take and hold lands as security for debts due it.
11. Power of national bank, see ble, provided it does not exceed in
post, "Property and Conveyances," value the double of their capital; and
§ 259. they shall have the power of selling,
12. Necessity for charter authority. transferring, and renting said property,
— Metropolitan Bank v. Godfrey, 23 and, in short, to enjoy and dispose of
111. 579; State Bank v. Brackenridge it, at their own pleasure and discretion,
(Ind.), 7 Blackf. 395. etc. The fifteenth section of the char-

A corporation organized under a ter, it is true, limits this general power,
private act, and authorized to engage by providing that the lands, effects,
in a general banking and real-estate goods or merchandise whatsoever,
business, the act providing that the which the said corporation shall hold,
corporation shall be subject to the shall be only such as shall be requisite
provisions of any general law here- for the convenient transaction of its
after passed on the subject of banking, business, and such as shall have been
trust, and deposit companies, is subject bona fide mortgaged or pledged to it
to the provisions of an Act, limiting by way of satisfaction of debts pre-
the right of banking corporations to viously contracted. These sections
hold real estate, and providing that all evidently gave the bank full power to
corporations with banking powers, ex- acquire and hold property of every
isting by virtue of any special charter, kind, convenient for the transaction of
shall be subject to the provisions of a banking business, or obtained as a
the act. Henderson Loan, etc., Ass'n security for debts, and were certainly
V. People, 163 111. 196, 45 N. E. 141, designed to interpose no obstacle to
construing Act of June 16, 1887.
111. the safe and convenient discharge of
13. For immediate accomm,odation all the proper functions of a banking
or in satisfaction of debts. Banks v. — institution, but only to prohibit the
Poitiaux, 24 Va. (3 Rand.) 136, 15 Am.. bank from engaging in business wholly
Dec. 706; Bennett v. Union Bank, 34 foreign from the objects and business
Tenn. (5 Humph.) 612; Nashville v. contemplated by its charter. Stetson
Bank, 31 Tenn. (1 Swan) 269. V. City Bank, 12 O. St. 577.
Where a statute authorizes a bank "A banking house has no immediate
to hold as much real property as may connection with the privileges granted
be requisite for its immediate accom- by the state to the bank, and is only
modation, in relation to the conve- incidentally necessary to their enjoy-
nient transaction of its business, and ment." Union Bank v. State, 1?
no more, the bank may purchase more Tenn. (9 Yerg.) 490.
land than is necessary for the erection A banking corporation has no im-
of banking house, build fireproof
a plied power to buy and sell real estate
houses on so much as shall not be except to secure buildings in which to
necessary for the banking house, for transact its business. Thweatt v.
the greater security of the bank build- Bank, 81 Ky. 1, 4 Ky. L. Rep. 557.
ing, and sell them out to third per- —
Necessity of seal. A contract made
sons. Banks v. Poitiaux, 24 Va. (3 by a bank for the purchase and sale of
Rand.) 136, 15 Am. Dec. 706. real estate is not invalid because not
Ample power for that purpose was made under the corrtmon seals of the
conferred by the second section of the bank. Banks v. Poitiaux, 24 Va. (3
charter, by which a bank was author- Tând.) ]36, 15 Am. Dec. 706, citing
ized at any time, to buy, receive and Bank v. Patterson (U. S.), 7 Cranch
possess all kinds of property, either 299, 3 L. Ed. 351; Legrand v. Hamp-
real or personal, and to loan, negotiate den Sidney College, 19 Va. (5 Munf.)
and dispose of the same, by taking 334.
mortgages and by discounting on bank- —
In payment of debts. Banks may
ing principles, on such security, and at receive real estate in payment of
such credit as they shall think advisa- debts due. Thomaston Bank v. Stimp-
contracted in its legitimate business/* and generally may acquire and hold
land to secure itself from loss in the transaction of its authorized business,
although not expressly authorized to deal in real estate, or prohibited there-
from. ^^ But the purchase of property at foreclosure sale under a first mort-
son, 21 Me. 195; Merchants' Bank v. Security Bank v. Hoskins, 130 Iowa
Harrison, 39 Mo. 433, 93 Am. Dec. 285; 339, 106 N. W. 764, 8 L. R. A., N. S.,
Sherry v. State Bank (Ind.), 8 Blackf. 376; Martin v. Branch Bank, 15 Ala.
542. 587. 50 Am. Dec. 147.
A banking corporation, having by An act by which banks are per-
its charter power
to acquire real estate mitted to take mortgages or other
in "satisfaction of debts," took from liens on lands, to secure debts already
Ihe holder of a sheriff's certificate of existing, impliedly permits them to buy
sale, after if had become absolute, an in lands on which they hold such liens
assignment of all his right, and then for the better security of their claims,
received the sheriff's deed. The as- though an express prohibition exists
signment was expressed to be "for against their purchasing and holding
value received." In the absence of real estate. Ingraham v. Speed, 30
proof of any other consideration, it Miss. 410.
would be presumed that the corpora- Under Missouri Laws 1856-57, regu-
tion had taken the assignment within lating banking institutions, a bank may
its proper powers, "in satisfaction of hold such real estate as may be con-
debts," and that it would hold the real veyed to it in payment of debts pre-
estate by virtue of the sheriff's deed. viously contracted in good faith and
Chautauque County Bank v. Risley, 19 without a view to the purchase thereof,
N. Y. 369, 75 Am. Dec. 347. and may purchase real estate at sales
Where one conveyed land to a bank upon judgments and decrees in favor
in exchange for drafts held by the of the bank, where it shall be pur-
bank, to which the grantor was not chased in order to secure the debt.
a party, nor in any way interested, such Merchants' Bank v. Harrison, 39 Mcv.
purchase is not authorized by 1 Rev. 433, 93 Am. Dec. 385.
St., p. 94, authorizing the bank to hold The circumstances that there are in-
real estate conveyed to it in satisfac- cumbrances on the real estate of a per-
tion of debts previously contracted in son indebted to a bank is no objection
the course of its dealings. State Bank to a bona fide purchase of the prop-
V. Coquillard, 6 Ind. 333. erty by the bank, subject to the incum-
As security for debts. Nashville
14. — brances, in consideration of its own
V. Bank, 31 Tenn. (1 Swan) 369; Ben- claim on part of it. Sherry v. State
nett V. Union Bank, 34 Tenn. (5 Bank (Ind.), 8 Blackf. 542.
Humph.) 613; Thomaston Bank v. Under a bank's charter authorizing
Stimpson, 21 Me. 195; Sparks v. State it to hold real estate "such as shall be
Bank (Ind.) 7 Blackf. 469. conveyed to it in satisfaction of debts
A
statute providing that banks shall previously contracted in the course of
not own real estate more than suffi- its dealings," when property is about
cient for the conduct of their business, to be sold under executions in which
unless taken in payment of debts, does the bank is not interested, the execu-
not prevent the taking of real estate tion debtor being also indebted to the
as security for loans. Alexander v. bank, such bank may become a pur-
Brummett (Tenn.), 42 S. W. 63. chaser if necessary to secure its own
Bona fides necessary —Benefit to debt, provided the purchase is made
bank not essential.. —An act of incor- bona fide, in consideration of its own
debt or some portion of it; but if the
poration, authorizing a bank to hold
such lands as are bona fide conveyed purchase be for an amount less than
to it in satisfaction of debts, does not the judgment debts, so that no part or
prohibit the bank from accepting land the debt due the bank is extinguished,
in discharge of a debt, though such it is unauthorized. Sherry v. State
transaction would not be beneficial to Bank (Ind.), 8 Blackf. 543.
the bank; the intention being only to At greater price than necessary to
restrict the right to cases where the —
secure debt. Under a charter author-
loan should be real, and not merely izing a bank to purchase real estate at
colorable. Baird v. Bank (Pa.), 11 sales upon judgments obtained for
Serg. & R. 411. debts due the bank, it may make such
15. To prevent loss generally. State — purchase at a greater price than nee-
§ 95 (lb) FUNCTIONS AND DEALINGS. 667
made on second mortgage, was unlawful.!^

gage, to protect an unlawful loan
—
Purchase for Purpose of Subsequent Sale. Where a bank was au-
thorized to hold real estate for the accommodation of its business only, ex-
cept when received bona fide as security, or in payment of a pre-existing
debt, or as purchaser on an execution in its own favor, it was held that the
bank had not authority to buy land to sell again, and that a court of equity
would not lend its aid to enforce such contract against either party. ^'^
—
Foreign Banks. Since banks organized under the general law of a
sister state are corporations which can exercise only such powers in Illinois
as the law of their creation confers, they can not acquire and hold lands in
Illinois, .except on the terms and conditions imposed by the law of their
creation.^*
§ 95 (lb) Right to Raise Question of Authority. —Where a bank

is incompetent by its charter to take a title to real estate, a conveyance to it
is not void but only voidable; the sovereign alone can object. It is valid
until assailed in a direct proceeding instituted for that purpose. ^^
essary to secure its own debt. Sherry S.), 19 Wall 32, 22 L. Ed. 96; First
V. State Bank (Ind.), 8 Blackf. 542. Nat. Bank v. National Exch. Bank,
Want of power of a bank or its trus- 92 U. S. 122, 23 L. Ed. 679, 51 How.
tee to hold real estate. Want of — Prac. 320; Banks v. Poitiaux, 24 Va. (3
power of a bank, or of its trustee in Rand) 136. 15 Am Dec. 706.
insolvency, to purchase and hold real The disability of a national bank to
estate, does not render void an ar- take and hold property under its char-
rangement whereby land subject to a ter, can not be made the ground of a
lien in favor of the bank and also to writ of error to the decision of the
other incumbrances, is discharged of state court by a party seeking to en-
those incumbrances, by aid of money join the completion of the transaction,
advanced from the assets of the bank, but setting up no title in themselves.
and then sold, and the whole proceeds They do not claim for themselves a
realized for the bank; provided the right, title, privilege or immunity
legal title is not passed through the under the national banking law. Mil-
bank or trustees. Zantzingers v. Gun- ler V. Lancaster Bank, 106 U. S. 542,
ton (U. S.), 19 Wall. 32, 22 L. Ed. 96. 27 L. Ed. 289, 1 S. Ct. 536.
Acceptance of transfer from stock- If a bank buys land outright in vio-
holder to cover deficit in capital. Ac- — lation of statute, a private party can
ceptance by a bank of real estate derive no advantage therefrom, since
transferred to it by a stockholder to the law imposes no forfeiture for its
cover a deficit in the capital is not violation, and the only effect of its
ultra vires. Brown v. Bradford, 103 transgression would be to subject the
Iowa 378, 72 N. W. 648. bank to proceedings in behalf of the
16. Pxirchase to protect unlawful state to vacate its charter. Litchfield
—
loan. Williams v. McKay, 46 N. J. V. Preston, 98 Va. 530, 37 S. E. 6, con-
Eq. 25, 18 Atl. 824. struing Va. Code, § 1163.
17. Purchase for purpose of subse- Where the charter of a bank author-
—
quent sale. Bank v. Niles (Mich.), 1 ized it to have, hold, purchase, and re-
Doug. 401, 41 Am. Dec. 575. tain lands, etc., and to sell them, "pro-
18. —
Foreign banks. Metropolitan vided that such lands, which the said
Bank v. Godfrey, 23 111. 579. corporation are hereby enabled to pur-
19. Right to question acquisition of chase and hold shall extend only to
real estate. — Reynolds Crawfords-
v. lots, etc., necessary for the business of
ville First Nat. Bank, 112 U. S. 405, the bank," the bank might purchase
28 L. Ed. 733, 5 S. Ct. 213, citing Union land in distant county, though it cculd
Nat. Bank v. Matthews, 98 U. S. 621, retain only an estate defeasible by the
25 L. Ed. 188; National Bank v. Whit- commonwealth. Leazure v. Hillegas
ney, 103 U. S. 99, 26 L. Ed. 443; Swope (Pa.), 7 Serg. &
R. 313.
V. Leffingwell, 105 U. S. 3, 26 L. Ed. The validity of a lease executed by
939. See Zantwingers v. Gunton (U. a bank can not be assailed as being
668 BANKS AND BANKING. § 95 (Id)
§ 95 (Ic) Conveyance before Incorporation Complete. —

And a
conveyance to a bank before its incorporation is complete can not be treated
as a nullity by the grantor, but is valid vi^hen the government does not com-
plain. ô
§ 95 (Id) Mortgages.Ît seems that a bank, in the absence of any

restriction imposed by its charter, may take a mortgage to secure anticipated
liabilities as well as pre-existing ones,^! or it may take an assignment of a
ultra vires as to the bank by one not feiture can not be taken advantage of,
a party thereto. Lechenger v. Mer- or enforced agamst a corporation, col-
chants' Nat. Bank (Civ. App.), 96 S. laterally or incidentally, or in any
W. 638, affirmed in 101 Tex. 646, other mode than by direct proceed-
no op. ing, for that purpose, against a corpo-
performance by bank. It
Specific — ration, so that it may have an oppor-
is no defense to a bill filed by a bank tunity to answer. And the govern-
for the specific performance of a con- ment creating the corporation can
tract made with one who had agreed alone institute such proceedings; since
to give his bond and deed of trust for it may waive a broken condition of a
certain lands conveyed to him_ by the contract made with it as well as an
bank, that the charter creating the individual. Greenbrier Lumber Co. v.
bank did not confer a right on the Ward, 30 W. Va. 43, 3 S. E. 227, quot-
plaintiffto make a purchase and sale ing from Angell and Ames on Corpo-
of the property in question. The crea- rations (10th Ed.), § 777, and citing
tion of a corporation gives to it Banks v. Poitiaux, 24 Va. (3 Rand.) 13G,
amongst other powers as an incident 15 Am. Dec. 706, to sustain the propo-
to its existence and without any ex- sition. Banks v. Poitiaux, 24 Va. (3
press grant of such powers, that of Rand.), 130, 15 Am. Dec. 706, is also
buying and
selling. But its power cited in Fayette Land Co. v. Louis-
may limited, restrained or pro-
be ville, etc., R. Co., 93 Va. 274, 24 S. E.
hibited, either by the charter creating 1016; Chesapeake, etc., R. Co. v.
the corporation, or by a general law. Walker, 100 Va. 69, 40 S. E. 633.
Banks r. Poitiaux, 24 Va. (3 Rand.) 136, 20. Conveyance before incorporation
15 Am. Dec. 706. Approved in Wroten
V. Armat, 72 Va. (31 Gratt.) 228.
—
complete. Although under the act of
congress of July 1st, 1863, a bank
Quo —
warranto. In the Banks v. Poi-
created by a territorial legislature can
tiaux, 3 Rand. 136, it was held, that
not legally exercise its powers until
under an act of assembly authorizing a
the charter creating it is approved by
bank to hold so much real property congress, yet a conveyance of land to
as may be requisite for its immediate
it, if the charter authorize it to hold
accommodation in relation to the con-
land, can not be treated as a nullity by
venient transaction of its business, and
the grantor who has received the con-
no more; the bank may purchase more
sideration for the grant, there being no
ground than is necessary for the erec-
tion of a banking house, build fire
judgment of ouster against the corpo-
ration at the instance of the govern-
proof houses on the vacant land, for
ment. Smith V. Sheeley (U. S.), 13
t\»^ greater security of the banking
Wall. 358, 20 L. Ed. 430.
hatise, and sell them out to third per-
sons. And that, even if the bank vio- "Conceding the bank to be guilty of
lated its charter in so doing, the only usurpation, it was still a body corpo-
proceeding against it would be by quo rate de facto, exercising at least one
warranto. Wroten v. Armat, 72 Va. of the franchises which the legislature
(31 Gratt.) 228. attempted to confer upon it, and in
Where the law imposes no forfeiture such a case the party who makes a
for its violation, the only effect of its sale of real estate to it, is not in a
transgression in that respect would be position to question its capacity to
to subject the bank to the proceedings take the title, after it has paid the con-
in behalf of the state to vacate its sideration for the purchase." Smith
charter. Litchfield v. Preston, 98 Va. V. Sheeley (U. S.), 12 Wall. 358, 20 L.
530, 37 S. E. 6; citing Banks v. Poi- Ed. 430,

tiaux, 24 Va. (3 Rand.) 136, 15 .^m. 21. Mortgages. — Crocker v. Whitney,
Dec. 706, as authority. A
cause of for- 71 N. Y. 161.
§ 95 (Id) FUNCTIONS AND DUMPINGS. 669
mortgage. ^^ And a statute giving authority to take a mortgage for a lim-

ited time, is directory as to the time, and a mortgage for a longer time is
good.2* A mortgage will be presumed to have been duly executed in ac-
cordance with the charter,^* and a mortgage taken to secure a loan, made at
the time, is valid under an authority, in an act of incorporation, to take mort-
gages to secure debts previously contracted.^^ ^j^^ ^ deed of trust to secure
a debt is a mortgage, and is embraced by the authority given to a bank in its
charter to hold land mortgaged to it as security.^^
Mortgage Not Raised or Released by Probate Sale. —A probate sale
of property so mortgaged, unless with the bank's consent, does not release
^'^
the incumbrance, which may be enforced against the purchaser.
Foreclosure. —Under a statute providing that it shall be lawful for banks
to purchase, hold, and convey real estate mortgaged to in good faith, them
and such as it shall purchase at sale under decrees or mortgage foreclosures
under securities held by them, a bank can foreclose a mortgage by advertise-
ment. ^^ A provision in the charter of a bank, for it to dispose of its se-
22. —
Assignment. The provision in April 18, 1838, § 24, authorizing a bank-
the charter of a banking company that ing association to hold such real estate
"the corporation shall not, directly or as may be mortgaged to it in good
indirectly, deal or trade in anything faith, and providing that all convey-
except bills of exchange, promissory ances of such real estate shall be made
notes, gold or silver bullion, or the to such officer as shall be indicated for
sale of goods which shall be the pro- that purpose in the articles of associa-
duce of its lands," does not restrain tion, a bona fide mortgage made di-
the bank from taking an assignment rectly to a bank in New York is valid,
of a mortgage to secure a debt to the though the articles designate the pres-
bank. Trenton Banking Co. v. Wood- ident as the officer to take convey-
ruff, 2 N. J. Eq. 117. ances; the object in permitting convey-
23. Limitation of duration construed ances to be made to an officer of the
as directory. —
The liquidation act au- bank was merely to facilitate business,
thorized the bank of the state to take and not to prohibit the bank from tak-
mortgages to secure doubtful debts, ing title. Kennedy v. Knight, 21 Wis.
and to extend payment of such debts 340, 94 Am. Dec. 543.
"not exceeding two years." Where 25. To secure contemporaneous loan.
the payment of a note was extended a —Silver Lake Bank v. North (N. Y.),
longer time, and a mortgage taken as 4 Johns. Ch. 370; Planters' Bank v.
security, it was held that the clause in Sharp (U. S.), 6 How. 301, 12 L. Ed.
the statute must be considered di- 447; Neilson v. Lagow, 13 How. 98, 13
rectory, and that the mortgage was L. Ed. 909.
not void. Magruder v. State Bank, 18 26. Deeds of trust.— Bennett v.
Ark. 9. Stock mortgages, see ante, Union Bank, 24 Tenn. (5 Humph.) 612.
"Subscription to and Issue of Stock,"
§ 39. 27. Mortgage not raised or released
24. Presumption of due execution. by probate sale The rule that a pro-
— A note and mortgage, appearing on bate
them
sale raises mortgages, attaching
to the proceeds, is inapplicable
their face to be executed to the State
Bank in its corporate name, will be to the Bank of Louisiana and other
presumed to have been taken in con- banks by whose
charters mortgages
formity with the charter of the bank, in their favor are not affected by any
imtil the contrary is shown; and, sale or change of title, by descent or
therefore, an objection that they are otherwise. Williams v. Bank, 17 La.
void, it not appearing that they were 378; Citizens' Bank v. Buisson (La.),
received by the bank through the 7 Rob. 506; Union Bank v. Marigny
agency of one of its branches, is not (La.), 11 Rob. 209.
tenable. Sparks v. State Bank (Ind.), 28. Foreclosure. — Gage v. Sanborn,
7 Blackf. 469. 106 Mich. 269, 64 N. W. 32, construing
Under New York Banking Act Michigan statute.
curities "in all respects as natural persons may do under the common law,"
abrogates the requirement of an act requiring the intervention of a court
of equity to sell mortgaged property. ^^
§ 95 (le) Leases. —A by a bank was not ultra

lease of a building
vires, where it was leased exchange the use of a part of it for a building
to
suitable to its purposes, and which could not be procured otherwise.^"
§ 95 (2) Disposal of Property. —Power to

Sell. A bank may as- —
sign or convey any property held by it, and may enter into the common
covenants of guaranty or warranty, on making such assignment or convey-
ance.^ ^ Authority given to a bank, by its charter, to take real estate in
payment of its debts, either by conveyance or purchase under judgments in
its favor, includes the power of selling and conveying the same.^^
—
Requisites and Sufficiency of Deed. In the absence of any statutory
requirement to the contrary, a deed of conveyance by a banking corporation
is properly executed when its cashier, on behalf of the bank, and by its
authority, affixes thereto the corporate seal, and subscribes his name as such
cashier; and in such case the cashier is the proper person to acknowledge
the deed.3*
Power to Mortgage. —Where the act of incorporation declares that a
bank shall be capable of conveying any real estate in its possession, for the
29. Hahn v. Pindell (Ky.), 3 Bush tary of a bank as the mortgagors

189. therein named, is not executed as the
30. —
Leases. Lechenger v. Mer- statute of requires, and is
Illinois
chants' Nat. Bank (Civ. App.), 96 S. invalid third persons, when
against
W. &38, affirmed in 101 Tex. 646, no op. the property is to remain with mort-
31. Power to sell. Talraan v. — gagor. First Nat. Bank v. Baker, 62
Rochester (N. Y.), 18 Barb. 123; Peo- 111.App. 154.
ple V. Brown (N. Y.), 5 Wend. 590. Yet where a deed by its terms was
32. Under authority to take real made by the Farmers' Bank of Mis-
estate for debts. People v. —
Brown souri in its corporate name, and was
(N. Y.), 5 Wend. 590. signed by it in the usual form, conclud-
Sale of land by one bank to another. ing: "In witness whereof, I, Stephen
— Where a bank lawfully buys land to G. Wentworth,
as president of the
secure an existing debt, and conveys it Farmers' Bank of Missouri, by direc-
to another bank, a tenant in posses- tion of the board of directors, have
sion has no right to refuse to deliver hereunto subscribed my name and
the possession, or to enjoin the owner caused the common seal of the bank
from taking steps to recover the pos- to be hereto affixed" which —was
session, on the ground that the sale signed: "S. G. Wentworth, President
from one bank to the other was void. of the Farmers' Bank of Missouri,"
Miller v. National Bank, 4 Ky. L. and the official seal of the bank was
Rep. 25. affixed at the proper place. It was
33. and suiBciency of
Requisites held, that under Wag. St. p. 273, § 5,
deed. — SheehanDavis, 17 O. St. 571.
v. providing that any private corporation
Aconveyance sealed by the corpo- authorized to hold real estate may
rate seal, and signed by the president convey it by deed, sealed with the
and cashier, need not, in the absence common seal of the corporation and
of any special evidence, be acknowl- signed by the president, the deed was
edged on behalf of the corporation by that of the bank, and it was unneces-
any one except the cashier. Merrill v. sary that it should be signed in the
Montgomery, 25 Mich. 73. corporate name of the bank by its
An acknowledgment of a chattel president. Shewalter v. Pirner, 55 Mo.
mortgage by the president and secre- 218.
§ 96 (1) Functions and dealings. 671
use of the corporation, the bank may mortgage it to secure the payment c^f
its debts.^* And a constitutional and statutory general provision will not
affect the right of a bank under its prior charter to execute a mortgage,
where such right has not been surrendered.^®
§ 96. With Respect to Contracts in GeneraPs^— § 96 (1) For-

—
mality and Authentication. As a general proposition, where the char-
ter of an incorporation prescribes the particular mode in which its contracts
shall be made or authenticated, that mode must be pursued.^® If no definite
rule is to be found, either in the charter or by-laws of the institution, in
regard to the manner and form in which its acts and contracts shall be evi-
denced, then seems general usage, and the course of business of similar
it
institutions is to govern the officers will be presumed to have been invested

;
with the customary authority, and their acts, within the scope of such usage,
practice, and course of business, will be binding on the institution, in favor
of the third person having no knowledge to the contrary .^'^ There can be no
34. Power to mortgage.— People v. Representation of bank by officers

Brown (N. Y.), 5 Wend. 590; Ward v. and agents, see post, "Contracts,"
Johnson, 95 111. 315. § 105.
Where a banking corporation was Estoppel to set up want of power to
by its charter authorized to purchase, —
exempt from liability. See post, "Es-
hold, and convey any estate, real or toppel to Deny Authority of Officer or
personal, for the use of the corpora- Agent," § 113.
tion, and afterwards the right to hold Contract between banks as to dispo-
real estate was restricted to so much sition of proceeds of discounted paper,
as was necessary for its accommoda- see post, "Application of Proceeds,"
tion in the transaction of business, it § 182.
was held that the corporation had Contract for custody and transmis-
power to mortgage such real estate as —
sion of public funds. See post, "Spe-
was necessary for its accommodation, cial Deposits," § 153.
to secure a debt of the corporation. In respect to exchange, money, se-
Leggett V. New Jersey Manufacturing, curities and investments, see post,
etc., Banking Co., 1 N. J. Eq. 541, 33 "Power to Deal in Exchange, Money,
Am. Dec. 738. and Securities," § 188, et seq.
35. —
Charter rights. A constitutional In respect to circulating notes, see
provision prescribing the mode in post, "Nature and Requisites," § 196,
which the indebtedness of corporations et seq.
is to be incurred, and an act, carrying In respect to loans and discounts,
the same into effect, held not to pre- see post, to Make Loans in
"Power
clude collection of a mortgage debt of General," § 176, et seq.
a bank whose charter authorized such Agreements as to medium in which
debt and mortgage. Ahl v. Rhodes, remittances to be made, see post, "Lia-
84 Pa. 319; Lewis v. Jeffries, 86 Pa. bility in General," § 169.
340. Agreements as to liability for short-
As to power to borrow generally, age and counterfeits in exchanges, see
see post, "Borrowing Money," § 97. post, "Payment of Forged or Altered
35a. In respect to deposits, see post, Paper," § 190.
"Relation between Bank and Depositor Agreement to pay check on condi-
in General," § 119, et seq. tion of payment of drawer's notes, see
In respect to collection, see post, post, "Notes Payable at Bank," § 144.
"Relation between Bank and Depos- 36. Formality and authentication. —
itor for Collection," § 156, et seq. Northern Bank v. Johnson, 45 Tenn.
Of
national banks, see post, "In Gen- (5 Coldw.) 88; Neiffer v. Bank, 38
eral," § 260 (1); "Guaranty or In- Tenn. {\ Head) 3 02.
demnity," § 260 (4). 37. Northern Bank v. Johnson, 45
Of loan, trust, and investment com- Tenn. (5 Coldw.) 88; Neiffer v. Bank,
panies, see post, "Functions and 38 Tenn. (1 Head) 162. See post,
Dealings," § 315. "Grounds and Extent of Liability in
doubt, however, that a bank, or other corporation, may be authorized to

contract in a prescribed mode, either by its charter or by-laws, or general
usage; it may depart from the prescribed mode, and render itself liable
upon contracts executed or authenticated in a different mode.^^
§ 96 (2) Notice of Limitations. —

If one deals with a bank, he knows
that it is banking business that that bank is authorized to transact, and none
other. He has the same general knowledge that the officers of the bank
have.^^
§ 96 (3) Contracts under Seal. —

Where the act incorporating a
bank contains no express provision authorizing' the corporation to make
contracts, it follows that, upon principles of the common law, it might con-
tract under its corporate seal.*'' And it may be bound by a contract, though
not executed under the corporate seal.*^
§ 96 (4) Contracts between Banks Entered into by Contracting

—
Officers Common to Both. Where a majority or all of the contracting
officers of two banks were common to both, that fact alone does not make
a contract between the two banks, entered into by such contracting officers,
absolutely void and incapable of ratification, but such contract will be sub-
ject to close judicial scrutiny when questioned at the proper time, and will
be set aside upon the appearance of unfairness.*^
§ 96 (5) Contract to Honor Drafts. A bank's letter promising to —

honor drafts has been held to constitute a continuing contract to do so until
revoked or canceled.**
General," § 102, et seq., as to repre- in control of its business did not have
sentation of bank by officers and actual knowledge of the transaction, the
agents. fact that the president of defendant
38. Neiffer v. Bank, 38 Tenn. (1 bank was also vijce-president of plaintiff
Head) 3 63. bank did not render the contract void
39. Notice of limitations.— First Nat. o" the ground that his interest was
Bank V. Commercial Nat. Bank, 99 adverse to the stockholders m
defend
Tex 118 87 S 1032 W ^"t bank. City Nat. Bank v. Mer-
^^*- ^^"'^ ^^'^^ ^^^^'
40. Power to contract under seal.- f^''^^'^^'i:i.
W^3^3^8.^
Bank .. Patterson (U. S.), 7 Cranch ^^l' ^^ ^^^^^ drafts._ln
^99, d Iv. ii-a. 351.
February, 1883, plaintiff bank wrote to
41.Seal not essential.— Bank v. Gutt- defendant bank: "G. was at our office
schhck (U. S.), 14 Pet. 19, 10 L. Ed. to-day, and arranged for us to cash his
335. Stock tickets, and draw on him for the
48. Contracts between banks en- amount and exchange with the tickets
tered into by contracting officers com- attached. He referred us to you, say-
—
mon to both. City Nat. Bank v. Mer- ing you would say such drafts would
chants', etc., Nat. Bank (Civ. App.), be paid through your bank all right.
105 S.W. 338. Please advise us regarding it anft
Where the president and cashier ot oblige.'' Defendant replied February
the defendant bank solicited the plain- 19, 1883: "We will pay your drafts on
tiff bank to deposit its money with de- G. with his stock tickets attached."
fendant bank and agreed to pay the Thereafter the plaintiff cashed such of
plaintiff bank 3 per cent per annum G.'s stock tickets as were presented,
on daily balances it was held that in and drew on him for the amounts, and
the absence of evidence tending to forwarded the drafts with the tickets
show concealment, deception or fraud, attached for collection of defendant,
or that defendant's officers who were These transactions took place two or
§ —
96 (6) Subscription Contract. A stibscription to an enterprise
for building a creamery made by the president and directors of a bank for
the bank is ultra vires, and, if canceled before the enterprise is carried out,
is not enforceable against the bank.**
§ 96 (7) Illegal Contracts. —

Illegal Contracts Relating to Cir-
—
culating Notes. Contracts by a bank with corporations which could not
lawfully emit bills or notes for circulation, to receive and put into circula-
tion such bills and notes, have been held illegal so far as they contemplated
putting such paper into circulation, but legal so far as the mere receipt of
such paper was concerned.*^ And a note to a bank, made to give it a false
credit, is unenforcible by the bank.*'^
§ 96 (8) Ultra Vires Contracts. —The burden of showing illegality

rests on the party alleging it.*'
Agreement to Procure Release of Mortgage. An agreement by a —

bank to procure a release of a mortgage held by a third person upon lands
on which the bank also had a mortgage, although not primarily an agree-
ment relating to banking, yet, when made to secure payment of the debt due
the bank, is not ultra vires.**
three times a week, and sometimes less actual position, although it might have
frequentlyr The drafts varied from been a just cause for the revocation
$300 to $12,000, and the aggregate from of its charter, and, perhaps, of indict-
February November 8, 1888,
19, 1883, to ment of the persons concerned for a
was over$600,000. The defendant conspiracy to defraud, yet the bank
paid the drafts and charged them to can not maintain an action on such
G., whether his account was good for note. Agricultural Bank v. Robinson,
them or not, but it refused to pay the 24 Me. 274, 41 Am. Dec. 385.
two drafts in suit drawn November 7 47. Ultra vires contracts Burden of —
and 8, 1888, for $389.93 and $4,789.05, —
showing illegality. An agreement be-
respectively. It was held that, con- tween a banking corporation, located
sidered with reference to the situation in Wisconsin, and commission mer-
of the parties, and their subsequent chants in theof city New
York, by
acts evincing their own understanding, which the former is to consign produce
the letter of February 19, 1883, muse to the latter for sale on commission,
be construed as a continuing promise, against which drafts are to be drawn,
and not merely as one to oay drafts and to keep the drawees in funds tc
for stock tickets which the plaintiff had meet the same, in cases where con-
already cashed, or arranged to cash; signments are not made, is not nec-
and that the consideration was suffi- essarily illegal, in the absence of any-
ciently disclosed to satisfy the statute thing to show what powers are pos-
of frauds. Drovers' Nat. Bank v. Al- sessed by the bank, by virtue of its
bany County Bank, 44 Fed. 183. charter. Perkins v. Church (N. Y.),
44. —
Subscriptions. Holt v. Winfield 31 Barb. 84.
Bank, 25 Fed. 812. Effect of ultra vires contracts. See —
45. Illegal contracts relating to cir- Dost, "Effect of Acts Ultra Vires,"
—
culating notes. Whetstone v. Bank, 9 § 101.
Ala. 875, affirming Branch Bank v. Representation of banks by officers
Crocheron, 5 Ala. 250. and agents and estoppel of bank to
As to circulating notes, see post, deny authority. See post, "Grounds
"Nature and R.equisites," § 196, et seq. -^nd Extent of Liability in General,"
46. Note made to bank
to give it false § 102, et seq.; "Estoppel to Deny
credit. —
If a note be made to a bank, Authority of Officer of Agent," § 113.
without consideration, for the purpose 48. Agreement to procure release of
of enabling the corporation, by includ- —
mortgage. McCraith v. National Mo-
ing it as a part of its funds, to make 'lawk Valley Bank, 104 N. Y. 414, 10
a colorable and false statement of its N. E. 862.
1 B & B— 43
Shipment of Stock, on Which Bank Has Advanced Money, in

—
Bank's Name. Stock may be shipped in the name of a bank which has
advanced money thereon, for its protection, without infringing a prohibition
against employing its moneys in trade or commerce by buying and selling
9
chattels.*
Execution of Undertakings in Judicial Proceedings. — It is not within
the powers of an incorporated state bank to pledge its credit as a mere mat-
ter of accommodation by executing undertakings in judicial proceedings. s*
§ 96 ( 9 ) Termination. —A contract between a bank and a partnership

is terminated by the subsequent admission of new members without bank's
consent.î
§ 97. Borrowing Money. ^2 —Power of Bank to Borrow. Under —

the decisions of the federal courts, the borrowing of money is not out of the
usual course of banking business, but the existence of such power is a ques-
tion of fact, to be resolved by the usage of the parties or of the community.^*
49. Shipment of stock, on which bank bank. National Bank v. Hall, 101 U.
has advanced money, in bank's name. S. Ed. 833.
43, 35 L.
— Where a bank carried a person for Where the bank acted in good faith,
the money he used in buying and ship- and the agent absconded with the pro-
ping stock to market, and returns for ceeds of two drafts, in an action by
the sales were made to the bank, and the firm to recover the amount thereof
the statement for money received from the bank, it was held, that the
placed to his credit, and certain stock no contract, and the
letters constituted
belonging to him was shipped in the bank was not responsible to the firm
name the bank for its protection
of for cashing the drafts without bills of
against loss for money furnished to lading attached. National Bank v.
buy stock, the bank, at the most, was Hall, 101 U. S. 43, 35 L. Ed. 833.
merely acting as agent for the other, 5a. BorrowinI; money. See, also, —
and the transaction was not within post, "Bonds, Assignments and Nego-
Missouri Rev. St. 1899, § 1391, pro- tiable Instruments," § 98 (2), as to
hibiting a bank from employing -its bonds and notes, etc.
moneys in trade or commerce by buy- As to power to mortgage, see ante,
ing and selling chattels. Griffin v. "Disposal of Property," § 95 (3).
Wabash R. Co., 115 Mo.' App. 549, 91 As to custom of borrowing money
S. W. 1015. on time notes, see ante, "Admissibility
50.Execution of undertakings in ju- of Evidence and Its Sufficiency," §
d i c i a 1 proceedings. Sturdevant — v. 89 (1).
Farmers', etc.. Bank, 62 Neb. 473, 87 53. Power to borrow.— Of national
N. W. 156, affirmed on rehearing in banks, see post, "Banking Powers,"
<,
Sturdevant Bros. & Co. v. Farmers', § 258.

etc., Bank, 69 Neb. 330, 95 N. W. 819. Power to borrowa question of
as
51. Termination. —
A firm authorized fact. —Auten v. United
States Nat.
a bank to cash drafts drawn on it by Bank, 174 U. S. 135, 43 L. Ed. 920,
its agent. thereafter notified the
It 19 S. Ct. 638; Aldrich v. Chemical Nat.
bank that it would pay drafts on actual Bank, 176 U. S. 618, 44 L. Ed. 611, 30 S.
consignments. The cashier answered, Ct. 498.
promising to require a shipping bill. Apower so useful can not be said
The firm did not reply, but continued to be illegitimate, and declared as mat-
to accept and pay drafts drawn by the ter of law to be out of the usual course
agent and cashed by the bank, without of business and to charge everybody
requiring a bill of lading. Held, that connected with it with knowledge that
any contract in regard to requiring it may be in excess of authority. It
bills of lading was made with the then would seem, if doubtful at all, more
existing firm, and ceased on the sub- like a question of fact, to be resolved
sequent admission of two clerks as in the particular case by the usage ot
members, without the consent of the the parties or the usage of communi-
§ ^7 FUNCTIONS AND DEALINGS. 675
And the weight of authority is that a bank with general powers may borrow
money,^^ under an incidental and auxiliary power, not expressed, but implied
from those which are expressed. ^f'
But it has been held that a bank that
ties. It is important also to observe did "not appear that the bank ever got
that the court said that Western Nat. a penny of the borrowed money or any
Bank v. Armstrong, 153 U. S. 346, 38 benefit or advantage whatever by rea-
L. Ed. 470, 14 S. Ct. 573, was not to son of the transaction.' " Aldrich v.
be regarded as an adjudication to the Chemical Nat. Bank, 176 U. S. 618, 44
contrary. Aldrich v. Chemical Nat. L. Ed. 611, 20 S. Ct. 498.
Bank, 176 U. S. 618, 44 L. Ed. 611, 30 "All their deposit certificates, or
S. Ct. 498. bank book credits to individuals are
"The very object of banking is to debts of the bank, and which it is a
aid the operation of the laws of com- legitimate and appropriate part of its
merce by serving as a channel for car- business as a bank to incur and to pay.
rying mone}' from place to place, as The same may be said, also, of all its
the rise and fall of supply and demand bank notes, or bills, they being merely
require, and it may be done by redis- promises or debts of the bank, payable
counting the bank's paper or by some to their holders, and imperative on
other form of borrowing." Auten v. them to discharge. See Bank v. Pat-
United States Nat. Bank, 174 U. S. 135, terson (U. S.), 7 Cranch 299, 3 L. Ed.
43 L. Ed. 920, 19 S. Ct. 628. 351; Bank v. Earle (U. S.), 13 Pet. 519,
It was said in an earlier case that 10 L. Ed. 374." Planters' Bank v.
while a bank, in certain circumstances, Sharp (U. S.), 6 How. 301, 12 L. Ed.
may become a temporary borrower of 447.
money, yet such transactions would 54. Tuttle V. National Bank, 48 111.
be so much out of the course of ordi- App. 481; Ringling v. Kohn, 6 Mo.
nary and legitimate banking as to re- App. 333; Donnell v. Lewis County
quire those making the loan""to see to Sav. Bank, 80 Mo. 165; Leavitt v. Yates
it that the officer or agent acting for (N. Y.), 4 Edw. Ch. 134; Leavitt v.
the bank had special authority to bor- Blatchford (N. Y.), 5 Barb. 9; Curtis
row money. Here a loan of $200,000, V. Leavitt, 15 N. Y. 9, affirming 17 Barb.
negotiated by the vice president, was 309; Barnes v. Ontario Bank, 19 N. Y.
held to be unauthorized. Western Nat. 152; Safford v. Wyckoflf (N. Y.), 4 Hill
Bank v. Armstrong, 153 U. S. 346, 3S 442.
L. Ed. 470, 14 S. Ct. 573. 55. An
incidental implied power. —
In Aldrich v. Chemical Nat. Bank, Curtis Leavitt, 15 N. Y. 9.
V.
176 U. S. 618, 44 L. Ed. 611, 20 S. Ct. 498, The power expressed in a bank
commenting on and distinguishing this charter to receive deposits is, by nec-
case, it was said: "In the view we take essary implication, power to receive
of the present case it is not necessary money as a loan, and to assign or
to extend this opinion by a review of mortgage negotiable instruments. Ward
the numerous authorities which, it is Johnson, 95 111. 315; Curtis v. Leavitt
•V.
contended, support the general propo- (N. Y.), 17 Barb. 309, affirmed with
sition that a national bank is entitled modification in 15 N. Y. 9.
under the law of its creation and in Massachusetts. Under — the Massa-
the conduct of its business to borrow chusetts statute, a bank not prohib- is
money, and that the lender is not ited from borrowing of another bank
obliged to show that the officer or agent money payable on demand with inter-
acting for the bank had special author- est, but is prohibited from borrowing-
ity to negotiate the loan. If the pres- money of another bank payable at a
ent case depended upon that question future day certain. Commonwealth v.
it might be necessary to consider Bank (Mass.), 4 Allen 1. See now
whether the language in Western Nat. Rev. Laws of Mass. 1902, Ch. 115, § 40.
Bank v. Armstrong, 152 U. S. 346, 38 —
New York. The power to borrow
L. Ed. 470, 14 S. Ct. 573, required mod- money and to give appropriate assur-
ification." ances for the payment of the debt is
"In Western Nat. Bank v. Armstrong, incidental to corporations, and espe-
153 U. S. 346, 38 L. Ed. 470, 14 S. Ct. cially banking corporations. Curtis v.
573, the defendant -bank did not receive Leavitt, 15 N. Y. App. 9.
or get the benefit of the money alleged Laws 1829, c. 94, § 35, forbidding
to have been loaned to it at the in- banks, "subject to the provisions of
stance of its vice president. This court this act," from issuing notes or bills,
took care in that case to say that it unless payable on demand and without
borrows money upon which it pays interest is competing with its customers,
and engaged in operations quite foreign from the object of its organization.
Legitimate banking is lending, and never borrowing, on interest.^^
—
Estoppel to Deny Power. But when the bank receives and uses the
proceeds of such a loan, by its being placed to its credit with notice to it, it
can not deny its liability to account therefor.^'^
—
Rediscount of Paper. A rediscount by a bank of its bills receivable,
though it indorses the same, and becomes contingently liable for their pay-
ment, is not a borrowing of money by the bank, but has more the character-
istics of a sale, and the bank may be estopped, by allowing such a practice,
to deny authority therefor.^^

—
Secret Loans. If, for the purpose of enabling a bank to borrow with-
out having its printed statements show it as a borrower, another bank credits
interest,has no application to banking of the money which went (as the

associations formed under the law of Chemical Bank in good faith supposed
it would) into the treasury of the Fi-
1838; and does not, therefore, render
void bonds given for mone'y borrowed delity Bank and was by it used in
and payable at a future time. Curtis meeting its current obligations. The
V. Leavitt, 15 N. Y. 9, affirming but
,
dishonesty of H. in his management of
modifying 17 Barb. 309. See, also, Lea- the affairs of the Fidelity Bank did not
vitt V. Yates (N. Y.), 4 Edw. Ch. 134; discharge that bank from the obliga-
Leavitt V. Blatchford (N. Y.), 5 Barb. tion under which it came by using in
its business the money obtained by its
9; Barnes v. Ontario Bank, 19 N. Y.
153. vice president under the guise of a
loan to the bank." Aldrich v. Chemical
56. Not an ordinary banking power.
Nat. Bank, 176 U. S. 618, 44 L. Ed.
— Stark County Bank v. McGregor, 6
611, 20 S. Ct. 498.
O. St. 45.
"In Merchants' Bank v. State Bank,
57. Receipt of proceeds of loati by 10 Wall. 604, 644, 19 L. Ed. 1008, in
bank makes it liable. —A
national bank which one of the questions was as to
having used in its business money the liability of a bank on account of
which its vice president obtained as a certain certificates issued by its cash-
loan to it from another national bank ier and of certain purchases of gold
can not deny all liability to account made by him, the court said that if the
for the same upon the ground that the certificates and the gold actually went
loan was not negotiated by it or by its into the bank which the cashier as-
direction, as well as upon the ground sumed to represent, then the bank was
that it could not itself have legally liable for money had and received,
borrowed the money from the other whatever may have been the defect in
bank. The
statutes relating to national the authority of the cashier to make
banking associations do not require the purchase." Aldrich v. Chemical
that such a defense be sustained. Aid-
Nat. Bank, 176 U. S. 618, 44 L. Ed. 611,
rich V. Chemical Nat. Bank, 176 U. S.
20 S. Ct. 498.
618, 44 L. Ed. 611, 20 S. Ct. 498; Wy-
And a long habit of a bank, in com-
man v. Wallace, 201 U. S. 230, 50 L. mon with other banks of same locality,
Ed. 738, 26 S. Ct. 495; Frenzer v. Wal- of rediscounting its bills receivable in
lace, 201 U. S. 344, 50 L. Ed. 742, 26 S.
large amounts through the president
Ct. 498; Poppleton v. Wallace, 301 U.
and cashier, with the knowledge of the
S. 245, 50 L. Ed. 743, 26 S. Ct. 498. directors of the practice, will estop
"The fact that after the Fidelity the bank from denying their authority
Bank had been credited on the books in the premises, there being no attend-
of the Chemical Bank with the $300,000, ant circumstances to arouse suspicion.
H. (its vice president) fraudulently United States Nat. Bank v. First Nat.
caused himself to be credited on the Bank, 24 C. C. A. 597, 79 Fed. 296.
books of the Fidelity Bank with a like
sum, is a matter with which the Chem-
58. —
Rediscount *of paper. United
States Nat. Bank v. First Nat. Bank,
ical Bank had no connection and can 24 C. C. A. 597, 79 Fed. 296. See pre-
not affect its right to demand a return ceding paragraph.
§ 98 (2a) FUNCTIONS AND DEALINGS. 677
a sum to the borrower's account, and charges the same to a special account,
and takes an individual guaranty note from the borrower's directors,
amounts drawn on the credit constitute a loan to the bank, and not to its
directors. ^^^
Right Unaffected by Insolvency. —An incorporated bank may borrow
money in the prosecution of its business and secure its payment by collaterals
or otherwise, and the fact that it is insolvent at the time the loan is obtained
does not impair or deprive the bank of its power or the right to negotiate
the loan and secure payment thereof, unless it is forbidden by statute. ^^
Usury. —Loans to banks are subject to the usury laws.^^
§ 98. Bonds, Assignments and Negotiable Instruments^s § 98 (1) —

—
Bonds and Assignments. A bank may give bonds and assignments for
the purpose of meeting its lawful obligations.^*
§ 98 (2) Negotiable Instruments68_§ 98 (2a) Power to Make

and Issue. —
It is difficult to deduce any general rule as to the power of a
bank to make or issue negotiable paper, controlled as the question is by con-

stitutional and statutory provisions,"^ although the power to give notes
59. —
Secret loans. American Exch. has expressly recognized the authority
Nat. Bank v. Fir.st Nat. Bank,' 27 C. C. of a bank to give bonds and assign-
A. 274, 82 Fed. 961. ments to pay its deposit debtors. In
60. Right unaffected by insolvency. that case, 'the directors agree to pledge
—Harris v. Randolph County Bank, to the government of the United States
157 Ind. 120, 60 N. E. 1025. the entire estate of the corporation as
61. Loans subject to usury laws. — a security for the payment of the orig-
A banking corporation having sus- inal principal of the claim,' etc. (p.
pended payment, a committee was ap- 648'). And such a pledge or transfer was
pointed to procure a loan sufficient to held there to be valid." Planters'
enable the bank to resume business. Bank v. Sharp (U. S.), 6 How. 801, 12
It made application to a trust company L. Ed. 447.
for aid to enable it to resume specie Power to borrow money. See ante, —
payments. The company agreed to is- "Borrowing Money," § 97.
sue its certificate of deposit for £48,000 Power to loan and discount. See —
sterling, payable in London, with post, "Power to Make Loans in Gen-
interest at 5 per cent, the banking com- eral," § 176; "Power of Discount," §
pany -to deliver bills of credit for 177.
£50,000, payable to the trust company Right and mode of exercise of pow-
in sterling money, at $5 to the pound, ers. —
See post, "Grounds and Extent
with interest at 6 per cent per annum. of Liability in General," § 102, et seq.
The agreement was carried out accord- 65. Negotiable instruments. As to —
ingly. Held, that the transaction was bill drawn by bank in violation of char-
in substance a loan of money by the ter being void, see post, "Effect of Acts
trust company to the bank, and was Ultra Vires," § 101.
therefore subject to the statutes pro- Effect of ultra vires, see post, "Ef-
hibiting usury. Dry Dock Bank v. fect of Acts Ultra 'Vires," § 101.
American Life Ins., etc., Co., 3 N. Y. 66. Controlled by constitutional and
344. statutory provisions. Under a — con-
62. Bonds, assignments and negoti- stitution prohibiting the legislature
able —
instruments. Authority of offi- from establishing or incorporating any
cers or agents, see post, "Bills, Notes, bank or banking company or moneyed
and Securities," § 109. institution, for the purpose of issuing
General power to borrow, see ante, bills of credit, or bills payable to or-
"Borrowing Money," § 97. der or bearer, except under the condi-
64, Bonds and assignments. — "This tions prescribed, no corporation has
court, in the United States v. Robert- authority to issue promissory notes
son (U. S.), 5 Pet. 641, 8 L. Ed. 257, unless given it expressly or by impli-
would usually go with the power to borrow money.®'' But some statutes
merely prohibit or restrict the issue of notes intended to be used as money,
and authorize the issue of notes in the ordinary form for the purpose of
legitimate banking business,®^ and such a distinction has been read into a
statute where it was not expressed.®^ In New York the old statute of 1840
invalidated all notes of a banking association unless payable on demand and
without interest, and a guaranty of such note was likewise void.''" Where a
statute enacted that all notes issued by unincorporated banking companies
should be void, and not recoverable, and a later act repealed so much of the
former act as prevented the holder of such notes from recovering against
the drawers, the holder of such note, issued after* the former act and before
the latter, might recover against the members of the company.''
cation, as incident to the purpose of guaranty of such a note is likewise

its creation. James v. Rogers, 23 Ind. void. Swift V. Beers (N. Y.), 3 Denio,
451, construing Indiana Constitution, 70; Leavitt v. Palmer, 3 N. Y. 19,
Art. 11, § 1. 51 Am. Dec. 333; Ontario Bank
A note by a bank organized under V. Schermerhorn (N. Y.), 10 Paige 109;
the laws of the territory of Okla- Leavitt V. Blatchford, 17 N. Y. 521.
homa as subscription to secure the Associations under the general bank-
construction of a railroad is ultra ing law have no authority to make
vires and void, as in violation of Wil- bills of exchange, or issue any nego-
son's Rev. & Ann. St. 1903, § 342, set- tiable paper, except under the sanction
ting forth the business which a bank of the comptroller, and in the form
may be permitted to lawfully conduct. required by statute. Saflford v. Wyck-
Arkansas, etc., R. Co. v. Farmers', ofif (N. Y.), 1 Hill 11, reversed on
etc., Bank, 21 Okl. 322, 96 Pac. 765. other grounds in 4 Hill 442.
67. Western Nat. Bank v. Armstrong, Post notes, issued by banking as-
152 U. S. 346, 38 L. Ed. 470, 14 S. Ct. sociations, having been decided to be
572. absolutely void, it was held that an
68. Notes issued in transaction of assignment of securities, made by a
legitimate business. —Under Rev. St. of banking association to trustees, as a
Wisconsin, 1858, c. 71, banking as- collateral security for such post notes,
sociations are authorized to issue bills was also void, and transferred no title
and notes in the ordinary form for the to the assignees. Tylee v. Yates (N.
purposes of their legitimate business, Y.), 3 Barb. 222.
but are prohibited by the tenth sec- Trust deed to secure illegal notes
tion of the act from issuing them to
be circulated as money. Rockwell v.
also illegal. —A bank organized under
the general law issued negotiable
Elkhorn Bank, 13 Wis. 653. promissory notes payable in twelve
69. Rev. St. of Wisconsin, 1858, c. months, with interest, and delivered
71, § 10, providing that the bills and them to a creditor on account of a
notes of any banking association in- previous liability of the bank. The
tended to be put in circulation as bank executed a trust deed at the same
money shall be payable on demand, time to secure the payment of the
and without interest, where the bank's notes. The notes were illegal and
business is conducted, does not apply void, under St. 1840, p. 406, § 4, pro-
to a promissory note given in the or- hibiting banks from issuing any note
dinary course of business. Rockwell unless payable on demand without in-
V. Elkhorn Bank, 13 Wis. 653. See terest. Held, that the trust deed was
contra Swift v. Beers (X. Y.), 3 Denio also illegal and void. Leavitt v. Pal-
70, construing New York statute. mer, 3 N. Y. 19, 51 Am. Dec. 333; Lea-
70. New —
York. Under the Act of vitt V. Blatchford, 17 N. Y. .521, revers-
ing 5 Barb. 9.
1840, all promissory notes, made by a
banking made pay-
association, unless 71. Retrospective validating act. —
able on demand and without interest, Hess V. Werts (Pa.), 4 Serg. & R.
though not intended to circulate as 356, construing old Pennsylvania stat-
money, are illegal and void, and a ute.
§ 98 (2b) FUNCTIONS AND DlSAÎNGS. 679
§98 (2b) Power to Deal ThereinJ2_in General.— It may be stated

that the power to deal hi promissory notes falls under general banking pow-
ers, unless prohibited by law/* and the fact that a charter prescribes the
kinds of paper in which a bank may deal, in the ordinary course of its busi-
ness, does not prohibit it from taking paper of other descriptions, where it
becomes necessary to secure a debt previously contracted, and which could
not be collected in the usual way.'^-'
Taking Note as Deposit Conditionally. —A note deposited with a

bank with the understanding that, in certain contingencies, it is to be de-
livered back to the maker, is a transaction ultra vires, where charter pro-
vides that the bank shall have power "to carry on the business of receiving
money on deposit and to allow interest thereon, giving the person depositing
credit therefor."'^^
Power to Purchase.- — Power to discount notes imports power to pur-
chase them.'^fi A
banking corporation engaged in the general banking busi-
ness has, in the absence of any restriction in its charter, the power to buy
78. Purchase of bills of exchange by count is limited to the rate fixed by its
foreign corporation, see ante, "For- charter. Commonwealth v. Commer-
eign Banks," § 18. cial Bank, 28 Pa. 391.
As to recovery on note acquired A statute prohibiting corporations
through unauthorized indorsement, see not expres'sly incorporated for banking
post, "Effect of Acts Ultra Vires," purposes from "discounting bills, notes,
§ 101. or other evidences of debt," and from
Asto recovery on note purchased "buying and selling bills of exchange,"
without authority, see post, "Effect of being penal in its nature, must be
Acts Ultra Vires," § 101. strictly construed; and hence the pro-
IZ. Power to deal in promissory hibition against buying and selling
notes. — State Bank v. Criswell, 15 Ark. "bills of exchange" will not be ex-
230. tended to promissory notes. American
Dealings in exchange and securities, Life Ins., etc., Co. v. Dobbin (N. Y.),
see post, "Power to Deal in Exchange, Labor's Supp. (Hill & Denio) 253, Con-
Money, and Securities," § 188; "Pur- struing old New York statute.
chase and Sale of Exchange," § 192; 74. Lagow V. Badollet (Ind.), 1
"Purchase and Sale of Stock or Blackf. 416, 12 Am. Dec. 258.
Securities," § 194; "Dealings in Ex- The charter provision restraining the
change, Money, and Securities," § 271. Farmers' & Mechanics' Bank of Indi-
Notes intended to circulate as ana from trading in anything but bills
money, see post, "Power to Issue of exchange, etc., does not prohibit it
or Circulate," § 197; "Restrictions upon from taking a promissory note, payable
Issue or Circulation," § 198; "Circulat- in two years to the president and di-
ing Notes," § 272. rectors at their office of discount and
Power of bank to discount paper, deposit, to secure the payment of a
see post, "Power of Discount," § 177. debt owed by the maker. John v.
Purchasing notes signed by officers Farmers', etc., Bank (Ind.), 2 Blackf.
and others, see post, "Requisites and 367, 20 Am. Dec. 119.
Validity of Loan or Discount," § 178. 75. Taking note as deposit condition-
A bank prohibited by its charter ally. —
First Nat. Bank v. Citizens'
from making loans at a greater rate Bank, Fed. Cas. No. 4,802. See, also,
of discount than one-half of 1 per post, "Deposit Other than Money," §
centum for thirty days, and also from 122.
dealing in anything but bills of ex- 76. Power to purchase. Pape— v. Cap-
change, gold or silver bullion, bank itol Bank of Topeka, 20 Kan. 27 440,
stock, United Stafes stock, treasury Am. Rep. 183; Atlantic State Bank v.
notes, and goods really pledged for Savery, 82 N. Y. 291, affirming 18 Hun
money lent, and not redeemed in time, 36. See contra. Farmers' &
Mechanics'
is not prohibited from dealing in prom- Bank v. Baldwin, 23 Minn. 198, 23 Am.
issory notes, provided the rate of dis- Rep. 683.
notes outright. '^^ And the power is given by a charter authorizing the pur-
chase of chattels and effects of whatsoever kind/^ unless specifically re-
strained.'^s
Power to Transfer and Assign. —Where there

no evidence to show is
that the charter of a bank contains any on the bank's

restriction or limitation
power of negotiating or indorsing notes or bills of exchange, the presump-
tion will be that the bank has power.^" A bank may sell and transfer a
negotiable note discounted by it either before or after maturity, the same
as any other holder.^^ And under a charter authorizing a bank to hold any
property of any kind whatever, and to dispose of the same for its good, the
bank may transfer notes made to it,*^ or under a charter authorizing dis-
counts,®* and the contract between the maker of a note and the payee, a
bank, must be governed, as to the latter's right to transfer the note, by the
77. Salmon Falls Bank v. Leyser, 116 essarily implied by its charter. Payne
Mo. 51, 33 S. W. 504. V. Baldwin (Miss.), 3 Smedes & M. 661.
78. Bank v. Xorton (Ky.), 3 A. K. And a bank charter providing that

Alarsh 422; Bank v. Price, 1 AIo. 54. the corporations shall have power to
But where power was given to a "purchase and possess lands, tene-
railroad and banking company to hold ments, and hereditaments, and personal
land and personal estate of any kind estate of any kind whatever, * * *
whatever, the general words were held and to sell and dispose of the same,'
to embrace only estate of the same na- does not authorize the bank to assign
ture as that previously indicated that — promissory notes. jMcIntyre v. Ingra-
ham, 35 ^liss. 25.
is, such as was required for the pur-
poses of a railroad, and for the ordi- Anda grant of all the rights and
nary business of banking and not to — privileges necessary to construct and
operate a railroad, and to conduct a
embrace promissory notes, which were
to be presumed not to be referred to banking business, with power to "deal
by that .<iection, because expressly pro- in exchange, and in bank and other
vided for in another section. jNIcIntyre public stocks," and "to issue nctes,"
V. Ingraham, 35 !Miss. 25. etc.,does not carry with it implied au-
79. Where restrained.
specifically — thority to assign promissory notes.
^Mclntyre v. Ingraham, 35 ]\Iiss. 25.
Under an act incorporating a bank, and
authorizing it to purchase and possess But a statute prohibiting banks from
assigning notes which they have dis-
lands, tenements, goods, chattels, and
counted, does not apply to a case
efifects, of whatsoever kind or quality,
and restraining it from trading, except where a note is not paid by the maker
at maturit3% and the bank assigns it to
in bills of exchange, gold and silver,
the indorser, and payment is made by
etc., the bank has no power to pur-
chase promissory notes. Bank v. him. Wade v. Thrasher (Miss.), 10
Simpson, 1 ^lo. 184.
Smedes & 'M. 358.
Marvine Hymers, 12 N. Y.
80. Power
to transfer and assign. — 81.
223.
v.
Robb Ross County Bank (N. Y.), 41

V.
And a bank may legally transfer an
Barb. 586; :\Iyers v. De Lee (La.), 1 overdue promissory note discounted
Rob. 516; Crocket v. Young (Miss.), 1 and owned by the bank, and which has
Smedes & î. 241. not been paid at maturity. Marvine v.
A bank may, by the indorsement, Hymers, 12 N. Y. 223.
transfer a negotiable note in payment 82. Charter authorizing acquisition
of its liability. Crocket v. Young and disposition of property generally.
(Miss.), 1 Smedes& M. 241. See con- —Planters' Bank v. Sharp (U. S.), 6
tra Payne v. Baldwin (Miss.), 3 How. 301, 12 L. Ed. 447, where it is
Smedes & M. 661, where it is held that held that a subsequent statute attempt-
where the right to transfer notes by ing to take away this right impairs the
indorsement not expressly conferred
is obligation of a contract.
upon a bank by its charter, as it is not 83. Charter authorizing discounts. —
essential to enable the bank to carry Planters' Bank v. Sharp (U. S.), 6
on its banking operation, it is not nec- How. 301, 12 L. Ed. 447.
law existing at the time of the making of the note.^*
§ 99. Guaranty and Suretyship. ss —

Power to Guaranty. The guar- —
anty by a bank, without benefit to itself, of the debt of another in which it
has no interest, is beyond its powers. ^^ For a bank has no power to make a
guaranty except for the protection of its own rights, or as an incident to the
transaction of its own business, unless specially authorized by law.*^ But
for its own protection or incidentally to transacting its own business, it may
give a guaranty. S8
84. Law in force when note executed Guaranty of bond and mortgage. —
governs. — Planters' Bank v. Sharp (U. A bank may guaranty the payment of
S.), 6 How. 301, 13 L. Ed. 447. a bond and mortgage to a party who
85. Guaranty and suretyship. — has advanced money upon them, where
Guaranty of see ante, "Negotia-
note, it agreed that the proceeds thereof
is
ble Instruments," § 98 (2). shallbelong to the bank, although they
By national bank, see post, "Guar- may not have been assigned to the
anty or Indemnity," § 260 (4). bank. Talman v. Rochester City Bank
Applying bank deposit to liability as (N. Y.), 18 Barb. 123.
—
guarantor or surety. See post, "Ap- Guaranty of paper sold. L. as —
plying Deposit to Liability as Indorser, cashier of defendant, proposed, by let-
Guarantor, or Surety," § 134 (3). ter, to sell plaintiffs a bill of exchange
86. Power to guaranty. Mine, etc.,— drawn by B. & Co. for $5,000, at the
Supply Co. V. Stockgrowers' Bank, 98 price of principal, interest, and current
C. C. A. 339, 173 Fed. 859; Bowen v. rate of exchange of the same. S. &
Needles Nat. Bank, 36 C. C. A. 5.53, 94 Co. by letter, accepted the proposi-
Fed. 925; Farmers', etc., Bank v. tion, and forwarded the money in pay-
Butchers', etc., Bank, 16 N. Y. 125. ment. L. received the money, and gave
87. Ayer v. Hughes, 87 S. C. 383, 69 credit as expressed by letter to plain-
S. E. 657; Bacon, etc., Co. v. Farmers' tiffs, inclosing a bill by F. & Co.,
Bank, 79 Mo. App. 406; Seligman v. strangers to plaintiffs (and indorsed
Charlottesville Nat. Bank, 3 Hughes without recourse by M., a stranger, and
647, Fed. Cas. No. 13,643; Johnston v. not indorsed by defendant), for .$5,000,
Charlottesville Nat. ]3ank, 3 Hughes charging therefor the same price, in-
657, Fed. Cas. No. 7,435. forming them the B. & Co. bill was
"Such a corporation exceeds its gone, and adding, but this bill is per-
powers when it becomes the mere To which the plaintiffs
surety for another, upon a contract in
fectly safe.
—
replied by letter "Your favor with
which it has no interest, or lends its stated inclosure is received, and is
credit in any form for the exclusive very satisfactory." S. & Co. were un-
benefit of other parties. Such a con-^ able by use of due diligence to collect
tract is ultra vires, and can not be en- the bill. It was held that the cashier
forced against the bank by any person L. was to be regarded as the agent
cognizant of the facts." Farmers', etc., of the defendant, in the transaction.
Bank v. Butchers, etc.. Bank, 16 N. Y. The affirmation of the cashier, accom-
135. panying the bill sent to the plaintiffs,
A bank, in selling bonds which do that the "bill is perfectly safe,"
not belong to it, may. contract with the amounted to a warranty, or a repre-
purchaser to repurchase them at par sentation in the nature of a guaranty,
on demand; but it can not give a valid on the part of the defendant, that the
guarantee of their payment. First bill was collectible. Sturges & Co. v.
Nat. Bank v. Schaeffer, 16 O. C. C. 457, Bank, 11 O. St. 153, 78 .Am. Dec. 396.
9 O. C. D. 183. See, also. Union Nat. Bank v. First Nat.
88. For its own protection and in- Bank, 45 O. St. 236, 13 N. E. 884.
terest. —
Ayer v. Hughes, 87 S.- C. 382, A note payable to a national bank
69 S. E. 657; Talman v. Rochester City was indorsed by a state bank which
Bank (N. Y.), 18 Barb. 123; People's was in process of dissolution, and to
Bank v. National Bank, 101 U. S. 181, whose business the national bank suc-
25 L. Ed. 907; Commercial Nat. Bank v. ceeded. The name of the national
Pirie, 27 C. C. A. 171, 82 Fed. 799; bank had been substituted for that of
Thomas v. City Nat. Bank, 40 Neb. the state bank in its note blanks, and
501, 58 N. W. 943, 34 L. R. A. 263. the note was written on a blank so
Accommodation Indorsement or Guaranty. No banking or other cor-—

is authorized to make an accommodation indorsement, nor is such
poration
binding, unless it appear that plaintiff discounted in good faith, and on
representation that the property in the note was in the corporation.®^
Power to Guarantee Payment of Draft for Accommodation. — It is
against public policy for a bank to guaranteee the payment of drafts for the
purpose of accommodation only. Under this rule, a bank in Cincinnati hav-
ing guaranteed a draft sent to South Carolina, in payment for melons which
were to be of a certain grade delivered in Cincinnati, and discounted by
payer, is not liable thereon, the melons having been found to be of inferior
grade and purchaser having notified the Cincinnati bank to refuse payment
of the draft.9o
Obtaining, Negotiating and Guarantying Mortgage Loans. Obtain- —
and guarantying mortgage loans is not a banking business.^^
ing, negotiating,
—
Estoppel to Deny Liability. There is authority for holding that the
bank may be estopped to deny its liability on the guaranty, notwithstanding
the contract was ultra vires, as when the other party relied and acted thereon
to his injury.82
Cashier's Check. —But a cashier's check, issued by a bank to pay the
changed. There was an agreement be- pany of which it owned a majority of

tween the banks that notes held by the the stock, where such guaranty was
state bank, and guarantied by it, should made for its own purpose and advan-
be received by the national bank. Sev- tage. Central R., etc., Co. v. Farmers'
eral purchases of notes had been made Loan, etc., Co., 52 C. C. A. 149, 114 Fed.
by the national bank under the agree- 263.
ment, and some notes had been selected 89. Accommodation indorsement or
by a committee, but the note in ques-
tion did, not appear in the list of those
guaranty. —
Central Bank v. Empire
Stone Dressing Co. (N. Y.), 26 Barb.
so purchased or selected. The note 23; Morford v. Farmers' Bank (N. Y.),
was made by a depositor in the state 26 Barb. 568; Bacon, etc., Co. v. Farm-
tank to satisfy an overdraft. The ers' Bank, 79 Mo. App. 406.
overdraft was satisfied on its books, A bank, and therefore its cashier,
and the note was credited to the state has no authority to guaranty commer-
bank on the books of the national cial paper or to become an accommo-
bank. It was held, that a judgment in dation indorser thereon, even though
favor of the national bank against the the party accommodated uses the
state bank, as guarantor of the note, money borrowed for the payment of a
on the ground that the note was origi- demand due the bank. Bacon, etc., Co.
nally given to the state bank, and V. Farmers' Bank, 79 Mo. App. 406.
transferred to the national bank pursu-
90. Power to guarantee payment of
ant to the agreement, would not be dis-
draft.— National Bank v. City Hall
turbed. DeSellem v. Iowa City Bank,
Bank, 9 O. Dec. 827.
101 Iowa 566, 70 N. W. 702.
State bonds issued through bank. — 91. Obtaining, negotiating and guar-
antying mortgage loans. Kiggins i.—
Where a state made a loan on bonds
issued by it through a bank, it was Munday, 19 Wash. 233, 52 Pac. 855.
within the scope of the powers of the 92. Estoppel to deny liability. —
bank to guaranty the bonds. Dabney, Bowen v. Needles Nat. Bank, 36 C. C.
etc., Co. V. Bank, 3 S. C. 124. A. 553, 94 Fed. 925. See contra, as to
Bondsof railroad controlled by it. — national banks. Merchants' Bank v.
The Central Railroad & Banking Com- Baird, 160 Fed. 642. See, also. Farm-
pany of Georgia, wliich was given by Bank v. Butchers', etc.. Bank,
ers', etc..
Its charter full banking powers, which 16 N. Y. 125; National Bank v. Atkin-
it exercised, had power thereunder to son, 55 Fed. 465; Peoole's Bank i: Na-
guaranty the bonds of a railroad com- tional Bank, 101 U. S. 181, 25 L. Ed. 907.
debt of another, is its powers, and the legal presump-

presumptively within
tion is that the have discharged their duty and acted
bank and its officers
within their powers. And where a bank in making a loan agreed with the
loanee and one of the loanee's creditors to pay a debt of the former to the
latter by delivering to the creditor its cashier's check and a note with some
cash, and charge the amount against the loan, and the cashier's check only
was delivered, it was held, upon the bank's repudiation of the whole trans-
action as ultra vires, that the cashier's check evidenced, not a guaranty of
another's debt, but an original contract of the bank made to serve its own
interest in consideration of its receipt of the commercial paper of the loanee
or other adequate security for the repayment of that amount and interest.*^
—
100. Torts. 3* Fraud Generally. A bank may legitimately receive
§ —
on deposit the moneys of a gambler, with reason to believe that it was won in
gaming; but when, with knowledge that such depositor is obtaining the
money by fraud, it acts in aid of the wrongful means by which the money is
obtained, -it is liable therefor.^^
Deceit in Making: False Statement as to Financial Condition of

Customer. —If a bank, in order to increase its deposits or to sell its col-
lateral, board of directors makes or causes to be made false state-
through its
ments concerning the financial condition of one of its customers, to a third

person, for the purpose of misleading him, it is liable for deceit if loss re-
sults or if, having made such statements, it conspires with its customer to
;
make the same public, to accomplish the same purpose, it is liable to one
who acts upon it to his injury. ^^
Liability for Negligence in Bidding on Bonds. —A firm deaHng in
bonds at Cleveland, Ohio, requested a bank at Victoria, Texas, to deposit
$1,000 with a certain county board at that place, to protect the firm's bid on
certain bonds, advertised for sale by the board. The bank complied with the
request, but, before doing so, had notice of such facts as would have in-
formed an ordinarily prudent person that there was a mistake in the bid,
93. Cashier's check. —

Mine, etc., Sup- 'ties, with which alone he was enabled
to conduct his scheme and collect
ply Co. V. Stockerowers' Bank, 98 C.
C A Fed 8.59
239 173 drafts, etc., drawn by the victims be-
94.' Torts.-Wrongful acts of officers ^%^ payment could be stopped, and the
offi<:ers of the bank themselves, with
and agents, see post, "Wrongful Acts,"
K -i-io knowleds'e that the victims were to be
^ '.,.,.,
Liabihty.for moneyfraudulently
r J , ,
defrauded, drew drafts for such victims,
95. ^^^ telegraphed to other banks to as-
obtained.— Wright^. Stewart, 130 Fed. certain the victim's responsibility, the
905, affirmed in 77 C. C. A. 499, 147 Fed. ^^^]^ ^g ^ corporation was liable as a
^21- party to the scheme, and an action will
Where a banking corporation, knovv- lie against the bank to recover back
ing that defendant B. and his associ- the money so obtained. Stewart c'.
ates were engaged in a confidence Wright, 77 C. C. A. 499, 147 Fed. 331.
game, assisted in the furtherance of 96. Deceit in making false statement
the scheme, both by representing to the as to financial condition of customer.
victims as they were brought in that
B. was a man of standing, entitled to
— Judgment 86 Fed. 1013, reversed in
Hindman v. First Nat. Bank, 39 C. C.
credit, and by lending B. banking facil- •
A. 1, 98 Fed. 562, 48 L. R. A. 210.
and that the deposit would be of no avail to the firm. It was held that the
loss, ifany, should be borne by the bank.^'^
Nondisclosure to Heir of Ancestor's Deposit and Retention Thereof
—
no Tort. A banker is not liable in damages to the heir of a depositor be-
cause, though knowing that the heir had no knowledge of the deposit, he
volunteered no information to the heir, but accepted her check on another
bank in payment of a valid claim held by him against her as heir. There was
no tort, and even a breach of contract would only have arisen upon the re-
fusal, upon demand, to pay over the deposit. ^^
— —
Malicious Prosecution ^Wrongful Arrest. A bank is not liable for
the false arrest of a depositor which is not the proximate result of a breach
of contract caused by the dishonoring of a check of the depositor.^^
§ 101. Effect of Acts Ultra Viresi— § 101 (1) In General.—Ul-

tra vires acts, even where prohibited by statute without imposing any pen-
alty or forfeiture, are not necessarily invalid as to private parties,^ for the
97. Liability for negligence in bid- proximate result of the breach of the
—
ding on bonds. First Nat. Bank v. contract caused by the dishonoring of
Hayes, 64 O. St. 100, 59 N. E. 893. the check. Western Nat. Bank v.
See,, also, post, "Effect of Acts Ultra White (Tex. Civ. App.), 131 S. W. 828.
Vires," § 101, as to liability for negli-
gence in performing ultra vires act.
1. Effect of acts ultra vires. —
Con-
tracts and notes of persons engaged in
98. Nondisclosure to heir of ances- unauthorized banking, see ante, "Valid-
tor's deposit and retention thereof no ity of Transactions and Liabilities In-
tort. —
Hamilton v. Toner, 17 Ind. App. curred," § 9.
389, 46 N. E. 921. Effect of ultra vires discount or loan,
99. Malicious prosecution —Wrong- see post, "Requisites and Validity of
ful arrest. —A
depositor in the W. bank Loan or Discount," § 178.
drew his check for the amount of his National banks, see post, "Statutory
deposit and forwarded it through the Provisions," § 234; "In General," §
H. bank for collection with the under- 261 (1).
standing that he would not draw any Savings banks, see post, "Powers in
cash on it until the check was reported General," § 295.
paid. The check was reported paid, Validity of security for notes il-
whereon the depositor checked out of legally taken or issued by banks, see
the H. bank the amount thereof. Sub- ante, "Bonds, Assignments and Nego-
sequently the H. bank was notified that tiable Instruments," § 98.
the check had been dishonored by the With respect to contracts in gen-
VV. bank for want of funds as shown eral, see ante, "With Respect to Con-
by its books. The cashier of the H. tracts in General," § 96.
bank reported the matter to the sher- .\s to liability of bahk for acts of of-
iff and county attorney, and the de- ficers and agents, see post, "Estoppel
positor was arrested for swindling. to Deny .Authority of Officers or
The check was dishonored because Agent," § 113.
defendant bank had credited deposit As to acquiring and holding prop-
by plaintiff to the wrong account. The erty, see ante, "Acquisition and Hold-
arrest of the depositor was without the ing," § 94 (1); "Right to Raise Ques-
knowledge -of the V/. bank. After the tion of Authority," § 95 (lb).
arrest, the W. bank informed the offi- As to ultra vires loans, see post,
cer holding the depositor that the check "Power to ]Make Loans in General,"
was dishonored for want of funds. § 176.
The officer holding the depositor un- 2. Ultra vires acts not necessarily in-
der arrest would have released him valid.— It has been held repeatedly that
only on orders from the sheriff. It where the provisions of the national
was held, that the W. bank was not banking act prohibit certain acts by
liable for the false arrest of the depos- banks or their officers, without impos-
itor because the arrest was not the 'ing any penalty or forfeiture applicable
doctrine of ultra vires has no application in favor of banking corporations

for wrongs committed by them.^
§ 101 (2) Rights Acquired by Bank. —

While a bank derives no
rights ofany kind under action taken in express violation of its charter/ and
the same is true where an act is declared by statute to be a misdemeanor,
although not in express terms prohibited or declared void,^ yet, where such
action is not expressly prohibited, but merely unauthorized, the bank may
acquire rights thereunder.®
to particular transactions which have Acceptance of special deposits with-

been executed, their validity can be out charter
authority. See —
post,
questioned only by the United States, "Grounds and Extent of Liability in
and not by private parties. Thompson General," § 102; "Estoppel to Deny
z.: St. Nicholas Nat. Bank, 146 U. S. Authority of Officers or Agent," § 113.
240, 36 L. Ed. 956, 13 S. Ct. 66, citing 4. No rights acquired by bank un-
Union Nat. Bank v. Matthews, 98 U. der action prohibited by charter.
S. 621, 25 L. Ed. 188; National Bank v. Davis t'. Bank, Fed. Cas. No. 3,626, 4
Whitney, 103 U. S. 99, 26 L. Ed. 443; McLean 387; Swindell & Co. v. Bain-
First Nat. Bank v. Stewart, 107 U. S. bridge State Bank, 3 Ga. App. 364, 60
676, 27 L. Ed. 592, 2 S. Ct. 778; Logan S. E. 13; Interstate Trust, etc., Co. z'.
County Nat. Bank v. Townsend, 139 Reynolds, 127 La. 193, 53 So. 520;
U. S. 67, 35 L. Ed. 107, 11 S. Ct. 496. Franklin Bank v. Commercial Bank,
See Schuyler Nat. Bank v. Gadsden, 36 O. St. 350. 38 Am. Rep. 594.
191 U. S. 451, 48 E. Ed. 258, 24 S. Ct. A bill drawn by a bank, in express
129; Scott V. Deweese, 181 U. S. 202, 45 violation of its charter, is void," and
L. Ed. 822, 21 S. Ct. 585; McBroom v. can not be set up by such bank in
Scottish :\ror!-R., etc., Co 15:i U. S. 318.
, payment. Davis v. Bank, Fed. Cas.
38 L. Ed. 729, 14 S. Ct. 852; Union Gold No 3,626, 4 McLean 387.
Min. Co. V. Rocky Mountain Nat. Bank, Notes discounted contrary to char-
96 U. S. 640, 24 L. Ed. 648; Fortier v. ter. —
Where a corporation was for-
New Orleans Xat. Bank, 113 U. S. 439, bidden by charter to discount notes
28 L. Ed. 764, 5 S. Ct. 234; Reynolds v. or exercise any banking privilege, it
Crawfordsville First Nat. Bank, 112 U. can not recover on a note so dis-
S. 405, 28 L. Ed. 733, 5 S. Ct. 213; counted. Philadelphia Loan Co. v.
Lantry v. Wallace, 182 U. S. 536, 45 Towner, 13 Conn. 249.
L. Ed. 1218, 21 S. Ct. 878. Purchase of property contrary to
As to certification of checks, see —
law as exception. See ante, "Right to
post, "Certified Checks or Notes," § Raise Question of Authority," § 95 (lb).
145. 5. Action made criminal by statute.
As to national banks, see post, — Pinney v. First Nat. Bank, 68 Kan.
"In General." § 261 (1), et seq. 223, 75 Pac. 119.
3. Ultra vires doctrine inapplicable. 6. Where action unauthorized, not
First Nat. Bank v. Graham, 100 U. S. —
expressly prohibited. Neillsville Bank
V. Tuthill, 4 Dak. 395, 30 N. W. 154;
699, 25 L. Ed. 750.
But a national bank may plead the Metropolitan Trust Co. v. McKinnon,
nullity of an ultra vires act. California 172 Fed. 846; Miller v. National Bank,
Bank v. Kennedy, 167 U. S. 362, 42 L. 4 Ky. L. Rep. 35; Barrow 'c. Bank, 2
Ed. 198, 17 S. Ct. 831: First Nat. Bank La. Ann. 453; Farmers', etc.. Bank v.
z\ Hawkins, 174 U. S. 364, 43 L. Ed. Harrison, 57 Mo. 503; Gloversville
1007, 19 S. Ct. 739. Bank v. Burr (N. Y.), 27 Hun 109;
The only penalty prescribed by bank- Lechenger z'. Merchants' Nat. Bank
ing act for ultra vires acts of a national (Civ. App.), 96 S. W. 638, affirmed in
bank, is a revocation of its charter. 101 Tex. 646, no op.; Wroten w. Armat,
National Bank v. Whitney, 103 U. S. 72 Va. (31 Gratt.) 338; Banks v.
99, 26 L. Ed. 443. See post, "Effect of Poitiaux, 24 Va. (3 Rand.) 136, 15 Am.
Acts Ultra Vires," § 261. et seq. Dec. 706: Litchfield v. Preston, 98 Va.
Acts of officers and agents. See — 530. 37 S. E. 6.
post, "Grounds and Extent of Liabil- Recovery on note purchased without
ity in General," § 102; "Estoppel to authority. —
In an action by a banking
Deny Authority of Officer, or Agent," corporation on a note, against the
§ 113. maker, it is no defense that the bank
§ —
101 (3) Rights Acquired against Bank. Notice of Limitations
on Power. —One purchasing notes of a bank organized under a public law
is chargeable with notice of the limitation fixed by the law on the power of
the bank to issue the notes.'' And it has been held that where a person sells
bonds or stocks to a bank in the teeth of a positive prohibition of such pur-
chases by the bank, the seller can not recover the price of the bank.^ But
has no authority to purchase the note. Carrying on business purchased for

Black 1!. First Nat. Bank, 96 Md. 399, —
self-protection. The right of a bank
54 Atl. 88. to purchase under execution a stock
A bank may recover on a note pur- of raw material for its protection, and
chased by it, though the transaction continue the business of manufactur-
is ultra vires, if it appears to have been ing, in the name of a trustee, can not
a "discount," within the usual accepta- be collaterally attacked; the ultra vires
tion of the term. Neillsville Bank v. acts of the bank, which are voidable
Tuthill, 4 Dak. 295, 30 N. W. 154. only, can only be impeached by the
Where a bank indorsed a certain government. Lippincott v. Longbot-
note for a commission, got it dis- tom, 6 Ct. Rep. 503.
Pa. 'Co. Ultra
counted, and, upon nonpayment by the vires lease by bank, see ante, "Leases,"
maker, paid the note and had it rein- § 95 (le).
dorse_d to itself, held, that the bank, Ultra vires partnership, see ante,
having received the money thereon, "Partnerships and Joint-Stock Com-
was entitled as owner to maintain suit panies," § 34.
on the note, although its indorsement Sales of land by one bank to another,
was ultra vires. Gloversville Bank v. see ante, "Disposal of Property,"
Burr (N. Y.), 37 Hun 109. § 95 (2).
Ultra vires transfer of note.— Gen- As to acquisition of stock contrary
erally, one who is not a party to a con- to law, see ante, "Purchasing and
tract can not attack it as ultra vires, Holding Stock in Other Corporations,"
and the maker of a note transferred by § 92.
one banking corporation to another 7.Rights acquired against bank
(for the purpose of liquidating the af- Notice of limitation on power. Root —
fairs of the corporation originally V. Wallace, P'ed. Cas. No. 12,039, 4 Mc-
named in the note as payee) can not Lean 8.
defend in an action thereon on the There can be no recovery on the
ground that the contract whereby the notes against the bank, nor can the
note was transferred was ultra vires. notes or their contracts be received in
Quinn v. First Nat. Bank, 8 Ga. App. evidence to support an action by the
235, 68 S. E. 1010. indorsee against the indorser. Root v,
An accommodation indorser of a Wallace, Fed. Cas. No. 12,039, 4 Mc-
note, which has been transferred by Lean 8.
the holder, an insolvent bank, to trus- 8.Sale of bonds or stocks against

tees, for the benefit of creditors, who —
positive prohibition. Where a bank is
afterwards renews the note in the authorized by law to purchase stocks
hands of the trustees, can not ques- necessary for deposit as security for
tion the power of the bank to transfer its circulating notes, and all other pur-
the note under the charter, for he was chasers are declared to be invalid, a
a debtor and not a creditor interested person who sells bonds to the bank
in the assets of the bank, and, as such, is bound to know the purpose for
entitled to interfere. Housum v. which the bank is buying them, and
Rogers, 40 Pa. 190. can not recover the price if the con-
Negotiation of water bonds Recov- — tract is prohibited. Tracy v. Talmage
—
ery of profits. The negotiation of (N. Y.), 2 Edm. Sel. Cas. 467.
water bonds by a bank, if ultra vires, Banking associations have no other
is not malum in se, and can only be authority than to carry on the busi-
taken advantage of by the state. The ness of banking, and therefore, when
cashier, through whom the contract such an association buys state stocks
was made, can not set it up in defense to sell again, and this is known to the
of an action by the bank to recover vendor, and gives for them its cer-
the profits of the transaction. Mt. tificates of deposits, and assigns mort-
Vernon Bank v. Porter, 52 Mo. App. gages as security for the payment
344. thereof, such transaction being illegal.
under the statutes of New York prohibiting a banking institution from issu-
ing a draft payable at a future time, where money is advanced upon such a
draft, in good faith, by a corporate body of another state, who are not pre-
sumed to have notice of such statutes, they are entitled to recover the same
back ; the money thus advanced being considered as having been paid with-
out consideration.^
Prohibitory Statute Not Retroactive. —Where a banking association,
being indebted to its agent abroad, executed bonds payable in England at a
future time, and secured by an assignment of certain property in trust, and
prior to the date when a statute forbidding banks to issue notes or bills pay-
able at a future time, took effect, transmitted the bonds to the agent, to be
sold in order to protect the existing indebtedness of the association, and to
secure future advances by its agents, and, until such sale, to be held in pledge
for the same purposes, it has been held, that such of the bonds as had been
delivered by the pledgees to creditors of the company as security for a pre-
existing debtwere valid in the hands of such creditors, i''
—
Estoppel to Plead. Where a contract between a national bank and
another party has been fully performed, and the bank has received a benefit
from such performance, it is held estopped to plead that the contract is ultra
vires as being in excess of its charter powers.^^
the assignment of the mortgages is tion.— Bank V. Dodge (N. Y.), 8 Barb..
void. Talmage v. Pell, 7 N. Y. 328. 233.
And the bank, or a receiver thereof, 10. Prohibitory statute not retroac-
may set up the bank's want of au- tive. — Curtis
V. Leavitt, 15 N. Y. 9,
thority to enter into such transaction construing a New York Act of 1840.
to impeach the mortgages, as the ex- 11. Estoppel to plead. First Nat. —
press grant of the power to deal in Bank v. Greenville Oil, etc., Co., 34
certain kinds of personal property and Tex. Civ. App. 645, 60 S. W. 828.
evidences of debt is a prohibition of A bank after receiving property con-
a general power of trading in stocks. tracted for by its president, while en-
Talmage v. Pell, 7 N. Y. 328. joying the fruits of the transaction,
can not be absolved from the perform-
Where, upon the deposit of money ance of its obligation to others as-
in a bank, the depositor received a
sumed by its officers as a means of
book containing the cashier's certifi-
getting possession of the property, on
cate thereof, stating that the deposit
the plea that its acts were ultra vires.
was to remain for a certain time, it Panhandle Nat. Bank v. Emery, 78
was held that such agreement was il- Tex. 498, 15 S. W. 23.
legal and void, under Rev. St., c. 36,
prohibiting contracts by banks
A bank acting in connection with
§ 57, the payee of certain notes, and shar-
for the payment of money at a future ing the profits arising from the trans-
day certain, and that no action could action in which they were given, is
be maintained against the bank upon estopped from denying its power to
such express contract. White v. Frank- contract such partnership relation,
lin Bank (Mass.), 22 Pick. 181. when attempting to reap the benefits
But the money might be recovered arising therefrom by enforcing the
in an action commenced before the ex- collection of the notes through the
piration of the time named, without courts. Gill V. First Nat. Bank (Tex.
any previous demand, the parties not Civ. App.), 47 S. W. 751.
being in pari delicto and the action Where a bank solicits deposits from
being in disaffirmance of the illegal another bank and agrees to pay two
contract. White v. Franklin Bank per cent per annum on daily balances,
(Mass.), 22 Pick. 181. it "will not, after receiving and retain-
9. Recovery of money advanced in ing such deposits for several months,

good faith as paid without considera- be allowed to repudiate the contract
688 BANKS AND BAXKIXG. § 101 (3)
Recovery on an Assumpsit. —Recovery has been allowed upon an as-

sumpsit on the ground that, although the security be void, yet the transac-
tion is only forbidden as to the bank and not as to the other party, i-
Recovery by Party without Notice of Irregularities or Want of
Authority. — ^^^here persons haxe been induced to lend money, or pSrt with
valuable securities, on the notes of a bank, which on their face appear to be
within the legitimate business of banking, such persons ought to be protected
by a court of equity.^^
and refuse to pay the interest merely is short in his official accounts, to en-
because one of its managing officers able him to make a settlement with
was common to both. City Xat. Bank the county, and the check is turned
V. Alerchants', Nat. Bank (Tex.
etc., over to the county commissioners,
Civ. App.), 105 S. W.
33S who deposit it with another bank in
12. Recovery on an assumpsit. One — legular course of business without no-
tice of irregularities in its issue, in
who receives a postdated draft issued
liy a banking association, taking effect an action by the latter bank on the
upon delivery, in consideration of a check the bank which issued the check
loan made by him, can recover the can not assert a want of power to is-
amount on an assumpsit, even though sue it, nor the existence of any fact
the security be void, because the stat- thai might be a defense as -between
ute only forbids the bank to issue, and itself and the county treasurer in his
not the lender to receive, such drafts. individual capacity. Sioux Falls X'at.
Oneida Bank v. Ontario Bank, 21 N. Bank r. First Xat. Bank, 6 Dak. 113,
V. 490. 50 X. W. 829.
And the transferee of a draft, void The bank with which t'ne same is de-
as above, succeeds to the payee's posited in the regular course of busi-
right of action against the drawer. ness, and which has no notice of ir-
Oneida Bank v. Ontario Bank, 21 N. regularities, is entitled as a matter of
Y. 400. law to a verdict in an action thereon.
Money received under ultra vires Sioux Falls X'at. Bank f. First X'at.
contract never performed. Where — Bank, 6 Dak. 113, 50 X'. W. 829.
—
Loans in excess of limit. One lend-
money is deposited with the cashier of
a bank under an agreement that it ing money to a bank limited by its
shall be invested by the bank in bonds articles of incorporation to the bor-
and stocks, the bank is liable for the rowing of mone}' not in excess of a
return of the money, no investment specified sum. to an amount less than
having been made, though the agree- the specified sum, without having rea-
ment for its investment by the bank son to know that the limit has been
was ultra vires. L-'Herbette v. Pitts- exceeded by other loans made to it
field Xat. Bank. 162 Mass. 137, 38 X. when added to the loan made, is not
E. 368, 44 Am. St. Rep. 354. See, also. affected by the limitation in the ar-
White z'. Franklin Bank (Mass.), 22 ticles. Citizens' Bank v. Bank, 31 Ky.
Pick. 181, for right to recover de- L. Rep. 365, 103 S. AV. 249.
posit made under illegal contract. See Liability for general deposit received
this case, set out supra. after powers ended. — \N'here a statute,
Liability for proceeds of illegal sale provides that any bank which maj- de-
of bonds. —A bank holding funds, the sire to close the business of circulat-
proceeds of bonds sold by it for a ing its bills may file a certificate of
customer, must account to him there- the fact with the auditor. Section 4
for, although a sale of bonds by it was provides that, after filing such cer-
unlawful. Smith v. Philadelphia X'at. tificate, the bank shall cease to do
Bank (Pa.), 34 Legr. Int. 86. any banking business, or to have any
13. Recovery by party without no- banking powers except to wind up its
tice of irregularities or want of au- concerns, collect and pa}-* debts, and
thority. —LeavittYates (N. Y.), 4
z'. to sue and be sued for such debts, it
Edw. Ch. 134; Safford v. Wyckoflf (X. was held, that where a bank, after fil-
Y.), 4 Hill 442. ing such certificate, accepts a deposit
In ultra vires cashier's check. — from one who has no notice of the
Where a national bank issues its cash- certificate, such depositor's right to re-
ier's check to a county treasurer, who cover against the bank is not affected
§ 101(3) FUNCTIONS AND DEALINGS. 689
Liability IncurredWhere Action Merely Ultra Vires, Not Prohib-

ited. — Âs between a bank and those who contract with it in an unauthor-
ized business, the new enterprise would become a part of its appropriate
business, in the conduct of which it would be liable for the acts of its
agents."
Particularly Where the Transaction Has Been Fully Performed by
—
the Other Party. Where a contract was not immoral, was fully performed
by the other party, and the bank received and retained the benefits, the plea
of ultra vires is unavailing. ^^
by section 4. Northern Bank v. Zepp, the payment of their debts, the trans-
28 111. 180, construing Illinois statute. fer of their funds, etc., is discussed
Liability special
for deposits re- and considered in Safiford v. Wvckofif
ceived without authority. Notwith- — {N. Y.), 4 Hill 443. See, also, ante,
standing the act of incorporation gives "Power to Make and Issue," § 98 (3a),
no authority to a bank to receive spe- as to power to make and issue negoti-
c'al deposits, and although there is no able instruments.
regulation in its by-laws relative to on subscription to stock in
Liability
such deposits, yet where they are
regularly received, with the knowledge
another —
bank. The defense of ultra
vires is not open to a bank against a
of the directors, the bank, and not its liability in subscribing to the stock of
agents, will incur the liabilities of another bank, when the contract has
bailee. Foster v. Essex Bank, 17 Mass. been fully executed by the other bank,
479, 9 Am. Dec. 168. and is not malum in se or malum pro-
Liability incurred
14. where action hibitum. City of Goodland v. Bank,
merely ultra vires, not prohibited. — 74 Mo. App. 365.
Hagerstown Bank v. Loudon Sav. Transaction fully performed by
15.
Fund Soc. (Pa.), 3 Grant Cas. 135. other party. Tootle —
v. First Nat.
Unauthorized issue of negotiable pa- Bank, 6 Wash. 181, 33 Pac. 345, citing
per. —
Where an association having no 3 Morse on Banks, § 740.
authority, under the general banking A bank receiving from a debtor
law, to issue negotiable paper, never- property valued at much more than the
theless issues the same in ordinary debt, under an agreement by its offi-
form, it will be binding on the asso- cers to pay the surplus to other cred-
ciation in favor of a bona fids indorsee, itors of the debtor, can not set up the
and this notwithstanding it be signed defense of ultra vires in an action by
by the cashier only. Safiford v. Wyck- the creditor to recover his share of the
ofif (N. Y.), 4 Hill 443, reversing 1 surplus. Tootle v. First Nat. Bank, 6
Hill 11. Wash. 181, 33 Pac. 345.
Semble that a negotiable note or bill While an arrangement between the
of exchange, though given by a bank- cashier of a bank and a depositor,
ing corporation having only an inci- whereby the bank was to pay the lat-
dental right of issuing such paper in ter's overdraft for stock purchased,
certain special cases, must be presumed covering the same by passing the draft
to have been legally issued until the on to the commission company to
contrary appear. Safford v. WyckoflE which the stock was shipped, was in
(N. Y.), 4 Hill 443. excess of the charter powers given
It seems that it would be otherwise, banks by Rev. St. 1899, c. 13, art. 8,
however, as between the association yet,when executed by the drawing of
and one not occupying the position of checks and the giving of drafts for an
a bona iide holder, if it appeared that amount sufficient to cover the checks,
the draft or bill was issued by way it would be upheld and enforced by
of loan, or for the purpose of being the courts. York v. Farmers' Bank,
put in circulation as money. Safiford 105 Mo. App. 137, 79 S. W. 968.
V. Wyckoff (N. Y.), 4 Hill 443. An ultra vires contract whereby a
How far these associations may, as banking institution agreed to sell plain-
incidental to the general powers ex- slock v/ithin a year for a certain
tiff's
pressly conferred on them by statute, sum, and pay such sum to plaintiff,
issue negotiable paper, without the which does not appear to be illegal,
sanction of the comptroller; e. g., for immoral, or against public policy, and
1 B & 44 B—
Liability on Ground of Negligence. —Where the premium on the mort-

gagor's life insurance is included in the mortgage as a part of the principal,
and the mortgagee neglects to keep the policies alive, he himself becomes the
insurer and if the mortgagee is a bank, and can not be an insurer for want
;
of power, it may be held liable on the ground of negligence.^®

—
Liability on Collateral Contract. The fact that a bank's charter pro-
hibited the loan of moneys on stocks and other personal securities will not
avoid a pledge of stock so as to defeat the action of a broker who was em-
ployed- by the bank to sell the stock.^''
which is fully performed by plaintiff, ground that its business of buying and
can not be repudiated by the bank. selling bonds was ultra vires. Judg-
Cause V. Commonwealth Trust Co., ment, 23 Misc. Rep. 368, 52 N. Y. S.
44 Misc. Rep. 46, 89 N. Y. S. 723, case 61, affirmed. Carr v. National Bank,
reversed in 100 App. Div. 437, 91 N. Y. etc., Co., 43 App. Div. 10, 59 N. Y. S.
S. 847, on ground that the complaint 618, judgment affirmed in 167 N. Y.
was insufficient. 375, 60 N. E. 649, 82 Am. St. Rep. 725.
Where a bank has received the pro- 16. Liability on ground of negli-
ceeds of a sale of bonds held by it for —
gence. Soule V. Union Bank (N. Y.),
speculative purposes, effected by 45 Barb. 111. See, also, ante, "Torts,"
means of fraud on the part of its man- § 100, as to torts generally.
aging officer, it can not avoid liability 17. Liability on collateral contract
for his fraud on the purchaser on the — Sistare v. Best, 88 N. Y. 527.
CHAPTER VIII.
B. Representation of Bank by Officers and Agents.
§ 102. Grounds and Extent of Liability in General.

§ 102 (1) General Principles upon Which Bank Held Liable to Third
Persons.
§ 102 (2) Power of Directors to Define and Fix Duties.
§ 103 (3) Manner of Prescribing Powers and Duties.
§ 102 (4) Manner of Contracting or Representing.
§ 103 (5) Representative Capacity of Particular Officers Considered.
§ 103 (5a) Directors.
§ 103 (5b) President— Vice-President.
§ 102 (5c) Cashier.
§ 103 (5ca) General Nature and Extent of Cashier's Powers
and Duties.
§ 103 (5cb) Applicability of the Rules of Agency.
§ 103 (5d) Teller.
§ 103. Statutory Provisions.
§.104. Disposition or Encumbrance of Property —
Acquisition of Property.
§ 104 (1) Power of Directors, Generally.
§ 104 (3) Power of President.
. § 104 (3) Powers of Cashier.
§ 104 (4) Consideration for Transfer of Bank's Property.
§ 104 (5) Disposition, Encumbrance, or Lease of Real Estate.
§ 104 (6) Assignments for Benefit of Creditors.
§ 104 (7) Acquisition of Property by Officers for Bank.
§ 105. Contracts.
§ 105 (^) General Principles.
§ 105 (1) Directors.
§ 105 (3) President.
§ 105 (8) Cashier.
§ 105 (3b) Particular Powers Considered.
§ 106. Deposits.
§ 106 (3) Cashier.
§ 106 (4) Teller.
§ 107. Collections.
§ 107 (3) Cashier.
§ 107 (4) Teller.
§ 107 (5) Attorney.
§ 108. Loans and Discounts.
§ 108 (3) Committee.
§ 108 (5) Cashier.

§ 108 (6) Treasurer and General Manager.
§ 109. Bills, Notes and Securities.
§ 109 (2) President and Vice-President.
§ 109 (3a) President.
§ 109 (3b) Vice-President.
§ 109 (3) Cashier.
§ 109 (5) Clerk and Actuary.
§ 110. Actions.
§ 110 (3)
Cashier.
Treasurer.
§ 110 (4)
§ 111. Representations or Admissions.
§ 111 (4) Cashier.
§ 111 (5) Teller.
§ 113. Wrongful Acts.
§ lis (1) In General.
§ 113 (3) Torts of Managing Officer and Cashier Generally.
§ 113 (3a) -Acts Not within Corporate Capacity.
§ 113 (3b) Acts without Scope of Authority.
§ 113 (3) Particular Torts or Wrongful Acts.
§ 113 (3a) Fraud.
§ 113 (Sab) Fraud in Obtaining Loan for Bank.
§ 112 (3ac) Fraud in Receiving Deposits.
§ 112 (Sad) Depreciating Collaterals.
§ 112 (3ae) Fraud in Procuring Note.
§ 112 (3af) Fictitious Entry of Credit.
§ 113 (Sag) Deposit of Worthless Check in Another Bank.
§ 113 (3ah) Conspiracy to Defraud Third Person.
§ 112 (Sai) Bank's Retaining Benefits of Transaction.
§ 112 (Saj) Fraudulent Acts in Personal Transactions.
§ 112 (Saja) In General.
§ 112 (Sajb) Use of Name of Bank.
§ 112 (Sajc) Buying and Selling Stock.
§ 112 (Sajd) Fraud on Depositor.
§ 112 (Sak) Application of Principle of Estoppel.
§ 112 (Sal) Proof of Fraud.
§ 113 (3b) False Representations as to Credit of Another.
§ 112 (Sc) Slander of Credit.
§ 113 (3d) Negligence.
§ 112 (Se) Receiving Foreign Bank Note
Payment. in
§ 113 (Sf) Organization of Another Bank
Evasion of Charter.
in
§ 113 (Sg) Attempt to Prefer Bank Officer to Other Creditors.
§ 113 (4) Embezzlement and Misappropriation.
§ 113 (4b) Misappropriation of Deposits.
§ 102 (1) Ri;pRESBNTATION OF BANK. 693

§ 112 (4bb) Special Deposits for Safe-Keeping.
§ 112 (4c) Money Received for Transmission.
§ 113 (4d) Collateral Security.
§ 112 (4e) Paper Left for Collection.
§ 112 (4f) Right of Bank to Money or Paper Used to Conceal Em-
bezzlement.
§ 113 (4g) Recovery by Bank.
§ 113. Estoppel to Deny Authority of Officer or Agent.
§ 113 (2) Receiving and Retaining Benefits of Transaction.
§ 113 (3) Delay or Acquiescence.
§ 113 (4) Prejudice to Other Party.
§ 113 (5) Loss to One of Two Innocent Persons.
§ 113 (6) Attempt to Enforce.
§ 113 (7) Receiver or Assignee for Creditor.
§ 113 (8) Estoppel of Person Dealing with Bank.
§ 114. Ratification.
§ 114 (1) Authority and Acts Which May Be Ratified.
§ 114 (2) What Constitutes and Requisites.
§ 114 (3b) Knowledge of Facts.
§ 114 (3c) Negligence.
§ 114 (3d) Delay or Acquiescence.
§ 114 (2e) Receiving and Retaining Benefits of Transaction.
§ 114 (3f) Attempt to Enforce Contract.
§ 114 (3g) Assertion of Individual Liability of Officer.
§ 114 (3h) Bank Seeking to Indemnify Itself against Fraud.
§ 114 (3) Operation and Efifect.

§ 114 (3b) Adoption of Entire Contract.
Pleading and Proof.
§ 114 (4)
§ 115. Rights Acquired by Bank.
§ 116. Notice to Officer or Agent.
§ 116 (2) In Respect to Discounts and Securities.
§ 116 (3) In Respect to Deposits.
§ 116 (4) Notice Received in Private Business or Outside Scope of Du-
ties.
116 (5) Notice to Directors.

§
§ 116 (6) Notice of Officer's Own Fraud.
§ 117. Individual Interest of Officer or Agent as Affecting Person Dealing with
Bank.
§ 118. Evidence as to Authority.
B. REPRESENTATION OP BANK BY OFFICERS AND AGENTS.

§ 102. Grounds and Extent of Liability in General— § 102 (1)
General Principles upon Which Bank Held Liable to Third Persons. —
Banking corporations are subject to the general principles which govern the
relation of principal and agent as between individuals, and like individuals
they must be held to a just responsibility for the acts of their agents done
within the scope of their authority, real or apparent, and for their frauds
and torts perpetrated in the performance of or connected with the business
of their agency, observing, of course, the difference as to the manner in which
the corporation acts, and taking into consideration the fact that it can act
only through its officers and agents.^ The officers and agents of a bank are
held out to the public as having authority to act according to the general
usage, practice, and course of their business, and their acts within the scope
of such usage, practice and course of business, will, in general, bind the bank
in favor of third persons having no knowledge and charged with no notice
to the contrary. The presumption is that they have been invested with all
the authority customarily exercised by such officers and agents, and all their
acts within the scope of such usage, practice, and course of business will
bind the bank in favor of third persons having no knowledge to the con-
trary. ^ Stating the proposition conversely, banking corporations, like nat-
ural persons, are, in general, bound by the acts and contracts of their agents
only when such agents are acting within the scope of their actual authority,
or when such acts and contracts are within the general scope and apparent
sphere of their duties. For acts and contracts not within the general scope
and sphere of the agent's duties, the bank is not liable unless there has been
a previous special authority or a subsequent ratification.^
When Bank Bound by Acts and Contracts beyond Apparent Scope
of Agent's Authority. —Under some circumstances, the bank may be bound
upon the acts and contracts of its agents even though they go beyond the
1. General principles upon which 3. Acts must be within real or ap-

bank held liable to third persons. parent scope of authority.^National
Goddspeed v. East Haddam Bank, 22 Bank v. Atkinson, 55 Fed. 465; Reed
Conn. 530; SturRes & Co. v. Bank, 11 v. Powell (La.), 11 Rob. 98; State v.
O. St. 153, 78 Am. Dec. 296; Wheless Commercial Bank (Miss.), 6 Smedes
z'.Second Nat. Bank, 60 Tenn. (1 Baxt.) & M. 218, 45 Am. Dec. 280; Jones v.
469; Ohio Life Ins., etc., Co. v. Mer- First Nat. Bank, 3 Neb. (Unof.) 73,
chants' Ins., Co., ?0 Tenn. (11
etc., 90 N. W. 912; Rich v. State Nat. Bank,
Humph.) 1; Jackson Ins. Co. v. Cross, 7 Neb. 201, 29 Am. Rep. 382; Thomas
56 Tenn. (9 Heisk.) 283. v. City Nat. Bank, 40 Neb. 501, 58 N.
2. Authority of officer or agent— Pre- W. 943, 24 L. R. A. 263; Bank v. Hooke,
sumption —Notice.— Minor v. Mechan- 41 Tenn. (1 Coldw.) 156; Northern
ics' Bank (U. S.), 1 Pet. 46, 7 L. Ed. Bank v. Johnson, 45 Tenn. (5 Coldw.)
47; Case v. Citizens' Bank, 100 U. S 88; Neiflfer v. Bank, 38 Tenn. (1 Head)
446, 25 L. Ed. 695; Creswell v. Lanahan, 162.
101 U. S. 347, 25 L. Ed. 853; United The powers and duties of bank offi-
States V. City Bank (U. S.), 21 How. cers being- defined by
charter and
its
356, 16 L. Ed. 130; United States v. by-laws, they will, when acting within
Robertson (U. S.), 5 Pet. 641, 8 L. Ed. their sphere, represent the corporation,
257, per Baldwin, J., dissenting. Bank and bind it by their acts; but in other
V. Jones (U. S.), 8 Pet. 12, 8 L. Ed. matters they can only represent or
850; Bank v. Dandridge (U. S.), 12 act for it when authorized by a reso^
Wheat. 64, 6 L. Ed. 552; National Bank lution of the board of directors. Reed
V. Atkinson, 55 Fed. 465; Rich v. State 'c. Powell (La.), 11 Rob. 98.
Nat. Bank, 7 Neb. 201, 29 Am. Rep. Acts of a bank officer outside the
382; Thomas v. Citv National Bank, usual scope of his authority in a mat-
40 Neb. 501, 58 N. W. 943, 24 L. R. A. ter to which the bank is not a party
263; Eastman v. Coos Bank, 1 N. H. and of which it had no notice are not
23; Lloyd v. West Branch Bank, 15 Pa. hindino;' on the bank. Jones v. First
172, 53 Am. Dec. 581; Neiffer v. Bank, Nat. Bank, 3 Neb. (Unof.) 73, 90 N.
38 Tenn. (1 Head) 162. W. 912.
§ 102 (1) rBprbsentation of bank. 695
usual and apparent scope of the duties ordinarily incident to the position,
as where it has allowed a cashier or other officer to exercise a general au-
thority for a considerable length of time in respect to the business of the
bank which would not ordinarily come within the scope of his duties as such
cashier or agent. Nor is there any incongruity or departure from general
principles in this, since it is merely the application of the very general prin-
ciple that as regards third persons the officers and agents must be deemed
clothed with whatever powers the bank has held them out as possessing in
the same degree as if the authority had been expressly granted.* But where,
under the general statutes or under the act of incorporation, the general man-
agement of the business of the bank and the interests of the shareholders is
confided to the board of directors, with power to them to elect or appoint
the president and cashier and define their duties, it will be presumed, in the
absence of anything in the act of- incorporation to the contrary, and in the
absence of anything in the record to show whether such duties have ever
been defined, that the president and cashier are clothed with only such powers
as are usually and oirdinarily incident to their respective offices, and that all
other powers needful to the management of the bank and its business reside
in the board of directors alone ;' and in order that the circumstances of a par-
ticular case may be sufficient to raise a presumption of authority in a pres-
ident, cashier, or other agent to bind the bank in matters beyond the scope
of his usual authority, it must be shown that his act was in some way au-
thorized by the board of directors, or that the bank was in some manner a
party to the circumstances, or chargeable with knowledge of them.^ If the
transaction itself is not in the usual course of business or is one which
required specific authority on the part of the cashier or other agent to per-
form it, the person dealing with him will be required to show either that he,
in fact, had authority to do the act, or that he was held out as having it;
.'^
otherwise, it will be held to have been done without authority
— —
Same Ultra Vires Acts. Of course, if the act done by the cashier or
other officer is such that the directors, under the charter and general laws of
the state, could not confer upon him the power to do, or such an act as the
4. When bound upon acts beyond need be shown. Tourtelot v. Whithed,

apparent scope of agent's duties. — 9 N. Dak. 407, 84 N. W. 8.
Sherwood v. Home Sav. Bank, 131 5. President and cashier presumed
Iowa 528, 109 N. W. 9; Wing v. Com- to have only powers ordinarily inci-
mercial, Bank, 103 Mich. 565, 61
etc.. dent to position. Hodge — v. First Nat.
TSr. W. Tourtelot v. Whithed, 9
1009; Bank, 63 Va. (32 Gratt.) 51. To the
N. Dak. 407, 84 N. W. 8. same effect, see Neiffer v. Bank, 38
Where the members of the board of Tenn. (1 Head) 162; Northern Bank v.
directors of a bank have for months Johnson, 45 Tenn. (5 Coldw.) 88.
ceased to exercise the functions of 6. Same —
Circumstances raising pre-
their offices, and have abandoned the sumption_ of authority in matters be-
management and control of the cor- yond ordinary scope of duties. Wheat —
porate business entirely to the presi- w. Bank, 9 Ky. L. Rep. 738, 5 S. W. 305;
dent of the bank, it will be presumed Ex parte Rickey, 31 Nev. 83, 100 Pac.
that such officer was authorized to do, 134.
in the name of the bank, whatever the 7. Same—What third person required
bank might lawfully do, and no special to show. — Lamb v. Cecil, 28 W. Va.
authorization or ratification of his acts 053.
directors themselves could not do, then no such authority could be presumed,
no matter were shown that the oificer habitually exercised such powers.*
if it
Persons dealing with the bank are bound to take notice of all restrictions
upon the powers of its officers and agents contained in its charter or in the
general statutes f and while the public is not supposed to have notice of the
apportionment of duties relating to bank matters among the bank officers,^**
it is presumed to know the extent of the general powers of a cashier.î
Operation of Restrictions upon Agent's Apparent Powers. If the —

bank undertakes to restrict the powers of an officer or agent so that he does
not possess all the power ordinarily incident to his position, such restriction,
in order to be available as against third persons,- must be brought to their
notice. In other words, as to them, the rule is that where the agency or
authority is special and limited, they must ascertain its existence and ex-
tent; but where the agent is held out as being possessed of certain powers
or occupies a position to which certain powers are usually and ordinarily
incident, then they have the right to rely upon the presumption that he
actually lias the authority which he is held out as having, or which would
ordinarily be implied from his occupancy of such position, and they are not
afifected by any secret restrictions of which they have no notice. '^^
8. Ultra vires acts. — First Nat. Bank v. First Nat. Bank, 116 Ala. 520,
Bank v. Kimberlands, 16 W. Va. 555; 22 So. 976; Citizens' Bank v. Bank, 31
Hodge V. First Nat. Bank, 63 Va. (23 Ky. L. Rep. 365, 103 S. W. 249; State
Gratt.) 51. V. Commercial Bank fMiss.), 6 Smedes
This was the case in Hodge v. First & M. 218, 45 Am. Dec. 280; Caldwell
Nat. Bank, 63 Va. (22 Gratt.) 51, Judge V. Nat. Mohawk Valley Bank (N. Y.),
Moncure there saying: "The directors of 64 Barb. 333; Tourtelot v. Whithed,
a bank can not release without consid- 9 N. Dak 407, 84 N. W. 8; Citizens'
eration a debt due the bank; and a Sav. Bank v. Blakesley, 42 O. St. 645;
fortiori they can not empower the Hodge V. First Nat. Bank, 63 Va. (22
president so to do." First Nat. Bank Gratt.) 51.
w. Kimberlands, 16 W. Va. 5_55. A cashier's act within the scope of
But see Hagerstown Bank v. Loudon the ordinary course of business is
vSav. Fund Soc. (Pa.), 3 Grant Cas. 135, binding upon the bank, though he was
in which it was held that acts of the acting beyond the scope of the express
cashier of a bank in pursuance of au- authority conferred by it. First Nat.
thority from the board of directors, al- Bank v First Nat. Bank, 116 Ala. 520,
though in violation of the law of its 22 So. 976.
existence, bind the bank. A bank may restrict the authority of
9. Same —Third
persons bound with its cashier, and, when this is done, it
notice of charter restrictions. North- — is bound to those having notice, ac-
ern Bank v. Johnson, 45 Tenn. (5 tual or constructive, of the restriction,
Coldw) 88; Neiflfer v. Bank, 38 Tenn. to the extent of the cashier's actual au-
(1 Head) 162. thority. Citizens' Bank v. Bank, 31
Notice of third persons as to
10. Ky. L. Rep. 365, 103 S. W. 249.
apportionment of duties among offi- The acts of a cashier of a bank are
cers. — City Nat. Bank v. Martin, 70 only binding upon the bank when he
Tex. 643, 8 S. W. 507, 8 Am. St. Rep. acts within the sphere of his agency.
533. If there be no express regulation or
11. Presumption as to knowledge of restriction, all acts which appertain to
extent of duties of cashier. Farmers', — his office will affect the bank; if he be
etc.. Bank z'. Troy City Bank (Mich.), restricted or limited, his acts in viola-
1 Doug. 457. tion of the restriction, or beyond the
12. Operation of restrictions upon limit, will not be the acts of the bank.
agent's apparent powers. Merchants' — State V. Commercial Bank (Miss.), 6'
Nat. B?nk v. State Bank (U. S.), 10 Smedes & M. 218, 45 Am. Dec. 280.
Wall. 604, 19 L. Ed. 1008; First Nat. In all transactions in which a bank
§ 102 (1) REPRESENTATION OF BANK. 697
Presumption as to Existence of Circumstances Authorizing Con-

tract. — If the contract is within the authority of the officers, and would
be valid and bind the bank under any circumstances, an innocent party has
a right to presume the existence of such circumstances, and the bank is
estopped to deny them.^^ This implies that those dealing with a bank in
good faith have the right to presume not only the existence of the author-
ity which would ordinarily be implied from a previous course of dealing and
holding out, but integrity on the part of its officers when acting within the
apparent sphere of their duties, and the bank is bound accordingly, there
being nothing in the known state of affairs of the bank or his relations to it
to excite suspicion. i* Conversely, the cashier or other agent is bound on his
part to act in good faith in the transaction of the business of the bank, and
those who deal with him are affected by any bad faith or want of authority
of which they have knowledge. ^^ But where the validity of the transaction
depends upon whether the person dealing with the bank through its agents
had actual knowledge of their want of power or good faith, it is to be
judged by what such person knew at the time of the original transaction,
and not by knowledge acquired subsequently, but before he undertook to
renew or secure the evidence of the obligation arising out of such trans-
action, i^
Province of Court and Jury as to Existence and Scope of Powers.
—The extent of the general authority of the cashier of a bank is a question of
may lawfully engage, the cashier is its Nat. Bank v. State Nat. Bank (U. S.),
managing agent, and speaks for the 10 Wall 604, 19 L. Ed. 1008.
corporation. A verbal understanding }^- Third persons affected by bad
,
between him and the directors will 'aith or want of authonty of which
not avail to limit his authority, when *ey have knowledge.— Lamb v. Cecil,
his acts are performed over the counter '^^Jf^- )^- ^^^
of the bank, and are of a public char- The fact that a lender of money to
acter, and numerous and long-con- a bank, through its cashier, held a ma-
tinued. In such a case it is reason- jority of the bank's stock as collateral
able to presume that his acts are in security for a loan to the cashier, did
conformity with the instructions of the ""' apprise the lender that there were
directors; and, if the directors, either "o directors or that the stockholders
through inattention or otherwise, suf- were taking no interest in the man-
fer the cashier to pursue a particular agement of the bank, and the bank
line of conduct for a considerable was liable for the amount of the loan,
period, without objfection, the bank Citizens' Bank v. Bank, 31 Ky. L. Rep.
will be bound by his acts. Caldwell 365, 103 S. W 349.
National Mohawk Valley Bank (N. IG. Same—As dependent upon time
V.
Y ")
64 Barb 333 °' acquisition of —
knowledge. Citizens
.o -n _ <••_ as
-„ *„
to ^„ic4.««^»
existence r,t
Rank V. Bank, 31 Ky. ^ Rep.
L. f 365, 103
13. Presumption of g ^y „ .g ' j <
circumstances authorizing contract.- ^^- ^ ,-;^; ^ transactions result-

Citizens' Sav. Bank v. Blakesly, 42 O. j^^ ;^ ^j^^ ^^^.^^ ^^ ^ j^^^ ^^ ^ ^^^^
^
14. Same—As
. -I. re
to integrity of officer
and receiving its notes as collateral
security must be judged by what the
or agent.— Chemical Nat. Bank v. Arm- lender knew when it lent the money
strong, 76 Fed. 339; Armstrong v. and not by what
i„ ttie first instance,
Chemical Nat. Bank, 37 C. C. A. 601, it learned afterwards and before it
83 Fed. 556, affirmed in Aldrich v. tôj^ ^ renewal note. Citizens' Bank
Chemical Nat. Bank. 176 U. S. 618, 44 j, Bank, 31 Kv. L. Rep. 365, 103 S. W.
L. Ed. 611, 20 S. Ct. 498; Merchants 249
law ;" but whether the cashier was authorized to exercise a particular power
not coming within the general scope of his duties, or whether, as to third
persons, he was held out as having authority to exercise certain powers in
•any given case, is a question for the jury.i*
Must Have Been Representing Bank —Officers in More than One

Bank or Corporation. — In order that the bank may be bound by the acts,
contracts, or knowledge of and agents, they must have been

its officers
representing the bank in the transaction in which such act or contract was
done or made, or in which such knowledge was acquired. In other words,
a bank is not bound by any act nor chargeable with the knowledge of any
of its officers or agents, unless such act be done or such knowledge be ac-
quired by such officer or agent while acting in his official or representative
capacity.^8 Thus a person can not deal with the cashier as an individual in
securing a draft and thereafter claim that it was a transaction with the
bank;2o and a payment made to the president of a bank, outside the usual
course of business, which the bank does not receive, and from which it
derives no benefit, is not a payment that binds the bank.î As a general
rule, acts done by an officer of a bank away from its place of business, and
not authorized or ratified, are not binding upon it.^^ And where such of-
ficer or agent is acting adversely to the bank, either in the furtherance of
17. Province of court and jury as to "All the evidence relevant to the acts
existence and scope of powers. Pen- — and authority of the cashier, either in-
insular Bank v. Hanmer, 14 Mich. 208; herent and exercised strictly virtute
Farmers', etc., Bank. v. Troy City- or as an agent, general or spe-
officii,
Bank (Mich.), 1 Doug. 457. cial,of the bank, under either the au-
18. —
Same As to existence of spe- thority of its charter or by its by-laws,
cial autliority. —
Merchants Nat. Bank and proof, if any, of the ratification or
V. State Nat. Bank (U. S.), 10 Wall. rejection by the bank of this or of
,
604, 19 L. Ed. 1008. similar acts of the cashier, should

Upon the subject of the authority of have been fully brought out, to be
the cashier of a bank to make a pur- passed upon by the jury under in-
chase of gold, if the certificates and structions from the court, or in the
the gold actually went into the said mode of a certificate of division, in
bank, as was admitted by its cashier the event of a disagreement between
to the president of the plaintiff bank, the judges." United States v. City
then the former bank was liable for Bank (U. S.), 19 How. 385, 15 L. Ed.
money had and received, whatever 662.
may have been the defect in the au- 19. Must have been representing
thority of the cashier to make the bank — Officers more than one bank
in
purchase, and this question should
have been submitted to the jury. Mer-
or —
corporation. Franklin Bank v.
Commercial Bank, 5 O. Dec. 339.
chants' Nat. Bank v. State Nat. Bank
20. Dealing with officer in individual
(U. S.), 10 Wall. 604, 19 L. Ed. 1008.
It should, have been left to the jury
capacity. — Campbell v. Manufacturers'
Nat. Bank, 67 N. J. L. 301, 51 Atl. 497,
to determine whether, from the evi-
dence as to the powers exercised by
91 Am. St. Rep. 438.
the cashier, with the knowledge and 21. Payment to president outside
acquiescence of the directors, and the usual course of business. Tulley v. —
usage of other banks in the same city, Citizens' State Bank, 18 Ind. App. 340,
it might not be fairly inferred that the 47 N. E. 850.
cashier had authority to bind the de-
. 22. Acts done away from place of
fendant by the contract which he made
Merchants'
—
business. Jones v. First Nat. Bank, 3
Neb. (Unof.) 73, 90 N. W. 912; Mer-
with the plaintiff bank.
Nat. Bank v. State Nat. Bank (U. S.), chants' Bank v. Rudolph, 5 Neb. 52'!'.
10 Wall. 604, 19 E. Ed. 1008.

§ 102 (1) KRPRESBNTATION OF BANK. 699
his own interests or as the representative of third persons with respect to

the immediate business in hand, the bank is not bound either by his knowl-
edge or his acts. 2^ This doctrine extends to neghgence, acts of omission,

and acts of positive misfeasance, as well as to matters ex contractu, the
bank not being liable for the negligence or misfeasance of an officer who
does not act as the agent of the bank in the particular transaction com-
plained of.^* The bank is not chargeable with notice of the fraudulent act
of its employee, outside the scope of his authority, and in furtherance of his
personal designs, for the sole reason that he is an employee. ^^ While the
knowledge of the agent is ordinarily imputed to the principal, it is well es-
tablished that an exception exists in those cases where the conduct of the
agent is such as to raise a clear presumption that he would not communi-
cate the fact in controversy, as where the communication of such a fact
would necessarily prevent the consummation of a fraudulent scheme which
the agent is engaged in perpetrating. ô
Officers of National Banks Must Act in Their Capacity as Officers.
— The liabilities for which a national bank must respond are such only as
are created or incurred by its officers, acting in the capacity of officers of
the bank alone, and not in connection with other trustees or officers of other
23. Officer acting coUusively or ad- 1 N. E. 282, 52 Am. Rep. 710; State
—
versely to bank. Burris v. Bank, 70 Sav. Bank v.Montgomery, 126 Mich.
Mo. App. 675; Jones v. First Nat. Bank, 327, 85 N. W. 879; Graham v. Orange
3 Neb. (Unof.) 73, 90 N. W. 912. County Nat. Bank, 59 N. J. L. 225, 35
Where a depositor authorized the Atl. 1053.
cashier to draw a check in his name 26. Same. —
Innerarity v. Merchants'
for a certain amount, upon the de- Nat. Bank, 139 Mass. 332, 1 N. E. 282,
livery to him of certain deeds to real 52 Am. Rep. 710; Jones v. First Nat.
estate, and the check was drawn and Bank, 3 Neb. (Unof.) 73, 90 N. W.
paid by the cashier before the condi- 912.
tion was complied with, the bank is Thus, an assistant cashier knowing
not liable to the depositor, the cashier that there had been on deposit to
being the agent of the depositor in plaintiff's credit for some time a con-
drawing the check. Burris v. Bank, 70 siderable sum of money, of which de-
Mo. App. 675. posit plaintiff was entirely ignorant,
A cashier of a banking corporation entered into a plot with a third person,
who takes an acknowledgment of a whereby it was represented to plain-
lease on property on which the bank tiff that he had a claim against the
has a lease does not act for the bank, bank of some nature, and negotiations
but only in his official capacity as no- were entered into with the result that
tary. People's Bank v. Bennett, 159 plaintiff, for a small consideration, was
Mo. App. 1, 139 S. W. 219. induced to sign a paper whose nature
24. Doctrine extends to negligent and purport he did not understand, but
—
and tortious acts. Jones v. First Nat. v/hich proved to be a check for the
Bank, 3 Neb. (Unof.) 73, 90 N. W. entire amount, which check the as-
912; Thatcher v. Bank, 7 N. Y. Super. sistant cashier and liis co-conspirator
Ct. 121. cashed and divided the proceeds be-
25. Bank not chargeable with no- tween them. It was held that the as-
tice of fraudulent acts outside scope sistent cashier did not represent the
of duty. — Louisville Trust C.Co.A. v. Louis-
378, 75
bank in such transaction, and that the
bank was not liable even though he
ville, etc., R. Co., 22 C.
Fed. 433; School Dist. v. DeWeese, had taken advantage of what he had
100 Fed. 705; City Elect. St. R. Co. v. learned in its employment for the
First Nat. Bank, 65 Ark. 543, 47 S. W. furtherance of his own fraudulent de-
855; First Nat. Bank v. Bevin, 72 signs to his personal gain. Jones v.
Conn. 666, 45 Atl. 954; Innerarity v. First Nat. Banlc, 3 Neb. (Unof.) 73,
Merchants' Nat. Bank, 139 Mass. 332, 90 N. W. 912.
companies. Were it otherwise, the other trustees or officers might outnum-

ber the officers of the bank, and impose burdefis on the bank which would
ruin it;and thus the bank would be controlled, not by its officers, but by
outsiders. The officers of a bank can not delegate their powers to others.
It is clear, therefore, that a national bank can not be a partner in a copart-
nership, and can not incur a partnership liability.^''
§ 102 (2) Power of Directors to Define and Fix Duties.—When

the act of incorporation contains no regulations as to the duties of the cash-
ier or other officers, it rests with the directors to prescribe their duties.^^
§ 102 (3) Manner of Prescribing Powers and Duties. —The pro-

visions of a charter and the by-laws of a bank, requiring the directors to
prescribe the duties of its officers, and the further provision of the charter
that the directors shall keep a book, I'in which shall be entered and faith-
fully recorded a journal of all their proceedings," are merely directory; and
the prescription of certain duties of the cashier by the board of directors
may be presumed from the acts of the board and of the cashier, and need
not be established by order, resolution, or vote, recorded in the journals.^®
There is nothing in the word "prescribe" indicative of a written rather than
an oral prescription. The words "mark out," or "assign," would convey
the same meaning; and one of the words no more imports a written pre-
scription than the other. The prescription of duty need not necessarily be
in writing, in the form of an order, resolution or vote, spread on the journal,
nor in any other particular form.^" A cashier, by assuming and performing
certain duties in connection with his office, estops himself from denying
that they have been prescribed by the board of directors. ^^ As to third
persons the authority of a bank officer need not be proven by showing that
it was expressly conferred by the board of directors, but may be proven by
showing the existence of such facts as constitute clearly a public holding

out that the particular act done or contract entered into was within the
scope of his legitimate delegated authority.^^ The inference that such au-
thority has been impliedly conferred may be legitimately drawn by proving
that he was in the habit of doing acts or working contracts of the same
general character as the particular act or contracts which he has done or
27. Officers of national banks must (Va.), 2 Pat. &

H. 277.
act in their capacity as officers. Mer- — A verbal direction from the directors
chants' Nat. Bank v. Wehrmann, 69 O. of a bank to the cashier, without any
St. 160, 68 N. E. 1004. recorded vote of the board, is a suffi-
28. Duties fixed by directors. — cient authority to guide him in the ap-
United States v. City Bank (U. S.), 21 plication of moneys officially received
How. 356, 16 L. Ed. 130; Fleckner v. by him. Stamford Bank v. Benedict,
Bank (U. S.), 8 Wheat. 338, 5 L. Ed. 15 Conn. 437.
631. See, also, Baldwin v. Bank, 1 31. Estoppel of officer to deny that
Wall. 234, 17 L. Ed. 534. _
duties were prescribed by board.
29. Manner of prescribing powers Durkin v. Exchange Bank (Va.), 2
and duties. —
Durkin v. Exchange Bank Pat. & H. 277.
(Va.), 2 Pat. &H. 277. 32. Proof of authority of officer or
30. Same —
Necessity for writing or —
agent. First Nat. Bank v. Kimber-
record. — Durkin v. Exchange Bank lands, 16 W. Va. 555.
§ 102 (4) REJPRESENTATION OF BANK. 701
made, and that these acts or contracts, which he was in the habit of doing,
thougl^ applied to different subjects, involved the same general power, ex-
cept when the acts and contracts which he was in the habit of doing or mak-
ing were so very numerous and variant in their character as clearly to justify
the inference that he was impliedly authorized to do all acts and make all
contracts which the directors had the power to do or make, and to confer
upon the ofiScer or agent the right to do or make.^^
§ 102 (4) Manner of Contracting or Representing. —Custom and

Usage. — If no definite rule is to be found, either in the charter or by-laws
of the institution, in regard to the manner and form in which its acts and
contracts shall be evidenced, then, it seems, general usage, and the course
of business of similar institutionsis to govern the officers will be presumed
;
to have been invested with the customary authority, and their acts within
the scope of such usage, practice, and course of business, will be binding
on the institution, in favor of the third person having no knowledge to the
contrary.^* But the customs, by-laws and regulations of a bank are, in
many respects, but intended to direct the action and conduct of its officers,
and it is liable for the just responsibility of its acts in the same degree as
an individual, notwithstanding its officers and agents may not have pro-
ceeded in strict accord with the by-laws, customs or usages of the bank.^s
—
Contracts in Writing or Parol Express or Implied. Whenever a —
banking corporation aggregate is acting within the scope of the legitimate
purposes of its institution, all parol contracts made by its authorized agents,
are express promises of the corporation; and imposed on them all duties
by law, and all benefits conferred at their request, raise implied promises,
for the enforcement of which, an action lies.^^
—
Necessity for Use of Seal. Banks and other commercial corporations
may bind themselves by the acts of their authorized officers and agents,
without the corporate seal.^'' In respect to banks, from the very nature of
33. Same — Habit, custom, and course 36. Contracts in writing or parol
of dealing. —
First Nat. Bank v. Kim- Express or implied. Bank — v. Patter-
berlands, 16 W. Va. 555. See, also, son (U. S.), 7 Cranch 299, 3 L. Ed.
Hodge V. First Nat. Bank, 63 Va. (33 351.
Gratt.) 51. In Bank v. Hatcli (U. S.), 6 Pet.
34. Manner of contracting or repre- 350, 8 L. Ed. 387, was held that an
it
—
senting Custom and usage. —
North- agreement made by the agent and the
ern Bank v. Johnson, 45 Tenn. (5 attorney of a bank to continue a
Coldw.) 88; Neiffer v. Bank, 38 Tenn. cause for a term without the judgment
(1 Head) 163. that would otherwise have been en-
35. —
Same. Jackson Ins. Co. v. tered, was bindins on the bank.
Cross, 56 Tenn. (9 Heisk.) 383. 37. Necessity for use of seal.—
Thus, if a teller receive money with- Fleckner v. Bank (U. S.), 8 Wheat,
out a "deposit ticket," or "pass book,'' 338, 5 L. Ed. 631 Chesapeake, etc.,
;
required by custom or by a rule of the Cana) Co. v. Knapp (U. S.), 9 Pet. 541,
bank, and, by mistake, credit the 9 L. Ed. 333; Commercial, etc, Ins. Co.
wrong person, the bank is liable. The v. Union Mut. Ins. Co. (U. S.), 19
nonobservance of its rules and cus- How. 318, 15 L. Ed. 636; Bank v.
tomr. by its oificers will not absolve Guttschlick (U. S.), 14 Pet. 19, 10 L.
it from liability. Jackson Ins. Co. v. Ed. 335.
Cross, 56 Tenn. (9 Heisk.) 383.
their operations in discounting notes, in receiving deposits, in paying checks,

and other ordinary and daily contracts, it would be impracticable to afifix
the corporate seal as a confirmation of each individual act.**
§ 102 (5) Representative Capacity of Particular Officers Con-

sidered —
§ 102 (5a) Directors. —
The power to direct and control the
affairs of a banking corporation is usually vested in a board of directors;^*
though unless required by charter or statute it is not absolutely essential
that a bank should have a board of directors, but may conduct its business
through such officers and agents as it may lawfully appoint.*" From their
number the directors elect the president. The president and directors thus
elected and qualified constitute the board of which has control
directors,
and management of the affairs of the bank.*i So organized, the board of
directors is a body recognized by law, and, to all purposes o^ dealing with
others, constitutes the corporation.*^
Directors to Act as a Board —Not as Individuals. —Regarded as in-
dividuals, the directors are not, properly speaking, officers of the bank, nor
have they, individually, any power to control its management. They act
collectively and at stated times as a board, and are not its mandatories or
agents.** Hence, in order to bind the bank, their action must be taken at
a lawful meeting at which a legally constituted quorum was present.** But
where a thing is ordered to be done at a meeting of the directors of a bank,
and no objection is subsequently made to the regularity of the meeting by
any person who is interested in the direction of the bank, such meeting can
not be objected to in a suit in equity to test the legality of the thing done,
on the ground of irregularity, although the power to do the thing is in such
a case a question properly before the court. *=
Board May Confer Special Powers upon Individual Directors. —
While directors, as individuals, are not agents of the bank, and have no
implied power from the mere fact of being directors, to represent or bind
the bank in their individual capacities, there is nothing to prevent the board
38. —
Same. Fleckner v. Bank (U. 44. —
Same Necessity for action to
S.), 8 Wheat. 338, 5 L. Ed. 631. be taken at lawful meeting.— Leary z/.
39. Representative capacity of par- Interstate Nat. Bank (Tex. Civ. App.),
ticular officers —Directors.— Percy v. 63 S. W. 149.
Millaudon, 3 La. 568. Where meeting of the directors
at a
40. Necessity for board of directors. of a bank to consider the sale of cer-
— Gillett V. Campbell (N. Y.), 1 Denio tain property, five of the six directors
520. were present, two of whom were dis-
41. President and directors consti- qualified from acting in the transac-
tute —
managing board. Brown v. Farm- tion, it was held that since only three
ers', etc.. Bank, 88 Tex. 265, 31 S. W. of the six directors were present who
285, 33 L. R. A. 359, reversing 31 S. could act for the bank, a quorum was
W. 216. wanting and their action in regard to
42. Directors constitute corporation the sale was not binding on the bank,
for —
what purpose. Burrill v. Nahant Leary v. Interstate Nat. Bank (Tex.
Bank (Mass.), 2 Mete. 163, 35 Am. Civ. Aop.), 63 S. W. 149.
Dec. 395. 45. Same —Who
entitled to question
43. Directors act as board, not as in- regularity of —
meeting. Leavitt v.
—
dividuals. Louisiana State Bank v^ Yates (N. Y.), 4 Edw. Ch. 134.
Senecal, 13 La. 525.
§ 102 (5a) REPRESENTATION. OE BANK. 703
from conferring special powers upon one of their number and thus authoriz-
inghim to represent the bank as a special agent with respect to that par-
ticular business or transaction.*^
General Nature and Scope of Authority. Directors are given au- —
thority to transact the usual and ordinary business of the bank, and obvi-
ously this power may be exercised in all usual transactions through the
executive officers of the bank without consultation with the stockholders.*'^
But however broad their powers of direction may be they are not unlimited,,
but must receive a rational exposition.*^ They can not bind the bank by
any act of fraud, departure from duty, or other illegal act, done by them-
selves, or by their connivance and permission, however sanctioned by the
uniform usage of the board.*^ They can not create a special or unusual
corporate liability without special power so to do and their confessions, ;
admissions or knowledge, while not engaged in the precise business in-

trusted to them, can not affect the corporation. 5"
Delegation of Powers. —Directors are not required to devote them-
selves to the details of the business, which may be left to the president and
cashier and their assistants. ^^ It is their duty to know the condition of the
corporation whose affairs they voluntarily assume to control, and they are
presumed to know that which it is their duty to know, and which they have
Board may confer special pow-

46. enough to authorize a regulation con-
ers upon individual directors. Waxa- — cerning the transfer of stock. Bark v.
hachie Nat. Bank v. Vickery (Tex. Civ. Manufacturers, etc., Bank, 20 N. Y.
App.), 26 S. W. 876. 501.
Thus, where a director is especially 51. Delegation of powers by direct-
delegated by a bank to settle a claim ors. —
Briggs V. Spaulding, 141 U. S.
against it, an agreement entered into 132, 35 L. Ed. 662, 11 S. Ct. 924; Mason
by him, under the direct advice of the V. Moore. 73 O. St. 275, 76 N. E. 932,
president, is binding on the bank. 4 L. R. A., N. S., 597; Wallace v. Lin-
Waxahachie Nat. Bank v. Vickery coln Sav. Bank, 89 Tenn. 630, 15 S. W.
(Tex. Civ. App.), 26 S. W. 876. 448, 24 Am. St. Rep. 625.
47. General nature and scope of di- In the general power given to the
rectors' power. Commercial— Nat. directors to appoint officers to do the
Bank v. Weinhard, 192 U. S. 243, 48 L. ordinary business of the bank, they
Ed. 42.5, 24 S. Ct. 253. have an authority to appoint a cashier,
48. Powers to be given rational ex- and such an appointment is a limita-
position. —
Minor v. Mechanics' Bank tion of that officer's executive function
(U. S.). 1 Pet. 46, 7 L._ Ed. 47. in doing the business of the bank.
49. No power to bind bank by il- United States v. City Bank (U. S.), 21
legal and fraudulent acts. United — How. 356. 16 L. Ed. 130.
States V. Robertson (U. S.), 5 Pet. 641, In Fleckner v. Bank of United States,.
8 L. Ed. 257, per Baldwin, J., dissent- 8 Wheat. 338, 356, 357, 5 L. Ed. 631,
ing. the court said that the charter au-
50.Declarations, confessions and ad- thorized the president and directors to
missions as binding bank. Loomis, — appoint a cashier and other officers of
etc.. Co. V. Eagle Bank, 1 Disn. 285, 12 the bank, and gave the president and
O. Dec. 62.5. directors, or a majority of them, full
Regulation concerning transfer of power and authority to make all such
—
stock. Where the articles of a bank- rules and regulations for the govern-
ing association confer upon the di- ment of the affairs and conducting the
rectors the power of making regula- business of said bank, as should not
tions for the government of their be contrary to the act of incorpora-
agents and the management of the tion. United States v. City Bank (U.
business, this power is not broad S.), 21 How. 356, 16 L. Ed. 130.
the means of knowing.'^ As directors, it is their duty to know the system

of management of the bank and its daily workings, and the bank can not
escape by showing that they were ignorant of the business of the
liability
corporation with respect to those matters which it was their duty to know.
If they negligently entrust such matters to others, and loss is thereby in-
curred, it should fall upon them and the bank, and not upon innocent third
persons. ^^ Those powers which are of a personal nature, however, or
which, under the charter, the directors are required to exercise in person,
can not be delegated. s* The bank transacts its business only through its
board of directors and its regularly constituted officers, and hence can not
appoint a general agent to transact its business. ^^
§ 102 (5b) President —^Vice-President. —The president of a bank

is generally, if not always, a member of the board of directors, and. chosen
by the board from their own number. He is expected to preside at meet-
ings of the board of directors, and ordinarily the position is one of dignity
and of indefinite general responsibility, rather than of any great and ac-
curately known power. He is usually expected to exercise a more constant,
immediate and personal supervision over the daily affairs of the bank than
is required of any other director; but the authority inherent in the office it-
self is very small, and it is difficult to say precisely how or where it is much
in excess of that which can be exercised by any other single director. In-
deed, it is said that the entire collection of judicial authorities justifies the
enunciation of only one function as falling within the properly inherent
power of the president, namely, to take charge of the litigation of the bank.
There is no question that this matter belongs to him by virtue of his office.
Duty to know condition of bank

52. bank, they may be presumed to have
—Presumption. — Seale Baker, 70 Tex. v. known any contest between the cor-
in
283, 7 S. W. 742, 8 Am. St. Rep. 593. poration and those who are justified
See, also, Giddings v. Baker, 80 Tex. by the circumstances in dealing with
.308, 16 S. W. 33. its officers upon the basis of that
Ignorance of directors no excuse
53. , course of business. Martin v. Webb,
to the bank.— Martin v. Webb, 110 U. 110 U. S. 7, 28 L. Ed. 49, 3 S. Ct. 428;
S. 7, 28 L. Ed. 49, 3 S. Ct. 428; Briggs Auten v. United States Nat. Bank, 174
V. Spaulding, 141 U. S. 132, 35 L. Ed. U. S. 125, 43 L.
Ed. 920, 19 S. Ct. 628;
662, 11 S. Ct. 924; Auten v. United Seale Baker, 70 Tex. 283, 7 S. W.
v.
States Nat. Bank, 174 U. S. 125, 43 L. 742, 8 Am. St. Rep. 592.
Ed. 920, 19 S. Ct. 628; German Sav. 54. Nonassignable duties.— First
Bank Wulfekuhler, 19
v. Kan. 60; Nat. Bank v. Kimberlands, 16 W. Va.
Meisse Loren, 6 O. Dec. 258, 4 N.
v. 555; Ex parte Rickey, 31 Nev. 82, 100
P. 100; Lane & Co. v. Bank, 56 Tenn. Pac. 134.
(9 Heisk.) 419; Warren v. Robison, 55. Power to appoint general agent
19 Utah 289, 57 Pac. 287, 75 Am. St. or manager.— Murphy v. Gumaer, IS
Rep. 734; Marshall v. Farmers', etc., Colo. App. 473, 55 Pac. 951.
Sav. Bank. 85 Va. 676, 8 S. E. 586, 3 As powers of directors of na-
to the
L. R. A. 534, 17 Am. St. Rep. 84; Zinn tional banks to delegate their au-
V. Mendel, 9 W. Va. 580; Wolfe v. thority under the words "or duly au-
Second Nat. Bank, 54 W. Va. 689, 47 thorized officers or aeents subject to
S. E. 243; Elliott V. Farmers' Bank, 61 law," inserted in § 5136 of the Rev.
W. Va. 641, 57 S. E. 342. Stats by the amendment of 1873-74,
,
That which
directors ought, by see Brieers v Spaulding, 141 U. S. 132,
proper diligence, to have known as to 35 L. Ed. 662, 11 S. Ct. 924.
the general course of business in the
§ 102 (5b) REPRESENTATION OF BANK. 70S
He may institute and carry on legal proceedings and collect demands or

claims of the bank; he may appear, answer and defend in suits against the
bank; and to the accomplishment of these purposes he may retain and em-
ploy counsel on behalf of the bank. 5*5 But while the powers inherent in
the office of president are very few, he may be authorized by the directors
to do anything within the authority of the bank's charter which the directors
themselves might do, except such positive requirements as the charter may
make Such
personal to the directors and which can not be delegated.^''
authority need not be proven by showing that it was expressly conferred by
the board of directors. Usage or directorial votes may confer upon him
special functions, and may extend his authority to correspond with the in-
crease of active duties. To prove the existence of such increased or special
authority, therefore, it is sufficient to show the existence of such facts as
constitute clearly a public holding out that the particular act done or con-
tract entered into was within the scope of his legitimate delegated author-
ity.^^ It will be readily seen from the foregoing that the nature and extent
of the duties imposed upon the president may vary in different associations
56. Inherent powers and representa- Nat. Bank v. Templeton (Tex. Civ.
tive capacity of president. Merchants' — App.), 40 S. W. 412; Commercial Nat.
Nat. Bank v. Eustis, 8 Tex. Civ. App. Bank v. First Nat. Bank, 97 Tex. 536,
350, 28 S. W. 227; Farmers' Nat. Bank 80 S. W. 601, 104 Am. St. Rep. 879;
V. Templeton (Tex. Civ. App.), 40 S. Hodge V. First Nat. Bank, 63 Va. (22
W. 412; Commercial Nat. Bank v. Gratt.) 51; First Nat. Bank v. Kim-
First Nat. Bank, 97 Tex. 536, 80 S. W. berlands, 16 W. Va. 555.
601, 104 Am. St. Rep. 879; Hodge v. 58. Proof of powers conferred by di-
First Nat. Bank, 63 Va. (22 Gratt.)
51; First Nat. Bank v. Kimberlands,
rectors. —
Merchants' Nat. Bank v.
Eustis, 8 Tex. Civ. App. 350, 28 S. W.
16 W. Va. 555; Smith v. Lawson, 18 W. 227; Hodge v. First Nat. Bank, 63 Va.
Va. 212, 41 Am. Rep. 688. (22 Gratt.1 51; First Nat. Bank v. Kim-
The president of a bank, and in his berlands, 16 W. Va. 555; Smith v. Law-
absence the vice president or other son, 18 W. Va. 212, 41 Am. Rep. 688.
person acting in the place of the The inference,that such authority
president, has, within the scope of his has been impliedly conferred, may be
general authority, the right to employ- legitimately drawn by proving that he
counsel to represent the bank in pend- was in the habit of doing acts or mak-
ing or prospective litigation. Russell ing contracts of the same general
V. Washington Sav. Bank, 23 App. D. character as the particular act or con-
C. 398. tracts which he has done or made, and
In California, however, the president that these acts or contracts, which he
of a bank has no ex officio power to was in the habit of doing, though ap-
bind it for the services of an attorney, plied to different subjects, involved
and unless he has been empowered to the same general power, except when
hire an attorney under its by-laws, a-s the acts and contracts, which he was
authorized by Civ. Code, § 303, or his in the habit of doing or making, were
contract for an attorney's services was so very numerous and so variant in
authorized by resolution of the direct- their character as clearly to justify
ors, or ratified or sanctioned by their the inference, that he was authorized
words or conduct, the bank is not li- impliedly to do all acts and make all
able therefor. Pacific Bank v. Stone, contracts, which the directors had the
121 Cal. 202, 53 Pac. 634. power to do or to make, and to con-
57. Powers conferred upon presi- fer on the president the right to do or
—
dent by directors. Wheat v. Bank, 9 to make. First Nat. Bank v. Kimber-
Ky. L. Rep. 738, 5 S. W. 305; Ex parte lands, 16 W. Va. 555. See, also, Smith
Rickey, 31 Nev. 82, 100 Pac. 134; Mer- V. Eawson, 18 W. Va. 212, 41 Am. Rep.
chants' Nat. Bank v. Eustis, 8 Tex. 688.
Civ. App. 350, 28 S. W, 327; Farmers'
1 B & B—45
according to the usages and by-laws of each,^^ ^nd that when he goes be-
yond the scope of his usual authority, it must be shown in some way that
his act was authorized by the directors, or that he was held out as having
authority to do those things which he has assumed to do.''" In order that
the circumstances of a particular case may be sufficient to raise a presump-
tion of authority in a bank president to bind the bank in matters beyond
the scope of his usual authority, the bank must in some manner be a party
to the circumstances, or must be chargeable with knowledge of them.î
Under the custom and usage of modern banking the president has
been so generally clothed with power and authority beyond that ordinarily
inherent in his office, as outlined above, that such custom and usage has
been judicially recognized, and in some jurisdictions he is no longer lopked
upon as a sort of figure head having only the powers of a director, but as
the chief executive officer of the bank, having great influence upon the pol-
icy of the bank and the conduct. of the various employees in the discharge
of their duties, and, as regards third persons, authorized to represent the
bank in many transactions without special or express authority from the
directors.*^
Power with Respect —
to Particular Matters. The president has no
power to bind the bank except in the discharge of his ordinary duties, and
it is not one of his ordinary duties, nor a power inherent in his office, to
release debtors of the bank from the payment of their obligations to it
without consideration. Authority to surrender or release the claims of the

bank against any one can only be derived from the charter, from a vote of
the board of directors, or from their assent, express or implied. Certainly,
neither the president nor the cashier nor both combined can, virtute officii,
give up a debt or liability to the bank without consideration, nor bind the
bank by any agreement that the maker or indorser of a promissory or other
instrument shall not be liable according to the tenor of the instrument.®^
59. President's powers may vary in that his power is limited to transactions
diflferent banks. — Merchants'
Nat. Banl< expressly authorized by the directors
v. Eustis, 8 Tex. Civ. App. 350, 38 S. no longer obtains.- Bartlett Estate
W. 237. Co. V. Eraser, 11 Cal. App. 373, 105
60. Proof of special or unusual Pac. 130.
power. — Ex parte Rickey, 31 Nev. 83, 63. Power with respect to particular
100 Pac. 134.
Circumstances necessary to raise
61.
matters —
Releasing bank's debtors
Guaranty and accommodation agree-
presumption of authority. Wheat v. — —
ments. Bank v. Jones (U. S.), 8 Pet.
Bank, 9 Ky. L. Rep. 738, 5 S. W. 305. 13, 8 L. Ed. 850; Bank v. Dunn (U.
62. Judicial recognition of president's S.), 6 Pet. 51, 8 L. Ed. 316; Swindell
powers under modern custom and & Co. v. Bainbridge State B^nk, 3
usage. — Bartlett Estate Co. v. Eraser, Ga. App. 364, 60 S. E. 13; Olney
11 Cal. App. 373, 105 Pac. 130; Morgan v. Chadsey, 7 R. I. 334; Hodge
& Co. Merchants' Nat. Bank, 81
V. v. First Nat. Bank, 63 Va. (23 Gratt.)
Tenn. (13 Lea) 234; Brown v. Farm- 51; Bank v. Wetzel, 58 W. Va. 1, 50 S.
ers', etc.. Bank, 88 Tex. -365, 31 S. W. E. 886. See, also. United States v. City
385, 33 L. R. A. 359, reversing 31 S. W. Bank (U. S.), 31 How. 356, 16 L. Ed.
316. 130; and Potts v. Wallace, 146 U. S.
The president of a bank being its 689, 36 E. Ed. 1135, 13 S. Ct. 196.
executive head under the usages and In Bank v. Dunn (U. S.), 6 Pet. 51,
customs of modern banking, the rule 8 L. Ed. 316, it was held, that "'an
§ 102 (5b) REPRESENTATION OF BANK. 707
He has no authority, by virtue of his office, to release a debt due the bank
on payment of part only.®* He can not enter into an accord and satisfac-
tion of a debt due the bank by the acceptance of any order on a third party
in full satisfaction and discharge of the debt, unless he is authorized so to
do by the board of directors.®^ Nor has he any implied authority to agree
to a composition between a firm and its creditors, the bank being one of
the creditors.®^ But when authorized by the charter or by the board of
directors, as where they have turned the entire management of the bank
over to him or ratified similar acts through a course of dealing extending
over a number of years, he may bind the bank by a partial release of a judg-
ment lien upon lands, the judgment note having been taken in his name;*''''
by an agreement to accept an assignment of a judgment in settlement of a
claim of the bank, provided such agreement is carried into effect ;^^ or by
an agreement, on sufficient consideration, to enter a remittitur of a judg-
ment in favor of the bank.®^ It has also been held, under a general au-
thority of this kind, that he might accept property, other than cash, in set-
tlement of paper due the bank;""* and in Texas it has been held that he not
only has power to accept payment in property other than cash, but that he
has authority by virtue of his office to compromise or release debts due the
bank.'î The vice-president of a bank, who is in charge thereof, has au-
agreement by the president and cash- the but at its meetings each
matter,
ier of the Bank of the United States, member had expressed opposition to a
that the endorser of a promissory note compromise. There was no evidence
shall not be liable on his indorsement, of any custom of the president to act
does not bind the bank. It is not the in such matters. Held, that the action
duty of the cashier and president to of its president was not binding on
make such contracts; nor have they ihe bank. Wheat v. Bank, 9 Kv. L.
the power to bind the bank, except in Rep. W. 305.
738, 5 S.
the discharge of their ordinary duties. 67. Same—^Release of judgment lien.
All discounts are made under the au- —Winton v. Little, 94 Pa. 64.
thority of the directors, and it is for 68. Same —Accepting assignment of
them
be proper
to fix any conditions which may
loaning money." Accord,
in
judgment in payment of claim. First —
Nat. Bank v. New, 146 Ind. 411, 45 N.
Hodge V. First Nat. Bank, 63 'Va. (22 E. 597.
Gratt.) 51.
64. Same — Same. — State Sav. Loan,
69. —
Same Remittitur of judgment.
Case V.Hawkins, 53 Miss. 703.
Co. Stewart, 65 App. 391.
etc., V.
Same—Accord and
111.
satisfaction. 70. Same— Accepting property in lieu
65.
— First Nat. Bank v. Kimberlands, ]6 of —
cash. Merchants' Nat. Bank v.
W. Va. 555. Camp, 110 Ga. 36 E. 780, S. 301.
66. Same — Composition agreements. 71. Same— Same^Compromise or re-
—Wheat V. Bank, 9 Ky. L. Rep. 738, 5 lease of debt, Texas decisions. — Farm-
S. W. 305. ers' Nat.Bank v. Templeton (Tex. Civ.
A banking corporation was a cred- App.), 40 S. W. 413, citing and approv-
itor to a large amount of a firm, and ing Panhandle Nat. Bank v. Emery, 78
its president, without express author- Tex. 498, 15 S. W. 33.
ity, and without advising the directors, Where bank holds a claim, the
a
agreed to a composition between the president may, for the purpose of mak-
firm and its creditors The directors ing the debt, take from the debtor cat-
held meetings between the time of tle encumbered by other debts; such
the failure of the firm and the pro- act binds the bank, and upon its dis-
posal of a composition, and also be- posing of the property it is liable to
tween the time of the proposal and the lienholders for such cattle.
prior
the time of the acceptance of the^ corn- Panhandle Nat. Bank v. Emery, 78
position. The board took no action in Tex. 498, 15 S. W. 33.
thority to bind the bank by extending the time of the payment of a demand
note for a specified time and for a specified consideration, and suspending
the right to sell collateral until the expiration of the extended time.'^^ But
where the directors of a bank have not- authorized its president to make
an agreement to extend time to a debtor or to refrain from selling pledged
stock for the liquidation of the debt, and the circumstances raise no im-
plication of authority, and such agreement by the person who was president
is never ratified, the bank is not bound therebyJ^ Without authority from
the charter or from the board of directors he has no power to stay the col-
lection of an execution against the estate of a debtor of the bank; and if
the sheriff omits to levy an execution, in consequence of such an order from
the president, it will not become dormant so as to lose its lienJ* In the
absence of authority by charter, resolution, or by-law, it will not be pre-
sumed that he is authorized to waive conditions of a contract for the sale
of landjs The president of a banking corporation has no implied power
as a matter of law to either lease the bank's real estate or cancel its out-
standing leases thereof or enter into new ones for it as lessee.''^ He has
no inherent authority to endorse or transfer negotiable notes belonging to
the bank, nor has any other officer this inherent power except the cashierJ'^
But the inference that such authority has been conferred upon the presi-
dent may be legitimately drawn from proof that he was in the habit of doing
acts of the same general character though applied to a different subject, and
especially where such acts were the exercise of still greater power, as the
assignment of other choses in action, such as bonds and judgments.''^* But
such power could not be legitimately inferred from proof that he was in
the habit of receiving deposits or payments of notes, or proof that he was
72. Power of
vice president to ex- with the privilege of renewal. The
tend payment
of note WyckofI v. bank sublet the hotel to a third person
Riverside Bank, 135 App. Div. 400, 119 for the same term, with privilege of re-
N. Y. S. 937. newal. The bank renewed its lease,
73. Power of president to extend time and the third person remained in pos-
or refrain from selling collateral. session after his term and paid to the
— Arbog'ast v. American Exch. Nat. bank the prescribed monthly rental.
Bank, 60 C. C. A. 538, 125 Fed. 518. Thereafter the president executed a
74. Power
to stay proceeding on exe- new lease to the third person for the
cution. —
Spyker v. Spence, 8 Ala. 333. entire premises, and arranged for free
75. Waiver of conditions in contract rent for the bank. He gained a profit
—
for sale of land. Chadbourne v. Stock- resulting from an increase of rent,
ton Sav., etc., Soc, 101 Cal. xvii, 36 Held, that the president's new lease
Pac. 127. was not valid as against the bank,
76. Power to lease, or cancel lease. which could repudiate it, and hold the
People's Bank v. Bennett, 159 Mo. App. third person as its tenant, unless the
1, 139 S. W. 219. bank consented to a surrender of the
The
lease of an elevator, included in premises and the new lease, or com-
a chattel mortgage to a bank, to be mitted acts amounting to an estoppel,
binding on the bank, must be author- People's Bank v. Bennett, 159 Mo. App.
ized by the directors; authorization by 1, 139 S. W. 219.
the president alone being insufficient. 77. Power to transfer negotiable
Tulley V. Citizens' State Bank, 18 Ind. paper. — Smith Lawson, 18 W. Va.
v.
App. 240, 47 N. E. 850. 212, 41 Am. Rep. 688.
The president of a bank leased prem- Same— Special authority—Proof,
78.
ises consisting of banking rooms and custom, usage. — Smith Lawson, 18 v.
a hotel to the bank for a specified term, W. Va. S12, 41 Am. Rep. 688.
authorized to receive generally deposits and payments made to the bank.'^^

He has no power to bind the bank by representations as to the genuineness
of the signatures to a note;*" nor has he any power inherent in his office
to bind the bank by the execution of a note in its name, though the power
to do so may be conferred upon him by the board of directors, either ex-
pressly, by resolution to that effect, by subsequent ratification, or by ac-
quiescence in transactions of a similar nature, and of which the directors
have knowledge. *i There is no inherent power in his office authorizing him
to borrow money on the bank's credit. ^^ But a bank is liable for interest
on a deposit secured through the president's promise that interest would
be paid thereon, where in making the promise he acted within the scope of
his authority, in the absence of proof that he was without such authority
and that the depositor knew it when he deposited. ^^ And where the presi-
dent has the power to take a claim against the bank out of the operation
of the statute of limitations, the power may be exercised out of the state
wherein the bank is situated as well as in it, and is not affected by the fact
that he is, in his individual capacity, a guarantor of the debt.** In an action
against a bank for repairs to an automobile used by its vice president in
attending to the bank's business, even if the president of the bank could
not authorize such expenditures, the bank is liable for services rendered
upon the automobile at the instance of the vice president after the adoption
of a resolution by the board of directors authorizing him to employ all per-
79. Same. — Smith v. Lawson, 18 W. 83. Promise to pay interest on de-

Va. 312, 41 Am. Rep. 688. posit.— Boyd v. First Nat. Bank, 33 Ky.
80. Representations as to genuineness L. Rep. 1323, 108 S. W. 360.
of —
signature. Commercial Nat. Bank 84. Power to take claim against bank
V. First Nat. Bank, 97 Tex. 536, 80 S. out of statute of limitations. Morgan —
W. 601, 104 Am. St. Rep. 879. & Co. v. Merchants' Nat. Bank, 81
81. Execution of note in name of Tenn. (13 Lea) 334.
—
bank. National Bank v. Atkinson, 55 The manager of a bank
president and
Fed. 465. executed agreement in its behalf
an
82. Borrowing money on bank's that, if plaintiff would refrain for six
credit. — Western Nat. Bank v. Arm- months from bringing an action against
strong, 152 U. S. 346, 38 L. Ed. 470, 14 it to enforce a stockholder's liability,
S. Ct. 572; Ridgway v. Farmers' Bank it would not plead the statute of limita-
(Pa.), 12 Serg. &
R. 356, 14 Am. Dec. tions thereto.
• The directors never
681. ratified the agreement, and it did not
The vice-president and general exec- appear that they knew of its exist-
utive officer of a national bank has no ence. The president had for years had
power to borrow so large a sum as entire management of the bank; not
$200,000 at four months' time for the reporting his actions to the directors,
bank in the absence of special author- nor asking ratification thereof, nor ob-
ity from the board of directors, and taining authority before performing
persons dealing with him are presumed particular acts. A
by-law of the bank
to know the extent of his powers in provided that the manager should per-
this regard. Western Nat. Bank v. form all duties which the bank's in-
Armstrong, 153 U. S. 346, 38 L,. Ed. terest required, limited only by the
470. 14 S. Ct. 572. by-laws and instructions of the board
The president of a bank incorpo- of directors. Held, that the court was
rated by the Pennsylvania general stat- justified in finding the agreement to
ute of 1814 is not thereby empowered have been executed by the bank. Wells,
to raise money by drafts on the bank. Fargo &
Co. v. Enright, 127 Cal. 669,
Ridgway Farmers' Bank
v. (Pa.), 12 49 E. R. A. 647, 60 Pac. 439.
Serg. & R. 356, 14 Am. Dec. 681.
710 BANKS AND BANKING. § 102 (Sca)
sons necessary to resume and conduct the business, which has been tem-
porarily suspended. ®5
§ —
102 (5c) Cashier § 102 (5ca) General Nature and Extent
of Cashier's —
Powers and Duties. The powers of the cashier of a bank
are such as are incident to, and implied in, his official character, as gener-
ally understood, as cash keeper, cash receiver, or payer, as negotiator and
,
correspondent for the corporation, or as agent for various acts that are
necessary and appropriate to the functions of such an officer, and insep-
arable from the operations of the bank; or those powers and duties may be
created by a general or special authority declared in the charter or in the
by-laws of the corporation.*^ He is the executive officer of the bank by
whom its debts are received and paid and
its securities taken and trans-
ferred, and through whom the whole financial operations of the bank are
conducted. His ordinary duties are to superintend the books and trans-
actions of the bank, under the orders of the directors; to keep all the
funds of the bank, its notes, bills and other choses in action, to be used
from time to time for the ordinary and extraordinary exigencies of the
bank. He usually receives directly, or through the subordinate officers of
the bank, all moneys and notes of the bank, delivers up all discounted notes,
collateral pledges and other securities when they have been paid, draws
checks to withdraw the funds of the bank where they have been deposited,
and, as the executive officer of the bank, transacts most of its business.*^
Tellers and other subordinate officers may be appointed, but they are under
his direction, and are, as it were, the arms by which designated portions of
his various functions are discharged.**
85. Repairs to automobile used in &62; Merchants' Bank v. Rawls, 7 Ga.

bank's —
business. Seadale v. Mont- 196; Mott v. Semmes,
24 Ga. 540; Mor-
gomery, 113 N. Y. S. 600. ris v. Georgia Loan, etc., Co., 109 Ga.
86. Nature and extent of cashier's 12, 34 S. E. 378, 46 L. R. A. 506;
—
powers. United States v. City Bank Squires v. First Nat. Bank, 59 111. App.
(U. S.), 19 How. 385, 15 L. Ed. 662; 134; Wakefield Bank v. Truesdell (N.
Fleckner v. Bank (U. S.), 8 Whe;it. 338, Y.), 55 Barb. 602; Bissell v. First Nat.
5 L. Ed. 631; West St. Louis Sav. Bank Bank, 69 Pa. 415; Morgan Co. v. &
V. Shawnee County Bank, 95 U.'S. 557, Merchants' Nat. Bank, 81 Tenn. (13
24 L. Ed. 490. Lea) 234; Northern Bank v. Johnson,
87. Same. —
Bank v. Dunn (U. S.), 6 45 Tenn. (5 Coldw.) 88; Rosenberg v.
Pet. 51, 8 L. Ed. 316; United States v. First Nat. Bank (Tex. Civ. App.), 27
City Bank (U. S.), 21 How. 356, 16 L. S. W. 897; First Nat. Bank v. Ledbet-
Ed. 130; Fleckner v. Bank (U. S.), 8 ter (Tex. Civ. App.), 34 S. W. 1042;
Wheat. 338, 5 L. Ed. 631; First Durkin v. Exchange Bank (Va.), 2
National Bank v. Stewart, 114 U. S. Pat. &
H. 277; Bank v. Wetzel, 58 W.
224, 29 L. Ed. 101, 5 S. Ct. 845; Case Va. 1, 50 S. E. 886.
V. Citizens' Bank, 100 U. S. 446, 25 L. 88. Same — Subordinate oiBcers under
Ed. 695; Merchants' Nat. Bank v. State his direction Merchants' Nat. Bank
Nat. Bank (U. S.), 10 Wall. 604, 19 L. v. State Nat. Bank (U. S.), 10 Wall.
Ed. 1008; West St. Louis Sav. Bank v. 604, 19 L. Ed. 1008; West St. Louis
Shawnee County Bank, 95 U. S. 557, 24 Sav. Bank v. Shawnee County Bank,
L. Ed. 490; United States v. City Bank 95 U. S. 557, 24 L. Ed. 490; United
(U. S.), 21 How. 356, 16 L. Ed. 130; States v. City Bank (U. S.), 21 How.
Martin v. Webb, 110 U. S. 7, 28 L. Ed. 356, 16 L. Ed. 130; Fleckner v. Bank
49, 3 S. Ct. 428; United States v. City (U. S.), 8 Wheat. 338, 5 L. Ed. 631;
Bank (U. S.), 19 How. 385, 15 L. Ed. Martin v. WIebb, 110 U. S. 7, 28 L. Ed.
§ 102 (5ca) repeBsi;ntation of bank. 711
Inherent Powers Greater than Those of the President. The pow- —

ers and duties of a cashier, in virtue of his office, are tnuch greater than
the president's though his office is strictly executive. ^^
Exercises the Functions of a Treasurer. He exercises the functions —
of a treasurer, and is to all intents and purposes one, though called by a
different name.^"
Power to Bind the Bank —Restrictions Requiring Signature of
President and Cashier. — ^By virtue of his office, he is generally intrusted
with the notes, securities, and other funds of the bank, and is held out to the
world as its general agent in the negotiation, management and disposal of
them, vifith authority to receive offers for their purchase and give informa-
tion relative thereto. ^^ As the executive officer of the bank, through whom
all its moneyed operations are transacted, he has full power within the just
scope of his authority, according to the general usage, practice and course
of business in such case,^^ and may bind the funds of the bank in matters
of contract springing out of his legitimate and ordinary duties as cashier;
and and
restrictions in the charter, requiring the signature of the president
cashier,do not apply to such contracts as the drawing and indorsing of bills
of exchange, drafts and checks, which are implied by law as a part of the
ordinary duties of the cashier ; and, for such acts he can not be held individ-
ually responsible for the payment of the checks or drafts. ^^
49, 3 S. Ct. 428; Rosenberg v. First Bank, 29 Tenn. (10 Humph.) 507;
Nat. Bank (Tex. Civ. App.), 27 S. W. Northern Bank v. Johnson, 45 Tenn.
897. (5 Coldw.) 88.
89. Inherent powers greater than A president and directors are not
president's. —
Hodge v. First Nat. Bank necessary to the validity of any act
63 Va. (22 Gratt.) 51; Smith v. Law- of the cashier which
he, virtute officii,
son, 18 W. Va. 212, 41 Am. Rep. 688. may do. And
the payment of a debt
96. Exercises functions of a treas- due by the bank, or securing the same
urer. —
Rosenberg v. First Nat. Bank by a transfer of the securities of the
(Tex. Civ. App.), 27 S. W. 897. bank, is an act which belongs to his
91. Care and custody of securities office, and which he may rightfully do.
Power to negotiate, dispose, or give Carey v. Giles, 10 Ga. 9.
information concerning same. First — A iDank is liable on a check drawn by
Nat. Bank v. Stewart, 114 U. S. 224, its cashier alone in due course of busi-
39 L. Ed. 101, 5 S. Ct. 845; ness, notwithstanding a clause in the
Northern Bank v. Johnson, 45 Tenn. charter of the bank, providing that "all
(5 Coldw.) 88. bills, bonds, notes, and every contract
His statement to a person who was on behalf of the company shall be
in treaty to purchase, that the bank signed by the president, and counter-
was not the owner of a certain security signed and attested by the cashier; and
in his manual possession as cashier, the funds of the company shall in no
is clearly within the line of his duty, wise be held responsible for any con-
and therefore, binding on the bank. tract, unless the same be executed as
First Nat. Bank v. Stewart, 114 U. S. aforesaid." Northern Bank v. John-
234, 29 L. Ed. 101, 5 S. Ct. 845. son, 45 Tenn. (5 Coldw.) 88.
92. Same.— Bank v. Wetzel, 58 W. Charter of the Mechanics' Bank of
Va. 1, 5, 50 S. E. 886; Wakefield Bank Alexandria, § 17, which provides that
V. Truesdell (N. Y.), 55 Barb. 602. bonds, notes and every other
"all bills,
Restrictions requiring signature
93. contract or agreement on behalf of the
of president and cashier. Mechanics' — corporation, shall be signed by the
Bank v. Bank (U. S.), 5 Wheat. 326, president, and countersigned by the
5 L. Ed. 100; Carey v. Giles, 10 Ga. cashier; and the funds of the corpora-
26; Wakefield Bank v. Truesdell (N. tion shall in no case be liable for
Y.), 55 Barb. 602; Maxwell v. Planters' any contract, or engagement, un-
Representative of the Bank, Not of the Directors. While the cash- —

by the directors, his office is one created by the charter, and
ier is elected
not by any ordinance or by-law of the directors. Within the scope of his
powers, therefore, he is the agent, not of the directors, but of the bank.
The charter and the corporation hold him out to the public as such. His
duties do not spring out of his election by the board of directors, but out of
the nature and functions of his office as defined by the general law. That
law defines his duties, unless they are made different by the charter and
by-laws of the bank. Certain things he can not do without the order of the
board of directors, but such acts as appertain generally to his office, he may
do independently and irrespective of the board", and with respect to such
matters, his agreements in behalf of his principal are binding upon it to the
same extent as if made by a resolution of the board of directors.^* A for-
tiori, the acts of the cashier carrying into execution a lawful contract en-
tered into by the bank through board of directors are the acts of the
its
bank itself, for which it is responsible to all parties aggrieved by them.^'

Powers of Cashier Previous to Bank's Going into Operation. The —
cashier has no ex officio power until the bank, of which he is the cashier,
goes into operation; Until then he is the limited agent of the corporation,
governed strictly by its legally expressed orders and authority. He is
clothed with ex officio powers when the bank begins business from the neces-
sity of the case. There is no such necessity before.^®
Ex Officio Powers Not Unlimited. —
Finally, it should be observed that
the ex officio powers of the cashier are by no means general or unlimited.
They are limited to such matters and things as are embraced within the
duties of his office, and in relation to which he must be presumed to have
authority to act.^'' His power does not extend, for example, to giving out
the capital stock, the money or effects of the bank held as capital stock prior
to the bank's going into operation ; for although elected cashier, he is not
held out to the community as having authority of any sort before the bank
commences business. ^^
§ 102 (5cb) Applicability of the Rules of Agency. General —

—
Rules of Agency Apply. The cashier of a bank is its agent, and the same
less the same shall be signed and 55 Barb. 602; Bank z\ Schuylkill Bunk
countersigned as aforesaid" does not — (Pa.), 1 Pars. Eq. Cas. 180;- Bissell v.
extend to checks drawn upon another First Nat. Bank, 69 Pa. 415; Durkin
bank, in which case the cashier's sig- v. Exchange Bank (Va.) 2 Pat. & H.
nature is sufficient. Mechanics' Bank 277.
V. Bank (U. S.), 5 Wheat. 326, 5 L. Ed. 95. Acts of cashier, the acts of the
100. bank.—Bank v. Schuykill Bank (Pa.),
94. Representative of the bank Not — 1 Pars. Eq. Cas. 180.
—
of the directors. Baldwin v. Bank (U. 96. Powers previous to bank's going
S.), 1 Wall. 234, 17 L. Ed. 534; Mer- into operation. — Mott v. Semmes, 34
chants' Nat. Bank v. State Nat. Bank Ga. 540.
(U. S.), 10 Wall. 604, 10 L. VA. 1008; 97. Ex powers not unlimited.
officio
Carey v. Giles, 10 Ga. 9; Squires v. — Mott v. Semmes, 24 Ga. 540.
First Nat. Bank, 59 111. App. 134; 98. Same. —
Mott v. Semmes, 24 Ga.
Wakefield Bank v. Truesdell (N. Y.), 540.
§ 102 (5cb) REPRESENTATION 01? BANK. 713
rules of agency must be applied to him as to other persons occupying fidu-

ciary relations.'® As the agent of the bank, his acts bind the bank when
performed within the scope of his agency; but it is certainly true that the
authority of the cashier and other officers of the bank is restricted to such
modes of binding the association as fall within the scope of his agency.
Presumed to Have Authority Incident to Office,— Third Persons
without Knowledge Not Bound by Limitations upon Powers.^He is
held out to the public as having authority to act according to the general
usage, practice and course of business conducted by such institutions; and
his acts, within the scope of such usage, practice, and course of business,
will in general bind the bank in favor of third persons possessing no other
knowledge.- Third persons and the public at large usually have no other
knowledge of the powers of a cashier than what is derived from such
usage, practice and course of business, and are warranted in believing that
the cashier is duly authorized to perform any customary duty falling within
the scope of that category, and may to that extent hold the bank responsible,,
as if he were so authorized, however the fact may be, save only in cases
where his want of authority is affirmatively proved and actual knowledge of
that fact brought home to third persons. The law admits of no such in-
justice as the bank's setting up secret instructions and restrictions limiting
his authority, either in a particular case or in respect to the general author-
ity inherent in his position as cashier, for the purpose of defeating its lia-
and contracts as its agent, when the party dealing with

bility for his acts
him had no knowledge of such restrictions upon his authority.^

Bank Bound upon Such Additional Authority as He Is Held Out to
Possess. — In addition to the authority- ordinarily inherent in his position,
the cashier must be deemed to possess, as regards third persons, such other
authority, if any, as he has been held out to possess. Thus if a cashier is
allowed to exercise general authority in respect to the business of the bank
99. —
Cashier as agent Applicability 173, 53 Am. Dec. 581; Rosenber? v.
—
of rules of agency. Campbell v. Man- First Nat. Bank (Tex. Civ. App.), 27
ufacturers' Nat. Bank, 67 N. J. L. 301, S. W. 897; First Nat. Bank v. Ledbet-
91 Am. St. Rep. 438, 51 Atl. 497. ter (Tex. Civ. App.), 34 S. W. 1043.
1. —
Same Limited to scope of his Where the whole business of the' •
—
agency. Maxwell v. Planters' Bank, bank is confined entirely to the direct-
29 Tenn. (10 Humph.) 507. ors, of course with them it would rest
Presumption as to extent of
2.
—
powers Secret limitations —
Case v.
Citizens' Bank, 100 U. S. 446, 35 L. Ed.
to fix the duties of the cashier or other
officers.
made any
whether they have in fact
If
regulations on this subject,.
695; Minor v. Mechanics' Bank (U. S.), does not appear, the acts of the cashier,
1 Pet. 46, 7 Tv. Ed. 47; Merchants' Nat. done in the ordinary course of the busi-
Bank v. State Nat. Bank (U. S.), 10 ness actually confided to such an offi-
Wall. 604, 19 L. Ed. 1008, per Clifford,. car, may well be deemed prima facie
.T., dissenting-; Mott v. Semmes, 34 evidence that they fell within the scope
Ga. 540; Burnham v. Webster, 19 Me. of his duty. Fleckner v. Bank (U. S.),
333; Badger v. Bank, 36 Me. 438; 8 Wheat. 338, 5 L. Ed. 631; United
Cooper V. Townsend, 59 Hun 634, 13 States v. City Bank (U. S.), 31 How.
N. Y. S. 760, 37 N. Y. St. Rep. 122; 356, 16 L. Ed. 130.
Lloyd V. West Branch Bank, 15 Pa.
for a considerable time — in. other words, if he is held out to the public as
. having authority in the premises —the bank is bound by his acts, not ultra
vires, as in case of an agent of any other corporation, by whatever name he
may be designated, in the same manner as if authority were expressly
granted.^ It is not necessary, of course, that such authority, extending to
transactions beyond his ordinary duties, should be in writing, or that it
should appear upon the record of the proceedings of the board of directors.
Itmay be by parol and collected from circumstances, or it may result merely
from usage and tacit approval. It may be inferred from the general man-
ner in which, for a period sufficiently long to establish a settled course of
business, he has been allowed, without interferetice, to conduct the affairs
of the bank. It may be implied from the conduct or acquiescence of the
corporation as represented by the board of directors.* Where the author-
ity is left to be inferredfrom powers usually exercised by the agent,
it is enough if the transaction in question involves precisely the same gen-
eral powers, though applied to a new subject matter.^
WhenPrevious Sanction or Subsequent Ratification Required to
—
Be Shown. As for those acts and contracts not within the scope of the
power and authority ordinarily inherent in his office as cashier, and which
the bank has not held him out to the public as possessing, the bank is not
3. Cashier held out as possessed of violation of its charter, confer on such

—
additional authority. Martin v. Webb, cashier. Merchants' Nat. Bank
v. State
Nat. Bank (U. S.), 10 Wall. 604, 19 L.
110 U. S. 7, 28 L. Ed. 49, 3 S. Ct. 428,
Merchants' Nat. Bank v. State Nat. Ed. 1008.
' When, during
Bank (U. S.), 10 Wall. 604, 19 L. Ed. a series of years or in
1008; Morris v. Georgia Loan, etc., Co., numerous business transactions, he has
109 Ga. 12, 34 S. E. 378, 46 L. R. A. been permitted, without objection and
506; Sherwood v. Home Sav. Bank, 131 in his official capacity, to pursue a
Iowa 528, 109 N. W. 9; Wing v. Com- particular course of conduct, it may be
mercial, etc.. Bank, 103 Mich. 565, 61 presumed, as between the bank and
N. W. 1009; Pattison v. Syracuse Nat. those who in good faith deal with it
Bank, 80 N. Y. 82, 36 Am. Rep. 583. upon the basis of his authority to rep-
resent the corporation, that he has
Wherethe entire control of the af-
acted in conformity with instructions
fairs of abank is left with the cashier,
received from those who have the right
his acts, and the acts done with his
authority by his subordinates, are bind-
to control its operations. Martin v.
Wtebb, 110 U. S. 7, 28 L. Ed. 49, 3 S.
ing on the corporation. Pattison v.
Ct. 438.
Syracuse Nat. Bank, 80 N. Y. 82, 36
Am. Rep. 583. 5. —
Same Application of powers to
4. Same^Proof of additional or un-
—
new subject matter. Merchants' Nat.
Bank v. State Nat. Bank (U. S.), 10
—
usual authority. Martin v. Webb, 110 Wall. 604, 19 L. Ed. 1008.
U. S. 7, 28 L. Ed. 49, 3 S. Ct. 428; Thus, if in the case of a bank having
Merchants' Nat. Bank v. State Nat. power by its charter to buy and sell
Bank (U. S.), 10 Wall, 604, 19 L. Ed. exchange, coin and bullion, its cashier
1008; Morris v. Georgia Loan, etc., Co., has habitually, with the knowledge of
109 Ga. 13, 34 S. E. 378, 46 L. R. A. the bank, dealt with the public as au-
506. thorized to buy and sell exchange, then
Evidence of powers habitually exer- the power to buy and sell coin also
cised by a cashier of a bank with its (the right to do both being conferred
knowledge^ and acquiescence, defines by the same clause of the charter),
and establfshes, as to the public, those may be inferred by a jury. Merchants'
powers, provided that they be such as Nat. Bank v. State Nat. Bank (U. S.),
the directors of the bank may, without 10 Wall. 604, 19 L. Ed. 1008.
§ 103 REPRESENTATION OF BANK. 715
bound unless it is made to appear that it either previously sanctioned or

subsequently ratified them.®
§ 102 (5d) Teller. —The president and receiving teller of an incor-

porated bank acting within the scope of their authority are agents of the
corporation,and not of each other, and though the president has larger
powers than the teller, and may direct his acts, the president is in no sense
the principal, but his acts, within the scope of his powers, are the acts of
the corporation.''' There is nothing in the nature of the duties of a teller
incompatible with those of a cashier, and it is entirely competent for the

directors to require the same person to discharge the duties of both of-
ficers.^ The bank and places him in a position of great
selects its teller
responsibility. Persons having no voice in his selection are obliged to deal
with the bank through him. If, therefore, while acting in the business of
the bank and within the scope of his employment, so far as is known or
can be seen by the party dealing with him, he is guilty of misrepresentation,
the bank ought to be responsible.
§ 103. Statutory Provisions. —Mandatory or Directory. — Some of

the provisions of the charter and by-laws may
deemed directory to well be
the officers, and not conditions without which their acts would be utterly
void. What are to be deemed such provisions, must depend upon the sound
construction of each regulation with reference to its nature and object,
public convenience and apparent legislative intention. If a regulation be
merely directory, then any deviation from it, though it may subject the
officers to responsibility both to the government and the stockholders, can
not be taken advantage of by third persons. In other words, directory pro-
visions addressed to the officers of the bank are not conditions precedent
to the vahdity and binding force of their acts.i"
6. Same —
Previous sanction or subse- Nat. Bank (U. S.), 10 Wall. 604, 19 L.
—
quent ratification. Bank v. Hooke, 41 Ed. 1008.
Tenn. (1 Coldw.) 156; Dycus v. 10. —
Statutory provisions Directory
Traders Bank, etc., Co., 52 Tex. Civ, and mandatory provisions. United —
App. 175, 113 S. W. 339; Bank v. States v. Kirkpatrick (U. S.), 9 Wheat.
Wetzel, 58 W. Va. 1, 50 S. E. 886. 730, 6 L. Ed 199; United States v. Van
The act of a bank cashier in regard Zandt (U S.), 11 Wheat. 184, 6 L Ed.
to a matter which by the bank's char- 448; Bank v Dandndge (U. S.), la
ter and by-laws is left to the control of
Wheat. 64, 6 L. Ed. 553 See Jackson-
ville, etc., Nav. Co. v. Hooper, 160 U.
the directors, is not binding upon the
S. 514, 40 L. Ed. 515, 16 S. Ct. 379
bank, where the board of directors
have never authorized such action on ,
The charter and the by-laws of a
his part Dycus v. Traders' Bank, etc., bank required that the board of direct-
Co., 53 Tex. Civ. App. 175, 113 S. W.
o" should prescribe the duties of_ its
goQ orncers, and the charter also required
„' _ the directors to keep a book, "in which
„ J ,4.; „
J duties.--Ex
and -c-
7. Teller's powers
,
^j^^„ ^^ ^^^^^^^ ^^^ faithfully recorded

parte Rickey, 31 Nev. 83, 100 Pac. 134. ^ j^^^^^j ^j ^,i ^^^^^ proceedings."
8. Same —Person acting as cashier Held, these provisions were merely di-
and teller. — Minor
Mechanics' Bank
v. rectory, and the prescriptions of cer-
(U. S.), 1 Pet. 46, 7 L. Ed. 47. tain duties of the cashier by the board
9. Liability for misrepresentation by might be inferred and presumed from
teller. —
Merchants' Nat. Bank v. State evidence of acts of the board and of
Retrospective Operation and Validity. —A law regulating the powers

of bank officials with respect to the sale, incumbrance, or other disposition
of the notes and securities of the bank applies to notes and securities on
hand at the time of its taking effect, and is not for that reason retrospective
in its operation.il
§ 104. Disposition or Encumbrance of Property Acquisition of —

—
Property § 104 (1) Power of Directors, Generally. The control —
of all the property of a bank is generally vested in the directors of the
bank,i2 and they have authority to bind the bank, while acting within the
scope of the general usage, practice and course of business of such insti-
tution, so far as concerns third persons who have no knowledge to the

contrary. 1^ No single director has any implied or inherent power by virtue
of his position to transfer or pledge the assets of the bank, and least of all
for the purpose of paying or securing his individual obligations. Persons

receiving the property of the bank under such circumstances with knowl-
edge of the facts acquire no valid title thereto. i* A statute which declares
that any sale or transfer of the assets of the corporation, above a certain
value, without the previous authority of a resolution of the board of di-
rectors, shall not be valid except as to bona fide purchasers for value and
without notice, is a valid legislative enactment and must be observed in
order to confer a valid title. ^^ Under such a statute, a purchaser accepting
property transferred without complying with its provisions is not a pur-
chaser without notice. 1® Such a statute is not applicable to transfers made
by corporations which are not required by law to have a board of directors,
nor any governing body analogous thereto. ^'^ As to what constitutes a
the cashier, and a written entry on the Co. v. Kansas City Nat. Bank, 121 Mo.
journal of a vote, order, or resolution App. 479, 97 S. W. 195.
of the board, was not necessary to A bank, holding a policy as se-
life
establish such prescription; that the curity for a note, went out
of existence,
cashier, by the performance of certain The policy passed to a director and
duties in his office of cashier, was es- trustee, who assigned it to a third per-
topped to deny that they had been pre- son, in consideration of an indebted-
scribed by the board. Durkin v. Ex- ness of the director and trustee to the
change Bank (Pa.), 3 Pat. & H. 277. third person. Held, that the assign-
11. Retrospective operation and va- ment was invalid, for want of author-
lidity. —
Van Sandt v. Hobbs, 84 Mo. ity of the director and trustee to pledge
App. 628. the assets of the bank. New York
Laws 1895, p. 120, declaring that the Life Ins. Co. v. Kansas City Nat. Bank,
cashier of a bank has no power to sell 121 Mo. App. 479, 97 S. W. 195.
the bank's notes until authorized by 15. —
Same Necessity for previous
the directors, applies to notes obtained resolution. —
Gillet v. Phillips, 13 N. Y.
bv the bank before it went into efifect, 114; Atkinson v. Rochester Printing
and such application is not retro- Co., 114 N. Y. 168, 31 N. E. 178, af-
spective. Van Sandt v. Hobbs, 84 Mo. iirming 43 Hun 167; Gillett v. Camp-
App. 628. bell (N. Y.). 1 Denio 520; Curtis v.
Acquisition and disposition of
12. Leavitt (N. Y.), 17 Barb. 309: Eno v.
—
property Power of directors. Mer- — Crooke, 10 N. Y. 60.
chants' Bank v. Rawls, 7 Ga. 196. 16. Same — Same—Purchaser without
13. — Same McDougald
Same v. notice. — Gillett Phillips, 13 N. Y.
v.
Belb.mv. 18 Ga. 411. 114.
Same —No inherent power in
14. 17. Same— Same—Where corporation
single director. — New York Life Ins. not required to have board of direct-
§ 104 (2) REPRESENTATION OE BANK. 717
transfer or assignment in violation of such statute with respect to the kind

and amount of property involved, see the footnote.^*
§ 104 (2) Power —

of President. As to Personalty and Securi-
ties, Generally. —A
bank president has no authority as such to sell the
corporation's property, and is liable in damages for loss resulting from un-
authorized sales. 19 The president is not the receiving officer of the bank;
consequently, in the absence of authority in the charter or by-laws of
the institution, he has no power to execute a sale of a judgment in favor
of the bank and receive the money therefor, unless authorized by the board
of directors. 2" Power to dispose of the personal property and securities
ors. —
Curtis v. L,eavitt (N. Y.), 17 banking hours, without the consent of
Barb. 309. the directors, the cashier transferred
As no "board of directors," nor any to defendant six drafts, aggregating
board analogous to a board of direct- $3,180.32, the largest one being for
ors, was required "by law" for the free $986.63, and defendant gave its check
banks, the provision of the Revised on the bank for this amount. Held,
Statutes forbidding the making of cer- that as the aggregate amount of the
tain transfers by any moneyed cor- drafts exceeded $1,000, the transfer
poration without the sanction of a was prohibited by section 186, though
previous resolution of its board of no one of them was of that value. At-
directors or manager is, for that rea- kinson V. Rochester Printing Co., 114
son, inapplicable; even admitting the N. Y. 168, 31 N. E. 178, affirming 43
.association to be, in other respects, a Hun 167.
corporation, within the meaning of the 19. Powers of president—As to per-
statute. Curtis v. Leavitt (N. Y.), 17 sonalty and securities. —
First Nat.
Barb. 309. Bank v. Lucas, 21 Neb. 380, 31 N. W.
18. Same — Same—What constitutes
— 805; Greenawalt v. Wilson, 53 Kan.
a meaning of statute.
transfer within 109, 34 Pac. 403.
An assignment by a banking associa- The president of a bank has no
tion of a security held by it of the value power virtute officii to sell the safe of
of over $1,000, is not within the pro- the bank for a debt of the bank. Asher
visions of 1 Rev. St., p. 591, § 8, for- V. Sutton, 31 Kan. 286, 1 Pac. 535.
bidding such assignment by a moneyed President not the receiving offi-
20.
corporation without a resolution of its —
cer of the bank. Merchants' Bank v.
board of directors. Gillett v. Camp- Rawls, 7 Ga. 196.
bell (N. Y.), 1 Denio 530. Where, in an action against a bank
Asatisfied judgment constitutes no for conversion of certain property
part of the efifects of a bank the trans- pledged, plaintiff claimed that the
fer of which is, by 1 Rev. St., p. 1115, president of the bank had agreed to
§ 8, prohibited without authority by a sell the property to plaintiff for the
previous resolution of the board of di- price bid therefor at a sale, which the
rectors. Eno V. Crooke, 10 N. Y. 60. bank subsequently refused to do, and
Laws 1882, § 186, provides that no there was evidence that in making the
conveyance, assignment, or transfer agreement with plaintiff the president
not authorized by a previous resolution purported to act as president of the
of its board of directors shall be made bank, and that he owned a controlling
hy any banking corporation of any of interest therein, and that the property,
its real estate or effects, "exceeding which was worth $50,000, was pur-
the value of $1,000," but that this sec- chased by the bank for $31,700, it was
tion shall not apply to the issuing of proper for the court to modify a re-
notes, money, bank bills, etc., in the quested instruction that, in the absence
ordinary course of business; nor shall of authority, the president of the bank
it be construed to render void any con- was not authorized to dispose of the
veyance, assignment, etc., in the hands bank's property, or release claims of
•of a bona fide purchaser without notice. bank, so as to charge that it was with-
A bank being insolvent, to the knowl- out the general scope of a bank presi-
edge of its officers, received deposits dent's authority to make such an agree-
from defendant to the amount of ment as plaintiff contended, and unless
$3,004.33. The next morning, before plaintiff showed authority by the bank
718 BAXKS AND BANKING. § 104 (2)
of the bank may be conferred upon the president, however, either by the
charter and general banking laws, or by the board of directors, and the
general usage and course of business may be such as to raise a presump-
tion in favor of such authority.î
President's Powers with Respect to Negotiable Securities. —The
president of a bank has no inherent authority to endorse or transfer nego-
tiable notes belonging to the bank, nor has any other officer this inherent
power except the cashier.^^ This great power and authority of transferring
negotiable paper belonging to the bank is possessed by no other officer by
virtue of his office, but the cashier. It is not even possessed by a clerk, who
is acting as cashier in the temporary absence oi the cashier, though such
acting cashier would have power to do all such acts, as were necessary to
carry on the usual business of the bank, such as to pay checks and receive
payment of notes and deliver them to the persons entitled to them.^^ But
the president may be authorized by the board of directors to transfer or
assign negotiable bills and notes belonging to the bank;^* and where the
president has authority to indorse a note, he has power to deliver it."= Such
authority need not be proven by showing that it was expressly conferred
by the board of directors, but may be proven by showing the existence of
to the president to make the same, or dent of another judgment, which the
the bank accepted the benefit of the latter had obligated himself individually
agreement, the contract would not be to pa}-, but in the interest of the bank.
binding on the bank. Memphis City The vice-president had no express au-
Bank v. Smith, 110 Tenn. 337, 75 S. W. thority from the directors to make the
1065. assignment, but he v.'as the largest
21. Power may be conferred upon stockholder, a director, and had long
president to dispose of property of been the principal acting officer, of
—
bank. Cox v. Robinson, 27 C. C. A. the bank, and general manager of its
130, 83 Fed. 377; Guernsey v. Black business, exercising the power of trans-
Diamond Coal, etc., Co., 99 Iowa 471, ferring its property and indorsing its
68 N. W. 777; Valk v. Crandall (N. Y.), notes, with the knowledge and ac-
1 Sandf. Ch. 179; Belden v. Meeker quiescence of the directors, and he
(X. v.), 2 Lans. 470. was generally reputed in the commu-
The president of a banking associa- nity to be its owner. Held, in an ac-
tion is the proper oflficer to assign tion by the receiver of the bank, that
mortgages made to such corporation. the jury were justified in finding that
Valk V. Crandall (N. Y.), 1 Sandf. Ch. the vice-president had authority to
179. make the assignment, and that the
In an action by an assignee of a bank received a consideration therefor.
mortgage to foreclose it, it will be pre- Cox V. Robinson, 37 C. C. A. 120, 83
sumed that the president of the bank Fed. 277.
who made the transfer was duly au- 22. Power of president with respect
thorized. Belden v. Sleeker (N. Y.), 3 to negotiable i t h m
securities S v.
Lans. 470. Lav/son, 18 W. Va. 212, 41 Am. Rep.
The president of a bank has authority 688.
by virtue of his office to make a valid
assignment of a judgment in favor of 23. Sanxe. — Smith v. Lawson, 18 W,
the bank. Guernsey v. Black Diamond Va. 212, 41 Am. Rep. 688.
Coal, etc., Co., 99 Iowa 471, 68 X. W. 24. President may be authorized to
777. sell or transfer securities. Rezner v. —
A national bank owner of a judg- Hatch, 2 Handy, 42, 12 O. Dec. 320,
ment for the payment of which defend- affirmed in 7 O. St. 249; Smith v. Law-
ant was bound, through its vice-presi- son, 18 W. Va. 212, 41 Am. Rep. 688.
dent assigned such judgment to de- 25. Power to indorse includes power
fendant; the consideration being the to deliver. —
Merrick v. Bank (Md.), S
transfer by defendant to the vice-presi- Gill 59.
§ 104 (3) REPRgSENTATION OF BANK. 719
such facts as constitute clearly a public holding out that he was authorized
to transfer or assign the notes belonging to the bank.^^ The inference that
authority has been conferred on the president to transfer a negotiable note
of the bank may be legitimately drawn from proof that he was in the habit
of doing acts of the same general character though applied to a different
subject, and especially where such acts were the exercise of still greater
power, as the assignment of other choses in action such as bonds or judg-
ments; but such power could not be legitimately inferred from proofs that
he was in the habit of receiving deposits or payments of notes, or that he
was authorized to receive generally deposits and payments made to the
bank. 2'^
Ratification by Board. —The board of directors of a bank may ratify
or approve a transfer of a negotiable note of a bank which has been made
by the president without authority ;2^ and the acceptance and appropriation
of the consideration which was received, when the president without au-
thority transferred a negotiable note belonging to the bank, is an implied
ratification of his act, when such acceptance and appropriation is made by
the directors of the bank after they have been informed of the unauthor-
ized act of the president; and if the acceptance of such consideration and
its appropriation have been made by the officers of the bank without the
knowledge of the directors, unless the directors return the consideration,
when the receipt becomes known to them, the failure and the retention of
the consideration by them will be a confirmation of the act of the presi-
dent.29
§ 104 (3) Powers of Cashier. —

With Respect to Personalty and
—
Securities Generally. Prima facie the cashier of a bank has no author-
ity to transfer judgments in its favor, or to dispose of its property. His
authority extends only to negotiable instruments and to such securities as
he is authorized by virtue of his office to receive and transfer in accord-
ance with the regular usage and custom of banks. The transfer of other
property ard securities can be legally made only by the president and di-
rectors, or pursuant to authority derived from them ; and if the cashier acts
as their agent in such matter, that fact should be shown in evidence.^"
26. Proof of president's power. — 286, 1 Pac. 535; Hoh v. Bacon, 35 Miss.
Smith V. Lawson, 18 W. Va. 213, 41 567; Bank v. Hindman (Miss.), 50 So.
Am. Rep. 688. 65; Smith v. Lawson, 18 W. Va. 212, 41
27. Same. — Smith v. Lawson, 18 W. Am. Rep. 688.
Va. 213, 41 Am.
Rep. 688. The cashier has no power to sell the
28. Ratification by board. — Smith v. bank safe to pay a debt of the bank.
Lawson, 18 W. Va. 212, 41 Am. Rep. Asher v. Sutton, 31 Kan. 286, 1 Pac.
688. 535.
89. Same — By acceptance and appro- It is not within a bank's usual course
—
priation of benefits. Smith v. Lawson, of business, or scope of the cashier's
18 W. Va. 212, 41 Am. Rep. 688. authority, to give mortgages on its
30. Power of cashier to dispose of property and transfer its assets; and
—
bank's property. United States v. City such unauthorized acts may be set
Bank (U. S.), 21 How. 356, 16 L. Ed. aside in equity at instance of its re-
130; Greenawalt v. Wilson, 52 Kan. 109, ceiver. Bank v. Hindman (Miss.), 50
34 Pac. 403; Asher v. Sutton, 31 Kan. So. 65.
Cashier's Powers with Respect to Negotiable Securities. Prima —

facie,from the very nature of his office, and the objects and purposes of
the bank, the cashier must be deemed to have authority to indorse and
transfer negotiable securities held by the bank for its use and in its behalf
and no special authority for this purpose is necessary to be proved. This
is one of the general and necessary duties of the cashier as the executive
officer of the association, and independent of any special authority from
the directors. any bank chooses to depart from this general course of
If
business, at liberty to do so but in such case it is incumbent upon the
it is ;
bank to show, not only that it has imposed a restriction upon the powers
of the cashier, but that such restriction has been brought to the knowledge
of persons transacting business with the bank.î Clearly no such restric-
tion is imposed with respect to the transfer negotiable securities in the ordi-
nary course of business by a charter provision requiring that all bills, bonds,
notes and contracts "on behalf of the company" shall be signed by the
president and countersigned or attested by the cashier, and that the funds
of the company shall be held responsible for no contracts or engagements,
unless executed in the manner prescribed.^^ Since the cashier of a bank
may do, independently of a board of directors, whatever properly apper-
tains to his office, one of which functions is to pay the debts of the bank
by a transfer of negotiable securities, it is not competent to show that such
transfer is void by proof that it was made after the board of directors had
resigned and when the presidency of the bank had been assumed by a per-
son neither an officer nor director. A transfer made under such circum-
stances is valid in law, but evidence is admissible under the allegations of
fraud in the bill to prove the resignation of the directors and the usurping
of the presidency by such person upon the issue of fraud in fact.^^
Same Applies to Cashiers of Private Banks. The doctrine with —
respect to the general authority of the cashier to transfer by indorsement
negotiable paper held by the bank applies as well to private banks con-
ducted by an individual as to those existing under charters from the gov-
ernment.^'*
31. Cashier's powers with respect to Stewart, 33 Conn. 516; Merchants'

—
negotiable securities. Mechanics' Bank Bank v. Central Bank, 1 Ga. 418, 44
•w. Bank (U. S.), 5 Wheat. 326, 5 L. Ed. Am. Dec. 665; Carey v. Giles, 10 Ga.
100; Carey v. Giles, 10 Ga. 9; Wake- 9; Jones v. Hawkins, 17 Ind. 550; Alli-
tield Bank v. Truesdell (N. Y.), 55 son v. Hubbell, 17 Ind. 559; Wakefield
Barb. 603; Northern Bank v. Johnson, Bank v. Truesdell (N. Y.), 55 Barb.
45 Tenn. (5 Coldw.) 88; Maxwell v. 602; Maxwell v. Planters' Bank, 29
Planters' Bank, 3a Tenn. (10 Humph.) Tenn. (10 Humph.) 507; Northern
507; Arnold v, Swenson (Tex. CiV. Bank v. Johnson, 45 Tenn. (5
App.), 44 S. W. 870, affirmed in 93 Coldw.) 88.
Tex. 678, no op.; Lamb v. Cecil, 38 W. 33. Transfer after resignation of di-
Va. 653; Lamb v. Pannell, 38 W. Va. —
rectors Proof of fraud. C a r e y— v.
663; Smith v. Lawson, 18 W. Va. 312, Giles, 10 Ga. 9.
41 Am. Rep. 688. 34. Power of cashier of private bank
32. Same —
Charter restriction as to to transfer negotiable paper. Arnold —
countersigning of bills, notes, etc.— v. Swenson (Tex. Civ. App.), 44 S. W.
Mechanics' Bank v. Bank (U. S.), 5 870, affirmed in 93 Tex. 678, no op.
Wheat. 336, 5 L. Ed. 100; Paine v.
§ 104 (3) EEPRBSENTATION OP BANK. 721
Same — Must Be in Usual Course of Business and in Good Faith.

—The prima facie authority to transfer the negotiable notes and
cashier's
securities of a bank will not make such transfer valid if it be proven that
the transferee knew that the transfer was made by the cashier not in the
usual course of business and for an improper purpose.^^ No attempted
transfer by the cashier of the bills, notes or other securities of the bank
will be valid when it appears, either from the nature of the transaction or
the facts and circumstances existing at the time and known to the trans-
feree, that the transfer was made in prejudice of the rights and interests
of the bank.36 Thus a transfer of the notes and securities of the bank for
the purpose of paying his private debts and obligations is fraudulent and
invalid as to all persons participating therein or having notice thereof. ^^
Nor has the cashier any authority to assign collaterals belonging, to him-
self, but which were given to secure a loan made by the bank to another
person for the cashier's benefit.^* The power to sell and transfer the dis-
counted and notes of the bank does not belong to the ordinary powers
bills
of the cashier, but inasmuch as he may do so under some circumstances,

a transfer made by him in the usual course of the business of the bank to
a person who has no cause to question the propriety or good faith of the
transaction will be prima facie valid. ^^ A transfer by the cashier of notes
35. Transfers not in usual course of V. Cecil, 28 W. Va. 653; Lamb v. Pan-
—
business. Smith v. Lawson, 18 W. Va. nell, 28 W. Va. 663.
212, 41 Am. Rep. 688. The cashier of a bank kept an ac-
If the transfer by the cashier of a
count with defendants, who were
bank of one-third of its negotiable brokers and bought and sold stocks
notes was proven to have been made for him, and from time to time defend-
to a third person in a transaction, ants received checks of his bank on
which was plainly out of the usual another bank, its correspondent, drawn
course of business, and the transaction by him in his* official capacity, and
on its face showed that the transferee collected them and applied them to the
must have known that the cashier was cashier's individual account. In an
assuming a power and transacting busi- action by a receiver of the bank of
ness outside of his duties as cashier, the cashier to recover of defendants
and was transferring a negotiable note the amount of the checks received by
of the bank for a purpose for which he them, held that, the checks being made
as such cashier had no right to trans- payable to the order of defendants
fer a negotiable note belonging to the for the cashier's individual use, de-
bank, such transfer would be regarded fendants took them under an obliga-
as unauthorized, and the transferee tion to ascertain that the cashier had
could not be held to be a bona fide authority outside his ordinary official
holder, even though he did give a valu- authority to make the checks, and
able consideration for the note. Smith could not assume that he was acting
V. Lawson, 18 W. Va. 212, 41 Am. Rep. in the scope of his official duties. An-
688. derson V. Kissam, 35 Fed. 699, judg-
Same —Nature of transaction as
36.
notice to person
third Smith v.
Lawson, 18 W. Va. 212, 41 Am. Rep.
— ment reversed on other points, Kissam
V. Anderson, 145 U. S. 435, 36 L. Ed.
765, 12 S. Ct. 960.
688; Lamb v. Cecil, 28 W. Va. 653;
38. Transfer of collateral given to
Lamb V. Pannell, 28 W. Va. 663. —
37. Same —
Transfer in settlement of secure cashier's debt to bank. Mer-
—
private obligations. Anderson v. Kis-
chants' Nat. Bank
735, 19 S. E. 38.
v. Demere, 92 Ga.
sam, 35 Fed. 699, reversed on other
points, Kissam v. Anderson, 145 U. S. 39. Power to transfer discounted
435, 36 L. Ed. 765, 12 S. Ct. 960; Lamb bills and notes —
of bank. -Lamb v.
1 B & B— 46
of greater amount than $1,000, without a previous vote of the directors as

required by statute, is illegal, and the agreement is void, except as to a pur-
chaser without notice.*"
Presumption That Indorsement Was in Usual Course of Business.
— Wherg the cashier of a bank, by virtue of the custom and course of deal-
ing of the bank, has thepower to transfer its paper by endorsement, it will
be presumed, where a note was transferred by it endorsed by such cashier
as cashier of the bank, that such endorsement was in the usual course of
business, and transferred to the holder the legal title to the note.*i And
where a draft is to "J- P- Cash," and is transferred by an
made payable
indorsement of "J- P- Cash," it will be presumed, prima facie, that J. P.
indorsed the same, not as an individual, but in his official position as cashier,
and that the indorsement is that of the bank.*^ Where checks are drawn
by the cashier payable to and then transferred by his in-
fictitious persons,
dorsing their names thereon, they are, in effect, payable to bearer, and pay-
ment of such checks by the drawee is binding on the bank, since in trans-
mitting them made and indorsed, the bank is so far concluded by his acts as
to be estopped from denying their validity.*^ The fact that the names of
payees inserted in the checks, and indorsed thereon by the cashier, were
those of custoniers of the bank, does not vary the rule applicable to paper
drawn in the name of fictitious payees, where the cashier had no idea of
Cecil, 28 W, Va. 653; Lamb v. Pan- The words "G. B., Cas.," indorsed
nell, 28 W. Va. 663. upon note, are suiificient in form to
a
Power to pay
deposit with dis- bind the bank of which G. B. is cash-
counted bills. —Where
the manage- ier.Such indorsement, although made
ment of the affairs of a banking cor- upon a note not belonging to the
poration is entrusted by its charter to bank, and merely for the accommo-
a board of directors, unless specially dation of the payee or prior indorser,
authorized by the charter, the cashier v/ill bind the bank as against a pur-
of such banking corporation has no chaser in good faith, for value, be-
power to assign the discounted bills fore maturity. Houghton v. First
and notes to a depositor in payment Nat. Bank, 26 Wis. 663, 7 Am. Rep.
of his deposits without authority from 107.
the board of directors. Lamb v. Ce- The & C. was proprietoi
firm of C.
cil, 25 W. Va. 288; Lamb v. Pannell, of the Milam County Bank, and car-
25 W. Va. 298. ried on the banking business in the
40. Statutory limitations as to name ofthe firm and as the Milam
amount. — Gillet v. Phillips, 13 N. Y. County Bank. F., one of the partners,
114. acted as cashier, and had the power,
41. Presumption as to regularity of as such, by virtue of the custom of
—
indorsement. Arnold v. iS'w.elnson ihe hank, to transfer its paper by in-
(Tex. Civ. App.), 44 S. W. 870, af- dorsement. Held, that where a note
firmed in 93 Tex. 678, no op. to the Milam County Bank, on being
42. Same —As
to whether indorse- transferred to a third person, was in-
ment made in private or official capac- dorsed, "F., Cashier," such indorse-
ity. —
Collins V. Tohnson, 16 Ga. 458; ment was in the usual course of busi-
Hobbs V. Chemical Nat. Bank, 97 Ga. ness, and transferred to the holder the
524, 25 S. E. 348. legal title to the note. Arnold v.
An indorsement, "A. B., Cashjer,'' Swenson (Tex. Civ. App.), 44 S. W.
bmds the bank. Folger v. Chase 870.
(Mass.), 18 Pick. 63. And see Spear 43. Indorsement of check payable
V. Ladd, Mass. 94; Northampton
11 to fictitious person. Phillips— v. Mer-
Bank v. Pepoon, 11 Mass. 288; Hart- cantile Nat. Bank, 140 N. Y. 556, 35 N.
ford Bank v. Barry, 17 Mass. 94; E. 982, 23 L. R. A. 584,^37 Am. St.
Barney v. Newcomb (Mass.), 9 Cush. 46. Rep. 596.
§ 104 (3) REPRESENTATION OF BANK. 723-
delivering the paper to the customers, but simply used their names to ward
off the suspicion which might otherwise arise from drawing checks to the
order of persons not -known to the other bank officials.**
Powers of Cashier with Respect to Transfer of Stock. The cash- —
ier is the proper officer to make a transfer of stock on the books of the
bank,*^ and it is within his authority to sign a blank transfer on a certifi-
cate of stock held as collateral and deliver the certificate to the pledgor on
payment of the loan.** He can not, of course, bind the bank by his repre-
sentations or acts in relation to the transfer of stock in a transaction in
which he is acting in his own behalf, to the knowledge of the other party,
without ratification by the bank.*'^ One who has distinct notice that the
surrender and transfer of a former certificate are prerequisites to the law-
ful issue of a new one, and who accepts a certificate from the cashier with-
out taking any steps to assure himself that the legal prerequisites to the
validity of such certificate,which were to be fulfilled by the former owner
and not by the bank, have been complied with, does not, as against the bank,
stand in the position of one who receives a certificate of stock from the
proper officers without notice of any facts impairing its validity.** Thus
one who has dealt with the cashier individually and lent money to him for
his private use, and received from him a certificate which states that the
shares are transferable only on the books of the bank and on surrender of
former certificates, can not recover from the bank the value of the certifi-
cate delivered to him, he not having surrendered any former certificate and
there being no evidence of the bank having ratified or received any benefit
from the transaction. *8 Evidence that in one or two other instances stock
was issued by the cashier without the surrender of old certificates, and that
the directors of the bank approved certain transfers to its president of
shares once belonging to the cashier, is insufficient to prove that the bank
ratified or received any benefit from the issue of the certificate to the plain-
tiff, or was guilty of any fraud towards him where the action of the di-
rectors was adapted to the single purpose of securing payment of a debt

due from the cashier to the bank."' ' A bank is bound, however, by the act
of its cashier in transferring stock on the books, and thereby waiving the
44. Same —Where fictitious names is acting in his own behalf. Moores —
were those of customers
bank. of — v. Citizens' Nat. Bank, 111 U. S. 156,
Phillips V. Mercantile Nat. Bank, 67 38 L. Ed. 385, 4 S. Ct. 345.
Hun 378, 32 N. Y. S. 254, 51 N. Y. St. 48. Duty of transferee to see that
Rep. 918, affirmed in 140 N. Y. 556, 35 legal prerequisites have been complied
N. E. 982, 23 L. R. A. 584, 37 Am. with. —
Moores v. Citizens' Nat. Bank,
St. Rep. 596. Ill U. S. 156, 28 L. Ed. 385, 4 S. Ct.
45. Powers of cashier with respect 345.
—
National Bank Same —Where cashier dealing
to transfer of stock.
V. Watsontown Bank, 105 U. S. 217, 26
49.
in his individual capacity —
Moores v.
is
Citizens' Nat. Bank, 111 U. S. 156, 28

L. Ed. 1039.
46. Tansfer and redelivery of stock L. Ed. 385, 4 S. Ct. 345.
—
held as collateral. Matthews v. Massa- 50. Same — —
Same Ratification or re-
chusetts Nat. Bank, Fed. Cas. No. ceipt of benefits by bank. —
Moores v.
9 286, Holmes 396, 6 Leg. Gaz. 308. Citizens' Nat. Bank, 111 U. S. 156, 28
47. Where cashier transferring stock L. Ed. 385, 4 S. Ct. 345.
724 BANKS AND BANKING. , § 104 (4)
bank's lien for debts due by the stockholder, though the cashier was a
it
member of the firm holding the stock, which factwas well known to the
directors, who had acquiesced in the cashier's performing such function,
and it not appearing that the transferee knew such fact, or that the firm
was indebted to the bank.î
—
Refusal to Make Transfer. The cashier's refusal- to make or permit
a transfer of stock is the refusal of the bank, rendering the bank responsi-
ble for whatever liability may attach to such refusal. ^^
Power to Purchase Property. The power of a bank cashier to pur- —
chase for the bank is not implied from his office as cashier.^^
§ 104 (4) Consideration for Transfer of Bank's Property. An —

officer of a bank, either vice-president or other' officer, or person who is
acting as general manager therefor, has no authority to assign or transfer
claims formoney due in any event, unless expressly authorized to do so,
except upon payment of the amount due on such claim.^* Thus where a
judgment belonging to the bank is transferred without collecting the amount
of it in cash, the presumption is that the transfer is unauthorized.^' But
where an authorized assignment of a judgment belonging to a bank is made
by one of its name, to an individual, who, in consideration
officers, in its
thereof, transfers property to the bank officers, such transfer constitutes

a valid consideration moving to the bank, since a trust results in its favor
as to the property transferred to its officer.'^ According to the doctrine
which prevails in New York and a few other states, the transfer or pledge
of negotiable securities in payment or security of antecedent debts is not
sufficient to constitute the transferee a holder for value.'^ The great
51. Same — —
Same Transfer waiving Coddington v. Bay (N. Y.), 20 Johns,
bank's lien for debts owing by stock- 637, 11 Am. Dec. 342; Moore v. Ryder,
—
holder to bank. National Bank v. 65 N. Y. 428; Atlantic Nat. Bank v.
Watsontown Bank, 105 U. S. 217, 26 Franklin, 55 N. Y. 335; Wardell v.
L. Ed. 1039. Howell (N. Y.), 9 Wend. 170; Mc-
52. Refusal of cashier to make trans- Bride v. Farmers' Bank, 26 N. Y.
fer; liability of bank. —
Case v. Citi- 450; Rosa v. Brotherson (N. Y.), 10
zens' Bank, 100 U. S. 446, 25 L. Ed. Wend. 85; Stalker v. McDonald (N.
695. Y.), 6 Hill 93; Youngs v. Lee (N. Y.).
53. Power of cashier purchase to S Kern. 551; Commercial Bank v.
property. — Lionberger Mayer, 12
v. Marine Bank, 42 N. Y. (3 Keys) 337,
Mo. App. 575, memorandum. United 1 Abb. Dec. 405, 6 Abb. Prac, N. S.,
States V. City Bank (U. S.), 21 How. 33, How. Prac. 432; Lindoner v.
37
356, 16 L. Ed. 130. Fourth Nat. Bank (N. Y.), 55 Parb. 75;
54. Consideration for transfer of West v. American Exch. Bank (N.
—
bank's property. Cox v. Robinson, 70 Y.), 44 Barb. 175; Starke v. United
Fed. 760. States Nat. Bank. (N. Y.), 41 Hun 506,
55. Transfer of judgment without 4 N. Y. St. Rep. 56; Royer v. Key-
collecting cash. — Cox V. Robinson, 70 stone Nat. Bank, 83 Pa. 348; Cum-
Fed. 760. mings v. Boyd, 83 Pa. 373; Knox v.
56. Assignment of judgment in con- Clifford, 38 Wis. 651, 20 Am. Rep. 28;
sideration of property transferred to Bowman v. Van Kuren, 39 Wis. 209,
bank officer. —Cox v. Robinson, 70 9 Am. Rep. 554; Heath v. Silverthorn
Fed. 760. , Lead Min., etc., Co., 39 Wis. 147.
57. Transfer of securities in pay- Although a cashier and president of
ment of antecedent debts. Tennessee — a bank may, in the ordinary course of
V. Davis (N. Y.) 50 How. Prac. 447, business, without the consent of the
weight of authority, however, including that of the supreme court of the

United States, is to the contrary. ^s With regard to tangible personalty and
nonnegotiable securities, the equities of a bona fide holder for value and
without notice, great as they are, can not, in the absence of some element
of fraud or estoppel on the part of the true owner, prevail against the legal
title.69
§ 104 (5) Disposition, Encumbrance, or Lease of Real Estate.

—Powers of Directors-. — It is not proposed in this place to discuss the
general powers of banks to acquire, hold and dispose of real property.
Suffice it to say that where the bank owns real property it is within the
power of the directors, or of a committee authorized by them, to sell, lease,
and, in general, to so manage the same as will most effectively protect and
promote the interests of the bank, subject, of course, to the limitation that
they can not enter upon speculative enterprises, such as vast schemes of
improvement, forbidden by charter or statute.^''
Powers of Cashier and President with Respect to Real Estate.

Unless the power is expressly given, or is to be implied from a course of
dealing, etc., a bank is not bound by its cashier's contract in relation to
bargaining and selling real estate. ''^ Neither have the president and cashier
of a bank any power, as such, to execute a mortgage on the real estate of
board of directors, dispose of the Bank z: Carrington, 5 R. I. 515, 73 Am.

bank's negotiable securities, they are Dec. 83; Bank Chambers (S. C),
v. 11
not empowered to pledge its assets Rich. 657; Greneaux v. Wheeler, 6
for the payment of antecedent debts. Tex. 515; Atkinson v. Brooks, 26 Vt.
State v. Davis (N. Y.), 50 How. Prac. 569, 62 Am. Dec. 593.
447.
Equities of bona fide purchaser
58. Same —
Weight of authority.
59.
as against holder of legal title. Mav —
Gates First Nat. Bank, 100 U. S. 339,
V.
V. LeClaire (U. S.), 11 Wall. 217, 30 L.
25 L. Ed. 580; Swift v. Tyson (U. S.),
Ed. 50; Brooke v. King, 104 Iowa 713,
16 Pet. 1, 10 L. Ed. 865; Goodman v.
74 N. W. 683; Lime Rock Bank v.
Simonds (U. S.), 20 How. 343, 15 L. Plimpton (Mass.), 17 Pick. 159, 38
Ed. 934; McCarty v. Roots, 31 How. Am. Dec. 286; In re Assignment, 33
432, 16 L. Ed. 163; Railroad Co. v. Na-
Ore. 84, 51 Pac. 87.
tional Bank, 102 U. S. 14, 36 L. Ed. 61;
Robinson v. Smith, 14 Cal. 94; Roberts 60. Disposition, encumbrance, or
V. Hall, 37 Conn. 205, 9 Am. Rep. 308;
—
lease of real estate Power of direct-
Gibson 7J. Connor, 3 Ga. 47; Kaiser v. ors.— Cockrill V. Abeles, 86 Fed. 505,
United States Nat. Bank, 99 Ga. 358, 30 C. C. A. 223; Metropolitan Bank v.
25 S. E. 620; Manning v. McClure, 36
Godfrey, 23 111. 579; First Nat. Bank
V. Reno, 73 Iowa 145, 34 N. W. 796;
111. 490; Mix V. National Bank, 91 111.
20, 33 Am. Rep. 44; Straughan v. Fair-

Thomaston Bank v. Stimpson, 21 Ms.
195; Burrill v. Nahant Bank (Mass.),
child, 80 Ind. 598; Des Moines Nat.
2 Mete. 163, 35 Am. Dec. 395; Ingra-
Bank v. Chisholm, 71 Iowa 675, 33 N.
W. 334; Giavarovich v. Citizens' Bank, ham V. Speed, 30 Miss. 410; First Pres-
byterian Church V. National State
36 La. Ann. 15; Maitland v. Citizens'
Bank, 57 N. J. L. 27, 29 Atl. 320; Jack-
Nat. Bank, 40 Md. 540, 17 Am. Rep.
son V. Brown (N. Y.), 5 Wend. 590;
620; Fisher v. Fisher, 98 Mass. 303;
Blanchard v. Stevens (Mass.), 3 Cush. Banks v. Poitiaux, 24 Va. (3 Rand.)
136; Roberts v. Washington Nat. Bank,
163, 50 Am. Dec. 733; Boatman's Sav.
Inst. V. Holland, 38 Mo. 49; Railroad
n Wash. 550, 40 Pac. 335.
Co. V. Nat. Bank, 40 Mo. 540; Ringling 61. Powers of cashier and president
V. Kohn, 4 Mo. App. 59; Armour v. with respect to real estate. Winsor —
Michael, 36 N. J. L. 92; Allaire v. Hart- V. Lafayette County Bank, 18 Mo. App.
shorn, 21 N. J. L. 665, 47 Am. Dec. 175; 665.

the corporation.®^ g^t where the cashier of a bank, for a number of years,
with the knowledge of the directors, has been accustomed to act for the
bank in sales of property on which it held mortgages, under contracts ap-
proved by him, he may bind the bank in a similar transaction without formal
authority from the directors.®^ And where
management of a bank's the
affairs is and they, with knowledge
intrusted to the president and cashier,
of the directors, have conveyed land at various times, a conveyance by
them is not invalid because not authorized by the directors.''* Where a
bank obtains a judgment against its debtor and purchases his property at
execution sale, and the cashier assigns the certificate to the holder of a
junior judgment, who afterwards obtains a sheriff's deed, it will be pre-
sumed, when the title under said deed is questioned by another judgment
creditor upon the ground that said certificate was assigned without author-
ity, had authority to make the assignment, even though it
that the cashier
be shown that the directors passed no resolution granting it.^^ And the
cashier of a bank may, for the purpose of collecting a debt due to the bank,
enter into a contract on behalf of the bank to pay one a commission for
procuring a purchaser of real estate held by the bank under a mortgage
as security for the debt.®®
Power of Bank's Attorney. —A sale of land belonging to a bank by
its general attorney is not binding on the bank where such attorney has no
authority to make the sale.®'^ Nor has the cashier of the bank authority to
ratify such unauthorized sale by the bank's general attorney.®^
Deed. —Ân authority from the directors of a bank to a committee to
convey land will authorize the agent to execute a deed and afSx the cor-
porate seal thereto.®^ Under a charter provision that "the bills obligatory
and credit notes, and all other contracts whatever, on behalf of said cor-
poration, shall be binding upon the company, provided the same be signed
by the president and countersigned or attested by the cashier of the said
corporation," a deed made by the president and countersigned by the cash-
ier is sufficient in point of form and is prima facie a good deed.'^° And it
has been held that a deed signed by the vice-president of the bank and
62. —
Same Power of president and 66. Contract to pay commission for
cashier to execute mortgage. Leggett — securing purchaser. First Nat. Bank—
V. New Jer.sey Mfg., etc., Co., 1 N. J. v. Ratliff, 33 Tex. Civ. App. 379, 76 S.
Eq. 541, 33 Am. Dec. 738; Hall v. W. 591.
Farmers', etc.. Bank, 145 Mo. 418, 46 67. Power of bank's attorney.—
S. W. 1000. ^ , Spinks Athens Sav. Bank, 108 Ga.
63. Same — Sale of
,
property under ^
375 33 S
V.
E 1003
So°;1ini5'S. ^l ^.'tZ^^T' "

,
«8- P°-- oi cashier to ratify sale
^^^^
64. Where management of bank en- lyi'\°^r^rir^.\%'^^^.r
Bank, 108 Ga. 376, 33 S. E. 1003.
trusted to president and cashier.
Steinke v. Yetzer, 108 Iowa 513, 79 N. ^^- Deed—Authorization—Execution.
W 386 — Burrill v. Nahant KaUK (Mass.), 2
65. Assignment of bank's rights un- Mete. 163, 35 Am. Dec. 395.
der purchase at execution sale Who — 70. Same — Signature, attestation,
may —
question Presumption. Bank v. — etc. — Veasej' ?•. Graham, 17 Ga. 99, 63
Warren (N. Y.), 7 Hill 91. Am. Dec. 328.
sealed with its corporate seal isBut when it is shown

prima facie valid J ^
that its execution was without authority from the board of directors, and
not in accordance with the statute, such prima facie presumption is over-
come, and the deed shown to be invalid and insufficient to pass titled ^ An
instrument under seal, executed by the president and cashier, purporting
to convey or agreeing to convey, real estate owned by the bank, is not the
deed of the corporation where the seal used is the seal of the president and
cashier,and not the seal of the corporation. Xhe deed of a banking cor- '''^
poration may be acknowledged by its cashier.''*

—
Leasing Tenements Acts of Secretary of Bank. Where the sec- —
retary of a bank leasing tenements attends generally to the leasing of the
premises, the bank is bound by his act in turning off the city water, and
refusing its use to a tenant, when done with the knowledge and consent
of the bank president."^
§ 104 (6) Assignments for Benefit of Creditors. — See ante, "As-

signments for Benefit of Creditors," § 78.
§ 104 (7) Acquisition of Property by Officers for Bank. —As to

the general powers of banks to purchase and hold real property, see ante,
"Real Property," § 95.
—
Powers of Cashier. It is no part of the ordinary or implied powers
of a cashier to purchase property for the bank.'''® While it is necessary to
the validity of a deed that it should be delivered to and accepted by the
grantee, it is not necessary, in the case of a conveyance to a bank, that its
board of directors should be called together and the deed accepted by a
formal resolution. It is sufficient that the cashier, entrusted with the gen-
eral routine business of the bank, accepts the deed as and for the bank and
has the same placed upon record.'^'' Any question as to the validity of such
an acceptance, however, is absolutely set at rest by the subsequent action
of the bank in undertaking to convey the property received under the deed.'^^
71. Deed signed by vice-president —

tary of bank, .West Side Sav. Bank v.
and sealed with corporate seal.—Hall Xewton (N. Y.), 8 Daly 332.
"J. Farmers', etc.. Bank, ]45 Mo. 418, 46 As to the power of the president or
S. W. 1000, citing Leggett v. New Jer- cashier with respect to leasing the
say Mfg., etc., Co., 1 N. Y. Eq. 541, 23 bank's property or leasing property
Am. Dec. ?28; Si. Iôuis Public Schools for the use of the bank, see ante, "Pres-
t-. Risley, 28 Mo. 41i). ident— Vice-President," § 102 (5b);
Same—Evidence changing pre- "Cashier," § 102 (5c); post, "Cashier,"
72.
sumption of validity.— K all v. Farm- § 105 (3).
ers', etc.. Bank, 145 Mo. 418, 46 S. W. 76. Power of cashier to purchase
McKeag v. Collins, 87 Mo. 164. P''°P"ty
1000;
(".
^,?';--V"u ô^.î^./r wJ
S.), 21 How. 356, 16 L. Ed.
73. Deed by president and cashier ^^^^
imder their individual seals.-Bank v. Acceptance of deed conveying
Guttschhck (U. S.), 14 Pet. 19, 10 L. property to bank.-Hall v. Farmers"
Ed- 335. gj(-^ Bank, 145 Mo. 418, 46 S. W. 1000.
74. Deed of bank may be acknowl- 78_ —
Same Doubt as to acceptance
edged by cashier. —
Shcehan v. Davis, removed by subsequent conveyance of
3 7 O. St. 571. —
property. Hall v. Farmers,' etc.. Bank,
75. Leasing tenements— Acts of secre- i45 Mo. 418, 46 S. W. 1000.
728 BANKS AND BANKING. § 105 (/a)
§ 105. Contracts —
§ 105 (4) General Principles. A bank is bound —
by the contracts of its authorized agents, whether they be directors or other
officers, dealing within the usual and ostensible scope of their authority;
and it is no defense to the bank that, in making the contract, its agent ex-
ceeded his real authority, or that he was really seeking to subserve his in-
dividual interests, or that he entertained and subsequently carried out the
design of appropriating the proceeds to his own use, unless can be shown
it
that the other party was also a party to the fraud, or that he had knowledge
either of the want of authority or wrongful intent.'' ^ The bank is not bound,
of course, upon the contracts of its agents made entirely without the scope
of their authority, unless there has been a previous authorization or sub-
sequent ratification and where a third person attempts to set up a con-
;8<'
tract which was beyond the ordinary powers and duties of the offi-
clearly
cer or agent who is alleged to have executed the same on behalf of the
bank, the burden is upon such third person to show the authority of the
agent to bind the bank; either that he was expressly authorized to enter
into such an agreement in behalf of the bank, that by a previous course of
dealing he was held out as having authority to bind the bank in such mat-
ters, or that there has been a subsequent ratification. ^^ And where one has
dealt with the officer of a bank, who is vested with apparent authority to
make certain contracts on its behalf, and subsequently circumstances are
79. —
Contracts General principles. — whereupon he fraudulently checked out
Chemical Nat. Bank v. Armstrong, 8 the same for private purposes. Held,
C. C. A. 155, 59 Fed. 372, 28 L. R. A. that the vice president had authority
231; Bank v. Patchin Bank, 19 N. Y. to negotiate the loan, and that the va-
312. lidity thereof was not affected by his
A party, receiving and discounting fraud. Chemical Nat. Bank v. Arm-
bona fide a bill of exchange dated ten strong, 50 Fed. 798,
days previous, payable to the order of When the cashier of a bank has full
"A. B. cas," indorsed "A. B. cas," in- charge of its business, and secures
closed in a letter dated at the banking loans on notes of the bank signed by
house of which A. B. is cashier, and him, apparently in the usual course of
signed "A. B. cas," has a right to re- business, under documents giving him
cover on such bill as against the bank- authority from the directors to bor-
ing house, although the bill was in- row, the bank is liable on the notes,
dorsed for the accommodation of a though such documents afterwards ap-
third party, and not for the benefit of pear to be forgeries, and the proceeds
the banking house. Bank v. Patchin of the loans are used by the cashier
Bank, 19 N. Y. 312. for his own benefit. City Nat. Bank v.
A bank obtained
is liable for a loan Chemical Nat. Bank, 26 C. C. A. 195,
from another bank, dealing in good 80 Fed. 859.
faith with its authorized officer, al-
80. Contracts entirely without scope
though such officer acts without knowl-
edge of the other bank officials, and —
of agent's authority. New Hampshire
Sav. Bank v. Downing, 16 N. H. 187.
appropriates the money to his own use.
Chemical Kat. Bank v. Armstrong, 8 A bank is not bound by an agree-
C. C. A. 155, 59 Fed. 372, 28 L. R. A. ment, made by one of its officers, not
231. thereto authorized, to notify a surety
The C. Bank in good faith advanced of the default of the makers of a note
money on -collateral forwarded to it left as New Hampshire
collateral.
by the vice president of the F. Bank, Sav. BankDowning, 16 N. H. 187.
v.
and charged the loan to the F. Bank. 81. Burden of proof where contract
The vice president of the F. Bank di- beyond ordinary powers of officer. —
rected that the loan be transferred to Citizens' Nat. Bank v. Marks, 34 Pa.
his individual credit, which was done. Super. Ct. 310.
§ 105 (/2) REPRESENTATION OF BANK. 729
brought to his notice which are sufficient to put him on inquiry as to whether
the authority exists, in order to recover on any such contracts made after
that time, he must prove actual authorization by the bank.^^
—
Fraudulent and Illegal Contracts Contracts Opposed to Public
Policy, etc. —
Fraudulent and collusive contracts entered into in violation
of the charter of the bank or contrary to its interests and as a fraud upon
its rights, or contracts opposed to public policy, either upon principles of
general law or because designed to evade wholesome restrictions enacted in

the interests of good banking, can not be set up against the just rights of
the bank, either as the basis of a cause of action or as a ground of defense. **
Typical among contracts of this character are those in which the officers
and agents of the bank enter into secret agreements with parties to obliga-
tions taken in behalf of the bank that they shall not actually be called upon
to pay the same according to the tenor of the instrument, but that it shall
be met or discharged in some other way. Not only have its officers no power
to bind the bank to any such agreement, but any attempt to do so is a fraud
upon the bank, and can not be set up in defense to an action by the bank
to enforce the instrument according to its face.®* In fact, an officer of the
82. Necessity for proving actual au- the money and deposit the stock as
thority where third person has notice collateral. was done and the
This
putting him on inquiry. — Stallcup v. cashier assumed the payment of the
National Bank, 47 Hun 639, 15 N. Y. note, the stock being his, and the bank
St. Rep. 39. having no other notice of the arrange-
83. Fraudulent and illegal contracts ment except the knowledge of the
— Contracts opposed to public policy, cashier. Savannah Bank, etc., Co. v.
etc. — Savannah Bank, etc., Co. v. Hart- Hartridge, 73 Ga. 223.
ridge, Ga. 223; McNulta v. Corn
73 84. Same —
Secret understanding or
Belt Bank, 164 111. 427, 45 N. E. 954, 56 agreement varying liability under con-
Am. St. Rep. 203; Kennedy v. Otoe tract. —
Breyfogle v. Walsh, 71 Fed.
County Nat. Bank, Neb. 59.
7 898; Metropolis v. Williams, 46 Mo. 17;
A resolution of the board of direct- Kennedy v. Otoe Countv Nat. Bank,
ors of a state bank voting a bonus to 7 Neb. 59; "Martin v. First Nat. Bank,
their president in consideration for the 11 O. C. C, N. S., 93, 20-30 O. C. D. 398;
temporary supply of funds for the pur- Mead v. Pettigrev/, 11 S. Dak. 529, 78
pose of deceiving the auditor, and N.W. 945; Loomis Fay, 24 Vt. 240.
v.
fraudulently accomplishing an organi- A bill which seeks to restrain the
zation of the bank with authority to sale by a bank of property pledged as
proceed to business, and to dispose of collateral security to a note discounted
stock apparently paid up in full, is an by it, on the ground that the president
agreement to do an act forbidden by of the bank secretly agreed that he
the statute, and is void. McNulta v. would see to the payment of the note
Corn Belt Bank, 164 111. 427, 45 N. E. without sale of the collateral, does not
954, 56 Am. St. Rep. 203. state a case for equitable relief, since
Where a rule of a bank provides such agreement, being against the in-
that no officer therein can become its terest of the bank, should not be en-
debtor, it is not bound by the follow- forced for the benefit of a party to it.
ing agreement between its cashier and Breyfogle v. Walsh, 71 Fed. 898.
a third party: The cashier desiring to An accommodation indorsement of a
procure money from the bank to pur- note to a bank, under an express agree-
chase stock made an agreement with ment with the president that the in-
the third party who acted with notice dorser should not be held liable, would
of the rule, by which the latter should be void as a fraud upon the bank.
purchase certain stock and the cashier Loomis V. Fay, 24 Vt. 240.
as such should advance to him money Where a bill of exchange is made
of the bank to pay for it, such third payable to a bank through its cashier,
person to give his note to the bank for and is received by the bank in the usual
730 BANKS AND BANKING. § 105 (K2)
bank who colludes with a third person for the purpose of defrauding the
bank or evading charter and statutory restrictions can not, as to that trans-
action, be considered the representative of the bank, and his knowledge of
the actual nature of the transaction can not, of course, be imputed to the
bank.^5 Qf course, if it can be shown upon the facts that the contract was
really entered into in behalf of the bank, and that the bank received and
used the proceeds, it may be made to account therefor.*" Where the offi-
cers of the bank are authorized to borrow money for the bank, but forbid-
den to execute certain evidences of indebtedness or pledge the bank's se-
curities as collateral therefor without the consent of the directors, money
borrowed by them may be recovered of the bank,upon an implied obligation
to repay, notwithstanding the notes or bonds evidencing the indebtedness
and the collateral deposited to secure it may be unenforceable for want of
the previous consent of the directors as required by law.*'' Other contracts.
course of business, it is not bound hence was entitled to recover the

by a secret agreement of the cashier amount of the note. Kennedy v. Otoe
with the drawer that the latter is not County Nat. Bank, 7 Neb. 59.
to be liable on the bill. National Bank 85. Official entering into collusive
z'.Williams, 46 Mo. 17. agreement not considered the repre-
A bank cashier agreed that he would —
sentative of the bank. Savannah Bank,
secure certain bonds as collateral for etc., Co. V. Hartridge, 73 Ga. 223; Ken-
the payment of a note, made payable nedy V. Otoe County Nat. Bank, 7
to and delivered to the bank, and that Neb. 59.
the liabilities of the sureties should be 86. —
Sam e Evidence Acceptance —
subordinate to such collateral. Held, and use of benefits by bank. Eastern —
ihat in the ordinary performance of Townships Bank v. Vermont Nat.
his duties, he had no authority to make Bank, 22 Fed. 186, 22 Blatchf. 498.
such an agreement, and therefore the A., the president of defendant, a na-
bank was not bound. Martin v. First tional bank in Vermont, applied to the
Nat. Bank, 11 O. C. C, N. S., 93, 20-30 plaintiff, a banking corporation in Can-
O. C. D. 398. ada, for a loan. Plaintiff's manager
An agreement by the president of a told him the money could not be
bank with one who gives a note in re- loaned as an individual loan, as its in-
turn for stock in the bank, that he will dividual loans were too near the limit
not be required to pay anything on allowed by law, but that it would de-
the note, is not binding on the bank, posit that amount with defendant, if
and does not release the maker, Mead desired. A. assented, and agreed that
V. Pettigrew, 11 S. Dak. 529, 78 N. W. bonds should be deposited as security.
945. Plaintiff drew two drafts for the
The presidentof plaintifif bank in- amount, delivered them to defendant
duced defendant to give his note in pay- and received the collaterals, and en-
ment for certain shares of the bank's tered the transaction on its books as
stock, in order that he might continue a loan to defendant. Defendant in-
in control of the bank, representing dorsed the drafts, forwarded them to
that the dividends would be sufficient the drawee, from which it received
to pay the interest thereon, and that credit for them, and retained the pro-
the stock would pay the note if it ever ceeds. Held, that the transaction was
became necessary to pay it. The note not a loan to A. individually, but to de-
was discounted by the bank, and the fendant. Eastern Townships Bank v.
amount placed to the credit of the Vermont Nat. Bank, 22 Fed. 186, 23
president, which he drew out by check. Blatchf. 498.
None of the officers of the bank ex- 87. Recovery upon implied obliga-
cept the president knew of the char- tion where officers exceed authority
acter of the contract, or that it was as to character of obligation, securi-
given for stock. Held, that the bank ties pledged, etc. —Union Nat. Bank v.
was not bound by the representations Lyons, 220 Mo. 538, 119 S. W. 540. See
of its president with reference to mat- also, as illustrating the same principle,
ters in which it had no interest, and Hitchcock V. Galveston, 96 U. S. 341,
§ 105 (K2) REPRESENTATION OE BANK. 731
such as the purchase of real estate for the bank in violation of charter or
statutory provisions, rest upon the principle that, after the contract has been
executed and title to the property vested in the bank, objection to the va-
lidity of the transaction can only be made by the state, and that the bank
can and transfer the property and convey a valid title upon its vendee. ^^
sell
But as charter and statutory restrictions forbidding the purchase of real

estate by banking associations are notice to all the world of the bank's re-
stricted powers in that respect, it can not be bound by the contracts of its
officers purchasing real estate in its behalf, unless it has so far recognized
such contract as to estop itself from repudiating it.^^
Bank Not Shift Responsibility to Officers and Agents, When. —

Where the contract is one which it was clearly within the power of the
bank's officers and agents to make, and appears to have been entered into
by the other party upon the faith and credit of the bank's responsibility, and
not that of its officers and agents, and the intention seems to have been to
bind the bank as the principal, and not its officers and agents as individuals,
the presumption is that it is the contract of the bank, and it will not be per-
mitted, upon slight evidence, to escape its just responsibility by showing that
it was never bound and that it was the contract of its officers and agents as in-
dividuals. 8" This principle also applies in favor of the bank as against third
34 L. Ed. 659; Louisiana v. Wood, 102 Hillegas (Pa.), 7 Serg. & R. 313.
U. S. 294, 26 L. Ed. 153; Argenti v. A purchase of lands at mortgage
San Francisco, 16 Cal. 255; Maher v. sale by a bank cashier in his own name
Chicago, 38 111. 266; Sparks v. Jasper for the benefit of his bank is not in-
County, 213 Mo. 218, 112 S. W. 265; valid because the bank, by its charter,
Oneida Bank v. Ontario Bank, 21 N. is disabled from purchasing lands; and
Y. 490; Silver Lake Bank v. North (N. a purchaser from such cashier will
Y.), 4 Johns. Ch. 370; Vanatta v. State therefore obtain a valid title as against
Bank, 9 O. St. 27; Allegheny City v. the original owner. White v. Lester,
McClurkan & Co., 14 Pa. 81. 40 N. Y. (1 Keyes) 316, 4 Abb. Dec.
Rev. St. 1899, § 1281 (Ann. St. 1906, - 585, 34 How. Prac. 136.
p. 1048), providing that no bills payable 89. Third persons bound to a knowl-
shall be made and no bills shall be re- edge of charter and statutory restric-
discounted by the officers of a bank tions with respect to purchase of real
without the consent of its directors, did estate. —
Winsor v. Lafayette County
not prevent a bank's officers from bor- Bank, 18 Mo. App. 665; Metropolitan
rowing money on the bank's credit Bank v. Godfrey, 23 111. 579.
without the consent of the directors, 90. Bank not permitted to shift re-
but only invalidated the note given sponsibility upon officers and agents,
therefor. Union Nat. Bank v. Lyons, when.—ôbb v. Savings Bank, 6 Ky.
220 Mo. 538, 119 S. W. 540. L. Rep. 215; Merchants' Nat. Bank v.
88. Transactions to which state only Phillip, etc.. Machinery Co., 15 Tex.
—
may object Purchase of real estste. Civ. App. 159, 39 S. W. 217.
White V. Lester, 40 N. Y. (l Keyes) Where a bank has received a money
316, 4 Abb. Dec. 585, 34 How. Prac. deposit, it notcanescape respon-
136; First Nat. Bank v. Reno, 73 Iowa sibility to thedepositor by showing a
145, 34 N. W. 796; National Bank v. verbal request by the depositor for the
Matthews, 98 U. S. 621, 25 L. Ed. 188; cashier to make investments for him.
Savings Bank v. Burns, 104 Cal. 473, 38 If the books of the bank show the de-
Pac. 102; Bank v. Flathers, 45 La. Ann. posit and the investment, the court
75, 12 So. 243; Hennessy v. St. Paul, will assume that the transaction was
54 Minn. 219, 55 N. W. 1123; Hall v. with the bank, and not with the cash-
Farmers', etc Bank, 145 Mo. 418, 46
,
ier as the special agent of the de-
S. W. 1000; Smith v. First Nat. Bank, positor, and will require the bank to
45 Neb. 444, 63 N. W. 796; Leazure v. account either for the deposit or the
732 BANKS AND BANKING. § 105 (>^)
persons where, in order to defeat the rights of the bank, an attempt is made
to show that a contract, apparently the contract of the bank, is in reality-
only the contract of its officers as individuals. ^^

Form and Maimer of Executing Contract. —A charter or statutory
provision requiring all contracts whatsoever to be signed by the president
and countersigned by the cashier, in order to bind the bank, does not apply
to such dealings and transactions as are usually and necessarily performed
by the cashier or some other duly authorized agent of the institution.®^ Nor
investment. .Robb v. Savings Bank, 6 Leavitt V. Blatchford (N. Y.), 5

Ky. h. Rep. 215. Barb. 9.
A check was sent to defendant bank The 17th section of the act, incor-
to indemnify it for furnishing a bond porating the Mechanics' Bank of Alex-
for plaintiff. The president and the andria, providing "that all bills, bonds,
cashier became sureties, and the check notes and every other contract or en-
was deposited to their credit, and gagement on behalf of the corporation,
afterwards paid. Held, that the execu- shall be signed by the president, and
tion of a receipt by those officers in- countersigned by the cashier; and the
dividually did not constitute a contract funds of the corporation shall, in no
between them, as individuals, and plain- case, be liable for any contract or en-
tiff, which extinguished the bank's lia- gagement, unless the same shall be
bility to account for the check. Mer- signed and countersigned as afore-
chants' Nat. Bank v. Phillip, etc.. Ma- said," does not extend to contracts
chinery Co., 15 Tex. Civ. App. 159, 39 and undertakings implied in law. Me-
S. W. 317. chanics' Bank v. Bank (U. S.), 5 Wheat.
—
Same Principle also applies in
91. 326, 5 Iv. Ed. 100; Accord Northern
—
favor of bank. Gilmore v. Kilpatrick- Bank v. Johnson. 45 Tenn. (5 Coldw.)
Koch Dry-Goods Co., 101 Iowa 164, 88; Maxwell v. Planters' Bank, 29
70 N. W. 175. Tenn. (10 Humph.) 507.
Theinterest of B. as chattel mort- Where a general banking law con-
gagee being as cashier of a bank, the tained a provision in the following
word "us," in an agreement signed in words: "Contracts made by any bank
his name and given the mortgagor, re- or banking association established un-
citing, "It is hereby agreed that B., der the provisions of this act, and all
cashier, shall not take possession * * * notes and bills issued and put in cir-
until default therein, unless such ac- culation as money, shall be signed by
tion shall be necessary to protect us the president and cashier thereof;"'
against other creditors," does not re- and a bank sold a draft which was
fer to the mortgagor and B., but to the signed by the president only, and was
bank., Gilmore v. Kilpatrick-Koch —
dishonored it was held that the con-
Dry-Goods Co., 101 Iowa 164, 70 N. tracts referred to in the act were con-
W. 175. tracts intended to circulate as money
92. Form and manner of executing only, and that the bank was liable on
—
contract. Mechanics' Bank v. Bank the draft. Paine v. Stewart, 33 Conn.
(U. S.), 5 Wheat. 326, 5 L. Ed. 100; 516.
Carey v. McDougald, 7 Ga. ^; Mer- Act 1855, p. 39, § 23, declaring that
chants' Bank v. Central Bank, 1 Ga. contracts made by banks, and all bills
418, 44 Am. Dec. 665; Carey v. Giles, and notes by them issued and put in
10 Ga. 9; Wakefield Bank v. Truesdell circulation as money, shall be signed
(N. Y.), 55 Barb. 602; Leavitt v. by the president or vice president and
Blatchford (N. Y.), 5 Barb. 9; Maxwell cashier, does not include the indorse-
V. Planters' Bank, 29 Tenn. (lO ment of a note, for which the signa-
Humph.) 507; Northern Bank v. John- ture of the cashier alone is sufficient.
son, 45 Tenn. (5 Coldw.) 88. Jones V. Hawkins, 17 Ind. 550.
Abanking association, under the Act 1855, p. 39, § 23, providing that
general banking law, is liable to re- contracts made by banks, and all bills
pay money borrowed for its use on a and notes by them issued and put in
letter of credit signed by the presi- circulation as money, shall be signed
dent under the proper authority, by the president or vice president and
though there is no written promise to cashier, does not require the signatures
repay the same, signed by the presi- of both president and cashier to a bill
dent, vice president, and cashier. of exchange, for which the signature of
does a statutory provision that "contracts made by banks shall be signed by

the president and cashier thereof" prevent a bank from contracting through
other agents. 8^
§ 105 (1) Directors. —

The directors of a bank are but its authorized
tagents,and can incur no obligation binding on the corporation, except while
acting in the mode prescribed by, and within the limits of, the charter. ^^
They represent the bank only when acting in their official capacity as a
board. A single director can not bind the bank by contract without express
authority from the board. *' And when a debtor of the bank sets up a com-
promise or an accord and satisfaction as a defense to an action by the bank
to recover against him, and alleges that such compromise or other agree-
ment was made by a director of the bank, he is bound to show the authority
of the agent to bind the bank, because the mere fact that the alleged agent
is one of the directors is no proof of his authority to bind the bank by such
an agreement.^®
Power to Borrow Money.—The power of a bank to borrow money
should be exercised by the directors, ^'^ and they may pledge the faith of the
bank in execution of their trust.^^ The directors have no authority, how-
ever, to pledge the future earnings in the absence of express authority from
the stockholders.^'
Liquidation Contract. —A statute which vests authority in others than
the directors of the bank to determine whether it shall be liquidated ex-
cludes such authority in the directors, and makes ultra vires a liquidation
agreement executed by them.i
Donation or Appropriation of Bank's Funds. The directors of a —
corporation have no power to make a donation from the funds of the bank
or to misappropriate them in violation of the laws and rules regulating its
mode of action.
Compromise, Release or Extension of Claims. —
The directors have
power to compromise debts owing to the bank,^ and the bank can not repudi-
the president alone is sufficient. AUi- 98. —

Same Pledging
faith of bank. —
son Hubbell, 17 Ind. 559.
V. State Bank, 5 Mart., N. S., 327.
v.
93. Same— Contracting through other 99 Same— Pledging future earnings,
than prescribed agent.— Dana v. Bank, —Brown v. Bradford, 3 03 Iowa 378, 73
4 Minn. 385 CGil. 291).
Contracts-Power of dkectors
94.
N W 648
Liquidation contract.-Assets Re-
^^
-Bank Schuylkill Bank
z;. (Pa.), 1
^lization Co. v. Howard. 127 N. Y. S.
Pars. Jiq. Uas. 180. 798, 70 Misc. Rep. 651, construing
95.
,,„„,.
Represent bank only when act-
_ ^^^ York Banking Law (Consol
'" '^^^°"" Laws Code
VJf•^^^ ^^^'"^^ô^'l^\-
rMiss.), 7 How^203; National Bank z'
c. 2), §§ 18, 19, 35, 66, 99,
'^^' q'
Shumway, 49 Kan^ 224 30
t
Pac. 411,
^.^^ ^^J |%^^' ^
âw (Consol. Laws c. 23), § 170.'
Hughes V. Bank (Ky.), 5 Litt. 45. „ -A ;•
ofr
.^-
authority
Proof of special of ^ 2- I^?nation or
appropriation
96.
bank s funds.— Union Bank Jones,
single director.— Citizens' Nat. Bank v.
v.
Marks 34 Pa. Super. Ct. 310; Olney 4 La. Ann 236; Frankfort Bank z^. John-
son, 24 Me. 490.
V. Chadsey, 7 R. L 224.
97. Power to borrow money. 3. Compromise, release, or extension
Leavitt V Yates (N. Y.), 4 Edw. Ch. of claims. —Wolf v. Bureau, 1 Mart.,
134. N- S., 162.
ate the contract of its directors to accept land for a debt where no fraud
on the part of the debtor is shown, or any conspiracy between the directors
and the debtor to make a contract known to be disadvantageous to the
bank.* Neither can the bank evade a contract to accept certain property
of a debtor in discharge of his debts to the bank by the fact that one of the
directors, who authorized such contract, was jointly liable with such debtor
for the debt, where it is not shown that such director procured the contract
'by collusion with the other directors. ^ The directors of a bank can not re-
lease, without consideration, a debt due the bank; and a fortiori they can
not empower the president to do so.^ The directprs of a branch bank, who
are limited agents and unauthorized to make a donation of the property of
the stockholders, have no power to authorize the cashier to vote for the dis-
charge of an insolvent debtor, thereby releasing his future property and a
surety, where the bank has acquired a right to a dividend whether a dis-
charge be voted or not. Such a vote is a mere donation and not binding
on the bank.'' But they have power, in behalf of the corporation, to release
a person whom they propose to call as a witness.^ In order that any com-
promise or release entered into by the directors may be binding on the bank
they must have acted in their official capacity as a board, and not as in-
dividuals. ^ Authority in a single director or other officer to release the
claims of the bank must be derived from the directors by their vote, or
from their assent, express or implied ;^'^ and when a debtor sets up a com-
promise agreement that he has entered into with a single director, it is in-
cumbent upon him to show that such director has been made an agent of
the bank with power to represent it in respect to the compromise or settle-
ment of such claim. 11
Compromise or Settlement with Officers of the Bank. The di- —
4. Accepting land in payment. — their private capacity, not to demand
Baird Banlc (Pa.), 11 Serg. & R. 411.
v. payment until the occurrence of a cer-
5. Accepting other than cash on contain contingency, does not bind the
tract on which director jointly liable. corporation. Hughes v. Bank (Ky.),
—Baird v. Bank (Pa.), 11 Serg. & R. 3 Litt. 45.
411. 10. Single director must be spe-
6. Releasing debt without considera- cially authorized.— Olney v. Chadsey, 7
tion.— Hodge v. First Nat. Bank, 63 R- I- 224.
Va. (22 Gratt.) 51. See, also, Bank v. H- Same—Proof of special au-
Jones (U. S.), 8 Pet. 12, 8 L. Ed. 850, thority.— Citizens' Nat. Bank v. Marks,
affirming Bank v. Dunn (U. S.), 6 Pet. 34 Pa. Super. Ct. 310.
51 8 L Ed 316 When a debtor of a bank sets up an
extinguish one-
7. Authorizing cashier to vote for ^^fr^^'fi! *^L*°"''^
discharge of insolvent debtor.-Union ^^'^ ^^^ 4'='^* 'n consideration of a
second°i promise to pay the other half
Bank V. Jones, 4 La. Ann. 236.
and alleges that such an agreement
8. Power to release debtor who is ^vas made bv a director of the bank,
to be called as a witness.— Lewis v. the debtor is bound to show the au-
Eastern Bank, 32 Me. 90. thority of the agent in order to bind
9. Must act in official capacity as a the bank. The mere fact that the
board. —Hughes v. Bank (Ky.), 5 agent was one of the directors does
Litt. 45. not in itself amount to proof of his
Where a note given to a bank is autliority to bind the bank by such an
made payable on a certain date, a parol agreement. Citizens' Nat. Bank v.
agreement, made by the directors in Marks, 34 Pa. Super. Ct. 310.
§ 105 (1) EEPRBSENTATION OF BANK. 735.
rectors of a bank have authority to make a settlement with a cashier whose

accounts exhibit a deficit in the funds. ^^
Same —Effect of Fraud on the Part of the Directors. —Fraudulent
conduct on the part of directors in making a settlement with the cashier
would not annul or make the settlement void, unless the cashier was also
guilty of fraud. 13
Delegation of Power by Directors. —The directors are not required
to devote themselves to the details of the business, but may leave these to
the president and cashier and their assistants, or to committees chosen from
their own number." They can not, of course, delegate those powers which
are of a personal nature, or which, under the charter, are required to be
exercised by the directors in person. i" They have power to authorize the
president and cashier to borrow money or obtain discounts for the use of
;i8
the bank and the settlement of a claim against a bank made by a director
who has been specially delegated by the bank to take charge of the matter,
and who acts under the direct advice of the president, is binding on the
bank." In the exercise of delegated powers, the officer, agent, or commit-
tee is restricted to the performance of those acts reasonably necessary to
the accomplishment of that for which the power was given. Anything be-
yond this is not within his authority and will not be binding upon the bank.^*
12. Compromise or settlement with of such corporation, of a "finance com-

officers of bank. —
Frankfort Bank v. mittee,"' with "authority in collecting
Johnson, 24 Me. 490. and providing ways and means and
13. Same —Effect
of fraud on the negotiating financial operations, and
part of the directors. Frankfort Bank — the power of discounting," does not
V. Johnson, 34 Me. 490. give them power to direct the execu-
14. Delegation of power by directors. tion of a mortgage of real estate of
— Briggs V. Spaulding, 141 U. S. 132, the corporation. Le,ggett v. New Jer-
35 L. Ed. 662, n
S. Ct. 924; Mason v. sey Mfg., etc., Co., 1 N. J. Eq. 541, 23
Moore, 73 O. St. 275, 76 N. E. 932, 4 Am. Dec. 728.
L. R. A., N. S., 597; Wallace v. Lin- Where the directors of a bank au-
coln Sav. Bank, 89 Tenn. 630, 15 S. W. thorized the president, cashier, and
448, 24 Am. St. Rep. 625. two of the directors as a committee to
15. Same Nonassignable powers.—
— purchase certain land at a fixed price,
First Nat. Bank v. Kimberlands, 16 the president and casliier had no au-
W. Va. 555;Ex parte Rickey, 31 Nev. thority to authorize a third person to
82, 100 Pac. 134; Murphy v. Gumaer, buy the land at an increased price, so
12 Colo. App. 472, 55 Pac. 951. as to bind the bank to pay such per-
16. May authorize president and son a commission therefor. Bryant
cashier to borrow money, obtain dis- V. Bank, 95 Wis. 476, 70 N. W. 480.
counts, etc. —
Ridgwav v. Farmers' The directors of a bank, in the pres-
Bank (Pa.), 13 Serg. & R. 256, 14 Am. ence of one who had agreed to pur-
Dec. 681. chase property owned by the bank, au-
17. Director specially authorized to thorized the president to execute to
settle claim. —Waxahachie Nat. Bank such purchaser a bond of indemnity
V. Vickery (Tex. Civ. App.), 26 S. W. against any legal claim or lien which
876. a specified company might have upon
Incidental or implied powers of
18. the property. The bond given by the
officer acting under special authority. president was conditioned upon the
— Leggett zj. New Jersey Mfg., etc., Co., bank obtaining from the company a
good and sufficient written lease. The
1 N. J. Eq. 541, 23 Am, Dec. 728; Na-
tional Bank v. Levanseler, 115 Mich. lease procured was not satisfactory to
372, 73 N. W. 399; Bryant v. Bank, 95 the purchaser, and he declined to ac-
Wis. 476, 70 N. W. 480, cept it, and refused to pay the amount
The appointment, by the directors due on a purchase-money mortgage
Ratification of Unauthorized Contracts.^See post, "Ratification,"

§114.
§ 105 ( 2 ) President. —Except to a very limited extent, the president

of a bank has no inherent authority by virtue of his office to enter into con-
tracts or agreements which will bind the corporation. ^^ But on the other
hand, it is clear that he may be authorized to do so, and it is equally clear
that it is not necessary, in order to prove such authority, to produce a reso-
lution of the board of directors conferring it, or to prove any action or C9n-
sultation of the board on the subject, but such authority may be inferred
by proving the existence of such facts as constitute clearly a public holding
out that such an agreement or contract as he has entered into was within
the scope of his legitimate delegated authority and that the public was war-
ranted in so believing.2o
Where President Personally Interested and Acts Adversely to
Bank. —Where the president isbank and is per-
acting adversely to the
sonally interested in a given transaction, he can not be regarded as repre-
senting the bank with respect thereto, and the bank is not bound, either by
his knowledge or upon his agreement.^!
until the condition of thebond should tions to return the director the latter's
be Held, on foreclosure of
satisfied. note of equal amount, held by the
the mortgage, that the giving of the bank, and hold the stock in lieu
bond conditioned for the procuring of thereof; the president promising to
a lease was unauthorized, and did not pay the amount of such note. The
bind the bank. National Bank v. note was stamped, "Paid," and returned
Levanseler, 115 Mich. 372, 73 N. W. to the maker. Held, that the maker of
399. . the note was not thereby discharged
19. Power
of president to contract from his liability, in the absence of
in behalf of bank. First Nat. Bank v. — ratification of the transaction by the
Kimberlands, 16 W. Va. 555. bank. Rhodes v. Webb, 24 Minn. 392.
20. —
Same Proof of special au- conveyed land to a bank,
Plaintiff
thority. —
First Nat. Bank v. Kimber- and subscribed for stock; the bank
lands, 16 W. Va. 555; Wells Fargo & agreeing that in consideration of a cer-
Co. V. Enright, 127 Cal. 669, 60 Pac. tain sum, payable in installments,
439, 49 L. R. A. 647. equaling the dues on plaintiff's stock,
21. Where president personally in- it would reconvey the land. At the
terested and acts adversely to bank. same time the bank paid plaintiff
— Rhodes v. Webb, 24 Minn. 292; Lewis $10,000, which he loaned to N., the
V. First Nat. Bank, 1 Neb. 177, 95 S. bank's president, who gave to plaintiflE
W. 355; People v. Mercantile Co- his personal bond, conditioned on the
operative Bank, 104 App. Div. 219, 93 payment by him of said installments.
N. Y. S. 521. The bank received no benefit from the
Where the president of a bank, being $10,000. Held, that plaintiff had no
of sufficient pecuniary responsibility, claim against the bank for said loan,
became personally liable with the or for damages for failure in payment
debtor of the bank for a loan of money, of the installments, but his remedy was
and the object was to reduce the on N.'s bond. People v. Mercantile
debtor's debt, the president of the bank Co-Operative Bank, 104 App. Div. 219,
did not act as the agent of the bank, 93 N. Y. S. 521.
nor was it in any manner responsible A subsequent resolution by the
therefor. Lewis v. First Nat. Bank, bank's directors to indemnify N. from
1 Neb. 177, 95 N. W. 355. loss on undertaking was without
his
A bank president agreed with a di- consideration, and gave plaintiff no
rector to purchase his stock, and, as right. People v. Mercantile Co-Oper-
purchaser thereof, took the same, ative Bank, 104 App. Div. 219, 93 N.
handed it to the cashier, with instruc- Y. S. 521.
§ 105 (3a) REPRESENTATION OF BANK. Th7
Power to Contract with Eespect to Particular Matters. — See ante,

"President," § 102 (5b).
§ 105 (3) Cashier— § 105 (3a) In General.— In order to bind the

bank by any contract that he may make, the cashier must keep within the
usual and apparent scope of his authority. Without special authority from
the board of directors, express or implied, he can not make for his bank a
contract in regard to a subject matter outside the usual and customary busi-
ness of the bank, and outside the business usually performed by cashiers. ^^
The actual powers and duties of the cashier, like those of all other agents,
may be more or less qualified, restricted or enlarged by the corporation,
institution or party for whom he acts. Any restriction upon his usual and
customary authority, to be binding upon third persons dealing with the
bank through him, must be brought to their knowledge, for where a party
deals with the cashier of a bank in good faith, without notice of any want
of authority on his part, and the act done is within the apparent scope of
his authority, the bank is bound by the contract. ^^ Qn the other hand, con-
tracts not within the scope of the powers ordinarily incident to the office of
a cashier will be binding upon the bank where authority to enter into such
contracts on behalf of the bank has been expressly conferred, or where he
has been held out to the public as having such authority by a previous course
of dealing. In short, any contract is binding on a bank, made by its cashier
acting within the reasonable or apparent scope of his authority, or made by
him when acting with the knowledge and approval of the directors, or like
others which he had been accustomed to make with their approval, or that
was afterwards ratified by the bank's availing itself of the benefits of such
contract.^* And where the directors of a bank allow the cashier to take
22. Power of cashier to contract in to his bank and caused the same to
—
behalf of bank. Hill v. Bank, 87 Mo. be entered on the books of the bank
App. 590; City Bank v. Perkins, 17 N. to his individual credit, concealing
Y. Super. Ct. 420; First Nat. Bank v. from the owner the fact that the
Mansfield Sav. Bank, 10 O. C. C. 233, 6 money had been collected. The teller
O. C. D. 453; Sturges & Co. v. Bank, died insolvent and a defaulter to
11 O. St. 153, 78 Am. Dec. 296; City his bank. No other officer of the
Nat. Bank v. Martin, 70 Tex. 643, 8 S. bank knew of the act of the teller
W. 507, 8 Am. St. Rep. 632; First Nat. in collecting and appropriating the
Bank v. Greenville Oil, etc., Co., 24 money to his own use. In a suit by
Tex. Civ. App. 645, 60 S. W. 828. the owner of the note against the
23. Restriction upon customary bank, held: It being shown that th-5
—
powers of cashier Notice Proof. — teller had in other transactions made
Sturges & Co. v. Bank, 11 O. St. 153, collections for others as an officer of
78 Am. Dec. 296; City Nat. Bank v. the bank, and the collection being
Martin, 70 Tex. 643, 8 S. W. 507, 8 Am. within the scope of his apparent au-
St. Rep. 632; First Nat. Bank v. Green- thority, it was immaterial whether
ville Oil, etc., Co., 24 Tex. Civ. App. the collection was really within the
645, 60 S. W. 828. scope of his authority or not, and the
The owner of a promissory note bank would be bound by his acts,
payable to the paying teller of a bank City Nat. Bank v. Martin, 70 Tex. 643,
and endorsed by him in blank, de- 8 S. 507, 8 Am. St. Rep. 632.
W.
livered it to such teller for collection, 24.Authority beyond ordinary scope
to be held by him as an agent of the of powers— Proof of.— Hill v. Bank, 87
bank. The teller collected the money Mo. App. 590.
on a check given for it and payable
1 B & B—47
the general charge and inanagement of the business and contracts of the
bank, all his contracts made within the scope of the powers of the bank are
binding upon it.^^
No Power to Bind the Bank for His Private Benefit. —A cashier

has no implied power to bind the bank for his individual benefit or to pledge
the credit of the bank in aid of his private enterprises, and where the trans-
action is such as to carry upon its face notice to third persons that an at-
tempt is being made to use the credit of the bank for such a purpose, they
are put upon inquiry to ascertain whether it is being done with the knowl-
edge and sanction of the board of directors. ^'^
§ 105 (3b) Particular Powers Considered. Control and Man- —

—
agement of Bank's Property. A cashier of a bank is without implied
authority as a matter of law to lease the bank's premises, to accept the sur-
render of a leasehold term or to lease premises of others for it, though he
is bank with reference to its business, such as

the executive officer of the
deposits, discounts, and exchange. ^'^ And his agreement that the bank's
lessee may use the leased premises for a purpose prohibited by the lease
does not bind the bank, where it is provided by statute that the business
of the bank shall be managed by the directors, and where, under the bank's
charter and by-laws, defining the cashier's duties, it is a matter within the
directors' control. ^s But while the management of the bank's property as,
for example, a hotel property, including repairs, etc., is not in the line of
the ordinary duties of abank cashier, the corporation, by its course of con-
duct with him, may clothe him with such power as to bind the property with
a mechanic's lien.^^
25. —
Same Where cashier given gen-
— Bank, 95 U. S. 557, 24 L,. Ed. 490, af-
eral management of bank's affairs. firming Fed. Cas. No. 17,462, 3 Dill. 403.
City Bank v. Perkins, 17 N. Y. Super. The transfer of a note, owned by a
Ct. 420. bank as collateral security, for a note
26. Cashier no power to bind bank executed by the father of the cashier of
for his private benefit.—West St. Louis the bank, by one of the owners of the
Sav, Bank v. Shawnee County Bank, bank, and by the cashier individually,
95 U. S. 557, 34 L. Ed. 4(J0; State Nat. payable to the bank, and indorsed and
Bank v. Newton Nat. Bank, 14 C. C. \. substituted by the bank for a certifi-
61, 66 Fed. 691. cate of deposit issued by it, was not
Acashier of a bank has no implied an attempt to transfer the note owned
authority to bind the bank by a pledge hy the bank as security for the cash-
of its credit to secure a discount of his ler's private debt, for the transaction
own notes for the benefit of a corpora- was that of the bank, and for the bank,
tion in which he was a stockholder. Powers v. Woolfolk, 132 Mo. App. 354,
State Nat. Bank v. Newton Nat. Bank, m S. W. 1187.
powers of cashier —
14 C C A
61 66 Fed 391 27. Particular
The cashier of a bank is not, by rea- ^°'^^''°} ^"^ management of bank's
^^^ ^- W
son of his official position, presun^d to P'o%Tr^3Ts' 2\"9
^'
have the power to bind it as an ac- ^^^ ^°- ^- ^' ^"• '
commodation indorser on his individual 28. Same —Use of leased property. —

note; and the pavee who fails to prove Dycus v. Traders' Bank, etc., Co., 52
that the cashier, as such, had authority 'i'ex. Civ. App. 175, 113 S.. W. 329.
to make the -ndorsernont, can not re- 29. Same — Special powers —Mechan-
cover against the bank. West St. ic's liens. — Marshall v. Bank, 76 Mo.
Louis Sav. Bank v. Shawnee County App. 92.
§ 105 (3b) REPRESENTATION OP BANK. 739;
Purchase or Sale of Property. — See ante, "Power of Cashier," § 104

(3) ;"Disposition, Encumbrance, or Lease of Real Estate," § 104 (5).
—
Creation of Agency. The creation of an agency of any kind for the
bank is a matter not within the usual and implied powers of the cashier.
It must have been authorized by those to whom has been confided the power
to manage its business, both ordinary and extraordinary.^*"

Power to Release or Compromise Claims, Extend Time of Pay-
—
ment, etc. The cashier of a bank, unless specially empowered to do so,
either expressly or implied by the course of business, has no authority to
release, otherwise than in due course of business and upon payment, the
makers of notes or other debtors of banks, or to release sureties or in-
dorsers, and notwithstanding his agreement to do so, the parties still re-
main liable to the bank even though the note or other security may have
been given up and canceled. ^^
—
Same Extension of Time Operating a Release. This doctrine not —
only forbids direct agreements for the cancellation of securities and the
release of the parties thereto, but forbids any agreement for an extension
of time or any course of dealing operating to release parties secondarily
liable without the knowledge or consent of the party primarily liable
30. Same — Creation of agency. — County Sav. Ass'n v. Sailor, 63 Mo. 24;
United States v. City Bank (U. S.), ai People's Sav. Bank v. Hughes, 62 Mo.
How. 356, 16 L. Ed. 130. App. 576; Merchants' Bank v. Rudolph,
The cashier of a bank wrote to the 5 Neb. 527; Cochecho Nat. Bank v.
secretary of the treasury that the Haskell, 51 N. H. 116, 12 Am. Rep. 87;
bearer of the letter, who was a director Bank v. Reed (Pa.), 1 Watts & S. 101;
of the bank, was authorized on behalf Hodge V. First Nat. Bank, 63 Va. (22
of the bank to contract for the transfei" Graft.) 51; Bank v. Wetzel, 58 W. Va.
of money for the general government 1, 50 S. E. 886; First Nat. Bank v.
from the east to the south or west, and Lowther-Kaufman Oil, etc., Co., 66 W.
the secretary of the treasury made v>fith Va. 505, 66 S. E. 713.
the said bearer such a contract, and Where the bank's officers were dili-
delivered to him funds, which he failed gent, and where discount committee
its
to deliver according to the contract. met almost daily, and was at all times
In a suit by the United States against accessible to the cashier, and no un-
the bank it was held that such a trans- usual powers were conferred on him,
action not being within the scope of he was without authority to make a
the authority of the cashier, nor au- contract releasing an indorser. Farm-
thorized by the directors, nor ratified ers', etc., Bank v. Clancy, 163 Mich.
by them, the bank was not obliged to 586, 128 N. W. 753.
reimburse to the United States the "Ordinarily, he has no power to dis-
moneys so advanced by the secretary charge a debtor without payment, nor
of the treasury. United States v. City to surrender the assets or securities of
Bank (U. S.), 21 How. 356, 16 U. Ed. the bank. And, strictly speaking, he
130. may not, in the absence of authority
31. Power of cashier to release or conferred by the directors, cancel its
compromise, extend time of payment, deeds of trust given as security for
etc.— Martin v. Webb, 110 U. S. 7, 38 —
money loaned certainly not unless the
L. Ed. 49, 3 S. Ct. 428; Thompson v. debt secured is paid. As the executive
McKee, 5 Dak. 172, 37 N. W. 367; Mott officer of the bank, he transacts its
V.Semmes, 34 Ga. 540; Marine Bank business under the orders and super-
V. Ferry, 40 111. 255; Ecker v. First vision of the board of directors. He
Nat. Bank, 59 Md. 291; Farmers', etc.. is their arm in the management of its
Bank v. Clancy, 163 Mich. 586, 138 N. financial operations." Martin v. Webb,
W. 752; Payne v. Commercial Bank 110 U. S. 7, 28 U. Ed. 49, 3 S. Ct. 428.
(Miss.), 6 Smedes & M. 24; Daviess
thereon. ^2
Same — Changing Character of Relation. —Neither is it within the
general powers of the cashier to change the character of the relation be-
tween the bank and the parties to paper held by it, as by an agreement that
each indorser shall be liable for only a certain portion of the debt, or by
an agreement operating to release some of the parties in consideration of
the execution of new or additional securities by the others.^^
Same — Compromise — Substitution of Securities. —A cashier is with-
out authority to compromise a claim, unless such authority is either directly
or impliedly by the course of business conferred on him, and where the
bank's officers were diligent and where its discount committee met almost
daily, and was at all times accessible to the cashier and no unusual powers
were conferred on him, he was without authority to make such a contract.^*
32. Same —
Extension of time operat- indorser shall be liable only for a cer-
—
ing a release. Vanderford v. Farmers', tain portion of the debt, whether the
etc., Nat. Bank, 105 Md. 164, 66 Atl. contract relates to original notes dis-
47, 10 L. R. A., N. S., 139; Bank v. counted or to notes taken in renewal.
Hooke, 41 Tenn. (1 Coldw.) 156; Bank First Nat. Bank v. Lowther-Kaufman
V. Wetzel, 58 W. Va. 1, 50 S. E. 886. Oil, etc., Co., 66 W. Va. 505, 66 S. E.
But see Wakefield Bank v. Truesdell 713.
(N. Y.), 55 Barb. 602. The cashier of a bank is not author-
A cashier of a bank has no implied ized by his general authority to change
power, merely by virtue of his office, the character of the bank, in relation
to receive money for interest in ad- to certain paper, from that of creditor
vance on a note owned by the bank and to that of an agent of its debtor. Bank
agree to extend time of payment and V. Reed (Pa.), 1 Watts & S. 101.
thus discharge an endorser from liabil- not within the general power of
It is
ity. Bank v. Wetzel, 58 W. Va. 1, 50 a cashier to release a party to a note
S. E. 886.
from his liability to the bank thereon
by taking another note signed by all
The cashier of a bank, after a bill
of the parties to the original save the
had been protested, accepted another one so attempted to be released; nor
bill drawn and indorsed by the same
can he, by virtue of his office, release
parties, not for the purpose of a re-
a surety, even though the bank holds
newal, but merely for the purpose of
ether security to which it may resort.
saving the credit of said parties, by
Ecker V. First Nat. Bank, 59 Md. 291.
preventing the bill from appearing on
In an action by a bank against the
the list of protested papers. After-
parties to a note held by it, it appeared
wards the new bill was returned to the in proof that the cashier of the bank
drawer, and an action brought on the
had made an agreement which, if
old bill against the accommodation in-
carried out, would have discharged all
dorser. Held, that the arrangement
the parties to the note but one, and
whereby the cashier accepted the new that he made that agreement after con-
bill was unauthorized, and not binding
sulting with two or more of the direct-
on the bank and would not operate to ors. The court instructed the jury that
release the indorser of the original
the cashier of the bank had no author-
bill. Bank v. Hooke, 41 Tenn. (1
ity to bind the bank by any contract
Coldw.) 156.
that would release the parties, but that,
33. Same —
Changing character of re- if he acted on consultation with two or
lation. —
Ecker V. First Nat. Bank, 59 more of the directors, then his acts
Md. 291; Payne v. Commercial Bank would be binding on the bank. Held,
(Miss.), 16 Smedes &
M. 34; Bank v. that the entire instruction, taken to-
Reed (Pa.), 1 Watts &
S. 101; First gether, and applied to the facts, would
Nat. Bank v. Lowther-Kaufman Oil, not be erroneous in its conclusion.
etc., Co., 66 W. Va. 505, 66 S. E. 713. Payne v. Commercial Bank (Miss.), 6
Nor has he any authority, by virtue Smedes & M. 24.
of his office, to bind his bank by an 34. Same—Compromise— Substitution
agreement with indorsers of a note, of securities. —
Farmers', etc., Bank v.
unknown to the directors, that each Clancy, 163 Mich. 586, 128 N. W. 753.
Neither has he any authority, by virtue of his office, to go into another state,
and settle an account with another bank, taking private securities therefor,
and giving a receipt in full. In such a transaction he acts as the agent of
his bank simply, and, in order to bind it, his acts must be within the scope
of his appointment. ^5
Same— Power to Enter into Composition and Discharge.^Without
special authority from the directors, he has no power to bind the bank by
an agreement for composition with creditors and the discharge of an in-
solvent, the bank being one of the creditors.^®
—
Same ^Power to Receive Payment Other than Money. The cash- —
ier of a bank is not authorized, merely by virtue of his position, to receive,
in payment of debts due the bank, other notes, or things other than money,
without consulting the president and other officers of the bank; but if in-
trusted by the corporation with the business of renewing notes and debts
of the bank, or the management of the business of the bank, his agreement
to accept one note in payment of another is binding on the bank; which
authority need not be expressly conferred, but may be shown by the man-
ner in which the business of the bank was condvicted, and by the cashier's
repeated dealings with the party, who claims that he has such authority,
it being a question for the jury, under all the evidence.^^
35. Same — Same. — Sandy River Bank wrote to one of the other banks, stat-
V. Merchants', etc., Bank, Fed. Cas. No. ing that the C. Bank accepted the com-
13,309, 1 Hiss. 146. promise. Soon afterwards the presi-
36. Same —Power to enter into com- dent and cashier changed their minds,
position and discharge. — Reed v.Pow- and, when the debtor tendered the in-
dorsed note and check agreed upon,
ell (La.), 11 Rcb. 98; Union Bank v.
Bagley (La.), 10 Rob. 43; Clinton & the cashier refused to accept them,
Port Hudson R. Co. v. Kernan (La.), and repudiated the agreement. In the
10 Rob. 176; Union Bank v. Jones, 4 meantime the debtor had settled with
the other banks. It did not appear
La. Ann. 236; Chemical Nat. Bank v.
Kohner, 85 N. Y. 189. that the cashier had acted without au-
A cashier can not, by virtue of his thority. The repudiation was not put
office, represent the bank at a meet-
upon thatground, and compromises
ing of creditors, and vote for syndic; were of common
occurrence with the
he must be authorized by the directors. bank. Held, that the cashier's au-
Reed v. Powell (La.), 11 Rob. 98. thority was to be presumed; that the
A cashier may, as an act of admin- agreement was a valid composition
istration, accept an insolvent's sur- agreement; and that after it had been
acted upon by the other creditors, the
render and vote for syndic; but, with-
C. Bank was bound. Chemical Nat.
out express and special authority from
the directors, he can not discharge
Bank v. Kohner, 85 N. Y. 189.
the insolvent. The release of a debtor 37. —
Same Power to receive pay-
is an act of ownership, and not of ad- —
ment other than money. Mitchell v.
ministration. Civ. Code, arts. 2065, Porter, 15 Ky. L. Rep. 335.
2966. Union Bank Bagley (La"),
v. An agreement by a bank cashier to
10 Rob. 43; Port Hudson
Clinton & accept a verbal assignment of an in-
R. Co. V. Kernan (La.), 10 Rob. 176; terest in a note, previously assigned
Union Bank v. Jones, 4 La. Ann. 236. to another bank as collateral security,
The president and cashier of the C. in payment of another note, is void,
Bank we'-e its active managers. A because beyond the scope of his au-
debtor of the bank proposed a com- thority. Piedmont Bank v. Wilson, 124
promise to the cashier, the debtor's N. C. 561, 32 S. E. 889.
other creditors, two banks, agreeing to He has no authority, by virtue of his
compromise if the C. Bank would. office, to accept the certificates of the
The president assenting, the cashier capital stock of an insurance company
Same— Special Authority to Release or Compromise. —A cashier,

acting in conformity with the established practice and rules of the bank,
may release a debt and mortgage to the bank.^^ ^nd where the directors
have, for a number of years, left the entire management of the bank to the
cashier, and have acquiesced in all his acts in making loans, taking securities,
and discharging mortgages, his act in discharging a mortgage will be bind-
ing on the bank.3^
—
Same Restrictions Applicable to Other Subordinates. What has —
been said with reference to the want of power in the cashier to release par-
ties indebted to the bank, applies, of course, to the tellers and other assist-
ants subordinate to the cashier.***

Contract to Pay Money Otherwise than in Way of Loan. —A cashier
of a bank has no power, by virtue of his office, to bind the corporation ex-
cept in the discharge of his ordinary duties, and the ordinary business of a
bank does not comprehend a contract made by a cashier without delegation —
—
of power by the board of directors involving the payment of money not
loaned by the bank in the customary way.*^
Agreements as to the Application of Money or Payments. It is —
within the scope of the cashier's authority to accept payments under an
agreement that they should be applied in discharge of a particular debt or
debts owing to the bank.*^
To Pay Notes and Drafts Out of Funds of Customers. A promise —
by the cashier of a bank, made without consideration to the drawer of a
draft, to pay the same out of funds of a customer on whom the draft is
drawn and who has been credited with the proceeds of negotiable paper
which he as owner transferred to the bank, is not enforceable against the
in payment of a debt due the bank. Dunn (U. S.), Ed. 316;
6 Pet. 51, 8 L.
Bank v. Hart, 37 Neb. 197, 55 N. W. United States City Bank (U. S.),
v.
631, 20 L. R. A. 780. 21 How. 356, 16 L. Ed. 130; Merchants'
It has been held, however, that the Nat. Bank v. State Nat. Bank (U. S.),
cashier of a bankexecutive offi-
is its 10 Wall. 604, 19 L. Ed. 1008; Martin
cef, and has authority to take a book v. Webb, 110 U. S. 7, 28 I<. Ed. 49, 3 S.
account against a third person in pay- Ct. 428.
ment of a note. Santa Fe Exch. Bank 42. Agreements as to the applica-
V. Dick, 73 Mo. App. 354. tion of money —
or payments. Stebbins
38. —
Same Special authority to re- v. Lardner, 2 S. Dak. 127, 48 N. W.
lease or compromise. Ryan v. Dun- — 847.
lap, 17 111. 40, 63 Am. Dec. 334. Defendants assigned certain rents to
—
Same Releasing mortgage.
39. — the cashier of a bank, to be applied to
Martin v. Webb, 110 U. S. 7, 28 L. Ed. the satisfaction of a particular debt due
49, 3 S. Ct. 428. by them to the bank, the cashier agree-
40. Same —Restrictions applicable to ing that the rents should be so ap-
—
other subordinates. Marine Bank v. plied. Held, that such agreement was
Ferry, 40 111. 255. within the scope of the cashier's au-
The functions of a note teller of a thority, and that the bank was bound
bank do not extend to the erasure of thereby; and that, if sufficient rents
the name of one of several makers of were paid into the bank under such
a note, simply upon his request, so as agreement to pay said note, the note,
to bind the bank. Marine Bank v. in law, was paid, without regard to
Ferry, 40 111. 255. other indebtedness of defendants to
41. Contract to pay money other- the bank. Stebbins v. Lardner, 2 S.
wise than in way of loan. Bank v. — Dak. 127, 48 N. W. 847.
bank, unless the customer assents that the bank shall make such an appli-
cation of the funds so placed to his credit.*^ The managing partner of a
firm doing a banking business, who is also the cashier, has authority to
make an agreement by which a note shall be charged to a third party in
pursuance of a previous agreement between the bank and the maker of the
note.**
To Borrow Money for the Bank. —
The cashier of a bank is the proper
officer to execute its power of borrowing money, and he needs no special
delegation of authority to do so. If done in the ordinary course of his
business, it is presumably done within the scope of his duty, and the bank
is bound by his acts and representations in the apparent exercise of such
authority. *5 As an incident to this power, it is within the apparent scope
of the authority of the cashier to execute the necessary evidences of the
indebtedness and to pledge the bank's property or funds to secure the money
borrowed by him for the bank in regular course of business.*^
43. To pay notes and drafts out of The cashier of a bank has the same
—
funds of customers. ^Bullard Bros. v. authority to pledge collaterals to
Bank, 121 Ga. 537, 49 S. E. 615. secure notes given by the bank that
44. Same —
Charging note to account he has to give the notes, and it was
of third person. —Wise v. L,eob, 15 Pa. therefore error, in an action for an ac-
Super. Ct. 601. counting against the assignee of an
45. To borrow money
for the bank. insolvent bank, to direct the creditor
— State Bank
People's Nat.
v. Bank to return to the assignee certain col-
CSup.), 118 N. Y. S. 641; Barnes v. laterals held by such creditor as secu-
Ontario Bank, 19 N. Y. 152; Donnell rity for the notes of the bank. Sloan v.
V. Lewis County Sav. Bank, 80 Mo. Kansas City State Bank, 158 Mo. 431,
105; Ringling v. Kohn, 6 Mo. App. 57 S. W. 1056.
333. A bank cashier arranged with A.
46. Same —Power to execute evi- that A. should accept the bank's drafts
dences of indebtedness and give se- on condition that the bank should
curity. —
Citizens' Bank v. Bank, 31 Ky. keep a corresponding balance with A.
L. Rep. 365, 103 S. W. 349. to A.'s credit, on which balance A.
It is competent for the cashier of a should have a lien as security for his
bank organized under the general liability, and should be kept informed
banking law (Rev. St., c. 7), as agent of the condition of the bank, and have
for its board of directors, to execute at any time the right to take the bal-
a promissory note for money bor- ance to pay the acceptances. Held,
rowed to use in its business, and the that this agreement was within the
bank will be bound thereby. Ballston power of the cashier to make, and
Spa Bank v. Marine Bank, 16 Wis. 120. bound the bank; and that, upon notice
A cashier, having the general charge from the bank of its insolvency, A.
and management of a bank, has au- was entitled to apply the balance in
thority to transfer the bank's paper as pursuance of the agreement, as against
collateral security for the bank's debts. the assignee in insolvency. Coats v.
Powers V. Woolfolk, 133 Mo. App. 354, Donnell, 94 N. Y. 168.
111 S. W. 1187. Actuary's authority. The — Freed-
Where, for almost a year, negotiable man's Savings and "Trust Company,
securities had been constantly pledged chartered by an act of congress ap-
by the cashier of one bank, under his proved March 3, 1865 (13 Stat, 510),
written agreement as cashier, with an- being, during a financial crisis, pressed
other bank, for advances made, held, for means, its agent, with the knowl-
that the latter bank was a purchaser edge and consent of its trustees, bor-
for value of said securities, free from rowed of A. moneys which were ap-
all prior equities, as it might presume plied to its use. A
note therefor was
that the cashier acted with the consent signed by the actuary of the institu-
of the directors. Mercantile Bank v. tion, who subsequently transferred to
McCarthy, 7 Mo. App. 318. A., in satisfaction thereof, certain
Same — Statutory —
Restrictions. There is no implied authority in the
cashier to borrow money on behalf of the bank under a statutory provision
which vests that power only in the directors or their duly authorized agents
and officers.*'^ And a statute which provides that a bank's cashier shall have
no power to indorse, sell, or pledge any obligations received by it for money
loaned, unless authorized in writing by the directors, is notice to the world
of the limitation of the cashier's authority.* ^ But such a statute does not
prevent a cashier from borrowing money for the bank's benefit in the ordi-
nary course of business without any authority from the directors. Such
statute merely invalidates a pledge of the bank's securities as collateral when
made without the required written authority.*^ And such statutes do not
apply to private banks having no board of directors. 5"
securities belonging to the company. shall be given in a regular meeting of

That officer was held out to the public the board, a written record of which
as competent to make such an ex- proceeding shall first have been made,
change, and there was no departure in and providing that all acts of indors-
this instance from the established ing, pleading, etc., by such cashier
usages. No fraud was committed, and without authority from the directors
the transaction was advantageous to shall be null and void, such acts by
the institution. On the failure of the the cashier, unless previously author-
company, the commissioners appointed ized by the written record of a di-
to wind up its affairs filed their bill, rector's meeting of the bank, are not
praying that A. be decreed to deliver voidable, but are without any force
to them said securities. Held, that and validity whatever. Hume v.
the commissioners are not entitled to Eagon, 83 Mo. App. 576.
relief. Creswell v. Lanahan, 101 U. S. Not obnoxious to the statute here.
347, 25 L. Ed. 853, citing Merchants' — Defendant, indebted to a bank, in
Nat. Bank v. State Nat. Bank (U. S.), lieu of the notes executed other notcb
10 Wall. 604, 19 L. Ed. 1008. and a mortgage to plaintiff, the cash-
47. Same Statutory restrictions. —
— ier, without authority of the directors.
First Nat. Bank v. Michigan City Bank, Plaintiff assigned the notes to the
8 N. Dak. 608, 80 N. W. 766. bank, which reassigned them to him,
The cashier of a bank or-
state and he testified that he had no per-
ganized under Laws c. 23, pro-
1890, sonal interest, but held them for the
viding (§ 4, subd. 7) that such a bank bank. Held, that the notes were not
shall have power to exercise, by its void as obnoxious to Rev. St. 1899,
board of directors or duly-authorized § 1294 (Ann. St. 1906, p. 1054) provid-
officers or agents, subject to law, all ing that the cashier shall have no
such incidental powers as shall be power to indorse, sell, pledge, or
necessary to carry on the business of hypothecate any notes or other obli-
banking, by discounting and negotiat- gations received by said corporation
ing promissory notes, bills of ex- for money loaned, until such power
change, drafts, and other evidences of shall have been given to the board of
debt, by receiving deposits, etc., has directors, and declaring such trans-
no authority to borrow money unless actions void Donnell v. Miller, 152
it is specially given by the board of Mo. Apn. 217, 132 S. W. 1194.
directors. First Nat. Bank v. Michi- 50. — —
Same Same Applicability to
—
gan City Bank, 8 N. Dak. 608, 80 N. banks having no board of directors.
W. 766. Powers V. Woolfolk, 132 Mo. App. 354,
48. Same —Knowledge
of statutory 111 S. W.
1187.
restrictions. — Union
Nat. Bank v. Rev. 1899, § 1294 (Ann. St. 1906,
St.
Lyons, 220 Mo. 538, 119 S. W. 540. p. 1054), forbidding a cashier to trans-
49. Same —
Statute construed. — fer notes of the bank as collateral
Union Nat. Bank v. Lyons, 320 Mo. security, unless such power shall have
538, 119 S. W. 540. been given him by the board of di-
Held absolutely void here. —Under rectors, and making transfers, without
Rev. St. 1899, § 1294, requiring that such authority, null and void, which
authority of the directors to a bank section, so far as applicable, by § 1301,
cashier to dispose of its securities Rev. St. 1899 (Ann. St. 1906, p. 1058),
To Pay the Debts and Obligations of the Bank. — It is within the

usual and implied powers of the cashier to apply its funds as well as its
negotiable securities to the discharge of its obligations.^ ^ And a resolution

of the directors requiring the president and cashier to liquidate the debts
of the bank, is sufficient to authorize the cashier, with the sanction of the
president, to indorse the paper of the bank, even if he lacked such authority
before; and if it did not, a subsequent ratification thereof made the same
binding ;^2 but if the cashier promises to pay a debt which the corporation
does not owe, or which it is not liable to pay, or if he represents forged bills
to be genuine, such promise or admission will not bind the bank, except as
against bona fide holders for value and without notice, unless it has author-
ized or adopted the act.^^
Power to Renew Notes. —The cashier of a bank, who, in addition to his
usual powers, is, in the absence of the president, running the bank under the
advice of the executive committee, has authority to bind the bank by a con-
tract to renew notes, in consideration of the release by the indorser of a lien
on the maker's property.^*
Pledging Assets for Antecedent Debts. The cashier of a bank has —
not the power to pledge its assets for the payment of an antecedent debt.^'
To Execute Indemnity Bond to Sheriff. A cashier of a bank has not, —
under his general authority merely, authority to execute an indemnity bond
to a sheriff who has levied on property under an execution in favor of the
bank.se
To Bind Bank as Surety or Guarantor. —A bank has no authority to
lend its credit ; hence it is not within the power of the cashier to bind it
upon a contract of guaranty or suretyship for the accommodation of third

persons and with respect to matters in which it has no interest. ^'^
governs private banks, does not ap- 54. Power of cashier to renew notes.
ply to a private bank which has no —Bank v. Bright, 23 C. C. A. 586, 77
board of directors. Powers iJ. Wool- Fed. 949.
folk, 132 Mo. App. 354, 111 S. W. 1187. 55. Pledging assets for ante credit
51. Power of cashier to pay debts debts. — State v. Davis (N. Y.), 50
and obligations of bank. Fleckner v. — How. Prac. 447.
Bank (U. S.), 8 Wheat. 338, 5 L. Ed. 56. To execute indemnity bond to
631; Merchants' Nat. Bank v. State sheriff. —Watson v. Bennett (N. Y.),
Nat. Bank (U. S.), 10 Wall. 604, 19 L. 12 Barb. 196.
Ed. 1008; Cochecio Nat. Bank v. Has- Power to bind bank as surety or
57.
kell, 51 N. H. 116, 13 Am. Rep. 67. guarantor.—West St. Louis Sav. Bank
In the absence of all positive re- v. Shawnee County Bank, 95 U. S. 557,
strictions, it is his duty as well to ap- 24 E. Ed. 490; Seligman v. Charlottes-
ply the negotiable funds, as the ville Nat. Bank, Fed. Cas. No. 13,642,
moneyed capital, of the bank, to dis- 3 Hughes 647; National Bank v. Atkin-
charge its debts and obligations. son, 55 Fed. 465; Farmers', etc., Bank
Fleckner v. Bank (U. S.), 8 Wheat. v. Troy City Bank (Mich.), 1 Doug.
338, 5 L. Ed. 631. 457; Swofford Bros. Dry Goods Co. v.
52. Under resolution of directors. — Bank, 81 Mo. App. 46; Bowen v.
Fleckner v. Bank (U. S.), 8 Wheal. Needles Nat. Bank, 87 Fed. 430.
338, 5 L. Ed. 631. The guarantor by the bank of the
53. Debts which bank does not owe notes of third persons, discounted by
— Forged bills. — Merchants' Bank v. a customer acting through the cashier
Marine Bank (Md.), 3 Gill. 96, 43 Am. is not within the scope of the cashier's
Dec. 300. authority, is without the ordinary
Buying and Selling Exchange. —^There being nothing to show any re-
striction or qualification of his powers in that regard, the duties of the cash-
ier may reasonably be understood to extend to the buying and selling, and
negotiating bills of exchange, checks and promissory notes, as well as to that
of borrowing money, as the agent of the bank. In the discharge of his duty,
he supposed to be instructed and directed, either generally or specially, by
is
the bank, either through its board of directors or president, as the case may
be.^* The writteri assurance of the cashier which accompanies a bill sent
to the parties purchasing the same that it "is perfectly safe," amounts to a
warranty or representation in the nature of a guaranty that the bill is col-
lectible and the bank is bound thereon.'^
§ 106. Deposits —
§ 106 (1) In General. —
An officer of a bank can
not bind the bank in regard to a deposit by an act for his own benefit which
is hostile to the interests of the bank.*''
Entry of Deposit. —A bank is bound by the entry of a deposit in a bank
book by the proper clerk.î
course of the banking business, and is with his name alone, and not as cash-
not binding on the bank. Third Nat. ier. Held, that the transaction was
Bank v. St. Charles Sav. Bank, 244 Mo. within the usual course of business and
554, 149 S. W. 495. the scope of the cashier's authority.
A
bank cashier has no authority to Crystal Plate Glass Co. v. First Nat.
bind the corporation by way of guar- Bank, 6 Mont. 303, 12 Pac. 678.
anty or a mere accommodation in- 58. Buying and selling exchange. —
dorsement. Swofford Bros. Dry Lafayette Bank v. Bank, Fed. Cas. No.
Goods Co. V. Bank, 81 Mo. App. 46. 7,987, 4 McLean 208; Wild v. Bank,
The cashier has no power to accept Fed. Cas. No. 17,646, 3 Mason 505;
bills of exchange, on behalf of the Fleckner v. Bank (U. S.), 8 Wheat.
bank, for the accommodation merely 338, 5 L. Ed. 631; Robb v. Ross County
of the drawers. Farmers', etc.. Bank Bank (N. Y.), 41 Barb. 586; Marine v.
V. Troy City Bank (Mich.), 1 Doug. Hymers (N. Y.), 2 Kern. 223; Sturges
457. & Co. V. Bank, 11 O. St. 153, 78 Am.
The signing of a replevin bond by a Dec. 296.
bank by its cashier, in an action be- —
Purchase of exchange. Contracts for
tween third parties in which the bank the purchase and sale of New York
has no interest, is not an act within funds are authorized by the directors,
the apparent authority of the cashier. and are sanctioned by usage (dissent-
Judgment, Sturdevant Bros. & Co. v. ing opinion). Merchants' Nat. Bank v.
Farmers', etc.. Bank, 62 Neb. 472, 87 State Nat. Bank (U. S.), 10 Wall. 604,
N. W. 156, affirmed on rehearing. 19 L. Ed. 1008.
Sturdevant Bros. & Co. v. Farmers, 59. Warranty or representation as
etc.. Bank. 69 Neb. 220, 95 N. W. 819. to responsibility of parties to paper. —
A bank cashier has no authority by Sturges &
Co. V. Bank, 11 O. St. 153,
virtue of his office to make a purchase 78 Am. Dec. 396.
of boots and shoes in the name of the 60. Deposits. — Claflin v. Farmers',
bank for the benefit of a third person, etc., Bank, 25 N. Y. 293, 24 How. Prac.
and the bank will not be liable there- 1, 2 Am. Law
Reg., N. S., 93.
for in the absence of consent to the As deposits generally, see post,
to
purchase or ratification thereof. North "Deposits," §§ 119-155. As to de-
Star Boot, etc., Co, v. Stebbins, 3 S. posits in national banks, see post, "De-
Dak. 74, 48 N. W. 833. posits in General," § 263. As to
Abank having ordered goods for deposits in savings banks, see post,
third persons who were unable to pay "Deposits," §§ 298-301.
at the time, the acting cashier took 61. Entry of deposit. Mechanics',—
their paper and sent the sellers a cer- etc.. Bank v. Banks, 11 La. 260; Hep-
tificate of deposit payable in three burn V. Citizens' Bank, 2 La. Ann. 1007,
months, regular in form, but signed 46 Am. Dec. 564.
Certificates of Deposit. —The bank is not liable to a bona fide holder,

in all respects, of a certificate of deposit issued by a subordinate officer hold-
ing without authority and unsustained by any prior practice or usage.^^ An

indorsee of a certificate of deposit which is postdated,^^ or which shows on
its face that it was certified by an assistant cashier,** is not a bona fide
holder.
Certification of Check. —Where an employee of a bank is authorized to
bank for its payment without re-
certify a check, his certification binds the
gard to the state of the drawer's account^^ But it has been held that a per-
son dealing with a bank is presumed to know that no officer has power to bind
the bank by the certification of a check, when the drawer has no funds on
deposit.^8 Where a subordinate officer or clerk has been permitted to pur-
sue a particular practice m certifying checks for customers or otherwise, his
acts, although wrongful, will bind the bank in favor of a person who fulfills
the conditions of a dealer in good faith.'^''' Since an agent can not put him-
self in a position of hostility to his principal, an agent of a bank, authorized
by a by-law to certify checks drawn upon the bank, does not render the bank
liable by certifying his own checks, when he has no funds to his credit.^ ^
—
Special Deposit. Where no instructions were given to the subordinate
officers of a bank to reject packages presented to it for safe-keeping, and no
notice given that they would not be received, the receipt of such officers binds
the bank, and renders it liable for loss of the packages.*^ Whether an offi-
cer of a bank has power to bind it by the acceptance of a deposit, with in-
62. Certificate of deposit. — Pope v. dorsed the check to G., who procured
Bank, 57 N. Y. 126, reversing 59 Barb. it to be cashed by P. Held that, as
S26. the assistant cashier had no authority
63. Postdated certificate. "The — to accept the check, the bank was not
check was dated at Albion on the 1st liable thereon to P. Pope v. Bank, 57
of March, 1866, and if it was assumed N. Y. 136, reversing 59 Barb. 336.
to have been a transaction in the or- 65. Certification of check. — "And
dinary course of business, was ac- whether a check when presented, is
cepted or certified within the usual paid by the officer of the bank in
banking hours at Albion on the day money, or he gives the holder a cer-
it bore date. It was purchased by the tificate of deposit or draft, or a cer-
plaintiff on the morning of the follow- tificate that he will retain sufficient of
ing day (March 2"), and it seems rea- the money standing to the drawer's
sonably certain, from the evidence, credit, the officer is acting within the
that if 'accepted' at Albion on the 1st, line of his duty, and the bank bound."
it could not, in the ordinary course of French v. Irwin, 63 Tenn. (4 Baxt.)
the mail, have reached New York un- 401.
til the afternoon of the following day; 66. Clarke Nat. Bank v. Albion Bank
and of this fact the plaintiff was bound (n. Y.), 53 Barb. 592.
to take notice. It was sufficient to 67. Pope v. Bank, 57 N. Y. 126, re-
put him at least upon inquiry." Pope versing 59 Barb. 236, citing Farmers',
z: Bank, 57 N. Y. 126, reversing 59 etc., Bank
Butchers, etc.. Bank, 16
v.
Barb. 226. N. Y. 125, 69 Am.
Dec. 678.
64. Certified by assistant cashier. — 68. Claflin v. Farmers', etc.. Bank,
B. drew a postdated check, payable, 35 N. Y. 393, 34 How. Prac. 1, 2 Am.
to his own order, on a bank, in which L. Reg., N. S., 93.
he had at the time no funds on de- 69. Special deposits, Pattison v. —
posit, and procured the assistant cash- Syracuse Nat. Bank (N. Y.), 1 Hun
ier thereof to write an acceptance 606, 4 Thomp. & C. 96. Sec post,
across the face of the check. B. in- "Special Deposits," § 153.
structions as to itsis to be determined by a consideration of his

distribution,
relation to the bank,and the principles governing the same, and not by the
mere opinion of a witness, such as the cashier and secretary, as to the legal
effect of that relationJ''
§ 106 (2) President. —In from the

the absence of special authority
directors of a bank, the president can not authorize the cashier topay the
checks of a person who holds a claim against the president, but has no de-
posit in the bank J ^
Certification of Check.- —A general authority to the president of a bank,
to certify checks it, does not extend to checks drawn by him-
drawn upon
self J^ The between the name of the drawer of a check and the
identity
president of the bank who certified it informs any one that the president had
certified his own checks without funds in the bank, and deprives the owner
of the protection afforded to holders in good faith.'^^
Interest on Deposits. —Where the president of a bank gave a time check

bearing interest, signed by the president individually with nothing to show
that the bank assumed any obligation for its payment, but there was an
agreement made between the president and the depositor at the time of the
deposit, the depositor can recover from the bank in an action for money had
and received.'''*
—
Drawing Check. A resolution of the directors, authorizing the presi-
dent of a bank to draw checks and drafts, containing no limitation on its
face justifies the payment by a depository of funds of the bank of a check
drawn by such president against such deposit.''^
§ 106 (3) Cashier. —

It is the cashier's duty to receive all the funds
which come into the bank, and to enter them upon its books. The authority
to receive implies and carries with it authority to give certificates of deposit
and other proper vouchers. Where the money is in the bank, he has the
same authority to certify a check to be good, charge the amount to the drawer,
appropriate it to the payment of the check, and make the proper entry on
70. Burnell v. San Francisco Sav. be left, and the reply was that she
Union, 136 Cal. 499, 69 Pac. 144. would leave $1,600 for six months, and
71. President. —
Dowd v. Stephenson, he promised to pay four per cent and
105 N. C. 467, 10 S. E. HOT. received an eastern draft for an
72. Certification of check. Claflin — amount exceeding $1,600,and returned
V. Farmers', etc.. Bank, 25 N. Y. 293, a time check for the amount, payable
24 How. Prac. 1, 2 Am. L,. Reg., N. at the bank in six months, with in-
S., 92. terest at four per cent. The check
73. Claflin v. Farmers', etc.. Bank, was signed by the president individu-
25 N. Y. 293, 24 How. Prac. 1, 2 Am. ally, and there was nothing to show
L. Reg., N. S., 92, reversing 36 Barb. that the bank assumed any obligation
540. for its repayment. Held, that the de-
Interest on deposit.
74. A party — positor could recover from the bank
went to the banking house of defend- in an action for money had and re-
ant to make a time deposit and asked ceived. First Nat. Bank v. Heim, 76
what interest they were paying, and Neb. 831, 107 N. 'W. 1019.
the president testified that he asked 75. First Nat. Bank v. National Park
plaintiff how long the money would Bank, 175 Fed. 881.
the books of the bank. This he is authorized to do virtute officii. The

power is inherent in the office. ''''
Acceptance of Deposit. The — cashier of a national bank, unless re-

stricted by special rules, has authority to bind the bank to take a deposit.'^''
—
Payment of Check. A promise by a bank cashier to pay a check the
drawer of which has no funds on deposit in the bank, in consideration of
the drawee's agreeing to deposit the check in another bank, and have it thus
pass through the clearing house, is outside the cashier's authority, and not
binding on the bank, unless expressly authorized.'''^
Certificate of Deposit. —Where the by-laws of a bank provided that the

cashier should have power to sign all papers connected With the business,
and perform the duties necessary for the transaction of business, he had
power to sign certificates of deposit.''^ But it has been held that a bank
cashier, in the absence of special authority, can not bind his bank by issuing
its certificates of deposit to himself.^" As to an innocent holder, the bank
is liable on a by the cashier.*^ On the question as
certificate falsely issued
bank cashier to issue a specie certificate of deposit to
to the authority of a
a person who has no specie on deposit, similar acts, frequently done by the
cashier, are admissible. ^^
Certification of Check. —The cashier of a bank has no authority, by
virtue of his office, to bind the bank by a certification of his own individual
check drawn thereon; and, as in this case he has neither real nor apparent
authority, the certification is invalid. ^^
Deposit of Worthless Check. —The cashier of a bank has no right or
authority to accept a worthless check of another bank and charge his bank
with the amount thereof.^* This is not a deposit of money, against which
76. —
Cashier. Merchants' Nat. bar.k S., who had owned a private bank,
V. State Nat. Bank (U. S.), 10 Wall. of which L. had been cashier, was de-
604, 19 L. Ed, 1008. fendant's treasurer, under an agrec-
77. Acceptance of deposit. Mer- — ment by which he was entitled to use
chants' Nat. Bank v. State Nat. Bank defendant's funds, deposited in con-
(U. S.), 10 'Wall. G04, 19 L. Ed. 1008; sideration of his services as treasurer;
City Nat. Bank v. Merchants', etc., and checks had been drawn by defend-
Nat. Bank (Tex. Civ. App.), 105 S. ant on S., as treasurer, and paid
W. 338. through the bank. On January 15,
78. Morse v. Massachusetts Nat. 1894, S. caused the plaintiff savings
Bank, Fed. Cas. No. 9,857, Holmes bank to be formed, of which he was
209. president and L. was cashier, and the
79. Certificate of deposit. Abbott — business of the private bank was
V. Jack, 136 Cal. 510, 69 Pac. 357. closed through the savings bank. At
80. Lee V. Smith, 84 Mo. 304, 54 Am. this time S., as defendant's treasurer.
Rep. 101. was short in his accounts, and the old
81. Merchants' Nat. Bank v. State bank had a credit in plaintiff bank to
Nat. Bank (U. S.), 10 'Wall. 604, 19 L. the extent of but $1,110. Defendant
Ed. 1008. then drew a check in favor of S., as
82. Robinson v. Bealle, 20 Ga. 375. its treasurer, for $10,380, which was
83. Gale v. Chase Nat. Bank, 43 C. the amount of its credit in the old
C. A. 496, 104 Fed. 214. bank, which check L., as plaintififs
84. Deposit of worthless check. — cashier, permitted S. to charge against
Clarke Nat. Bank v. Bank (N. Y.), 53 plaintiff on his executing a check, as
Barb. 593; Farmers', etc., Bank v. defendant's treasurer, on plaintiff, in
Butchers', etc.. Bank, 16 N. Y. 135, 69 favor of the old bank, for $9,000, which
Am. Dec. 678. was charged to his account, as treas-
750 BANKS AND BANKING. § 106 (3).
an unauthorized checkis drawn, but a credit given the maker of the check.^^
—
Deposit to Credit. A cashier of a bank has power to make an arrange-
ment whereby a customer should accept the bank's drafts on condition that
the bank should keep a corresponding balance to the customer's credit, on
which balance the customer should have a lien as security for his liability
and have at any time the right to take the balance to pay the acceptance.^^
—
Charging Account of Depositor. A bank is liable to a depositor where
the cashier, with the knowledge of the president, charged a deposit with the
amount of a draft, which the depositor directed to be credited on a note
given the depositor by the cashier, where the depositor had no notice that
*
the draft had been so charged.^^
—
Special Deposit. The mere voluntary act of the cashier of a bank, in
receiving securities for safe-keeping, will not render the bank liable for their
loss;** but, if the deposit is known to the directors and acquiesced in, the
bank will be liable.*^ Where it is proved to have been a part of the ordinary
urer, on plaintiff's books. Held, that ier. He

afterwards wrote to the cash-
L., as cashier, had no authority to ac- asking him to remit to a certain
iei",
cept defendant's check on the old bank, person a draft on New York, and to
which was worthless, and charge plain- apply the amount on the note. The
tiff with the amount thereof. Van cashier remitted the draft, but, instead
Buren County Sav. Bank v. Stirling of applying it on the note, he charged
Woolen Mills Co. (Iowa), 94 N. W. it to the depositor's account. The
945, affirmed in 135 Iowa 645, 101 N. president of the bank knew the con-
W. 477. tents of the depositor's letter, and that
Neither defendant, nor S., as its the cashier sent the draft, and also that
treasurer, was entitled to credit for the cashier had on deposit sufficient to
the full amount of the check dra*vn on pay the note. The depositor had no
the old bank, since neither the old notice that the draft had been so
bank nor S. had funds against which charged until some time later, when
such check could be charged. Van he demanded the balance of his ac-
Buren County Sav. Bank v. Stirling count, whicli was refused. Held, in an
Woolen Mills Co. (Iowa), 94 N. W. action against the bank to recover the
945, affirmed in 125 Iowa 645, 101 N. balance, that the cashier had no right
W. 477. to so charge the account, and that
85. Van Buren County Sav. Bank v. the bank was liable. Reynolds v.
Stirling Woolen Mills Co. (Iowa), 94 Kenyon (N. Y.), 45 Barb. 585.
N. W. 645, affirmed in 125 Iowa 645, 88. Special deposit. —
First Nat. Bank
101 N. W. 477. V. Graham, 79 Pa. 106, 21 Am. Rep. 49.
86. Deposit to credit. Â bank cash- — The Act of Pennsylvania of 1834
ier arranged with A. that A. should ac- relating to banks did not authorize
cept the bank's drafts on condition special deposits of papers in banks,
that the bank should keep a corre- and therefore, where a cashier re-
sponding balance with A. to A.'s credit, ceived such deposit without authority
on which balance A. should have a and without the knowledge of the di-
lien as security for his liability, and rectors, the bank was not liable for
should be kept informed of the con- loss. Lloyd V.West Branch Bank,
dition of the bank, and have at any 15 Pa. 173, 53 Am. Dec. 581.
time the right to take the balance to 89. Acquiescence of bank. — First
pay the acceptances. Held, that this Nat. Bank v. Graham, 79 Pa. 106, 31
agreement was within the power of Am. Rep. 49.
the cashier to make, and bound the Bonds were deposited with the as-
bank. Coates v. Donnell, 48 N. Y. sistant cashier of a bank for safe-
Super. Ct. 46, affirmed in 94 N. Y. keeping, and afterwards were pledged
168. by him as cashier as collateral for,
87. Charging account of depositor. and sold in payment of, the bank's
—A depositor left with his bank for debts,without the depositor's knowl-
collection a note payable by the cash- edge or consent. Held that, though
business of a bank to receive United States bonds for safe-keeping, it fol-
lows that the cashier in dealing with the defendants in error acted within
the scope of his authority as cashier, and the bank is therefore bound by
his acts.®"
—
Deposit for Investment. A loan of money to a bank on the representa-
tions of its cashier that he would loan it out on first mortgage on good real
estate, must be considered as one with the full knowledge of the bank, in
the absence of evidence to the contrary, where the entries of all deaHng
concerning the money had been made both on the bank's individual ledger
and in the pass book of the creditor.î Where the cashier and general man-
ager of a bank undertook to make investments for a depositor, and exliibited
to the depositor, from time to time, statements taken from the books of the
bank, purporting to show investments made by the bank for him, it will be
presumed that the officer of the bank was acting for the bank, and not as
special agent for the depositor, and the bank will be required to account for
the deposits or the investments.®^ But where an arrangement is made with
a cashier of a bank, whereby he is to keep books and receive and disburse
funds for a third person, he is the agent of the person selecting him, and not
of the bank, and hence the bank is not Hable for moneys so received by him
outside of the bank which were never in fact paid over to the bank.®^
Security for Deposit of Public Funds. A cashier of a bank has au- —
thority to execute a bond on its behalf to secure deposits of public funds in
the absence of a rule or regulation by the directors or stockholders requiring
special authority and notice thereof to the obligee.®*
Interest on Deposit. —The cashier of a national bank, unless restricted
by special rules, has authority to bind the bank to pay interest on daily bal-
ances. ®5
—
Overdraft. The cashier can not, either with or without the express or
impHed permission of the directors, permit overdrafts, without being derelict
in duty.®«
§ 106 (4) Teller. —A receipt of a deposit by the receiving teller of a

private bank is the receipt' by the private banker, because he is the principal
and the teller the agent, and the deposit is the banker's private property.®^
Entry of Deposit. — In the case of money credited in the books of a
the officer was never authorized to re- 93. Demarest v. Holdeman, 34 Ind.
ceive such deposits, the bank became App. 685, 73 N. E. 714.
liable from the time the bonds were 94. Johnson County v. Chamberlain
pledged for its debt, as the bank could Banking House, 80 Neb. 96, 113 N.
not retain the fruits of the crime and W. 1055.
repudiate the acts of the agents. 95. City Nat. Bank v. Merchants',
Hughes V. First Nat. Bank, 110 Pa. etc., Nat. Bank (Tex. Civ. App.), 105
428, 1 Atl. 417. S. W. 338.
90. Bank v. Zent, 39 O. St. 105. 96. Overdraft.— Minor Mechanics',
v.
91. Deposit investment.— De-
for Bank (U. S.), 1 Pet. 46, 7 L. Ed. 47.
posit Bank v. Fleming, 19 Ky. L. Rep. See, also, Potts v. Wallace, 146 U. S.
1947, 44 S. W. 961. 689, 36 L. Ed. 1135, 13 S. Ct. 196.
92. Bobb V. Savings Bank, 23 Ky. 97. Teller.— Ex parte Rickey, 31
L. Rep. 817, 64 S. W. 494. Nev. 83, 100 Pac. 134.
teller, or proved to have been deposited with him, though he omits to credit
it, the liability of the bank depends upon whether the act was done in the
exercise of, and within the limits of the powers delegated. These facts are
necessarily inquirable into by a court and jury.^^
Certification of Check. —The teller of a banking institution has no im-
plied authority to certify checks, though authority may be implied from his
conduct in certifying checks, and the subsequent payment of them by the
institution. 39 ^
bona fide holder of a negotiable check, certified by the pay-
ing teller of the bank on which it is drawn, whose authority is limited to
•cases where the bank has funds of the drawer in hand, sufficient to cover
the check, can enforce the payment of the check, âlthough the bank has not
such funds, and the check was certified for the mere accommodation of the
drawer, and upon his promise that it should not be presented for payment.^
The bank is liable to an innocent holder, where the teller fraudulently certi-
fied a check.2 A bank is liable on a postdated check certified by the teller
with knowledge of the cashier, and where on the morning of the day the
check was payable the drawer's deposit was sufficiently large to pay it but
was exhausted by the payment of other checks during the day.^
—
Certificate of Deposit. A teller who is authorized to sign and indorse
checks and sign certificates of deposit in the absence of the cashier has power
to bind the bank by issuing a certificate for the balance of the purchase
price of property held by the bank under deed of trust for the amount of
the debt.*
98. Mechanics' Bank v. Bank of Co- protested for nonpayment. The payee
lumbia (U. S.), 5 Wheat. 326, 337, 5 L. sued the bank for money had and re-
Ed. 100. ceived. Held, that the teller acted as
99. Certification of check. — Muth v. the agent of the bank, and hence the
St. Louis Trust Co., 94 Mo. App. 94, bank was liable. Washington Second
«7 S. W. 978. Nat. Bank Averell, 2 App. D. C.
v.
1. Farmers', etc., Bank v. Butchers', 470, reversing 19 D. C. 246.
etc.,Bank, 16 N. Y. 125, 69 Am. Dec. 4. Certificate of deposit. —
A debt to
678, affirming 11 N. Y. Super. Ct. 219. a bank was secured by a deed of trust
2. Merchants' Nat. Bank v. State which named an officer thereof as trus-
Nat. Bank (U. S.), 10 Wall. 604, 19 tee. The latter generally attended to
L. Ed. 1008. its loans, and in the course of such
3. The payee of a postdated bank business received a check from an in-
check p/esented it to the drawee's pay- tending purchaser of the property for
ing teller in the office, after banking more than the amount of the debt,
hours. The teller, who sometimes re- and signed a reconveyance of the
ceived deposits in the absence of the property to the parties. The trans-
receiving teller, promised to pay the action was had and the check delivered
check when due, and enter it as a de- ;o him across the counter and at the
posit to the credit of the payee. The desk or window where such transac-
cashier was in the bank at the time tions were ordinarily had; and he was
of the transaction, and later in the instructed to deduct the amount of
day saw the check on the paying tell- the debt, and hold the balance on de-
er's and knew that he had re-
desk, posit for the debtor. He handed the
ceived from the payee. On the
it check to a teller, and the money there-
morning of the day the check was pay- for was received by the bank. He was
able the drawer's deposit was suffi- authorized to sign and indorse checks
ciently large to pay it, but was ex- and sign certificates of deposit in the
hausted by the payment of other checks absence of the cashier, and in this case
during the day, and the check de- issued a certificate to the debtor's hus-
posited with the paying teller was band for the balance due her, and after-
§ 107 (1) EEPRESBNTATION OF BANK. 753
—
Charging Account. A teller has the power to charge the account of
a depositor with money withdrawn. Where he acted as the agent of the de-
positor in making collections through a number of years but was authorized
to draw money from his account, the bank is liable for an amount withdrawn
by the teller, because in so doing he was acting as the agent of the bank and
not of the depositor.^
Special Deposit. —Where the cashier has entire control of a bank, and
he gives the teller authority to receive special deposits of papers for safe-
keeping, the act of the teller in so receiving papers will be binding on the
bank.6
§ 106 (5) Directors. —A

director of a bank may, if he chooses, with-
out the knowledge or request of the bank, furnish the money to make good
an overdraft by an insolvent depositor and have it deposited to the latter's
credit and thus satisfy the defct so far as the bank is concerned, but by so
doing he does not make the bank his debtor, nor acquire any claim against it,
at least, beyond the right to be subrogated to the claim of the bank against
the depositor which he has paid.'^
§ 107. Collections— § 107 (1) In General.— Where the failure of

a bank holding a check as indorsee to present it for payment is based on some
omission of one of its agents not having authority to make presentation, it
is excused by the fact that such agent was ignorant of the existence of the
check.* But the bank can not urge the ignorance of its agent as an excuse,
where it withheld the necessary information from the agent.
wards paid the Same to the husband's officer of the bank, and not, so far
order. Held, that he was authorized as the bank was concerned, within the
to receive the deposit, and the bank apparent scope of his agency for the
was accordingly liable for the money depositor, and that the bank was liable
received for the debtor, and which it to her for the amounts so withdrawn,
had never paid to her. Burnell v. National Bank v. Hunger, 36 C. C. A.
San Francisco Sav. Union, 136 Cal. 499, 659, 95 Fed. 87.
69 Pac. ]44. Pattison v. Syracuse Nat. Bank,
6.
5. Charging account.— A depositor 80 N. Y_. 83, 36 Am. Rep. 582.

in a bank authorized the teller to act 7. —
Director. Where A voluntarily
as her agent in making and collecting Pays to B a debt which C owes, he
loans, but he was not authorized to can not afterwards, upon failure to
draw money from her account, except collect of C what he has advanced or
on checks procured from her. The ar- paid for him, recover back from B
rangement was continued for a num- the amount paid him in satisfaction
ber of years, during which she gave of his debt against C. Traders', etc.,
several hundred checks, aggregating Bank v. Black, 108 Va. 59, 60 S. E.
"^43.
over $90,000. During the same time, . « , ^ ,
without the authority or knowledge of 8. Collections.— Temple v. Carroll,

the depositor, the bank permitted the 'S Neb. 61 105 N. W. 989
teller from time to time to withdraw „
As to collections generally, see post,
money from her account on a "teller's ,
Collections, §§ 156-175.
' As to col-
memorandum," which was merely a ctions by national banks, see post,
_
}f
direction to the bookkeeper to charge Collections, § 268.
her account with a stated sum, and 9. Where
a bank withheld from one
such sums he appropriated to his own of agents information necessary to
its
use. Held, that in such transaction enable her properly to conduct the
the teller acted in his capacity as an business intrusted to her, it can not
1 B & B— 48
§ 107 (2) President. —The president of a bank has authority to make

collections for the bank.i" Payment to the president discharges the maker
of a promissory note, although the note had been fraudulently altered by an
insertion after the name of the payee, making it payable to the payee as
president of the bank.^^
§ 107 (3) Cashier. —The cashier of a bank which holds a bill for col-
lection is the proper officer to negotiate all the business relating to its col-
lection. ^^ He has authority to take such reasonable measures for the col-
lection or security of the debts due to the bank as are in accordance with the
ordinary usages of the banking business, ^^ such as the payment of collection
fees,i* the transmission of the debt to another bank^" and the foreclosure of
a mortgage. 1^
urge her ignorance as an excuse for charged the makers from further lia-
lack of diligence on her part in pre- bility, where it appeared that, even
senting a check for payment. Temple treating the paper as the property of
V. Carroll, 75 Neb. 61, 105 N. W. 989. a bank of which the payee was presi-
10. —
President. Merchants' Nat. dent, he had, as such, full authority to
Bank v. Camp, 110 Ga. 780, 36 S. E'. collect the paper in its behalf. Mer-
301. chants' Nat. Bank v. Camp, 110 Ga.
The Iowa Code, § 1866, directs that 780, 36 S. E. 201.
a state shall be managed by its
bank 12. Cashier. —Security Sav. Bank v.
board of directors. The entire man- Smith (Iowa), 119 N. W. 726; Warren
agement of a state bank was intrusted V. Oilman, 17 Me. 360; Potter v. Mer-
by the .directors to its president. For chants' Bank, 38 N. Y. 641, 86 Am.
several years he was in complete con- Dec. 273; First Nat. Bank v. Ratliff,
trol, receiving all its mail and indors- 33 Tex. Civ. App. 279, 76 S. W. 591.
ing all its drafts. Held that, though 13. Measures for collection. —Briden-
the president was not expressly em- becker v. Lowell (N. Y.), 32 Barb. 9.
powered to perform these acts, the The cashier of a bank is ordinarily
performance for so long a time in- the active financial manager and agent
dicated that the practice had been ac- thereof and has authority to take
quiesced in by the directors, making measures reasonably adequate to the
the acts within the authority of the collection of debts. Security Sav.
president. Griffin v. Erskine, 131 Iowa Bank v. Smith (Iowa), 119 N. W. 736.
444, 109 N. W. 13. 14. —
Payment of collection fees. The
A creditor directed a bank to col- cashier of a bank is the collecting
lect a debt. The debtor issued a draft, officer of such bank, and as such he
making the drawee the president, and has the power to enter into contracts
followed his name by the abbreviation looking to the collection of debts due
"Pt." The president received the draft the bank, and can, if necessity arises,
in the ordinary course of mail. For bind his principal to pay reasonable
several years he had received all the collection fees for the collection of its
bank's mail and had indorsed all its claims. First Nat. Bank v. Ratliff, 33
drafts. The business of the bank was Tex. Civ. App. 279, 76 S. W. 591.
conducted largely in the name of its 15. Transmission to another bank. —
officers as such, instead of in the name The cashier of a bank has the power
of the bank. Held to show that the to transmit a promissory note to
president, on receiving the draft, re- another bank for discount and collec-
ceived it in behalf of the bank, and his tion, and to transfer the title thereto
subsequent misappropriation of it did to the latter bank. Potter v. Mer-
not affect the debtor. Griffin v. Ers- chants' Bank, 28 N. Y. 641, 86 Am.
kine, 131 Iowa 444. 10!) N. W. 13. Dec. 273.
11. Where note altered. —
Whether a 16. Foreclosure of mortgage. The —
promissory note had or had not been foreclosure of a mortgage to the bank
fraudulently altered by inserting after on land to secure the claim of the
the name of the payee the letters "Pt.," bank or the sale of the land under
as an abbreviation of the word "Presi- the mortgage, are steps in collection
dent," payment to such payee dis- of the debt for which the cashier can
§ 108 (1) REPRESENTATION OE BANK. '
755
Negligence of Cashier. —A bank holding a bill of exchange bound by

is
the neglect of its cashier to present it for acceptance, in consequ€nce of which

i'^
the drawer is released from liability.
Cashier of Bank to Which Transmitted for Collection. Where a —

bank receives a draft for cohection, and transmits it in the course of business
to another bank, the cashier of the latter bank has no implied authority to
agree to defend in behalf of his bank an action against the first bank by the
drawer of the draft for negligence in collection.i^
§ 107 (4) Teller. —Where it appeared that a bank teller who had
collected and appropriated to his own use money on a check given in pay-
ment of a promissory note indorsed by the owner in blank, and delivered to
the teller for collection, had in other transactions made collections for others
as an officer of the bank, it was immaterial, the collection being within the
scope of his apparent authority, whether it was really within the scope of
his authority or not, and the bank was bound by his acts.i^
§ 107 (5) Attorney. —Where a bank employed an attorney to bring

suit against the defendant for a balance due the bank on a note, and the at-
torney sold shares held as security and received payment, as the attorney
was the bank's agent and the money was paid to him as such agent, a judg-
ment for the plaintiff on the note is improper. ^^
§ 108. Loans and Discounts-— § 108 (1) In General. —Where the

president, cashier, and secretary of a bank, without authority of the board of
directors, inserted in a certificate of the bank's stock purchased by a depos-
itor a provision that such stock would not be transferred until all indebted-
ness of the stockholder to the bank was paid, the fact that it was inserted
without the authority of the board of directors is immaterial as against such
legally contract commission fees to such president settled between them

another for aid and assistance, and the terms of sale. The attorney sent
bind the bank therefor. First Nat. defendant the shares for transfer, in-
Bank v. Ratliff, 33 Tex. Civ. App. 279, forming him of the sale, and that the
76 S. W. 591. bank was to take the proceeds of the
17. National Bank v. Williams, 46 sale for the indebtedness. The pur-
Mo. 17. chase price was paid by check and
18. First Nat. Bank v. Mansfield two notes, which were sent to the at-
Sav. Bank, 10 O. C. C. 233, 6 O. C. D. torney, who deposited the notes, and
452. deposited the check, which was pay-
19. City Nat. Bank v. Martin, 70 able to him, to his own account, and
Tex. 643, 8 S. W. 507, 8 Am. St. Rep. afterwards, on request of the presi-
632. dent, paid the amount of the check to
20. —
Attorney. A bank sued to re- him. Afterwards the bank failed, and
cover a balance alleged to be due by defendant was notified that his note
defendant on a note. Defendant, at was unpaid. Held that, as the attorney
the time of executing the note to the was the bank's agent and the money
bank, deposited certain shares of stock was paid to him as the bank's agent
as collateral, and left other shares of under agreement that defendant's note
stock with the bank for safe-keeping. was to be surrendered, a judgment for
An attorney for the bank informed the plaintiff was unsupported by the evi-
president of an opportunity to sell part dence. Robeson v. First Nat. Bank, 42
of the shares of defendant, and he and Fla. 504, 29 So. 325.
stockholder, who
subsequently became indebted to the bank, since such of-
ficers willbe presumed to have authority to arrange the terms of the loan.^^
Soliciting Loan. —
A bank is not bound by the acts of a person in solicit-
ing notes for discount in times of scarcity of money, who had authority to
solicit them only when money was plenty.^^
§ 108 (2) Directors. —All discounts are made under the authority of
the directors, and it is for them to fix any conditions which may be proper,
in loaning money.^^ This authority may be delegated to the other officers
of the bank.2* Under a statute providing that a bank shall have power by
its board of directors, or fully authorized officers, or agents, to exercise all
such incidental powers as shall be necessary to carry on the business of bank-
ing, an officer can make a loan only upon express authority from the di-
rectors or by their ratification.^^
§ 108 (3) Committee. —Where the by-laws of a bank provided for

the appointment of an exchange committee, without whose sanction the cash-
ier was to make no loans above a certain amount, the committee was to con-
sist of the president, cashier, and a designated director, of whom a majority
were to have power to act, the failure to designate a director does not affect
the power of the president and cashier to act as such committee.^^ The com-
mittee of the board of directors on finance of the North American Trust &
Banking Company of New York had the power, under its articles of as-
sociation and by-laws, to authorize the president and cashier to make an
agreement and trust deed to secure the repayment of a loan to the company.^^
§ 108 (4) President. The president can bind — the bank by an agree-
ment to loan money for a certain purpose. ^^
V.
21. Loans and
Bank, 79 Cal.
323, 31 Pac. 852, 5
discounts. —Jennings L,.
who seeks to charge a banking cor-
poration organized under Laws 1890,
R. A. 233, 12 Am. St. Rep. 145. c. 23, providing (§ 4, subd. 7) that such
As to loans and discounts generally, a bank shall have power to exercise

see post, "Loans and Discounts," §§ by its board of directors, or fuUy-au-
176-187. As to loans by national banks, thorized officers or agents, subject to
see post, "Loans and Discounts," law, all such incidental powers as shall
§ 269. be necessary to carry on the business
22. Washington Bank v. Lewis °^ banking, etc., on a loan made by
(Mass ) 22 Pick 24 ^"^^ ^-^ ''^^ officers, must show that
23. Directors.-Bank v. Dunn (U. f'^'^ S^^f\^^ «P^".^ authority

Q^ « -Pof SI a T VA TTn.-fPfl
"^°"^ t"e directors to make the loan,
^16, United
5ifi-
S) 6 Pet. 51 ^^ ^j^^^ j^ ^^^
States^. W;.¥;
City Bank (a S^) 21 How_356,
^ ^^^^
ig^^ ^ ^^^^ pj^^^
Michigan City Bank, 8
f 9% ^- D^k. 608, 80 N. W. 766.
ton,^n?
108 TT
U^ S. SH"pfT^
I 193, 27 L. PH^n,
Ed <03 2 S. ^^ Committee.-Wallaee v. Ex-
?53 U.'s.l8lfrr Id.'^sSrutc?: Jhange Bank. 126 Ind. 265, 26 N. E.
Leavitt Blatchford (N. Y.),
v'L \7i:rV\^'lSH "it II': II.
^^l
.. 5
^.^^r^^\^°ri\^\^%°'TJif^h President—The president of a

28.'
^^""^ authorized to make an agree-
'^
?
L,. R a"
K. A. ^nfi
50b.
ment whereby a party is to get money
24. United States v. Britton, 108 U. from the bank to buy a certain de-
S. 192, 27 L. Ed. 703, 2 S. Ct. 525. scription of hogs. Roe v. Bank, 167
25. Delegation of authority.— One Mo. 406, 67 S. W. 303.
Loan to Himself. —
The president of a bank, even if clothed with general
authority to lend money can not bind it by lending its funds to himself, or
its
by lending them to the cashier, when the latter knows that the loan was made
for the president's own benefit. ^^
—
Security for Loan. Where a note is discounted by a bank, its president
has authority to take collateral securities and agree to collect the same, and
to apply the proceeds to the payment of the note and in such case no re- ;
covery can be had against an indorser thereon where the bank collected a
portion of the securities without applying the proceeds as agreed, and made
arrangements with the debtors for the payment of the remainder.ô
—
Repayment of Loan. Although the president of a bank has no author-
ity to receive payment of a debt due the bank, yet such payment will not be
set aside after it has been acquiesced by the bank for many years.^^
§ 108 (5) Cashier. —The power to make loans^^ or to discount nego-

tiable paper^^ is not an implied power of the cashier. His authority must
be derived from the charter, or by-laws,^* or from the custom or course of
business of the bank and borrower.^^ Usually the question of discounting
paper comes before the board of directors or of a committee, and the cashier
is but the executive officer to carry out their decision his duties are ordinarily;
strictly executive. It is, beyond his inherent powers,

however, true that,
the cashier may be authorized to act for the bank by the organic law, by
action of the stockholders, by a vote of the board, by usage and tacit ap-
proval.^*
Loan to Himself. —The whatever may be his general authority
cashier,
as to making bank by lending its money to himself.-''^
loans, can not bind the
Where a rule of a bank prohibits its officers becoming its debtor, a trans-
action between the cashier and one who acts with notice of the rule, which is
palpable and colorable evasion thereof, will not affect the bank.^*
29. McGregor v. Witham, 126 Ga. ers of the cashier, and this is believed
702, 56 S. E. 55. to be the law at the present." Evans v.
30. Wales v. Bank (Mich.), Har. United States, 153 U. S. 584, 38 L. Ed.
308. 830, 14 S. Ct. 934.
31. Parker v. Donnally, 4 W. Va. 34. The cashier of a bank, unless
648. specially authorized by the charter or
.32. —
Cashier. The cashier of a bank, by-laws, has no authority to loan
unless authorized by the charter or by money of the bank, and it is not liable
laws, has no authority to lend the for breach of a contract entered into
money of the bank. The bank can by him without authority and in di-
not be held liable in damages for a rect violation of law. E. Swindell &
breach of a contract entered into by Co. v. Bainbridge State Bank, 3 Ga.
the cashier to lend its money, without App. 364, 60 S. E. 13.
authority from the bank, and in di- 35. Blair Nat. Bank,
v. First Fed.
rect violation of the bankmg laws of Cas. No. 1,485, 2 Flip. 111.
the state. Swindell & Co. v. Bam- 3g_ Morris v. Georgia Loan, etc.,
bridge State Bank, 3 Ga. App. 364, 60 Co., 109 Ga. 12, 34 S. E. 378, 46 L. R.
S. E. 13. A. 506.
33. "It was held by this court in 37. Loan to himself. McGregor v. —
Bank v. Dunn (U. S.), 6 Pet. 51, 8 L. Witham, 126 Ga. 702, 56 S. E. 55.
Ed. 316, that the power to discount 38. Savannah Bank, etc., Co. v. Hart-
paper was not one of the implied pow- ridge, 73 Ga. 223.
—
Release of Parties. The cashier of a bank can not of his own author-
ity bind the bank by a contract to release one or more of several parties
to a note held by the bank but, if he acts on consultation with two or more
;
of the directors, then his acts are binding on the bank.^®

In Usual Course of Business. —Bona fide indorsees before maturity
of paper discounted by a cashier are not affected by the fact that it was
unauthorized by the discounting committee of the bank, if the paper passed
through the bank in the usual course of business.*"
Rediscount. —The power to rediscount bills and notes does not come
within the ordinary duties of a cashier and is not one of his inherentpow-
ers; but, if it is the practice of the cashier in pressing emergencies to re-
discount bills and notes, a transfer of the bills and notes in the usual course
of business of the bank to a person, who has no reason to doubt the pro-
priety thereof, or to question its good faith, is prima facie valid and vests
a good title in the transferee.* ^
Repayment of Loans. —A statute, authorizing a bank to receive Con-
federate States treasury notes, having been declared unconstitutional and
void, can not be relied upon as authorizing a cashier of the bank to receive
such notes in discharge of debts due the bank.*^
39. Release of parties. — In an action the ordinary duties of the cashier and
by bank against the parties to a note
a is not one of his inherent powers; but
held by it, it appeared in proof that inasmuch as it is a power which is ex-
the cashier of the bank had made an ercised by him under some circum-
agreement which, if carried out, would stances, a transfer of such bills and
have discharged all the parties to the notes made by him in the usual course
note but one; and that he had made of the business of the bank to a per-
that agreement after consulting with son, who has no reason to doubt the
two or more of the directors. The propriety of the transfer or to ques-
court instructed the jury that the cash- tion its good faith, will be prima facie
ier of the bank had no authority to valid and vest a good title in the
bind the bank by any contract that transferee. The validity of the trans-
would release the parties, but that, if fer in such case will be sustained upon
he acted on consultation with two or the ground that the transferee had a
more of the directors, then his acts right to presume that the cashier had
would be binding on the bank. Held, from the board of directors either an
that the entire instruction, taken to- express or implied authority to make
gether, and applied to the facts, would the transfer, and not because he had
not be erroneous in its conclusion. by virtue of his office inherent power
Pavne v. Commercial Bank (Miss.), to do so. Smith v. Lawson, 18 W. Va.
6 Smedes & M. 24. See ante, "Particu- 212, 41 Am. Rep. 688; Lamb v. Cecil,
lar Powers Considered," § 105 (3b). 28 W. Va. 653, applied and approved
40. Blair v. First Nat. Bank, Fed. in Lamb v. Pannell, 28 W. Va. 663.
Cas. No. 1,485, 2 Flipf 111.
41. Rediscount. —
It is the practice
42. Repayment of loans. —
The act of
the legislature, passed July, 1861, au-
for the cashier of a bank in pressing thorizing the Bank of Tennessee to
emergencies to rediscount the bills receive and pay out confederate treas-
and notes of the bank to raise money ury notes, having, by the fifth section
to pay depositors and meet other de- of the schedule of the amended
mands of the bank. But this is only constitution, been declared unconstitu-
done on extraordinary occasions and tional, null and void, from the begin-
when the requirements are such as do ning, can not be relied upon as au-
not admit of delay. It is customary, thorizing a cashier of the bank to re-
wherever it can be done, to consult ceive it in discharge of debts due the
the directors and obtain their consent bank. Bank v. Woodson, 45 Tenn. (5
to make such rediscounts. It is a Coldw.) 176.
matter which does not come within
§ 109 (1) eEpreskntation of bank. 759
§ 108 (6) Treasurer and General Manager.— Where the negotia-

tion of a loan by a bank and the execution of the papers were intrusted to
its treasurer, his subsequent acts, on ascertaining the condition of the title
to the security, for the benefit of the bank, were within his impHed pow-
ers.*^ An accountant and general manager of a bank is not presumed to
have authority or be charged with the duty of discounting papers for the
bank."
§ 109. Bills, Notes and Securities— § 109 (1) In General.— Al-

though a loan, for which a note signed by the vice-president and another
director and indorsed by the president of a bank, is not in fact procured
before the bank and the bank does not receive the proceeds and the in-
dorsement is not authorized by the board of directors, the bank is Hable
on the note, the officers having implied authority to act.*^
Making Note to Cover Overdraft. — If a part of the directors of a
bank, including the president and cashier, make their note and have it dis-
counted, and use the proceeds to make good an overdraft of an insolvent
depositor, from fear that the amount of the overdraft would become known
to the public and injure the credit of the bank, and agree among themselves
that the bank shall make good the amount to them when they deem it safe
to notify the other directors, and afterwards, at the instance of one of the
makers, the bank becomes the owner of the note, and, after the claim against
the depositor has become barred by the act of limitations, they disclose the
whole transaction to the board of the bank, and ask that the bank charge
off the note to profit and loss, the bank is under no obligation to do so, and
in an action on the note by the bank against the makers they can not defeat
recovery on the ground that the note was made for the accommodation of
the bank.4«
43. —
Treasurer. Gerrity v. Wareham dorsement was not authorized by the
Sav. Bank, 303 Mass. 314, 88 N. E. board of directors, the bank was liable,
1084. the officers having implied /-authority
44. —
General manager. Union Sav. to act. First Nat. Bank v. Arnold, 156
Bank, etc., Co. v. Ellis, 110 Ga. 494, Ind. 487, 60 N. E. 134, See post, "Ex-
35 S. E. 780. change, Money, Securities, and In-
45. Bills, notes and securities. — The vestments," §§ 188-195.
vice president of a bank represented 46. Making note to cover overdraft,
to another bank that he desired a —Three directors of a bank whose
loan for his bank, and gave a note board consisted of 18 members, one
signed by himself and another di- of the 3 being the president and an-
rector, indorsed by his bank and by its other the cashier, together with 3
president. Thereafter such note was large stockholders, met together and
renewed by another note indorsed by executed a note, and had it discounted
the bank by its cashier. The lending at another bank. With the proceeds
bank knew that the two directors they aid an overdraft by a bankrupt
signing the first note were directors of depositor in their own bank, and
the borrowing bank, and that the cash- agreed among themselves to say noth-
ier signing the indorsement on the sec- ing about the matter to the other di-
ond note transacted all the business rectors, and that the bank, when able,
of the borrowing bank. Held that, should pay them back, and charge the
though the loan was not in fact pro- amount to profit and loss. The claim
cured for the bank, and though it did on the overdraft was turned over to
not receive the proceeds, and the in- one of their number and the amount
Sale to Bank. —A statutory provision that no officer of a bank shall in

any manner directly or indirectly use its funds or deposits or any i>art
thereof except for the regular transactions of the bank, does not prohibit
an officer of the bank from selling negotiable paper to it, unless the act is
resorted to for the purpose of indirectly obtaining a loan to him, and even
then by appropriate procedure such a loan may be effected.*'^
—
Transfer and Indorsement. A bank is bound by the transfer of a
note by an officer having general authority to transfer its notes, as against
a bona fide transferee having no notice of any limitation upon such author-
ity as to the particular note.** A bank authoriaed to deal in commercial
paper is bound by the indorsement or guaranty by its executive officers.*^
§ 109 (2) President and Vice-President— § 109 (2a) Presi-

dent. —Unless expressly authorized to do so by the board of directors, the
president of a bank can not use the funds of the bank to pay his personal
obligations. 50
Drawing Check. —Where no special authority is delegated to the presi-
dent of a bank to draw checks by its by the general
charter, but such duty,
custom of other banks, devolves upon the cashier, except in his absence,
when the duty is performed by the president, such also is the usage of the.
particular bank, and in the absence of the regular cashier, but while a
temporary cashier is discharging his duties, the draft in question is drawn
and signed by the president, the bank is liable for the payment of the
draft."
Making Note. —Where a party discounts a note given by the president
of a bank, with the indorsement of the bank thereon, supposing -that he is
dealing with and advancing the money to the bank, and not the president
personally, the bank is liable for the payment of such note.^^ Under a
bank charter which declares contracts to be binding on the bank shall be
collected and applied on the note. Sub- 50- President— Chrystie v. Foster, 9
sequently the bank, at the request of C. A. 606, 61 Fed. 551.
C. See post,
"Directors," § 109 (4).
one of the makers, purchased the note,
and on refusal of the makers to pay 51-. Drawing check. "Although the—
it brought suit. Held, that it was no president of a bank be not authorized,
defense that the note was made for by virtue of his office, to draw checks
the accommodation of the bank, and for the moneys of the bank, it is clear
that, as the bank had received full that the company may empower him,
benefit of the proceeds in the satisfac- as agent, in a particular instance,
its
tion of the overdraft, the note was or generally, to do so; and that, in
fully paid when the bank acquired it. such case, the bank will be bound by
Traders', etc.. Bank v. Black, 108 Va. the act. Corporations, in this respect,
59 60 S E 743 stand upon the same footing with nat-
47. Code 1897, ? 1869; State v. Corn-
""' persons and are alike bound by
t^âcts of its agent beyond the. limits
ing Sav. Bank, 139 Iowa 338, 115 N.
tV^ q„„ of his authority, u done by their pre-
. vious or subsequent assent, or express
48. Transfer and indorsement.— or implied direction." Neififer v. Bank,
Smith V. Lawson, 18 W. Va. 312, 41 gg Xenn. (1 Head) 162.
Am. Rep. 688. 52. Making note.— Central Trust
49. State v. Corning Sav. Bank, 139 Co. v. Cook Countv Nat. Bank, 15 Fed.
Iowa 338, 115 N. W. 937. 885.
§ 109 (2a) REPRESENTATION OF BANK. 761
signed by the president and countersigned by the cashier, the president

can not object to the regularity of the contract in a suit against him by the
holder of a negotiable instrument, drawn by him as president of the bank
and in his own favor.^* The president of a bank can not authorize another
bank to which he has given his personal note to charge such note to the
account of his bank.^* Where the president of a bank borrows money for
it, executing his personal note therefor, he will be personally bound thereon,
though the payee of the note was informed at the time it loaned the money
and took the note that the maker was acting only as agent for the bank.^°
—
Acceptance of Note. A bank which .accepts a note obtained in negoti-
ations conducted by its president may not deny that he had authority to
represent the bank in the transaction.^®
Rediscount of Note. —When a bank, has long been in the habit of re-
discounting its bills receivable in large amounts, all other banks in the same
locality pursuing the same practice, and the president and cashier of such
bank propose to its regular correspondent a rediscount of its bills, and
there are no circumstances attending such proposal to arouse suspicion,
the bank to which it is made may safely act upon it, without further in-
quiry, on the assumption that the act has either been specially authorized,
or that the officers are acting within the purview of their general powers.^'''
—
Acceptance of Renewal Note. The president of a bank who secures
a settlement from an indorser on a overdue note held by the bank, by tak-
ing a new note signed and indorsed by the same parties, acts as the agent
of the bank, and whatever he does within the apparent scope of his au-
thority is binding on the bank which accepts and holds his security. ^^
53. The charter of the Insurance defendants that the deposit had been
Bank of Columbia prescribes the mode actually made with them, allowed C. to
in which contracts shall be executed overdraw his account. Thereafter, and
to be binding- on the company, namely, while his account with the bank was
that they shall be signed by the presi- overdrawn, C, in his official character
dent and countersigned by the cash- as president, authorized defendants to
ier. In a suit at the instance of the charge the note to the account of the
holder of a bill against the indorser, bank, and defendants did so. Held, in
on a bill drawn by himself as presi- a suit by the receiver of the bank to
dent of the said corporation, and in recover the deposit, that, unless ex-
bis own favor, he can not object to pres'sly authorized to do so, the presi-
the regularity of the contract, nor is dent of the bank could not use the
he protected on his indorsement by funds of the bank to pay his personal
its want of conformity to the statute. obligation; and, there being no proof
McDougald v. Central Bank, 3 Ga. of such express authority, the authori-
185. zation given by him to defendants was
54.Charge of note to bank. C, in — not a defense to the claim. Chrystie v.
order to obtain a credit in his personal Foster, 9 C. C. A. 606, 61 Fed. 551.
account with a bank of which he was 55. Willoughby v. Ball, 18 Okl. 535,
the president, procured defendants, a 90 Pac. 1017.
banking firm, to discount his indi- gg_ pj^^^, g^^^^ ^^^^ ^^ ^^^^ ^^^^_
vidual note, credit the amount to the ^.
^ ^ ^^^ g ^, ,q^
bank, and notify the bank that he had -,V
United
'
o. . at . -o
,
Nat. Bank t. tj-
^
First 1
deposited the amount with them to .,^^- States

Nat. Bank, 34 C. C. A. 597, 79 Fed. 396.
the credit of the bank The bank had
previously given C. credit for the 58. Cake v. Pottsville Bank, 116 Pa.
amount, and, after being notified by •
364, 9 Atl. 302, 3 Am. St. Rep. 600.
—
Receiving Payment. Authority may be conferred on the president to
receive payment of bills and notes, or the bank may allow him to hold him-
self out and act in such manner as to raise the presumption that he pos-
sesses such authority; in which event the bank is estopped from denying
his authority to receive payrnent from one who, relying on his authority,
pays money to him.^^
—
Transfer and Indorsement. The president of a bank has the general
power to transfer and indorse its bills and notes.^" A bank authorized to
deal in commercial paper is bound by the president's indorsement of the
paper.61 f^^^ president and directors of a bank, having by the charter full
power to conduct its aflfairs, may authorize the president to indorse its
notes.®^ A bank may, through its president, by indorsement, transfer the

legal title of a promissory note to such president.^^ The president, upon
giving paper held by the bank to creditors of the bank, as collateral security
for their claims, has authority to indorse or guaranty such paper in the
name of the bank, so as to bind the bank and its shareholders.^* But it
has been held that the president of a bank has no inherent authority to in-
dorse or transfer notes belonging to the bank.^^

Guaranty of Payment or Loss. —Where one purchased negotiable
paper from the president of a bank with a guaranty of payment executed
by him apparently in behalf of the bank, on his representation that the
paper belonged to the bank, and the transaction occurred in the banking
house where the president was apparently engaged in performing his duties
as such, the bank was liable on the guaranty.®^ A guaranty against loss
or liability for signing as sureties, given by a bank president in his own
name and without authority from the directors, to those whom he had
solicited thus to sign a note given to the bank to retire a prior note held by
it against their principal, is the individual contract of the president, and
not binding upon the bank.^'''
59. Reno
v. James, 16 Ky. L. Rep. 60. State v. Corning Sav. Bank, 139 Iowa
Transfer
60. and indorsement.— 338, 115 N. W. 937.
Rezner v. Hatch, 2 Handy 42, 12 O. The president of a bank may trans-
Dec. 320. fer, by his indorsement, a note made,
It is within the implied powers of to the corporation, if he has a general
the president of a bank to indorse ne- authority for that purpose from the
gotiable paper in the ordinary trans- directors; and the seal of the corpora-
action of its business. United States tion need not be affixed to the trans-
Nat. Bank v. First Nat. Bank, 24 C. C. fer, nor a particular vote therefor be
A. 597, 79 Fed. 296. passed on the subject. Spear v. Ladd,
61. Indorsement by president. — 11 Mass. 94.
bank, purchasing from the president of 62. Merrick v. Bank (Md.), 8 Gill 59.
another bank acting in his official capac- 63. Palmer v. Nassau Bank, 78 111.
ity notes drawn to the president in 380.
his individual capacity as payee, and 64. Irons z'. Manufacturers' Nat.
indorsed by both the bank and the Bank, 27 Fed. 591.
president, had a right to assume that 65. Smith v. Lawson, 18 W. Va. 212,
the title to the notes was in the bank, 41 Am.
Rep. 688.
since the president acted within the City Nat. Bank v.
66. Thomas, 46
scope of his duties, and the fact that Neb. 861, 65 N. W. 895.
the notes were drawn in his name was 67. First Nat. Bank v. Bennett, 33
consistent with the bank's ownership. Mich. 520.
§ 109 (3) REJPRESENTATION OF BANK. 763
Security. —A president of a bank who secures a settlement from an in-
dorser on overdue notes, held by the bank, by taking new notes signed and
indorsed by the same parties, acts as the agent of the bank, and whatever
he does within the apparent scope of his authority to obtain the new se-
curity is binding on the bank which accepts and holds the security.'^ ^ The
act of the president of a bank and another stockholder, in depreciating the
value of certain stock pledged as collateral security for notes held by the
bank, is not the act of the bank, so as to charge it with any loss resulting
to the owner of such pledged stock because of the depreciation. ^^
§ 109 (2b) Vice-President. —Where a bank purchased certain se-

curities at the suggestion of its vice-president, who announced that he would
make the purchase on behalf of the bank, and subsequently informed the
directors that he had 'done so, and still later turned over certain of the se-
curities to the bank with a letter authorizing it to receive the balance, and
at the trial of an action for conversion acknowledged that his intention had
been to turn over the securities to the bank on payment of a note for which
they were pledged his possession of the securities was the possession of
the bank, and title to the securities was in it.^"
—
Transfer and Indorsement. The vice-president of a bank, having
authority to transact its business, who has given bond in his official capacity,
with himself individually as surety, to secure a deposit of county funds,
has the power to afterwards assign to the county treasurer notes belonging
to the bank as additional security, though the bond alone may be ample.''i
Guaranty of Payment. — With the knowledge and consent of the presi-
dent and cashier, who were also directors, but without any notice to or
authority from the board, one of the directors and vice-president of the
bank guaranteed, at the time of the negotiability, a note made payable to
the bank, the payment of the note at maturity by an indorsement thereon
to that effect, in the name of and on behalf of the bank. It is to be pre-
sumed that the officer had rightfully the power he assumed to exercise,
and the bank is estopped to deny it.'^^
§ 109 (3) Cashier. —

Drawing Check. The cashier of a bank has—
power to bind the bank by drawing a check in its name, when acting as an
officer of the bank.'^^ But he can not bind a bank by drawing a check to
68. Security. — Cake v. Pottsville Napier v. Central Georgia Bank,

69.
Bank, 116 Pa. 364, 9 Atl. 302, 3 Am. 68 Ga. 637.
St. Rep. 600. 70. —
Vice-president. M^ e t r o p o li-
The president of a bank held author- tan Trust Co. v. McKinnon, 173 Fed.
ized to unite it in a mortgage executed 846.
to secure a loan with which to pay 71.Richards v. Osceola Bank, 79
the debt of a landowner to the bank Iowa 45 N. W. 394.
707,
for the purpose of releasing the bank's 72. People's Bank v. National Bank,
mortgage as to the part of the debt 101 U. S. 181, 25 L. Ed. 907.
satisfied by the loan and subordinating 73. C a s h i e r —
Drawings check.
the bank's lien as to the remaindei- to Where a check was drawn by a per-
that of the complainant. Citizens' Life son who was the cashier of an incor-
Ins. Co. V. Owensboro Sav. Bank, etc., porated bank, and it appeared doubt-
Co., 150 Ky. 161, 150 S. W. 36. ful, upon the face of the instrument,
764 BANKS AND BANKING. § 109 ((3)
pay his individual debt.^*

—
Binding Bank on Note. Where the cashier of a bank makes a note
for the bank and the bank receives the benefit thereof, it is bound by such
act.'
whether it was an official or a private posit in the Philadelphia bank, to the

act, parol was admitted, to
evidence deposit account of bank E. with bank
show that it was an official act. Me- C. Tlie money collected by bank C.
chanics' Bank v. Bank (U. S.), 5 for account of bank E. was obviously
Wheat. 336, 5 L. Ed. 100, approved in the property of the latter. The draft
Metcalf V. Williams, 104 U. S. 93, 26 on Philadelphia was refused because
L,.Ed. 665, where it was said: of the delay which it was feared would
"The appearance of the corporate attend its collection. The certified
name of the institution on the face of check was taken. was for the en-
It
the paper, at once leads to the belief, tire debt, principal and interest. It
that it is a corporate, and not an indi- was at once charged. The sum to the
vidual transaction; to which must be credit of the account of bank E. when
added the circumstances, that the the check was charged was more than
cashier is the drawer, and the teller, sufficient to pay it. Upon the theory
the payee; and the form of ordinary of the good faith of the transaction, on
checks deviated from, by the substitu- the part of bank C. its debt was paid
tion of 'to order,' for 'to bearer.' The by the check, and it could have no pos-
evidence, therefore, on the face of the sible interest in the proceeds of the
bill, predominates in favor of its being collection of the draft drawn by the
a bank transaction." Mechanics' Bank cashier. Rankin v. Chase Nat. Bank,
V. Bank (U. S.), 5 Wheat. 326, 5 L. 188 U. S. 557, 47 L. Ed. 594, 33 S. Ct.
Ed. 100. 372.
74. Payment
of individual debt with Held, also that the question of the
—
cashier's check. The cashier of bank legality
raised,
of the check could not be
no exception having b.een
E. borrowed for his individual account
from bank C. a sum of money, and saved thereto; but that the cash
his evidenced by his demand
debt, actually received by bank C, having
note, secured by stock of bank E. as been received in good faith, as settled
collateral, amounted, on the 4th of by the verdict of the jury, could not
May, in principal and interest,
1893, be recovered by bank E. as having
to a sum
slightly exceeding fifiteen been embezzled by its cashier, unless
thousand dollars. Being requested to fraud should be affirmatively shown by
pay or furnish additional security, bank E. Rankin v. Chase Nat. Bank,
after offering $8,000 in cash and a 188 U. S. 557, 47 L. Ed. 594, 23 S. Ct.
draft for $7,000, signed by him as cash- 372.
ier of the bank E., drawn on a Phila- 75. Binding bank on note. —A bank
delphia bank, which was declined, it dealing with the cashier of another
was thereupon agreed that the cashier bank, permitted by directors to have
would give his individual check on his complete control of its business rela-
bank for the principal and interest of tions with other banks, may trust in
his debt; check should be
that this the integrity of such cashier in trans-
by him and made payable at
certified acting business with him, where there
bank C. that the cash offered should is nothing in the known state of af-
be received, and that the check and fairs of the cashier's bank or of his
cash should be at once put, re- relation to it to excite suspicion that
spectively, to the debit and credit of he is using his position to the prejudice
the account of bank E. It was also of his bank, and hence where such
understood that the draft on Philadel- cashier contracted with another bank
phia should be taken, and when col- to keep a balance with such bank,
lected its proceeds should be credited which should receive collections from
to the bank E. account. Held, that the cashier's bank and credit them to
the draft for $7,000, which was col- it, and the cashier sent his own note
lected by bank C, not drawn by the accompanied by collateral, requesting
cashier to his individual order, but that his note be discounted and the
drawn by him as cashier to his order proceeds placed to the credit of his
as cashier, and endorsed for deposit bank, which was done, and afterwards
to his credit as cashier, was thereat his request the note was charged
fore but an order transferring the to his bank and the collateral returned
funds of bank E. which were on de- to it, and regular monthly statements
—
Acceptance of Note. Where the bank received the benefit thereof, it
is bound by an agreement between the cashier and a customer for a loan
to the customer, a part of which was to be used by the cashier in taking
up an old loan by the bank, and for which notes secured by mortgage were
made to the cashier and negotiated by him for the benefit of the bank J ^
Where a note payable to the order of the cashier at a designated bank was
never indorsed by him, but it was shown that he was the bank's cashier,
and that he acted for it in the transaction in which the note was given, the
bank can sue on the note in its own name."
—
Acceptance of Bill of Exchange. The cashier of the Bank of Ken-
tucky has no authority, ex officio, to accept bills of exchange.'''*
—
Protest of Note. The act of the cashier of a bank, in causing a note
to be protested, is the act of the bank.'^"
showing such transaction were sent to for the payment of said indebtedness
the cashier's bank, and no objection to were granted, a new note being given
such charging of the note was made each time an extension was granted;
until about four months after the that the note in suit was given to se-
transaction, the cashier's bank could cure an extension of such indebted-
not recover the amount of the note. ness; that the note in suit was exe-
Pensacola Bank, etc., Co. v. National cuted by G., as cashier and general
Bank (Fla.), 52 So. 294. manager of the bank, for the sole use
In an action by D. Bank against the and benefit of the bank, and that the
receiver of F. Bank, the petition al- said indebtedness was duly recorded
leged that G. was cashier and gen- in its books at the time by the proper
eral manager of F. Bank, and, as such, officer thereof as a liability of it, -and
had power to borrow money, redis- said note was received and accepted
count bills and notes, and do all other from said cashier and general manager
acts necessary for the conducting of of said bank by said plaintiff as an in-
said banking business; that G., as said debtedness against said bank. Held,
cashier, sold and transferred to plain- evidence was admissible, under the pe-
tiff certain notes made payable to and tition, to show the capacity in which
belonging to said bank, and indorsed G. signed the note. Douglas County
and guarantied in writing the payment Bank v. Ayres, 9 Kan. App. 606, 58
thereof to plaintiff, and thereby prom- Pac. 491.
ised to pay said plaintiff $1,500; that, 76. Acceptance of note. The cash-—
when the notes rediscounted became ier of a bank agreed to loan a cus-
due, said bank, by G., its cashier as tomer a certain sum, part of which
aforesaid, procured from plaintiff a was to be used by the cashier in tak-
loan of $2,000, "and that G. executed ing up an old loan by the bank, the
liis note in writing, and secured the securities for which had been sold to
same by depositing certain certificates third parties, and the balance to be
of stock in F. Bank with said plain- credited to the borrower's account.
tiff; that, of the amount so borrowed, Notes secured by mortgage were ac-
$1,500 was applied to take up the cordingly made to the cashier, but he
aforesaid rediscounted notes, and that negotiated part of them for the bene-
said notes were returned to F. Bank fit of the bank, failing to take up the
by plaintiff, and placed among, and in- old loan. Held, that the bank, having
cluded the assets of said bank, and
in, received the benefit of the transaction,
the remaining $500 was placed to the could not escape its liability on the
credit of said bank by said plaintiff, claim that the agreement was ultra
and that the said additional sum was vires. Owens v. Stapp, 33 111. App.
accepted and received from said plain- 653.
tiff by said F. Bank, and was used by 77. First Nat. Bank v. Johnson, 133
it in the regular course of its business, Mich. 700, 95 N. W. 975, 103 Am. St.
and that a record thereof was rnade Rep. 468.
on its books and records, at the time, 78. Pendleton v. Bank (Ky.), 1 T.
hy its proper officer, as a liability B. Men. 171.
thereof; that certain extensions of time 79. Burnham v. 'Webster, 19 Me. 232.
Rediscount of Note. —A cashier of a bank, to whom its entire man-

agement is intrusted by the directors, has authority to have its paper re-
discounted in the usual course of business; and his authority is not limited
to extraordinary occasions, not admitting of delay.*"
Payment —Ordinarily
of Note. the duty of the cashier receive
it is to
payment of and notes due the bank.î
bills
—
Demand and Notice. The cashier of a bank which the holder of a is
bill of exchange may give notice of its nonpayment.*^
Transfer and Indorsement. —A cashier of a bank has prima au- facie

thority to transfer and indorse negotiable paper belonging to the bank.*^
He may indorse it to himself.** He has power, prima facie, to indorse for
collection notes discounted, and notes deposited to be collected, or deposited
as collateral security;*^ but it has been held that he can not assign it to
Rediscount of note. Davenport

80. — gotiable securities in payment of its
V. Stone, 104 Mich. 521, 63 N. W. 722, debts. Fleckner v. Bank (U. S.), 8
53 Am. St. Rep. 467. See ante, "Presi- Wheat. 338, 5 L. Ed. 631.
dent," § 109 (2). A bank cashier is an agent with
81. Reno v. James, 16 Ky. L. Rep. 60. authority to bind the corporation by
82. Bank v. Vaughan, 36 Mo. 90. his acts and statements in relation to
Transfer and indorsement. La-
83. — the sale of notes or drafts held by the
fayette Bank v. Bank, Fed. Cas. No. bank. Sturges & Co. v. Bank, 11 O.
7,987, 4 McLean 208; Blair v. First St. 153, 78 Am. Dec. 396; Union Nat.
Nat. Bank, Fed. Cas. No. 1,485, 2 Flip. Bank v. First Nat. Bank, 45 O. St.
Ill; Lanning v. Lockett, 10 Fed. 451; 236, 13 N. E. 884.
Pease v. Dwight (U. S.), 6 How. 190, The bank may be bound by an in-
12 L. Ed. 399; West St. Louis Sav. dorsement made in the street, after
Bank v. Shawnee County Bank, 95 U. banking hours, "R. L. Irvin, Cashier.''
S. 557, 24 L. Ed. 490; Fleckner v. Bank Bissell V. First Nat. Bank, 69 Pa. 415.
(U. S.), 8 Wheat. 338, 5 L. Ed. 631; In an action on a note, an instruc-
Wild V. Bank, Fed. Cas. No. 17,646, 3 tion that the cashier of defendant bank
Mason 505; Everett v. United States had no authority as cashier to bind it
(Ala.), 6 Port. 166, 30 Am. Dec. 584; by his indorsement of the note was
Carey v. Giles, 10 Ga. 9; State Bank properly refused. First Nat. Bank v.
V. Wheeler, 21 Ind. 90; Merchants' Ins. Anderson, 5 Ind. T. 118, reversed, 82
Co. V. Chauvin (La.), 8 Rob. 49; S. W. 693, 73 C. C. A. 160, 141 Fed.
Haynes v. Beckman, 6 La. Ann. 224; 926.
Farrar v. Gilman, 19 Me. 440, 36 Am. Since a cashier of a bank has prima
Dec. 766; Hartford Bank v. Barry, 17 facie authority to indorse negotiable
Mass. 94; Kimball v. Cleveland, 4 paper held by the bank, a purchaser
Mich. 606; Harper v. Calhoun (Miss.), of such paper, in good faith, from the
7 How. 203; Bridenbecker v. Lowell cashier, without notice of any special
(N. Y.), 32 Barb. 9; Robb v. Ross limitation of hispower to transfer the
County Bank (N. Y.), 41 Barb. 586; same, acquire title thereto, and
will
City Bank v. Perkins, 29 N. Y. 554, the indorsement thereof by the cash-
86 Am. Dec. 332; Rezner v. Hatch, 2 ier as cashier binds the bank. Bank
Handy 42, 12 O. Dec. 320; Maxwell v. V. Wheeler, 21 Ind. 90.
Planters' Bank, 29 Tenn. (10 Humph.) 84. A bank cashier may indorseto
507. See Contra Schneitman v. Noble, himself, and sue on, a note payable to
75 Iowa, 120, 39 N. W. 224, 9 Am. St. the bank. Young v. Hudson, 99 Mo.
Rep. 467; United States Bank v. Fleck- 102, 13 S. W. 633.
ner (La.), 8 Mart. (O. S.) 309, 13 Am. An indorsement of a promissory
Dec. 287. note belonging to a bank, made by
A cashier of a bank has prima facie the cashier to himself, is voidable
the authority to indorse or transfer only, and operates to pass the legal
by delivery notes belonging to the title until avoided by the bank. Pres-
bank. Smith v. Lawson, 18 W. Va. ton V. Cutter, 64 N. H. 461, 13 Atl. 874.
212, 41 Am. Rep. 688. 85. To indorse for collection.Êl-
Prima facie, the cashier of a bank liot V. Abbot, 12 N. H. 549, 37 Am.
possesses the power to indorse its ne- Dec. 227; Corser v. Paul, 41 N. H. 24,
pay a deposit ;S« and that he can not indorse it for the purpose of making
the bank liable on a contract of indorsement.*^ A transfer of negotiable
securities by a cashier of a bank, in order to pay the debts of the bank, is
valid in law, when it is made after the board of directors had resigned, and
when the presidency of the bank has been assumed by a person who is
neither an officer nor a director.** fhe prima facie authority of a cashier
of a bank to transfer its notes will not render valid the transfer of a par-
ticular note to one proven to have known that it was made by the cashier
outside of the usual course of business and for an improper purpose.*^
But it has been held that the cashier of a bank can not assign notes belong-
ing to it unless authorized by the bank, or by the directors, pursuant to
powers vested in them.*" And where a note not negotiable is payable to
the bank,9i or where a note, made payable to the bank, is discounted and
taken by a third person,*^ the cashier can not make a valid indorsement
of the note, without authority from the directors or from the corporation.
Agreement to Save Maker Harmless. —A person induced by the
cashier to sign a note and deliver it to the bank in order that the cashier
might substitute the note for his own notes and some charges against him
by the bank, under assurance by the cashier that he would not be liable,
is liable to the bank for the amount of the note, where there had been no
previous course of dealing between him and the bank authorizing his ex-
emption from liability.*^
77 Am. Dec. 753; State Bank v. Farm- ity from the bank, evinced by usage in
ers' Branch Bank (N. Y.), 36 Barb. similar cases, or in some other way.
332. Barrick v. Austin (N. Y.), 31 Barb.
86. To pay debt. —A cashier of a 241.
bank the management of which is in- 92. Note taken by third person.
trusted by its charter to a board of di- The separate assent of a majority of
rectors has no authority to assign dis- the creditors (without any meeting),
counted bills and notes to a depositor that he should make an indorsement,
in payment of his deposit. Lamb v. confers no authority upon the cashier
Cecil, 35 W. Va. 288. for that purpose. Elliott v. Abbot, 12
87. To make bank liable. —A bank N. H. 549, 37 Am. Dec. 227.
cashier was authorized to indorse 93. Agreement and save maker harm-
notes for the purpose of transmitting less. — Defendant was induced by the
them to other banks for collection, cashier of a bank to sign a note and
but not for the purpose of making the deliver it to the bank, in order that
bank liable on a contract of indorse- the cashier might substitute the note
ment; he indorsed a bill, to facilitate for the notes of the cashier held by
the collection, with his own name, "P. the bank and some charges against •
S. C, Cas." Held, that this did not him by the bank, and signed the note
render the bank liable 3S indorser. under the assurance of the cashier that
State Bank v. Farmers' Branch Bank he would not be liable upon it, and
(N. Y.), 36 Barb. 333. would never be asked to pay it. The
88. Carey v. Giles, 10 Ga. 9. cashier turned the note in to the bank
89. Smith v. Lawson, 18 W. Va. 212, and withdrew his own notes, and re-
41 Am. Rep. 688. ceived the excess of the note over his
90. Hartford Bank v. Barry, 17 indebtedness to the bank in money.
Mass. 94; Lamb v. Cecil, 25 W. Va. There was no evidence that the offi-
288. cers or directors of the bank author-
91. Note payable to bank. The — ized the cashier to make any such ar-
cashier of a bank to which a note not rangement with plaintiflf, and it was
negotiable is payable has no authority the note of the
first kind whi-ch he
to transfer the same, without author- had given the bank. Held, that the
Agreement to Save Surety Harmless. —

An agreement by a bank
cashier that the liability of sureties on a note taken by the bank shall be
subordinate to collateral to be obtained by him is not within his author-
ity.^* In the absence of special restrictions known to the sureties on a note
payable to a bank, the apparent scope of the authority of the cashier is
broad enough to include an agreement by him with the sureties to proceed

to make the debt, if practicable, out of land owned by the maker, pointed
out to the cashier by the sureties, and against which the bank held other
unsecured claims which were kept secret from the sureties. ^^
—
Crediting Proceeds of Draft. It is within the apparent scope of the
business of the cashier to credit a customer with the proceeds of a draft
presented to the bank; and, by authorizing and ratifying the act of the
cashier in giving such a credit, the bank gavehim implied authority to do
so in future, even though hewould not otherwise have had such authority.^®
—
Entries in Bank Books. A cashier has authority to bind his bank,
and entries made by him, even though relating to forged paper, charge such
bank with notice of transactions being conducted by him on behalf of the
bank.s'^
Security. —
Since the cashier of a bank is the executive arm of the board
of directors, he had authority to bind the bank by recognition of a mort-
gage of collaterals pledged to the bank, for a loan.^^ The mortgagor is
liable to the bank, although the mortgage was made to the cashier, where
the bank made loans thereon. ^^ A cashier, intrusted with entire manage-
cashier had no authority by virtue of pay the note and the unsecured
his office, to make such an arrange- claims, were applied to the payment
ment, that defendant was chargeable of the unsecured claims. Security
with notice that the arrangement was Sav. Bank v. Smith, 144 Iowa 203, 123
not authorized, and that defendant N. W. 835.
acted upon the cashier's statement at 96. German ..Nat. Bank v. Grinstead,
his peril. State Bank v. Forsyth, 41 21 Ky. L. Rep. 674, 52 S. W. 951.
Mont. 249, 108 Pac. 914. 97. Hansel v. First Nat. Bank, 158
94. Agreement to save surety harm- 111. App. 137.
less. —
Martin v. First Nat. Bank, 11 O. 98. Security. — Bank v. Kirkman, 156
C. C., N. S., 93, 20-30 O. C. D. 398. Mo. App. 309, 137 S. W.
38.
95. Where sureties on a note pay- 99. A dealer in agricultural imple-
able to a bank failed to proceed against ments mortgaged to the plaintiff, who
land owned by the maker, relying on was the cashier of a bank of which
the agreement of the cashier of the the mortgagor was a customer, his en-
bank to enforce collection out of the tire stock and all additions thereto to
land, and stating that the sureties need secure payment of his present and fu-
not trouble themselves about the mat- ture to the bank.
obligations The
ter, and concealing from them the ex- bank for more than two
continued
istence of unsecured claims of the years after the execution of the mort-
bank against the maker, the bank pro- gage to discount paper for the
ceeding against the land for the col- mortgagor, and furnished him other
lection of the note and its other financial assistance when he made an
claims, could not deny the power of assignment for the benefit of creditors
the cashier to make the agreement, and the receiver appointed on the fail-
and the sureties, when sued on the ure of the assignee to qualify took pos-
note, were entitled to hold the bank session of the assigned property which
to the extent of the injuries sustained was replevied by the mortgagee,
by their reliance on such agreement. Held, that defendant can not object to
occasioned by the fact that the pro- said recovery on the ground that the
ceeds of the land, being insufficient to mortgage was taken in the individual
§ 109 (4) rEprBsentation of bank. 769
ment of a bank's and possessing general authority to receive ad-

affairs,
ditional security for notes held by it, is not disquahfied from receiving col-
lateral in the bank's behalf to secure a note held by it, because of interest
in the transaction, due to his being an indorser.i Where the by-laws of a
bank provide that the cashier shall be responsible for all moneys, funds
and valuables of the bank and deliver the same to the order of the directors
or to the person authorized to receive them, and the cashier, to pay a deposit
without the authority from the directors transferred securities of the bank,
the transaction is without authority and void.^ Where title conveyed by
a deed to secure a debt is in a bank, the power of sale on default can not
be exercised by the cashier.^ An assignment of a mortgage to the cashier
of a bank to have and to hold the same unto the assignee, his successors
and assigns forev.er, as collateral security to a note which the assignors
had given to the bank, is held to have been made to the assignee as a bank
officer, and to be a contract with the bank, and that the bank can foreclose
the mortgage in its own name.*
§ 109 (4) Directors. —

The directors have authority to control all
the property of the bank, and they may authorize one of their number to
assign any securities belonging to the corporation.^ Where an act estab-
lishing a bank does not give and directors thereof the power
to the president
of assigning notes executed to themselves, and power not being necessary
in the ordinary course of their business, it is not to be inferred and there- ;
fore an action on a note transferred by them is properly brought in the
name of plaintiff; it appearing that its thority, and void. In re Assignment,

purpose was fully understood, not only 32 Or. 84, 51 Pac. 87.
by the mortgagor but by the creditors, 3. Where a deed given to a vice pres-
that all of the business was done ident of a bank individually recites
through plaintiff, and that no one has that it is given as security for a debt,
heen prejudiced by reason of the mort- and contains a power of sale, that
gage not running direct to the bank. power can not be exercised by the
Chafey v. Mathews, 104 Mich. 103, 27 cashier of the bank. Greenfield v.
L. R. A. 5.58, 62 N. W. 141. Stout, 122 Ga. 303, 50 S. E. 111.
1. Judgment 104 N. Y. S. 1040, 120 4. Michigan State Bank v. Trow-
App. Div. 542, affirmed. First Nat. bndge,_ 92 Mich. 217, 52 N W. 632.
Bank v. Sing Sing Gas Mfg. Co., 194 ,
5. Directors.— A note belongmg to a
N Y 580 88 N E 1119. bank may be assigned or transferred
2. Wherethe by-laws of a bank pro- by its directors having the control of
vide that the cashier "shall be respon- its financial affairs. Stevens v. Hill, 29
^^- l^^.
sible for all moneys, funds, and valu-
ables of this bank, * * * and deliver
A blank indorsement, in pursuance
of ,such authority by the person so
the same to the order of the board of
authorized, is sufficient to transfer a
directors of this bank, or to the per-
note, and the indorsement may be
son or persons authorized to receive
the same," and the cashier, to pay a
properly filled at the bar Northamp-
deposit, without authority from the di-
ton Bank v. Pepoon, 11 Mass. 288.
rectors, transfers certain securities of A negotiable promissory note, made
the bank to the treasurer of a corpora- payable to a bank or order, but not dis-
tion, who is also assistant cashier of counted by them, may be indorsed to
the bank, after which the bank as- the holder of the note by a vote of the
signed to said assistant cashier, the directors of the bank. Cross v. Rowe,
transfer of the securities is without au- 22 N". H. 77.
1 B & B— 49
name of the bank, for the use of the transferee.®
§ 109 (5) Clerk and Actuary. —A 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 him by the
directors; and the cashier can not clothe such clerk with any more of his
power than is necessary to enable the latter to carry on the usual and or-
dinary business of the bank.'' An act incorporating a bank provided that
the business thereof should be managed by a board of trustees. A by-law
adopted by the trustees provided that no securities belonging to the bank
should be sold or transferred, except as authorized by a vote of the finance
committee. Money was loaned to the bank on its note and collateral se-
curities. The money was used for its The actuary trans-
exclusive benefit.
ferred other secured notes to the holder of the note who surrendered his
collaterals to the bank. The transfer was made without authority. The
bank could not maintain a bill in equity for the return of the secured notes
so transferred without rescinding the agreement and refunding the amount
actually loaned or at least returning the collaterals which had been sur-
rendered.*
§ 110. Actions— § 110 (1) Directors.— The directors of a bank,

appointed by the governor and council, under the Act of Maine, 1841, ac-
cepting the surrender of the charter, had power to enter into a reference
of all demands between the bank and a person claiming to be the creditor
thereof.^
§ 110 (2) President. —

The president of a bank has power to employ
counsel and manage the litigation of the bank,!" in the absence of any order
of the board of directorsî or of any by-law^^ depriving him of such
6. Hamtramck v. Bank, 2 Mo. 169. against National Banking Associa-

7. —
Clerk acting as cashier. A clerk tions," §§ 273-280 1^.
acting as cashier, in the absence of that As to actions by or against savings
officer, has power to transmit notes banks, see post, "Actions," § 306.
owned by the bank, or held by it for
collection and payable in other places,
10. President. Deitz — v. National
Exch. Bank, 4 Ky. L. Rep. 837.
or at other banks, to its agents, for The president of a bank, being its
that purpose; to indorse such paper chief executive officer, has a right as
for the bank, when necessary; and to such to appear and answer for it, and
vest in the collecting agents such title employ counsel for its defense. Sav-
as is necessary and proper to accom- ings Bank v. Benton (Ky.), S Mete,
plish that object. But he has no power 240.
to transfer any other or higher title 11. Citizens' Nat. Bank v. Berry, 53
thereto, and the agents will not, as Kan. 696, 37 Pac. 13], 24 L. R. A. 719.
against the bank, acquire any lien on 12. Where the by-laws of a bank
the notes for any balance due from vested the authority to bring suit and
the bank. Potter v. Merchants' Bank, employ counsel in the directors, a
28 N. Y. 641, 86 Am. Dec. 273. warrant of attorney, signed by the
8. Actuary. — Creswell v. Lanahan, 2 president, and containing the seal of
MacArthur (9 D. C.) 484. the corporation, was not the act of the
9. — —
Actions Directors. Emerson v. corporation, if the directors did not
Washington County Bank, 24 Me. 445. authorize it. Citizens' Bank v. Keim
As to actions generallv. see post, (Pa.), 10 Phila. 311, 1 Wkly. Notes Cas.
"Actions," §§ 213-231; "Actions by or 263.
power. Other cases hold that the president has no such inherent power
and can act only upon authority from the directors. The president of a
bank can contract for legal services in conducting litigation for the bank.i^
Pleading Statute of Limitations. Power to agree not to plead the —
statute of limitations it would seem should be vested either virtute officii or
by custom and usage in some of the officers of the bank for the convenient
transaction of its business. In the absence of any different distribution of
power by the charter, or by official action of the board of directors, it might
be rightfully exercised by general custom and usage, by the president.^*
Provisional Remedies. —The president of a bank is the proper person
to verify pleadings and affidavits for provisional remedies on behalf of the
bank, if he is in the county where the bank is situated. ^^
Letters as Evidence.—Letters relating to a transaction of the business
of a bank written by the president of the bank, who negotiated the transac-
tion, are competent against the bank in a controversy growing out of such
transaction. 16
Confession of Judgment. —The president and cashier of an incorpo-
rated state bank are not authorized to enter a confession of judgment against
the corporation, under the Nebraska Code more than two years after the
bank has ceased doing business, and on notes executed by the cashier in the
name of the bank after the bank had ceased doing business. ^^
§ —
110 (3) Cashier. By virtue of his general authority, the cashier
of a bank may maintain an action on a note by the bank, without express
proof of authority.is He may employ an attorney to collect a claim, al-
though the directors have appointed an attorney to take charge of the land,
business, and affairs of the bank.i^ But other cases hold that it is not
within the scope of the powers ordinarily conferred upon a cashier to ap-
pear and defend suits against the bank,^'' and to employ an attorney.^! An
answer, therefore, by the cashier, when the bank is garnished, will not
support a judgment against the bank. 22
13. No inherent power. Merchants' — 16. Panhandle Nat. Bank v. Emery,

Nat. Bank v. Eustis, 8 Tex. Civ. App. 78 Tex. 498, 15 S. W. 33.
350, 28 S. W. 227. 17. Code Civ. Proc., § 433; Fogg v.
A power attorney to institute
of Ellis, 61 Neb. 829, 86 N. W. 494.
suit, executed by the president of a ig. Cashier.— Battersbee v. Calkins,
bank without authority from the board
of directors, is not sufficient Citizens'
128 Mich 569 87 N W "
760
^^ ^^^^^ J_ qj^^ ^ ^
Wkly. \
WW ^'TCas.
Notes
^
o«l'
263.
U. Pleading statute of limitations.—
But it does not appear from this rec-
"^ ^^"^^- ^'^' ' N. Y.
Y
„„
e,-^K
20.
4
St.
21
^^Bank
Branch
N F ,
Rep. 709. affirmed in 115 N.
v. Poe, 1 Ala. 396.

1116
ord that the president of the bank had 21. not within the authority
It is
the inherent power as president, to of the cashier of a bank to make a con-
agree that the bank would not plead tract authorizing the employment of
the statute of limitations to the claim attorneys to defend a suit on a claim
set up against it. Morgan & Co. v. brought against another bank, whereon
Merchants' Nat. Bank, 81 Tenn. (13 his bank might have been liable. First
Lea) 234. Nat. Bank v. Mansfield Sav. Bank, 10
15. Deitz V. National Exch. Bank, 4 O. C. C. 233, 6 O. C. D. 453.
Ky. L. Rep. 837. 22. Branch Bank v. Poe, 1 Ala. 396.
—
Provisional Remedies. The president of a bank is the proper person
to verify pleadings and affidavits for provisional remedies on behalf of the
bank, if he is in the cotinty where the bank is situated, but the making of
the afifidavit by the cashier is an assumption that the president was not
then in the county, and the proper way to question this assumption is by
filingan affidavit in the lower court, showing that the president was in the
county at the time the cashier swore to the affidavit. The question can not
be raised on appeal for the first time.^^
—
On Note or Mortgage Given Cashier. An action by the cashier of a
certain bank, upon a note to him as such cashier, is not an action by the
bank, and although the declaration states that notice was given and protest
made in behalf of the bank, such allegation is a mere surplusage, especially
where the note is nonnegotiable and hence the question as to whether the
;
bank could deal in paper of the kind sued on does not arise in such case.^*
The defendant, indebted to the bank on notes, in lieu of the notes executed
other notes and a mortgage to the plaintiff, the cashier, without authority
of the directors. The plaintiff assigned the notes to the bank, which re-
assigned them to him; and he testified that he had no personal interest,
but held them for the bank. The plaintiff, as trustee for the bank, having
the mortgage, after condition broken, is the party to maintain replevin for
the chattels under authority contained in the mortgage.^^
—
Presumption of Authority. It will be presumed that a cashier of a
bank had authority to institute an action which was in the name of the
bank, and commenced by capias issued on his affidavit, which alleged his
connection with the bank and authority to make the affidavit. ^^
—
Assistant and Acting Cashier.- An assistant cashier 'of a plaintiff
bank may make an affidavit in attachment in its behalf, where he is ac-
quainted with the facts. In an action by a bank on a note, its acting cash-
2'''
ier may make an affidavit of demand where the office of cashier is vacant.^®
Confession of Judgment. See elsewhere.^* —
§ 110 (4) Treasurer. —
A treasurer of a bank may direct a suit to
be brought on an overdue note and if, judgment being obtained, and land
;
taken on execution set off to the bank, the attorney of the bank, acting
under the direction of the treasurer and of a trustee, to whom such matters
have been intrusted, accepts seisin, and brings a writ of entry to recover
possession of the land, it is no objection to the proceedings that a previous
vote of the trustees, authorizing them, has not been passed.^"
Presumption of Authority. —Where an action is brought in the name
23. Deitz v. National Exch. Bank, 4 27. National Park Bank v. Whit-
Ky. L. Rep. 837. more, 40 Hun 499, 2 N. Y. St. Rep. 87.
24. Porter v. Nekervis, 25 Va. (4 28. Philadelphia Nat. Bank v. Mor-
Rand.) 359. gan (Del.), 1 Mary. 265, 40 Atl. 1113,
25. Donnell v. Miller, 152 Mo. App. 2 Hardesty 9.
217, 132 S. W. 1194. 29. See, ante, "President." § 109 (2).
26. Wachsmuth v. Merchants' Nat. 30. —
Treasurer. Bristol County Sav.
Bank, 96 Mich. 426, 56 N. W. 9. Bank v. Keavy, 128 Mass. 298.
of a bank, by direction of its treasurer, for trespass on land on which the

bank holds a mortgage, it is presumed that the suit was brought with the
bank's authority.î
§ 111. Representations or Admissions— § 111 (1) In General. —

The authority of officers of banks is restricted to such modes of binding
the company as results from the nature of their duty and the powers
vested in them by their offices. The property of stockholders is not bound
by the regular transactions, or by the declarations or confessions of their
officers, beyond the legal sphere of their action. ^^ f]^^ declarations, or- in-
cidental and casual remarks of the officers of a bank do not, as a rule, bind
it; especially where they relate to transactions past and ended.^^
—
Personal Interest of Officer. A bank is not liable for the representa-
tions of its officers on a sale of bonds in which the officers were individually
interested, and in which the bank had no interest, though the officers used
the funds and credit of the bank to consummate the sale.^*
—
Personal Liability to Bank. A surety on a defaulting officer's bond
can not, set up a defense of misrepresentations made by the officer as to his
liability to the bank, as the officer was not then acting as the agent of the
bank and the bank is not bound thereby. ^^

—
Release of Party to Note. The officers of a bank have no authority
as its agents to bind it by statements and assurances that would relieve par-
ties to a note held by it from their obligations thereon.^s
—
Financial Condition of Third Person. Representations by the offi-
cers of a bank that an insurance company had a certain amount of paid-up
^'^
capital stock and surplus are ultra vires.
—
Investment for Customer. Where the managing officer and principal
stockholder of a bank, while acting in a fiduciary capacity for its customer,
by means of concealment and false representations induces the latter to
invest in bonds bought and held by the bank for speculative purposes, the
customer may rescind the transaction, and recover from the bank the money
it received therefrom. ^^
31. Bangor Sav. Bank v. Wallace, ties from a defaulting officer; and in
87 Me. 28, 33 Atl. 716. _
_
obtaining securities from a third per-
Representations and admissions.
32. son, to be used by him for that pur-
— Wyman -v. Hallowell, etc., Bank, 14 pose, such defaulting officer will not
Mass. ,58, 7 Am. Dec. 194; Salem Bank be regarded as the agent of the bank,
V. Gloucester Bank, "17 Mass. 1, 9 Am. so as to make his representations as
Dec. 111. to his liability to the bank binding
33. Puryear v. McGavock, 5S Tenn. on the bank. Tecumseh Nat. Bank v.
(9 Heisk.) 461; Jones z;. Planters' Bank, Chamberlain Banking House, 63 Neb.
56 Tenn. (9 Heisk.) 455. 163. 88 N. W. 186, 57 L. R. A. 811.
34. Ruohs V. Third Nat. Bank, 94 36. Bank v. Jones (U. S.), 8 Pet. 12,
Tenn. 57, 28 S. W. 303. 8 L. Ed. 850.
35. Personal liability to bank. — 37. Financial condition of third per-
bank in charge of the comptroller, be- son. —
Hindman v. First Nat. Bank, 86
ing represented by a majority of its Fed. 1013, reversed in 39 C. C. A. 1,
board of directors, who are not in de- 98 Fed. 562, 48 L. R. A. 210.
fault, may, with the consent of the 38. Investment for customer. —
comptroller, accept collateral securi- Where the managing officer and prin-
Made to Accommodation Acceptor of Draft. Where a bank has —

several branches in different places, the managers of which are treated as
its agents, and a draft in favor of the bank is payable at and presented by
one of such branches, an accommodation acceptor may assume that such

manager is authorized to give information as to the draft, so that state-
ments by the manager to the acceptor are admissible against the bank.^s
§ 111 (2) Directors. —Statements by one of the directors and mem-

bers of the discount board of a bank concerning the terms on which the
bank would discount a customer's paper are not binding on the bank in the
absence of special authority to such director to act as agent for the bank.*"
In an action by a bank on a note given to it in part payment of a draft on a
banking firm which failed before the draft was paid, evidence that a di-
rector of the bank advised the defendant to buy the draft before it was
needed, and promised in the name of the bank to lendhim the money, is
admissible, if it is shown that the promise was communicated to, and acted
upon or acquiesced in by, the bank.*i
§ m —
(3) President. The statements of the president of a bank
which holds an unrecorded mortgage executed by a corporation as to the
solvency of the corporation, made to third persons subsequently becoming
creditors of the corporation, are binding on the bank.*^ Where the pres-
ident was acting for the bank, the fact that he was not authorized by the
board of directors to make a false representation does not relieve the bank
from liability therefor.*^ g^t the bank is not liable for representations
made by the president while not acting for the bank but for himself.**
cipal stockholder of a bank, while act- 43. Binghamplon Trust Co. v. Auten,
ing in a fiduciary capacity for its cus- 68 Ark. 399, 57 S. W. 1105, 83 Am. St.
tomer, by means of concealment and Rep. 295.
false representations induces the lat-
ter to invest in bonds bought and held
44. While acting for himself.
and M. were sureties on a bond given
— C.
by the bank for speculative purposes, for the faithful performance of a con-
in reliance wholly on his representa- tract to build railroad machine shops,
tions that they were first-class securi- The contractors being about to aban-
ties, and that he had got them for her don work, M., then president of the
expressly, when in fact they were plaintiff bank, told C. that they ought
second mortgage bonds, and were sold to make a note, in order to carry out
at a profit, the customer may rescind the contract, and thus save themselves
the transaction, and recover from the from being sued as sureties. C. said
bank the money received therefrom. that he had risked all he intended to
Judgment 52 N. Y. S. 61, 23 Misc. Rep. in the matter, whereupon M. stated
308, affirmed in 59 N.' Y. S. 618, 43 that they would not have to pay a
App. Div. 10; Carr v. National Bank, cent; that he had a contract with the
etc., Co., 167 N. Y. 375, 60 N. E. 649, railroad company that would protect
82 Am. St. Rep. 725. them; that the bank had loaned the
39. Canadian Bank v. Coumbe, 47 contractors all the money it could af-
Mich. 358, 11 N. W. 196. ford to, and simply wanted the note
40. — _
Directors. East River Bank v. to show to the bank examiner; and

Hoyt (N. Y.), 41 Barb. 441. that the first money paid in under his
41. West Branch State Bank v. contract with the railroad company
Haines, 135 Iowa 313, 112 N. W. 553. would be applied to the note. Upon
42. President. —
State Bank v. Camp- these representations, C. executed the
bell, 152 App. Div. 335, 136 N. Y. S. note. Held, that the bank, having no
396. actual knowledge of M.'s representa-
§ 111 (3) REPRESENTATION OP BANK. 775
And the president of a bank can not charge it with a debt by his admissions.*^
Certificate of Deposit. —The president of a bank has general authority
to receive a deposit and issue a certificate, and his statements and represen-
tations made when transacting the business are binding upon the bank, but
he has no authority, after the certificate has been paid, either by admissions
or otherwise, to bind the bank to pay the amount of the certificate a second
time to other parties; such power, if it exists, being vested in the board of
directors, and not in the president.*^
Statement of Depositor's Account. —
The making of a statement as
to past conduct and the condition of the account of the cashier, made and
signed by the president and accompanying an appUcation to a surety com-
pany for a bond, is no part of the duties of the office of president, and the
bank is not bound thereby.*'^
—
Bond of Other Officer. Where a bank seeks to avail itself of the bene-
fit of the actions of its president in securing the execution of a bond guaran-
teeing the fidelity of its cashier, it must accept such actions subject to the
president's representations inducing the execution of the contract by the
surety.* 8 But where the statute and by-laws under which a bank was
organized gave all power with reference to acceptance of the cashier's bond
to the board of directors, and there was no evidence that the president was
authorized to speak for the board, his statements to the surety on the cash-
ier's bond as to the cashier's reliability could not be binding on the bank,
so as to prevent recovery from the surety on the cashier's defalcation. ^^

Financial Condition of Third Person. Where the president of a —
bank owning notes of an insolvent corporation sent the notes to another
bank to be discounted and credited to his bank's account, accompanied by
false representations as to the solvency of the maker of the notes, the bank
is liable for his misrepresentations, although he was not authorized to make
them by the board of directors. ô In an action by the receiver of a national
tions, who was acting for himself, was as a defense in a suit on the bond; de-
not bound thereby, and, having ad- fendant claiming that the statement
vanced money on the note, could hold was either a false warranty by the
C. liable therefor. National Bank v. bank, or a misrepresentation by it of
Carper, 28 Tex. Civ. App. 334, 67 S. material facts, which induced defend-
W. 188. ant to execute the bond. Held, that
45. Henry & Co. v. Northern Bank, making the statement was no part of
63 Ala. 527. the duties of the office of president,
46. Hazelton v. Union Bank, 33 and not within his implied powers or
Wis. 34. ordinary duties, but was his individual
47. Statement of depositor's account. act, by which the bank was not bound.
—A bank cashier applying to a surety United States Fidelity, etc., Co.
Muir, 53 C. C. A. 56, 115 Fed. 264.
v.
company for a bond accompanied the
application with a statement as to his 48. Warren Deposit Bank v. Fidelity,
past conduct and the condition of his etc., Co., 116 Ky. 38, 74 S. W. 1111, 25
account, signed by the president of Ky. L. Rep. 289.
the bank, wliich was incorrect, though Ida County Sav. Bank v. Seiden-
49.
made in good faith. Such statement sticker (Iowa), 92 N. W. 862.
was not referred to in the bond is- 50. Financial condition of third per-
sued. The president had no special —
son. The president of defendant bank,
authority to make it, and none of the to which an insolvent corporation was
directors knew of it until interposed indebted, took its notes for a part of
bank on a bond and for an overdraft, an aflfidavit of defense alleging that

the president of such bank prior to its failure was also president of another
institution in which the defendant was a depositor, and that the president
falsely assured the defendant of the soundness of such other institution,
and that the defendant thereby lost a sum in excess of the claim in suit, is
insufficient.'^
—
Financial Condition of Bank. A statement of the president of a bank,
for the purpose of procuring from another bank a discount of paper, that
such former bank is in good condition, when, in fact, it is hopelessly in-
solvent in consequence of the president's own malversation, is a fraud, and
entitled the discounting bank to recover back the proceeds of the discount.'^
Exempting Maker from Payment of Note. In an action by a bank —
on a note made by the defendant for the payee's accommodation, and dis-
counted by the bank, evidence offered by the defendant that, when the note
was made, the president of the bank agreed that he should not be called on
to pay it, is inadmissible. ^^
§ —
111 (4) Cashier. The cashier of a bank has no incidental author-
ity to make any declarations binding the bank, not within the scope of his
ordinary duties'* and not in the interest of the bank.'" A cashier of a
bank, who was also a director of a manufacturing company, and as such
the amount, and, after indorsing them, rine Bank (Md.), 3 Gill 96, 43 Am. Dec.
inclosed them in a letter to plaintiff, 300; Morgan & Co. v. Merchants' Nat.
and requested plaintiff to discount them Bank, 81 Tenn. (13 Lea) 234.
and place the proceeds to defendant's If the cashier of a bank promises to
credit at a New York bank. The let- pay a debt which the corporation did
ter was written on the bank's letter not owe, or was not liable to pay, or
head, and was signed, "A., President." should admit forged bills to be genu-
In it he stated that the maker of the ine, such promise or admission would
note was solvent and owned certain not bind the bank (except as to bona
property, and that the note was good, fide holders for value and without no-
for the reason that they held ware- tice) unless it had authorized or
house receipts therefor. These state- adopted the act. Merchants' Bank v.
ments were false, and the maker was Marine Bank (Md.), 3 Gill 96, 43 Am.
insolvent. Plaintiff discounted the Dec. 300.
notes, and had the proceeds deposited 55. Not in interest of bank. —
Defend-
to defendant's credit in the New York ant signed notes payable to a bank for
bank, and the defendant credited the the accommodation of the cashier, and
maker with the amount thereof on its after maturity was told that they were
indebtedness. Held, that the president not paid, whereupon he executed other
was acting for defendant, and the fact notes for similar amounts, intended by
that he was not authorized by the him as renewals of the prior notes.
board of directors to make the false Held, in an action by the bank on the
representations did not relieve it of lia- last notes given, that the bank was not
bility therefor. Binghamton Trust Co. chargeable with representations made
V. Auten, 68 Ark. 299, 57 S. W. 1105, 82 by the cashier, as he was acting in his
Am. Rep. 395.
St. own interests, jnd adversely to those
51. Earle v. Munce, 133 Fed. 1008. of the bank. State Sav. Bank v.
52. Fisher v. United Stales Nat. Montgomery, 126 Mich. 327, 85 N. W.
Bank, 12 C. C. A. 413, R4 Fed. 710. 879.
53. Whitehall Bank v. Tisdale (N. Declarations of a cashier of a bank
Y.), 18 Hun 151. can not bind it, where, at the time of
54. Cashier. — Hindman v. First Nat. making them, he was not transacting
Bank, 50 C. C. A. 623, 112 Fed. 931, 57 any business for it. Consolidated Mill.
L. R. A. 108; Merchants' Bank v. Ma- Co. V. Fogo, 104 Wis. 92, 80 N. W. 103.
§ 111 (4) RBPRESSNTATION 01? BANK. 777
director assisted in promulgating false statements as to the financial con-

dition of the company, for the purpose of defrauding all of its creditors, in-
cluding the bank, was not the agent of the bank in such matter so as to
affect the validity of its claims against the company.^® Representations by
a bank cashier need not be made at the counter or office of the bank in
order to bind it.^^
Injury from Misrepresentation. —A person relying upon a false repre-

sentation made by the cashier of a bank can not complain thereof in the
absence of evidence of injury.^®
—
Past Transactions. The cashier of a bank has no authority, and it is
no part of the duty pertaining to his office, to give customers of the bank
information as to transactions of the bank which have been fully trans-
acted and passed.^^
Statement of Depositor's Account. —Representations by the cashier
of a bank to an insurance commissioner, that an insurance company had on
deposit in such bank a certain amount which had been paid in as capital
stock and net surplus, are not ultra vires. s"
Certificate of Deposit. —The cashier of a bank is the proper oipcer to
receive deposits and to give certificates or vouchers in respect thereto, which
may properly include, with the consent of the depositor, a statement of the
56. Decree 34 C. C. A. 338, 92 Fed. 59. Franklin Bank v. Steward, 37

274, affirmed on rehearing in Hadden Me. 519.
V. Dooley, 35 C. C. A. 554, 93 Fed. 728, 60. Statement of depositor's ac-
reversed Dooley v. Hadden, 179 U. S. —
count. Hindman v. First Nat. Bank,
646, 45 L. Ed. 357, 21 S. Ct. 259. 86 Fed. 1013, reversed 39 C. C. A. 1, 98
57. Representations not made at Fed. 502, 48 Iv. R. A. 210.
—
bank. Houghton v. First Nat. Bank, A statement made by the cashier of
26 Wis. 663, 7 Am. Rep. 107. a bank, certifying to the insurance
But in Merchants' Bank v. Rudolf, commissioner of a state that a recently
5 Neb. 527, it was held that casual organized insurance company had on
statements made by the cashier away deposit in the bank a sum which had
from the bank do not bind the bank. been paid in as the full amount of the
58. Injury from misrepresentation. capital stock of the company, and as a
— Defendant signed two accommoda- surplus fund, is false where a consider-
tion notes for the benefit of a bank able portion of the deposit consisted
cashier, the notes to be discounted by of the proceeds of notes given hy sub-
the bank. After maturity he was told scribers in payment for stock, and by
by the cashier that one of the notes officers of the company, which the
was paid, whereupon he executed a bank had discounted on the indorse-
note intended as a renewal of the un- ment of the company, and for which
paid notes. Defendant testified that it held the stock as collateral security,
lie had intended demanding security of whether such discounts were real or
the cashier, but did not do so because pretended, since the bank had knowl-
of his representation that the one note edge that the deposit did not represent
was paid; but it appeared that the cash- either capital or surplus; and, where
ier was then insolvent, and could not such certificate was made in the inter-
have given security if required. The ests of the bank, for the purpose of en-
last note given was subsequently re- abling it to secure a large deposit from
turned to defendant. Held, in an ac- the company, or to sell the stock it
tion on the first note, that,- even if the held as collateral, it was an act done
bank could be charged with such rep- in the due course of business, for which
resentation, defendant had failed to the bank is responsible. Hindman v.
show that he was injured thereby. First Nat. Bank, 50 C. C. A. 623, 113
State Sav. Bank v. Montgomery, 126 Fed. 931, 57 L. R. A. 108.
Mich. 327, 85 N. W. 879.
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.®^
Special Deposit. — In the absence of knowledge of the directors or of a
custom of the bank, statements of the cashier are not admissible to vary a
receipt given for a special deposit.®^
—
Payment of Note. Declarations made to an indorser by a cashier,
who was also an indorser, as to the payment of the note held by the bank,
may estop the bank from asserting a contrary state of facts, and to impose
on the bank the consequent loss.*^ But where a siarety on a note payable to
a bank claimed that he was induced by representations of the cashier that
the note was paid to surrender securities to the principal, so that he was
thereby released, statements made by the cashier at casual meetings away
from the bank do not bind the bank.''*
—
Use of Rented Premises. In an action for rent against a banking
company, the fact that a certain person was its cashier, and negotiated for
the renting of the premises, does not constitute evidence of his authority to
bind the company by remarks made to plaintiff as to the purpose for which
the premises were rented, or the terms of a previous renting thereof.®^
Financial Responsibility of Maker of Note. —In an action by a bank
against indorsers of a note discounted for the accommodation of the maker,
declarations of the cashier and one of the directors that they considered the
maker perfectly good, although willfully false, does not affect the rights of
the bank, not being made in the course of their duty as officers.®^
Financial Standing of Third Persons. In the absence of evidence—
of authorization, the cashier of a bank has no authority by virtue of his
position to make any representations on behalf of the bank as to the sol-
vency of a customer who is one of its debtors, and the bank is not estopped-
by such representations made by him to one whom the debtor of the bank
referred to the bank for information. ^^ Declarations made by the cashier
61. Hindman v. Fir.'st Nat. Bank, 50 was not sufficient to change the effect
C. C. A. 623, 112 Fed. 931, 57 L. R. A. of the receipt so as to affect the bank.
108. Comp V. Carlisle Deposit Bank, 94 Pa.
62. Special deposit. —
A., at the solic- 409.
itation of the cashier of a bank, de- 63. Grant v. Cropsey, 8 Neb. 205.
posited with it, for safe-keeping, cer- 64. Merchants' Bank v. Rudolf, 5
tain bonds, taking a receipt therefor. Neb. 527.
stating that they were received "for 65. Union Banking Co. v. Gittings,
deposit in the vault of this bank at the 45 Md. 181.
risk of the depositor." Held, that in 66. Mapes v. Second Nat. gank, 80
the absence of any evidence that the Pa. 163.
bank was accustomed to receive bonds 67. Financial standing of third per-
for safe-keeping, except at owner's —
son. Plaintiff sold goods on credit
risk, or that the directors had knowl- to a customer of a bank on the state-
edge that bonds were left at the in- ment of the cashier that the note to be
stance, request, or solicitation of the given in payment would be good. The
cashier, evidence of the latter's repre- cashier knew that the customer was
sentations, at the time of the deposit, largely indebted to the bank and was
as to the safe-keeping of the bonds, practically insolvent. There was no
'
of a bank to a merchant residing in another state touching the financial

standing of a merchant residing near the bank are not competent against
the bank unless evidence is introduced tending to show that by virtue of
the official position of the cashier or otherwise it was his duty to make such
statements.*^
—
Exempting Surety from Liability. A surety on a note given to a
bank by a third person in renewal of a prior note on which such surety
was also an indorser may show, as against the bank, that, at the time he
signed such renewal, its cashier informed him that the bank had sufficient
funds of the maker to pay such renewal note that its execution was a ;
matter of form, necessary only to keep the bank accounts straight; and
that the bank would not hold him liable thereon.*^
Exempting Maker from Payment of Note. In an action by a bank —
against a joint maker of a note, the defendant can not show that he signed
it on the representations of the plaintiff's cashier that it was intended as
a mere matter of form, and that he would not be called upon to pay it.'''^
Character and Conduct of Another Employee. Statements made by —
a cashier of a bank as to the character of a coemployee and the condition
of his accounts are not binding on the bank.''^ But as the making of certifi-
cates by a bank cashier, for the renewal of a bookkeeper's bond, that the
bookkeeper's books had been found correct, was an act which he might
have been authorized to do by the directors, and where, on a defalcation
being discovered, the cashier, in behalf of the bank, presented the claim
against the surety, a finding was warranted that the cashier had authority
to make the certificates, and that his action was binding on the bank.'^^
§ 111 (5) Teller. —The statement of a bank teller that an indorse-

ment upon a check is genuine does not bind the bank, which holds him out
to the public as an agent with limited powers. ^^
Certified Check. —The bank is bound by the representations of its
teller to another bank that a certificate of deposit was good, where the
evidence of any authority given the cashier may make to the solvency of
cashier in such regard, or of any au- some third party. Horrigan v. First
thority given him to bind the bank by Nat. Bank, 68 Tenn. (9 Baxt.). 137.
representations as to its customers. 68. In absence of sucli proof the
Held, that the bank was not liable, statements of the cashier would not
where such customer thereafter became afifect the bank. This rule would not
insolvent. Judgment 73 N. Y. S. 934, be affected by the truth or falsehood
68 App. Div. 458, reversed. Taylor v. of such declarations. Goodbar v. City
Commercial Bank, 174 N. Y. 181, 66 N. Xat. Bank, 78 Tex. 461, 14 S. W. 851.
E. 726, 63 L. R. A. 783, 95 Am. St. Rep. 69. First Nat. Bank v. Pegram, US
564. N. C. 671, 34 S. E. 487.
Answering questions as to the sol- Ô- First Nat. Bank v. Foote, 13
vency of parties is no part of the busi- Utah 157, 43 Pac. 305.
ness of a cashier of a bank, nor fairly 71. Lieberman v. First Nat. Bank, 8
lê'- Ch. 339, 40 Atl. 383.
included within the scope of such busi-
ness. It may be, and probably is, an 72. National Bank v. Equitable Trust
accident of such position, but not an Co., 233 Pa. 338, 72 Atl. 794.
incident to it. Held, no liability at- 73. Teller. —Walker v. St. Louis Nat.
taches to the bank for any answer the Bank, 5 Mo. App. 314.
teller failed to state that the payment thereof had been stopped^*
§ 112.Wrongful Acts— § 112 (1) In General.—For the torts'' ^ or

acts done by the officers or the agents of a bank in delicto/^ in the course of
its business and of their employment, the bank is responsible as an indi-
vidual is responsible under similar circumstances.

—
As Defense of Bank. Where a transaction with an incorporated bank-
ing association properly pertains to the business of such an association,,
the abuse or disregard of his authority by its managing officer or agent>
will not be permitted to be shown in defense of such bank in an action
against it by an innocent party, growing out of such transaction.'^'^
§ 112 (2) Torts of Managing Officer and Cashier Generally—

§ 112 (2a) Acts Not within Corporate Capacity. A managing officer —
of a bank is not a servant of the corporation, but the head thereof; and
the bank is liable for his torts committed while acting in the scope of his
powers, even though the tortious acts are not within the corporate powers
of the bank.'''*
§ 112 (2b) Acts without Scope of Authority. —For an act neither

within the scope of the powers of the cashier, nor authorized by the di-
rectors, the bank is not liable, or bound thereby,'' ^ unless it receives and
74. Certified check. —After a check How. 202, 16 L. Ed. 73; Humes v.
had been bank on which
certified, the Knoxville, 20 Tenn. (1 Humph.) 403;
it was drawn was notified by the Ohio Life Ins., etc., Co. v. Merchants'
drawer that the check had been lost, Ins., etc., Co., 30 Tenn. (11 Humph.) 1;
and not to pay the same. Subse- Nashville v. Brown, 56 Tenn. (9 Heisk.)
quently, a person in possession of the 1. See also, the case of Goodspeed v.
check, representing himself to be the East Haddam Bank, 22 Conn. 530.
owner thereof, presented the same at 77. As
defenses of bank. Citizens" —
another bank, to have it discounted, Sav. Bank
v. Blakesley, 42 O. St. 645.
and this bank, before accepting it, pre- 78. Acts not within corporate pow-
sented it to the drawee's teller, asking
whether the certificate was good. The
ers. —Johnson Fife Hat Co. v. National
Bank, 4 Okl. 17, 44 Pac. 192; Silver-
teller replied that it was, but said stein V. National Bank, 4 Okl. 35, 44
nothing about payment having been Pac. 198; Sanger v. National Bank, 4
stopped. Upon faith of this the check Okl. 36, 44 Pac. 198; Mayer v. National
v;as discounted. Held, that the drawee Bank, 4 Okl. 37, 44 Pac. 198.
by failure to state that circumstance, 79. Cashier. —Where the cashier of
was estopped from denying its liability a bank wrote to the secretary of the
thereon. Clews v. Bank, 89 N. Y. 418. treasury, saying that the bearer of the
75. Liability for torts of officers or letter was authorized to contract for
—
agents. National Bank v. Graham, 100 the transfer of money from New York
U. S. 699,25 L. Ed. 750; Reed v. Home to New Orleans, and such a transaction
Sav. Bank, -130 Mass. 443, 39 Am. Rep. was not within the scope of the powers
468; Wachsmuth v. Merchants', Nat. of the cashier, nor authorized by the
Bank, 96 Mich. 426, 56 N. W. 9, 31 L. R. directors, the bank was not bound to
A. 278; Johnson Fife Hat Co. v. Na- reimburse the money which the secre-
tional Bank. 4 Okl. 17, 44 Pac. 192; tary of the treasury advanced. United'
Merchants' Bank v. State Bank (U. S.), States V. City Bank (U. S.), 21 How.
10 Wall. 604, 19 L. Ed. 1008; Zinc Car- 356, 16 L. Ed. 130.
bonate Co. V. First Nat. Bank, 103 Wis. Effect of exceeding authority. —
125, 79 N. W. 229, 74 Am. St. Rep. 845. United States v. City Bank (U. S.), 21
76. Wheless v. Second Nat. Bank, How. 356, 16 L. Ed. 130.
60 Tenn. (1 Baxt.") 469, citing Philadel- If the letter was the cashier's own
phia, etc., R. Co. V. Quigley (U. S.), 21 act, and had been given without the
§ 112 (3aa) REPRESENTATION OF BANK. 781
accepts the benefit thereof.*" Where a bank receives the benefit of a

transaction, it is bound to account notwithstanding its cashier exceeded
his authority in assuming, on belialf of the bank, to act in the transaction.*^
§ 112 (3) Particular Torts or Wrongful Acts— § 112 (3a) Fraud

—§ —
112 (3aa) In General. Fraudulent representations, or a fraudu-
lent concealment of material facts by the agent of a bank, when engaged
in the transaction of the business of the bank, will charge the latter, con-
structively, through the agent. ^^
A banking corporation may be guilty of a fraud. In its relations to
others, it is represented by its officers and agents, and their fraud in the
course of corporate deahngs, is, in law, the fraud of the corporation. ^^
As Defense of Bank. —Where a transaction with an incorporated bank-
knowledge or authority of the board cumstances, is well settled that the
of directors, or any of them individu- party must inquire before assuming to
ally, except the bearer, who was also act or take the risk that the necessary
a director, and if the agency was not authority exists (dissenting opinion).
constituted by or known to the board Merchants' Nat. Bank v. State Nat.
of directors, or the directors individu- Bank (U. S.), 10 Wall. 604, 19 L. Ed.
ally, or any of them except him, but 1008.
was the act of the cashier alone; and 80. Merchants' Nat. Bank v. State
if the cashier had no power as cashier, Nat. Bank (U. S.), 10 Wall. 604, 19 L.
except such as belonged to the office Ed. 1008.
of cashier generally, or such as are 81. Acceptance of benefit. First —
given by the charter or by the by-law Nat. Bank v. Bakken, 17 N. Dak. 224,
or other law or usage of the said bank, 116 N. W. 92.
then the bank was not concluded by If a cashier, without authority to buy
that letter, and is not bound by the coin in behalf of his bank, do so buy it,
contract made by the bearer, without and it goes into the funds of the bank,
some subsequent ratification of the the bank is liable upon the principle
same, though the secretary had, in of quantum valebat. Merchants' Nat.
contracting with him, relied upon it as Bank v. State Nat. Bank (U. S.), 10
the act of the bank. United States v. Wall. 604, 19 L. Ed. 1008.
City Bank (U. S.), 21 How. 356, 16 L. 82. Fraud.— Bank v. Davis (N. Y.),
Ed. 130. 2 Hill 451; Union Bank v. Campbell,
In a transaction between the cash- 23 Tenn. (4 Humph.) 394.
iers of two banks, upon which one bank President or managing officer. If —
was seeking to hold the other bank the president or managing officer of a
liable, where the circumstances show bank is guilty of fraud, in exercising
that the cashierthe plaintiff bank
of the powers conferred on him by the
must have known that the other acted bank, it is liable for the consequences
without the knowledge of the direct- which flow therefrom. Johnson Fife
ors, and if the cashier of the defendant Hat Co. V. National Bank, 4 Okl. 17,
bank had no authority, and the cash- 44 Pac. 192.
ier of the plaintiff bank knew it, it is 83. Banking corporation. — Tohnson
clear to a demonstration that the de- Fife Hat Co. v. National Bank, 4 Okl.
fendant bank is not liable (dissenting 17. 44 Pac. 192.
opinion). Merchants' Nat. Bank v. If an officer of a banking corpora-
State Nat. Bank (U. S.), 10 Wall. 604, tion, while exercising the authority
19 L. Ed. 1008. conferred on him by the corporation,
Where a cashier knew that he him- is guilty of falsehood and fraud, the
self had no authority to do such an corporation is liable for the conse-
act as cashier; that the law of the state quence which may flow therefr-">m.
forbade it; that no cashier of a national lolmston Fife Hat Co. v. Naîrn.il
bank in that city had ever exercised Bank, 4 Okl. 17. 44 Pac. 192; Silver-
any such authority and that the means stein V. National Bank, 4 Okl. 35, 44
of ascertaining whether the cashier of Pac. 198; Sanger ik National Batik, 4
the defendant bank had such authority Okl. 36, 44 Pac. 198; Mayer v. National
were at hand, the rule, under such cir- Bank, 4 Okl. 37, 44 Pac. 198.
782 BANKS AND BANKING. § 112 (Sac)
ing association properly pertains to the business of such association, the

fraud or bad faith of its managing officer or agent will not be permitted
to be shown in defense of such bank in an action against it by an innocent
party growing out of such transaction.^*
§ 112 (Sab) Fraud in Obtaining Loan for Bank. —Where it is
within the apparent authority of the cashier^^ or president^^ of a bank to

borrow money for the bank in the regular course of business it is liable
for fraud practiced by him in such transaction.
—
Vice-President. A bank, whose vice-president borrows money in its
name of another bank, and appropriates it to his own use, is not liable-
therefor, unless he was specially authorized to borrow the money, or his act
was ratified,*' but where he has authority to negotiate the loan the rights
of the loanor are not affected by the fact that the transaction was fraudu-
lent as between the vice-president and his bank.^^.
§ 112 (Sac) Fraud in Receiving Deposits. —Fraud of officers of a

bank in receiving deposits is a fraud of the bank.^^
Fraud Respecting Paper Deposited for A bank is
Collection. —
liable for the fraud of its cashier in colluding with themaker of paper sent
to it for collection to allow such paper to accumulate in the bank unpaid.^"
84. —
As defense of bank. Citizens' thus fraudulentlyobtained, it is re-
Sav. Bank v. Blakesley, 42 O. St. 645. sponsible, a suit against the
and, in
85. Fraud in obtaining loan for bank from which money was thus
—
bank. Where a cashier of an insolvent fraudulently obtained, that bank may
bank, acting for it, induced his fiancee set off the amount. City Nat. Bank v.
to furnish securities for a loan to aid National Park Bank (N. Y.), 32 Hun
the institution, any fraud practiced on 105.
her through advantage taken of the re- 87. Vice-president. — Chemical Nat.
lation between tbem was that of the Bank v. Armstrong, 13
C. C. A. 47, 65
bank. Hallett v. Fish, 120 Fed. 986. Fed. 573, 28 L. R. A. 231, modifying 8
The lender of money to a bank C. C. A. 155, 59 Fed. 372, to accord
through its cashier acted in good faith with 152 U. S. 346, 38 L. Ed. 470, 14
and in the course of business. There S. Ct. 572.
was nothing in the transaction to put 88. Fraud between vice-president
him on notice that the cashier exceeded —
and his bank. Where a bank in good
his authority or misapplied the funds faith advanced money on collateral
of the bank, or that the bank author- forwarded to it by the vice-president
ities were not regularly constituted of another bank, and charged the loans
and doing their duty. The cashier de- to the latter, its rights are not af-
livered to the lender a spurious reso- fected by the fact that the transaction
lution, purporting to have been passed was fraudulent as between the vice-
by the bank's board of directors, au- president and the bank which he
thorizing the loan and the pledging represented, for the vice-president had
of the bank's notes as collateral. authority to negotiate the loan, and
Held, that the transaction was bind- the validity was not affected by his
ing on the bank. Citizens' Bank v. fraud. Webb v. Stasel, 4 N. P., N. S.,
Bank, 31 Ky. L. Rep. 365, 103 S. W. 587, 17 O. D. N. P. 317.
249. 89. Fraud in receiving deposits. —
86. Money borrowed by president Warner v. Armstrong, 21 Wklv. L.
by means of fraudulent representa- Bull. 124, 10O. Dec. 426.
tions. —
If a bank permits its president 90. Fraud respecting paper de-
to usurp its functions, so that thereby posited for collection. Notes —and
he is enabled to borrow money from bills were sent by plaintiff to the cash-
another bank by means of fraudulent ier of defendant for collection, with a
representations, and retains the money request to protest and return such as
§ 112 (3ah) reprEse;ntation oi? bank. 783
§ 112 (Sad) Depreciating Collaterals. —

The depreciation of stock
held by a bank as collateral security, by the president of the bank and stock-
holders with a view of purchasing the controlling interest therein, does not
alone make such conduct the act of the bank so as to furnish a basis for
an action against it.^^
§ 112 (3ae) Fraud in —

Procuring Note. If a cashier, as agent of
the bank, procure a note by improper means from the maker, and contrary
to the original design of the indorser when he delivered it to the maker,
lay it before the directors to be discounted, which is done, the bank can
not recover of the indorser.^^
112 (3af) Fictitious Entry of Credit.— A bank is not liable for

§
the amount of a fictitious entry of credit made by its cashier on the pass
book of a depositor. ^3
§ 112 (Sag) Deposit of Worthless Check in Another Bank. An —

agent of a bank to deposit a quantity of coin in another bank has no right
to substitute his own worthless check for the money, and nothing but an
actual and bona fide deposit of money to his principal's credit can charge
the depositee bank, and the depositor bank was responsible for the act
of its agent as if it had itself deposited the worthless check.'*
§ 112 (3 ah) Conspiracy to Defraud Third Person. —Where the

president of a bank has the active control and management of its affairs,
and, in conducting its business, enters into a conspiracy to defraud third
were not paid. They were never col- which included this fraudulent credit,
lected, nor were they protested or re- Held, that no cause of action existed
turned. The
cashier was guilty of for the amount represented by the
gross fraud
colluding
in with the fictitious entry, and as to that item
maker of the paper, and in failing to the petition should be dismissed. Webb
enter the paper on the books of the v. Stasel, 4 N. P., N. S., 587, 17 O. D.
bank. Held, that the fraud of the cash- N. P. 317.
ier did not relieve defendant from lia- 94. Deposit of worthless check in
bility. National Pahquioque Bank v. —
another bank. A bank delivered to a
First Nat. Bank, 36 Conn. 335, 4 Am. savings institution coin to be trans-
Rep. 80. mitted to the agent of the bank. The
Depreciating collaterals. Napier
91. — agent received the coin and sold it,
V. Central Georgia Bank, 68 Ga. 637. and notified the institution that he had
92. Fraud in procuring note. Bank — deposited the amount to its credit in
T. Irvine (Pa.), 3 Pen. & W. 350. another bank. The institution credited
93. Fictitious entry of credit. L., as — the bank on account and sent the
cashier of a bank and treasurer of a agent's letter to the bank. After some
building association, credited himself days it was discovered that the agent
with $10,000 on the books of the bank had only deposited his check, which
and entered a credit for a like amount was worthless, as he had failed. Held,
on the pass book of the building as- that neither the institution nor the
sociation. On the faith of this ficti- bank in which the deposit was made
tious credit the building association was bound by the credit given on the
declared and paid a dividend to its faith of the check and notification,
stockholders. Subsequently receivers The agent was the agent of the bank,
were appointed for both the bank and and the transaction was the same as
the building association, and the re- though the bank had made the deposit
ceiver of the building association sued of the worthless check. Dimes Sav.
the receiver of the bank on an account Inst. v. AUentown Bank, 65 Pa. 116.
784 BANKS AND BANKING. § 112 (3ai)
persons, and puts the same into execution, whereby another is damaged,
the bank will be liable in tort for the damages. ^^
Cashier. —Where the cashier
of a bank assisted a gang of conspirators
in defrauding a stranger by inducing him to bet on a foot race, the re-
sult of which was determined in advance, by allowing the use of the
bank for the transference of money and to give an appearance of respecta-
bility, the bank, as well as the cashier, is liable with the conspirators for
the amount of which the stranger was defrauded.®^
§ 112 (3ai) Bank's Retaining Benefits of Transaction. —When a

bank holds out its officer to the public, by employment, as worthy of
his
confidence, it can not profit by the frauds he perpetrates in the apparent
scope of his employment.^'^ The fraud of the officer is imputable to the
95. Conspiracy to defraud third per- made the merchant, imder which it
son —President.—Johnson Fife Hat Co. was to sell the goods, the proceeds of
V. National Bank, 4 Okl. 17, 44 Pac. 192. such sale to be given, one-third to the
Where the president of a banking '
bank and two-thirds to the merchant,
corporation, who has the control and leaving the creditors unpaid; and, in
management of its business, enters pursuance thereof, goods were bought
into conspiracy to defraud third per- of the value of $10,000, on which the
sons, and carries out such fraudulent bank loaned $1,000, taking a mortgage
design through his relations with the for $9,960; and, before the bills for
bank, the corporation has notice of the goods became due, the bank fore-
the fraud, and, on accepting the bene- closed the mortgage, and took pos-
fits resulting therefrom, becomes a session thereunder, and sold the goods
participant in the fraud and liable for for $5,300, which was divided accord-
the damage. Johnson Fife Nat. Co. v. —
ing to the agreement the bank was li-
National Bank, 4 Okl. 17, 44 Pac. 192; able to each of the defrauded creditors
Silverstein v. National Bank, 4 Okl. for the amount of goods so sold by
35, 44 Pac. 198; Sanger v. National each. Johnson Fife Hat Co. v. Na-
Bank, 4 Okl. 36, 44 Pac. 198; Mayer v. tional Bank, 4 Okl. 17, 44 Pac. 192.
National Bank, 4 Okl. 37, 44 Pac. 198. 96. —
Cashier. Hobbs v. Boatright,
It is a part of the duty of a banking 195 Mo. 693, 5 L. R. A., N. S., 906, 93
corporation to loan money, and to col- S. W. 934, 113 Am. St. Rep. 709.
lect such loans by sale of goods or 97. Banks retaining benefits of trans-
other security, and where the presi- —
action. City Nat. Bank v. Martin, 70
dent of the bank has the active con- Tex. 643, 8 S. W. 507, 8 Am. St. Rep.
trol and management of the afifairs of 632.
the bank, and in conducting its busi- Assets obtained by fraud. Where a —
ness enters into a conspiracy to de- bank, through the fraud of its agent,
fraud, and puts the same into execu- obtained certain assets as security for
tion whereby another is damaged, the its liabilities through another bank,
bank will be liable in tort for the dam- though it is not liable criminally, yet
ages. Johnston Fife Hat Co. v. Na- is liable civiliter, as it appointed the
tional Bank, 4 Okl. 17, 44 Pac. 192; end though not the means, and it can
Silverstein v. National Bank, 4 Okl. not retain any advantages which had
35, 44 Pac. 198; Sanger v. National been gained through the agent. Johns-
Bank, 4 Okl. 36, 44 Pac. 198; Mayer ton V. Southwestern R. Bank (S. C),
V. National Bank, 4 Okl. 37, 44 Pac. 3 Strob. Eq. 263.
198. The president of a bank borrowed
Where the president of a banking money for his own use on the security
corporation, having control and man- of bank stock fraudulently issued to
agement of its business, entered into the president. The amount borrowed
a conspiracy with a merchant whereby was transferred to the bank without
the latter was to purchase of whole- consideration, and the bank collected
sale dealers a large amount of goods it, and placed the money among its
on credit, on which the bank was to assets. No stock was transferred on
take a mortgage in an amount largely the books. The cashier, as well as the
in excess of a loan which was to be president, had knowledge of the
§ 112 (3ajb) RBPRBSENTATION OF BANK. 785
bank when it receives the benefit. ^^
§ 112 (3aj) Fraudulent Acts in Personal Transactions —§ 112

—
(3aja) In General. A bank is not liable for fraudulent acts of its offi-
cers performed in a transaction conducted for their private benefit, although
they may have illegally used the funds and credit of the bank in effecting
their purpose.^'' A bank is not chargeable with notice of the fraudulent
acts of an officer outside the scope of his authority and in furtherance of
his personal designs.
§ 112 (3ajb) Use of Name of Bank. —An officer or agent of a bank

can not prostitute the name of his bank to the service of his own personal
ends. 2 The use of the bank's name by an officer in negotiating notes which
do not belong to it does not render the bank liable to the indorsee although
the proceeds were deposited in the bank.^
fraudulent issue of the stock. Held, 3. Negotiation of notes. —

A bank is
that a fraud had been committed by not liable to a company for proceeds
the president on the lender, and that of the company's note, made payable
the latter was entitled to rescind the to one who was president of the bank
contract; that the bank received the and an officer of the company, though
money to tlie use of the lender; and in negotiating he used the bank's
it
that, upon his surrendering the cer- name, and though he deposited the
tificates,he was entitled to share, as a proceeds in it; it having been to his
creditor of the bank, in the distribu- own credit, and he having used the
tion of its assets. Manhattan Life Ins. same. City Elect. St. R. Co. v. First
Co. V. Farmers', etc., Nat. Bank, Fed. Nat. Bank, 65 Ark. 543, 47 S. W. 855.
Cas. No. 9,024, 10 Blatchf. 344. The president of defendant bank
98. The president, a heavy stock- took to plaintiff bank a note executed
holder in defendant bank, who was an by third persons, and asked plaintiff
intimate friend of plaintiff, agreed, as to discount it. Plaintiff's directors
a matter of friendship, to invest her asked the president if the signers of
money in good, first-class securities. the note were good, and he said they
She relied entirely on his representa- were. They then agreed to discount
tions that he had purchased first-class the note if the president would in-
securities. He retained them in his dorse it, which he did; the proceeds
possession, and she did not examijie being credited to defendant bank on
them. As a matter of fact, the securi- account of the signers of the note.
tieswere not first-class, and had be- The signers were financially involved
longed to the bank before their trans- at the time the note was issued, and
fer to plaintiff at their par value five — later failed. Held, that defendant's
per cent above what the bank had paid president was acting individually in
for them. Held, that plaintiff was en- the matter, and that defendant was not
titled to rescind the contract, and, on liable on the ground that it had prac-
returning the securities, to recover the ticed a fraud upon plaintiff in procur-
price from the bank, since the fraud ing it to discount the note. American
of the president is imputable to the Nat. Bank v. Warren Deposit Bank,
bank, which received the benefit. Carr 22 Ky. L. Rep. 195, 92 S. W. 585.
V. National Bank, etc., Co., 23 Misc. Plaintiff bank held a note, which it
368, 52N. Y. S. 61;S. C, 43 App. Div. 10, had discounted upon the request of
59 N. Y. S. C18, affirmed in 167 N. Y. the president of defendant bank; the
375, 60 N. E. 649, 82 Am. St. Rep. 725. note being indorsed by both president
99. Fraudulent acts in personal and cashier of defendant bank. De-
—
transactions. Ruohs v. Third Nat. fendant had a first mortgage on cer-
Bank, 94 Tenn. 57, 28 S. W. 303. tain cattle belonging to the maker of
1. Jones V. First Nat. Bank, 3 Neb. the note, and, when the proceeds of
73, 90 N. W. 913, the cattle were turned over to defend-
2. Use of name of bank. —
City Elect. ant's cashier, he paid a portion thereof
St. R. Co. V. First Nat. Bank, 65 Ark. to plaintifif, and a portion to the holder
543, 47 So. 855. of another note executed by the same
1 B & B— 50
—
Procuring Execution of Note. Where the president of a bank, in
seeking to defraud certain persons, told them that the bank would accept
their notes, would renew them indefinitely, and under certain circumstances
would not enforce payment, the bank is not charged with the knowledge of
the president, and therefore, being innocent, may enforce the notes.*
§ 112 (3ajc) Buying and Selling Stock. — Buying and selling stock
is not a part of the legitimate business of a bank, and the bank is not bound
by the fraud or wrongful acts of its officer in such transactions.^
§ 112 (3ajd) Fraud on Depositor.— An employee of a bank in the

perpetration of a fraud on a depositor is not the. agent of the bank.^
§112 (3ak) Application of Principle of Estoppel.—The principle

that, when one of two innocent parties must suffer by reason of a fraudu-
lent transaction it must be the one whose act made it possible for the fraud
to be perpetrated, can not be so perverted as to enable a bank to profit by
a fraud perpetuated by the cashier who had the general charge of its aflfairs.'^
§ 112 (Sal) Proof of Fraud. — The fraud must be clearly shown.^
112 (3b) False Representations as to Credit of Another.

§ —
Where an officer of defendant bank was not acting in his official capacity
parties, and on which he was also a Lynchburg Nat. Bank, 109 Va. 530, 64
surety. Defendant bank, though it S. E. 950.
had a first lien on the cattle, received Application of principle of es-
7.
nothing. Held, that plaintiff had no toppel. —
Daniels v. Empire State Sav.
cause of action against defendant be- Bank, 93 Hun 450, 38 N. Y. S. 580, 74
cause of the manner in which the N. Y._ St. Rep. 257.
money was applied. American Nat. Plaintiff, then an unmarried woman,
Bank v. Warren Deposit Bank, 33 Ky. having a deposit in a bank, on leaving
L. Rep. 195, 93 S. W. 585. for Europe, to be absent a year, signed
4. Procuring execution of note. — checks in blank, and left them with
Baker v. Berry Hill Mineral Springs the cashier, who was also manager of
Co., 112 Va. 280, 71 S. E. 626. the bank, to be used as she might
5. Buying and selling stock. Plain- — thereafter direct. The following year
tiff applied to the cashier of a bank she returned, and later married. After-
to purchase shares of stock. The pur- wards the cashier filled out one of the
chase was made from S., who retained checks, though it was not charged to
the stock for some time, when he plaintiff'saccount on her book. Held,
sent it to the cashier, with a letter ad- that the bank could not charge plain-
dressed to the cashier individually. tiff with the amount of the check.
The account kept by plaintiff was with Daniels v. Empire State Sav. Bank, 93
the cashier individually. Plaintiff Hun 450, 38 N. Y. S. 580, 74 N. Y. St.
gave his check for the price to the Rep. 357.
cashier individually, and the transac- 8. Fraud in procurement of notes for
tion did not appear on the books of —
insurance premium. Where A. & B.
the bank. The bank was not engaged were induced by the cashier of a bank
in buying and selling stock for itself to take out policies of insurance and
or for others. On receipt of the stock, borrow money from the bank on notes
the cashier kept it in his own private to pay the premiums, by his promise
drawer of a desk in the bank. The that the bank would protect them in
cashier thereafter converted the stock, the first payment of the premium
and plaintiff sued the bank in trover. when they came due, and the bank
Held, that the bank is not liable. Pres- sued them on their notes, it was held
ton V. Marquette County Sav. Bank, that fraud was not sufficiently shown
133 Mich. 696, 81 N. W. 930. by these facts. Vanzant v. Bank, 2
6. Fraud on depositor. Brown — v. Ga. App. 763, 59 S. E. 85.
§ 112 (3e) REPRESENTATION OF BANK. 787
at the time he made certain false representations to plaintiff concerning

the financial responsibiUty of a corporation with which plaintiff entered
into a lumbering contract, the bank was not liable in an action for deceit.®
§ —
112 (3c) Slander of Credit. A bank corporation is not liable for
slanderous statements made by its officer or agent, injurious to a depositor,
in his occupation of merchant or trader, though made in connection with a
refusal to honor his check drawn on the bank.^** And a bank is not liable
for slander for unauthorized declarations of its cashier that plaintiff had
previously overdrawn his accounts. ^^
Wrongful Publication of Protest by Notary.—A bank is not liable
for the malicious and wrongful publication of a protest by a notary public
employed by it, unless it shared in the malicious act; since a notary public
is a public and the liability for his official acts is in no way affected
officer,
by the fact that he was also an employee of the bank.^^ In order to render
the bank liable, it would at least have to be alleged that it shared maliciously
in the production or publication of the libel.^^
§ 112 (3d) Negligence. —A bank can not ignore the negligence of

all its officers and profit by their omission of duty.^*
Negligent Keeping of Record of Director's Meeting. The neglect —
by the cashier of a directory by-law, as to keeping a record of the proceed-
ing of the directors, will not affect their validity. ^^
§ 112 (3e) Receiving Foreign Bank Note in Payment. —The teller
of a bank does not render the corporation liable to the penalty prescribed
by statute by receiving in payment a foreign bank note, unless his act was
9.False representations as to credit — Effect.— Where the cashier is re-

of another. Simons— v. Cissna, 53 quired to keep a fair and regular
Wash. 115, 100 Pac. 200. record of the proceedings of the di-
10. Slander of credit. Judgment, 20— rectors, it is a by-law of the corpora-
tion, directory to its officers, enacted
Misc. Rep. 90, 45 N. Y. S. 68, reversed.
Eichner v. Bowery Bank, 24 App. Div. for its own security and benefit, and
63, 48 N. Y. S. 978, 5 N. Y. Ann. Cas. not for the purpose of restricting the
106. acts of the directors. If the cashier
11. Unauthorized declarations. — Et- should neglect to keep such records,
ting V. Commercial Bank (La.), 7 Rob. or should omit any single vote, the
459. by-law has not declared that the vote
12. Wrongful publication of protest shall be void, and the proceedings
—
by notary. May v. Jones, 88 Ga. 308, nugatory. Bank v. Dandridge (U. S.),
14 S. E. 552, 15 L. R. A. 637, 30 Am. 12 Wheat. 64, 6 L. Ed. 552.
St. Rep. 154. Mr. Justice Story, in discussing the
13. An allegation "that the action of subject in Bank t'. Dandridge, 12 Wheat,
the notary in the matter, he acting 64, 6 L. Ed. 553, said: "Aboard may ac-
under the authority of the bank, is the cept a contract, or approve a security,
action of said bank," is not sufficient by a vote, or by a tacit or implied as-
to charge the bank as a joint tort sent. The vote or assent may be more
feasor with the notary. May v. Jones, difficult of proof by parol evidence
88 Ga. 308, 14 S. E. 552, 15 L. R. A. 637, than if reduced in writing. But this is,
30 Am. St. Rep. 154. surely, not a sufficient reason for

14. Liability for negligence. Kissam— declaring that the vote or assent is in-
V. Anderson, 145 U. S. 435, 36 L. Ed. operative."' Jacksonville, etc., Nav.
765, 12 S. Ct. 960. Co. V. Hooper, 160 U. S. 514, 40 L.
15. Neglect of cashier to keep record Ed. 515, 16 S. Ct. 379.
authorized or adopted by the board of directors.^®
§ 112 (3f) Organization of Another Bank in Evasion of Charter.

—The making an arrangement with the stockholders of
act of a cashier,
another, not an organized bank, to organize that bank in evasion of their
charter, although illegal, still, if it is an act done by him, not for himself
or his benefit, but for the bank and the bank's benefit, and beneficial thereto,
and known to the directors, or which, if unknown, is unknown on account
of their negligence, and not repudiated, exposed, or neutralized, is the act
of the bank, and debars it from resorting to the stockholders of the other
bank for payment of bills held by it on that bank.^'^
§ 112 (3g) Attempt to Prefer Bank Officer to Other Creditors.—

As against third parties, the terms of a resolution of the directors of a
national banking association, when the exigencies of a financial crisis are
upon them, in the attempt to prefer one of the bank's officers, can not
properly be regarded as decisive upon the question of the facts actually
existing in respect to such third parties in a given case.^^
§ 112 (4) Embezzlement and Misappropriation —

§ 112 (4a) In
General. —A bank is liable to the owner for funds embezzled or misap-
propriated by its officers or agents by virtue of their positions in the bank,i^
but it is it had no connection with the fraud;
not liable where as, for in-
stance, where funds are obtained by the president as trustee for creditors, ^'^
16. Receiving foreign bank note in Bonds deposited with bank.—Where

—
payment. Clark v. Metropolitan Bank, the treasurer of a bank, who was also
10 N. Y. Super. Ct. 241. cashier and managing agent, took cer-
17. Organization of another bank in tain bonds belonging to plaintiff, and
evasion of charter. Robinson — v. pledged them in the name of the bank
Bealle, 20 Ga. 275. to secure advances made to it liable
18. Resolution preferring bank of- for the conversion, though its di-
ficer —Effect. —
Reynes v. Dumont, 130 rectors were ignorant of the taking.
U. S. 354, 32 L. Ed. 934, 9 S. Ct. 486. Fishkill Sav. Inst. v. National Bank,
19.Embezzlement and misappropria- 80 N. Y. 162, affirming 19 Hun 354.
tion. — If
a bank cashier, on its behalf, 20. Funds received by president as
—
has received money on account of A., trustee for creditors. Â bank can not
its subsequent misapplication by the be held liable as trustee for money col-
cashier forms no defense to A.'s suit lected by its president and financial
against the bank. Concord v. Concord manager, as trustee for benefit of
Bank, 16 N. H. 26. creditors of the maker of notes to the
M. was president of defendant bank, bank, and paid into the bank on a cer-
and embezzled money belonging to a tificate of deposit in his name, and ap-
town of which he was a railroad coin- plicable to payment of the notes, where
inissioner, but, before absconding, the bank had no connection with the
gave his note to the bank to cover this trust property. Alpena Nat. Bank v.
shortage, and the bank's receiver, in Greenbaum, 80 Mich. 1, 44 N. W. 1123.
assessing stock, included such short- In this case M. was president of the
age among the debts to be paid by the bank and also trustee for creditors of
bank. Held, that the facts showed that the makers of the notes, said maker be-
M. had deposited the money in the ing indebted not only to M.'s bank,
bank, and hence embezzled it by virtue but to third persons who had taken
of his position as president of such the notes of the makers, which they
bank, and not as railroad commis- held, and discounted them at M.'s
sioner, and hence the bank vas liable bank. The bank was now suing these
therefor. Kilby v. First Nat. Bank, 32 third persons as indorsers of these
Misc. Rep. 370, 66 N. Y. S. 579. discounted notes and they, as defend-
§ 112 (4ba) REPRESENTATION OF BANK. 789
;2i
or as railroad commissioner or where funds were borrowed by the vice-
president in its name and appropriated to his own use when he had no
authority to borrow money and his act was not ratified by the bank.^^
Liability on Checks Drawn by Cashier. A bank is bound by the act —
of its name, though with the intent of em-
cashier in drawing checks in its
bezzling the proceeds, and payment of the checks by the drawee is binding
on the bank.^s
Liability for Drafts Drawn on Another Bank. A bank is responsible —
for the act of its cashier in making a draft on another bank for the pay-
ment of money on a future day, contrary to Rev. St., c. 36, § 57, though
fraudulently drawn by him to conceal his embezzlement of the funds of
the bank.2*
§ 112 (4b) Misappropriation of Deposits— § 112 (4ba) In Gen-

eral. — Where a person occupying the position of managing officer of a
bank, receives moneys which are deposited in the bank, his knowledge will
be treated as that of the bank, and it is liable to the depositor, even though
such officer misappropriates the moneys. ^^ jf such officer converts the
money without the bank having received it, and without credit being given
on its books, it will not be liable. But, when he receives funds which go
into the bank, it is chargeable with all the knowledge possessed by him;
otherwise those dealing with the bank would be without remedy in the
its managing officer.^s
case of fraud or misappropriation on the part of
Clerk or Teller Agent of Customer in Making Deposit. Where —
ants, claimed that M. had realized on 24. drawn on an-
Liability for drafts
the property conveyed to him as trus- otherbank.— Faneuil Hall Bank v.
tee and placed the proceeds his m s^nk (Mass.), 16 Gray 534.
bank, now suing as plaintjff. Defend- gg Misappropriation of deposits.-
ants claimed that M. should have used
^^^^^ ^^ Anderson, 57 Hun 73, 10 N.
this money or part_ thereof to pay y. S. 378, 32 N. Y. St. Rep. 5; Holden
these notes on which they were in-
^^ ^^^ York, etc., Bank, 73 N. Y. 386;
dorsers and that the money having
p^^^ j^^^;^ ^_ pj^^^ j^^J g^^^ gg j^_
been placed in the bank, the bank ^ ^^^ ^ .
^ ^^j, ^'^
should be charged as a trustee for
^ j^ ^ 53^^53 ^ ^^' ^
êld, as the Alpena m 3 p j^j^;,j g
M^!' t^t^^- j
Âi^^T^.ô-,^'^^''^^ ' ^ ' I"st V. Bostwick, 93 N. Y. 564; Fish-

îll Sav. Inst. .. Nat. Bank, 8 N. Y.
'V^-^nds 'obtained as railroad com-
—
missioner. Kilby v. First Nat. Bank, '
Where
,..„,,. ,
plaintifif delivered moneys to

32 Misc. Rep. 370, 66 N. Y. S. 579.
22. Funds borrowed and misappro- tne president of a bank to be deposited
priated by vice-president.— Chemical (herein, and the latter, without plam-
tiffs knowledge or consent, deposited
Nat. Bank v. Armstrong, 13 C. C. A.
47, 65 Fed. 573, 28 L. R. A. 231, modi-
them m
his own name as her attorney,
fying 8 C. C. A. 155, 59 Fed. 372, to and afterwards unlawful y appropri-
accord 152 U. S. 346, 38 L. Ed. 470, 14 ated a large part thereof to his own
tise, the bank is liable, since it is
S Ct 572
"23. Liability on checks drawn by
'
chargeable with the knowledge pos-
cashier.— Phillips v. Mercantile Nat. messed by its president Smith v. An-
Bank, 140 N. Y. 556, 35 N. E. 982, 37 Person 57 Hun 72, 10 N. Y. S. 278,
Am. St. Rep. 596, 23 L. R. A. 584, af- 33 N. Y. St. Rep. 5.
firming 22 N. Y. S. 254, 67 Hun 378, 26. Smith v. Anderson, 57 Hun 73,
54 N. Y. St. Rep. 918. 10 N. Y. S. 278, 32 N. Y. St. Rep. 5.
a clerk^T or paying teller,28 of a bank to whom a customer delivered money

for deposit in the bank, but who embezzled it, was agent of the customer
in making the deposit, the bank is not liable, but the depositor is answer-
able for the deficit; but where the bank held him out as authorized to re-
ceive the money it will be liable. ^^
—
Trust Deposit. Where a bank cashier is enabled to misappropriate a
trust deposit by the failure of the director to supervise the officers, the
bank is liable for the amount misappropriated.^"
§ 114 (4bb) Special Deposits for Safe-Keeping. —For a special de-

posit, received by a bank through its cashier for gratuitous safe-keeping
and return to on demand, the bank is not liable if the
the depositor
cashier, without its knowledge or consent, steals it or fraudulently appro-
priates it to his own use, provided the bank has exercised due diligence in
selecting the cashier and in not keeping him in office after it knew, or ought
to have known, that he was or had become untrustworthy. In stealing or
clandestinely appropriating the deposit to his own use, the cashier would
not be acting in the bank's business, or within the scope of his employment
27. Clerk, agent of customer in mak- the receiving teller's desk. The pack-
—
ing deposit. A clerk in the bank, who age was never delivered by S. to the
acted as a bookkeeper, and whose par- cashier, and the money never came
ticular duty it was to keep the ledger, into the possession of the bank. Held,
into which the entries are copied from that since the bank placed S. at the re-
the teller's cash book, received money ceiving teller's desk, and permitted
from A., who was a dealer with the him to act as receiving teller, it
bank, for the purpose of having the thereby held him out to the express
same deposited in the bank, and which agent as authorized to receive the
he entered in the ledger, and after- package, and that the bank was liable
wards into the dealer^s bank hook, but for its loss. Hotchkiss v. Artisans'
which was not received by the teller, Bank, 41 N. Y. (3 Keyes) 564, 2 Abb.
nor entered in his cash book, and was Dec. 403, affirming 42 Barb. 517.
supposed to be embezzled, with other 30. —
Trust deposit. Directors, by
moneys, by the clerk, who absconded. failing in their duty of supervision and
It was held that the clerk, in making control, permitted the cashier to have
the deposit, v/as the agent of A., and complete control over the business, so
not of the bank, and that A. must be that he was able for a long time to
answerable for the deficit in the de- commit irregularities, issuing worth-
posit. Manhattan Co. v. Lydig (N'. less checks in the name of a company
Y.), 4 Johns. 377, 4 Am. Dec. 280. of which he was manager, which were
28. A paying teller, receiving the paid by the bank and eventually taken
funds of a stranger, and promising to up by him in exchange for his checks,
apply them to the payment of a bill or on the account of an estate of which
a note, acts as the agent of the stran- he was administrator. Two notes of
ger, and not of the bank, which is not his company being presented for pay-
liable for any breach or neglect of his ment when the companj' had no
promise. Thatcher v. Bank. 7 N. Y. money on deposit, they were not paid
Super. Ct. 121. by the bank, but the cashier took them
29. A package of money was sent by up by drawing on the account of the
express frorh plaintifif to defendant estate. Held, that the bank was liable
bank, directed to its cashier. The lor the sum so drawn, though it re-
clerk of the express company took it ceived no benefit from the transac-
to the bank, and, the receiving teller tions; the directors' neglect being re-
being temporarily absent, delivered sponsible for the cashier's opportunity
the package to S., who v/as, and had to commit irregularities. Lowndes v.
for some time been, assistant receiv- City Nat. Bank, 82 Conn. 8, 73 Atl.
ing teller, and who at the fime was at 150.
§ 112 (4d) REPRESENTATION OF BANK. 791
he would be representing himself and not the bank.^^ There is no under-

taking on the part of the bank to the bailor that an officer of the bank
should not steal; the case does not rest on any such warranty or undertak-
ing, but on gross negligence in care taking.*^
Effect of Recovery as Revesting Title in Depositor. Where the —
cashier of a bank pledges bonds deposited therein for safe-keeping, the
pledgee, acting in good faith, takes a good title; and a recovery of the
bonds through the cashier's bad faith does not revest the title in the de-
positor.^^
§ 112 (4c) Money Received for Transmission. The transmission —

of money being an essential function of a commercial bank, and its cashier
being clothed with apparent authority to act for it therein, a cashier, on re-
ceiving a depositor's check, with instructions to transmit the amount named
to a trust company for deposit, is the agent of the bank, and not of the
depositor, and the bank is liable for the cashier's misappropriation of the
fund. 8* Even on the theory that the cashier was the depositor's agent the
bank was liable for its misappropriation, being cognizant of the fraud. ^^
§ 112 (4d) Collateral Security. —Where the president's or cashier^^-

of a bank converts securities pledged to it as collateral to secure a loan, the
31. Special deposits for safe-keep- checks of his own on the bank, which
ing. — Merchants' Nat. Bank v. Guil- he was carrying as cash. Held that,
martin, 88 Ga. 797, 15 S. E. 831; Mer- even on the theory that the cashier
chants' Nat. Bank v. Demere, 92 Ga. was the depositor's agent for the trans-
735, 19 S. E. 38; Merchants' Nat. Bank mission of the fund, the bank was
V. Carhart, 95 Ga. 394, 22 S. E. 628. liable for its misappropriation, the
When the bank does its full duty transaction amounting to a payment of
in selecting a proper person and in not the depositor's check merely with the
disregarding indications of dishonesty evidences of the cashier's indebtedness,
which ought to arouse suspicion and and the bank, moreover, being cog-
investigation, it is not responsible to nizant of the fraud through its cash-
one who has obtained from it the favor ier. Goshorn v. People's Nat. Bank,
of barely keeping specific property 32 Ind. App. 428, 69 N. E. 185, 102 Am.
without recompense, though the cash- St. Rep. 248.
ier steal the property so put in his 36. —
Collateral security. The presi-
charge. Merchants' Nat. Bank v. Guil- dent of a banking association con-
martin, 93 Ga. 503, 21 S. E. 55. verted securities pledged to the bank
32. Merchants Nat. Bank v. Guil- as collateral for a loan. The evidence
martin, 93 Ga. 503, 21 S. E. 55. showing negligence on the part of the
33. Effect of recovery as revesting directors, held, that the association
title in depositor. —
Ringling v. Kohn, was liable. Cutting v. Marlon (N. Y.),
4 Mo. App. 59. 57 How. Prac. 56, 6 Abb. N. C. 388, af-
34. Money received for transmis- firmed in 78 N. Y. 454.
sion. —
Goshorn v. People's Nat. Bank, 37. A cashier was intrusted with the
management of afifairs of a bank, which
32 Ind. App. 428, 69 N. E. 185, 102 Am.
St. Rep. 248. held a note on which he was indorser.
35. A
depositor, desiring to with- He received bonds as collateral, and
draw his bank deposit and commit it sold them and used the proceeds to
to a trust company, received from the reduce his indebtedness to it for money
bank cashier a suggestion as to a par- unlawfully appropriated. Held, that
ticular trust company, and, drawing a the bank was responsible for the loss
check, delivered it to the cashier, with resulting from the conversion of the
instructions to deposit the amount bonds. Judgment, 104 N. Y. S. 1040,
named with the company
suggested. 120 App. Div. 542, affirmed. First Nat.
Instead of doing the cashier sub-
so, Bank v. Sing Sing Gas JNIfg. Go., 194
stituted the depositor's money for paid N. Y. 580, 88 N. E. 1119.
792 BANKS AND BANKING. § 112 (4f)
bank is responsible for the loss resulting therefrom; but one who borrows
money from a bank for the cashier thereof, on collaterals belonging to
cashier,is not entitled to credit for amount of such collaterals after they
have been wrongfully withdrawn and converted by the cashier.^s
§ 112 (4e) Paper Left for Collection. —Where a note is left with
the teller for collection, and the bank receives the money, but the teller
deposits the amount in his own name, the bank has notice as to the owner-
ship of the note, and is liable to the true owner, although it was payable
to the teller's order.^^
§ 112 (4f) Right of Bank to Money or Paper Used to Conceal

—
Embezzlement. Where the president and cashier of a bank co-operate
in abstracting and misapplying
its funds, and, in order to accomplish their
purpose and secrete their transactions from the board of directors, the note
of a friend, with fictitious collaterals attached, is obtained and placed in
the portfolio of the bank, the bank is not bound thereby; but the maker of
such a note is bound to the bank, notwithstanding it was without considera-
tion as to him.*''
Money Obtained by Fraud. — Where the teller*^ or cashier*^ of a
bank, in order to conceal a defalcation, procured funds of another by fraud
38. Merchants' Nat. Bank v. Demere, discovery of the embezzlement, it was

92 Ga. 735, 19 S. E. 38. received and counted by different of-
The officers representing the bank ficers of the bank as money of the
in making the loan not being aware bank, and treated as such, and put to
that the money was for the use of the his credit on the books, and after-
cashier or that the collaterals belonged wards returned to his custody. Skin-
to him, and not acquiring this informa-
' ner V. Merchants' Bank (Miss.), 4
tion until after the cashier had fraudu- Allen 290.
lently witljdrawn the collaterals and 42.Atlantic Bank v. Merchants
applied them to his own use, the bank Bank (Mass.), 10 Gray 533.
is not accountable for their value in By a fraudulent conspiracy between
settling its claim against the borrower the paying teller of defendant bank,
for this loan and for other transactions the teller of plaintiff bank, and a
giving rise to a general balance against broker, the broker drew a check on
him in favor of the bank. Merchants' defendant, where he had no funds,
Nat. Bank v. Demere, 93 Ga. 735, 19 which the paying teller marked
S. E. 38. "Good," and the broker took it to the
39. Paper left for collection. City — teller of the plaintiff, who gave him-
Nat. Bank v. Martin, 70 Tex. 643, 8 S. the money for it in current bills. The
W. 507, 8 Am. St. Rep. 632. broker took these to defendant's bank,
40. Right of b^nk to money
or pa- and gave them to the paying teller,
per used to conceal embezzlement. — who, for the purpose of covering a
Richardson v. Watson, 51 La. Ann. deficit, unknown to any of the bank
1390, 26 So. 422. in his cash, placed them with
officers,
Money obtained by fraud. —
41. it.The purpose for which the money
Money fraudulently taken from the was obtained was known to the two
owner by his clerk, and paid into a bank, other parties, but no other officer of
to a defaulting teller therein, at his re- either bank knew anything of the
quest, for the purpose of enabling him transaction. Held, that the defend-
to exhibit it to the bank officers as ant could not hold the money as
money of the bank, and thus to conceal against the plaintiff, but was liable to
his embezzlement, does not become the the lattgr, after demand, in an action
money of the bank, although, in ex- for money had and received. Atlantic
amining and settling the accounts of Bank v. Merchants' Bank (Mass.), 10
the defaulting teller, and before the Gray 533.
§ 112 (4g) REPRESENTATION OF BANK. 793
and placed same in his cash to be counted by the directors, the true owner
may recover the same in an action for money had and received; aliter in
South Carolina where the money was obtained by the teller of B bank for
A bank, neither having authority to loan or borrow money and
the teller of
not returned to A bank.*^
§ 112 (4g) Recovery by Bank. —Persons who from an offi-

receive
cer of a bank money, checks, or drafts of the bank in payment of such offi-
cer's personal obligations under circumstances charging them with notice
that the money was embezzled from the bank, are liable to the bank there-
for; aliter, where the payee is not charged with such notice.**
—
Draft Drawn on Bank's Funds. If a bank gives a cashier authority
to draw drafts for his own account on its funds, or ratifies his acts in
known transactions which he openly conducts honestly or dishonestly, it
will not be permitted to say that a similar transaction which he secretly and
by concealment conducts does not bind it.*® Where the cashier of a bank
transferred a .draft drawn on the bank's funds in payment of his individual
note, to a payee who was not by any action of the officers of the bank in-
duced to rely on the authority of the cashier to use the bank's funds for his
own benefit, the payee was charged with knowledge that the draft was
drawn on the bank's funds, and he could not, as against a showing that the
cashier acted without authority, insist on the right to retain the funds.*^
43. —
South Carolina. The teller of edge of the fraud. Goshen Nat. Bank
B., a bank, having abstracted from his v. State, 141 N. Y. 379, 36 N. E. 316.
till, and fraudulently used, the money 45.Drafts drawn on bank's funds.
of his bank, in order to return the — Campbell v. Manufacturers' Nat.
same, and escape detection, borrowed Bank, 67 N. J. L. 301, 51 Atl. 497, 91
the money of A., another bank, from Am. St. Rep. 438; Goshen Nat. Bank
the teller thereof, and secretly placed v. State, 141 N. Y. 379, 36 N. E. 316.
it in his, the borrower's till, where it A cashier of a bank under its by-laws
became mingled with the money of had power to sign drafts in favor of
his bank, was on the same day counted the bank on its correspondent. There
by the cashier as the bank's money, was no rule of the bank forbidding
and was afterwards used by the teller him to obtain drafts for his own use,
for his bank In its current transactions. and he had been allowed to overdraw
Neither teller had the right to bor- his personal account. Held, that where
row, on the one hand, nor to lend, on he paid for personal property, when
the other, money for his bank, and his account was overdrawn, with a
the transaction was fraudulent on the draft on the correspondent of the
part of both tellers. By means of the bank, payable to the order of the
money thus obtained, the teller of B. vendor, and signed by him as cashier,
escaped detection for some time, and and fraudulently entered the draft at
when he left his bank his cash was a sum much less than its face, the bank
counted, and found correct. Held, that could not recover the difference from
A. was not entitled to recover from B. the payee of the draft. Judgment, 66
the amount thus restored to it by its App. Div. 434, 73 N. Y. S. 1084, af-
teller Bank v. Bank (S. C), 13 Rich. firmed. Campbell v. Upton, 171 N. Y.
L,. 291. 644, 63 N. E. 1115.
44. Recovery —
by bank. A bank can 46. Home Sav. Bank v. Otterbach,
not compel the refunding of the pro- 135 Iowa 157, 112 N. W. 769.
ceeds of a draft fraudulently drawn Where there was no proof that the
by its cashier in favor of the state act of the cashier of a bank iti using
for taxes received by such cashier as a draft on the bank to pay his own
tax collector, if the state had no knowl- debt was authorized or ratified by the
There is no estoppel as against the bank. The payee was bound to know
that the cashier had no apparent authority to use the bank's funds for his
own benefit.*^ The burden of establishing an estoppel was upon the payee.*^
Drafts Sent by President to Broker. Brokers who receive from a —
bank president drafts of the bank in payment for his private losses in
board of trade speculations, under circumstances charging them with notice
that the drafts represent money embezzled from the bank, are liable to
the bank for the proceeds of such drafts.*^
Checks or Drafts Sent by Cashier to Broker. Where drafts drawn —
by the cashier of a bank to his own order are transmitted to a broker for
use in speculative transactions on the board of trade, the broker will be held
liable to the true owner of the funds so used, though he has no knowledge
as to the ownership^" in the absence of a showing that the misappropriation
had been made good by the cashier,^ ^ and can not base a defense upon any
custom or usage to the effect that such checks are used in private trans-
actions and regarded as cash.^^ Where drafts were drawn by the cashier
of a bank, payable to himself, and transmitted to a grain broker to be used
in speculative transactions on the board of trade, the nature of the drafts
directors, and there was nothing on 50. Checks or drafts sent by cash-
the face of the draft when it was re- ier to broker.^Mendel v. Boyd, 3 Neb.
turned to show that it was not a regu- 473, 91 N. W. 860.
lar bank transaction, nor by the ex- 61. The cashier of a national bank
ercise of any care could the president having drawn checks on the bank's
or directors of the bank have discov- correspondent, in favor of defendant,
ered the fraudulent act of the cashier, who was a broker, and who used the
in issuing the draft in question, the avails thereof in buying stocks for
bank was not liable therefor. Camp- such cashier individually, the bank
bell V. Manufacturers' Nat. Bank, 67 brought action to recover the amount
N. J. L. 301, 51 Atl. 497, 91 Am. St. thus wrongfully appropriated. During
Rep. 438. the period covered by the transactions
47. Home
Sav. Bank v. Otterbach, the cashier made certain deposits of
135 Iowa 112 N. W. 769; Camp-
157, his own funds with the correspondent,
bell V. Manufacturers' Nat. Bank, 67 to his bank's credit. Held, that the
N. J. L. 301, 51 Atl. 497, 91 Am. St. defendant was liable for the full
Rep. 438; Wheeler v. Home Sav., etc.. amount so misapplied, in the absence
Bank, 188 111. 34, 58 N. E. 598, 80 Am. of evidence showing that the misap-
St. Rep. 161. propriations had been made good by
48. Burden of showing estoppel. — the cashier's deposits. Anderson v. Kis-
Home Sav. Bank v. Otterbach, 135 sam, 35 Fed. 699.
Iowa 157, 112 N. W. 769; City Bank v.
Radtke, 87 Iowa 363, 54 N. W. 435;
52. Usage or custom. — A cashier ot
a national bank drew checks in his of-
Redhead v. Iowa Nat. Bank, 127 Iowa ficial capacity in favor of a broker, the
572, 103 N. W. 796. avails of which the latter used in buy-
49. Drafts sent by president to ing stocks for said cashier individu-
—
broker. Beard v. Milmine, 88 Fed. ally. Held, in an action by the bank
868. against the broker to recover the
What constitutes notice. Knowledge — money so misapplied, that defendant
that their customer is president of the was bound to know that the cashier
bank, that his purchases and sales are had no authority to use such checks
purely speculative, and that he has for his individual use, and that he can
been steadily losing money in such not base a defense upon any custom
speculations for ten years, is sufficient or usage to the effect that such checks
to charge the broker with notice that are used in private transactions, and
the drafts represent money embezzled regarded as cash. Anderson Z'. Kissam,
from the bank. Beard v. Milmine, 88 3.5 Fed. 699.
Fed. 868.
was sufficient in itself to put the broker on inquiry as to the ownership of

the funds used in such transactions. ^^ Where the cashier of a bank trans-
mitted to a broker, for use in speculative transactions on the board of trade,
drafts drawn to his own order, payment to the cashier of the proceeds of
such transactions an action against the broker to recover
is no defense, in
the money lost in such transactions, unless such payments are traced into
the hands of the owner of the funds. ^^ In such action the broker may be
charged with the amount of the funds actually received and converted by
him, and is by way of mitigation of damages, for all
entitled to credit,
money repaid by him which can be traced into the hands of the owner of
the funds." ^
Recovery of Deposit for Safe Keeping as Revesting Title. — See
ante, "Misappropriation of Deposits," § 112 (4b).
§ 113. Estoppel to Deny Authority of Officer or Agent^^^— § 113

( 1 ) In General. —
Where a party deals with a banking corporation in good
faith — —
the transaction not being ultra vires and he is unaware of any de-
fect of authority or other irregularity on the part of those acting for the
corporation, and there is nothing to excite suspicion of such defect or ir-
regularity, the corporation is bound by the contract, although such defect

or irregularity in fact exists. If the contract can be valid under any cir-
cumstances, an innocent party in such a case has a right to presume their
existence, and the corporation is estopped to deny them.^s In a trans-
action in which the officer of a bank acts strictly within the line of the
duties devolving upon him as such the bank can not, for the officer,
purpose of avoiding the legal consequences of his malfeasance or mistake,

be heard to repudiate his authority.''^
Appointment and Qualification of Cashier. — If a person acts noto-
riously as cashier of a bank, and is recognized by the directors, or by the
corporation, as an existing officer, a regular appointment will be presumed;
and his acts, as cashier, will bind the corporation, although no written proof
is or can be adduced of his appointment.^* He is the executive officer of
the bank through whom its financial transactions are conducted, under the
53. Mendel v. Boyd, 3 Neb. 473, 91 57. Citizens' Bank v. Fromholz, 64

N. W. 860. Neb. 284, 89 N. W. 775.
54. Mendel v. Boyd, 3 Neb. 473, 91 Where the president and cashier of
N. W. 860. a bank, acting as such, collects money
55. Mendel v. Boyd, 3 Neb. 473, 91 and deposits it bank to the
in the
N. W. 860. credit of a customer, and pays out
55a. Officer of trust company, see checks drawn by the customer against
post, "Representation by Officers and such deposit, the bank can not, to es-
Agents," § 315 (2). Officers of na- cape liability for the fraud of such
tional bank, see post, "Representation president, deny his authority to repre-
of Bank by Officers," § 263. sent it. Citizens' Bank v. Fromholz,
56.Estoppel of bank to deny lia- 64 Neb. 284^ 89 N. W. 775.
bility. —
Merchants' Nat. Bank v. State 58. Presumption of regular appoint-
Nat. Bank (U. S.), 10 Wall. 604, 19 L. ment.— Bank v. Dandridge (U. S.), 12
Ed. 1008; Creswell v. Lanahan, 101 U. Wheat. 64, 6 L. Ed. 553.
S. 347, 35 L. Ed. 853.
directors' supervision.ss And where he has been duly appointed and per-
mitted to act for a long time, the regular acceptance and approval of his
bond is not essential to his legal performance of his duties, and conse-
quent liabilities.*"
Form in Which Duties Prescribed. —Where the by-law of a bank re-

quires the directors to prescribe the duties of the various offices, there is
no particular form which these duties are to be prescribed, and even if

in
there ware, a due prescription might be inferred from circumstances, as
from evidence of acts on the part of such officer. And by the performance
of certain duties in his office, he is estopped to deny that they had been
prescribed by the board.* ^
—
Knowledge of Board of Directors. The board of directors of a bank
have a general superintendence over and the management of all its busi-
ness afifairs and transactions which ordinarily vest with it, and they are
bound to know all that has been done beyond the merest matter of daily
routine; and what they ought to know as to the general course of the
bank's business they will be presumed to have known, in a contest between
the bank and third persons dealing in good faith with it.*^
Knowledge of Facts by Person Alleging Estoppel. Where a person —
dealing with an officer or agent of a bank has or is charged with knowl-
edge of the facts, there can be no claim of estoppel against the bank to
deny the authority of such officer or agent, as, for instance, a director of
the bank,®3 or a creditor of an officer of the bank who receives in payment
59. Cashier as executive officer of 515, 16 S. Ct. 379.

bank.—Merchants' Nat Bank v. State "There need not be express votes of
Nat. Bank (U. S.), 10 Wall. 604, 19 L. approval and satisfaction. An accept-
Ed. 1008; Martin j; Webb, 100 U. S. ance of the bond by the directors
7, 28 Li. Ed. 49, 3 S. Ct. 428; Case v. would, necessarily, in intendment of
Citizens Bank, 100 U. S. 446, 25 L. law, include the approval of it, and be
Ed. 695; Bank v. Dunn (U. S.), 6 Pet. conclusive of it." Bank v. Dandridge
51, .8 L. Ed. 316; Minor v. Mechanics' (u. S.), 12 Wheat. 64, 6 L. Ed. 552.
^mticTn
S. 133,
lul'et^y
42 L. Ed
To. f plufe,^4
977, 18 S.Ct
%'.
fj"
?"j'''^ Jf.°™ ^^^^ ^^^ k^T^^^
^-Exchange Bank (Va.), 3
553. p
^^^- %^-
60. QuaUfication by acceptance of ,";
Knowledge of, board of,,
, .
bond.—Where the cashier of a bank is ^^- directors.

duly appointed, and permitted to act —Union Nat. Bank v. Hill, 148 Mo.
in his office, for a long time, under 38°. 49 S. W. 1012, 71 Am. St. Rep.
the sanction of the directors, it is not ^'^^'- S- C, 155 Mo. 279, 55 S. W. 1133.
necessary that his official bond should 63. Directors of bank. Where — a
be accepted by the board of directors bank cashier represented to a mem-
as satisfactory, according to the terms ber of a firm, which was surety on a
of the charter, in order to enable him note due the bank, that the note was
to enter legally on the duties of his partly or wholly paid, whereby the
office, or to make his sureties respon- surety was induced to surrender prop-
sible for the nonperformance of those erty of the principal to the latter, the
duties; the charter and the by-laws bank is not estopped to deny the truth
are to be considered, in this respect, of the statement, where the member
as directory to the board, and not as of the firm was vice president and di-
conditions precedent. Bank v. Dand- rector of the bank, in which capacity
ridge (U. S.), 12 Wheat. 64, 6 L. Ed. he is conclusively presumed to know
553. See, also, Jacksonville, etc., Nat. that the note is unpaid. Merchants'
Co. V. Hooper, 160 U. S. 514, 40 L. Ed. Bank v. Rudolf, 5 Neb. 527.
of his debt, a draft of the bank on its correspondent.^*

Unknown Limitation Contained in By-Laws or Resolution of
Board. —A bank which has intrusted the conduct of its affairs to its presi-
dent, such conduct being within the range of the authority customarily given
to such an office, is bound to one who has parted with his money in good
faith in reliance upon the authority so exercised, whatever may be the lim-
itations which the by-laws or resolutions of the board of directors in fact
place upon it, of which he has no knowledge." ^
§ 113 (2) Receiving and Retaining Benefits of Transaction. —

bank by accepting and enjoying the benefits of an act of its officers or
agents is estopped to deny such officers, etc., authority to act in the prem-
ises, in order to escape the liabilities.*^ A bank can not hold and enjoy
the benefits of and escape the liabilities of the unauthorized acts of its
president,*'^ cashier,®^ or other officer,"® which are not criminal or against
public policy; but in the absence of any evidence that the bank obtained or
enjoyed any of the proceeds of such act it is not estopped.'^*'
—
Contracts. A bank can not receive and retain the benefits arising from
a contract made on its behalf by one of its officers or agents and at the
64. Creditor of officer receiving are done on behalf of the bank, and
bank's draft in payment. Where de- — which are not criminal, or against pub-
fendant was not induced by the action lic policy, when once executed in whole
of the officers of a bank to rely on the or in part, are binding on the bank;
authority of the cashier to use the so that it can not hold and enjoy the
bank's funds for his own benefit, he benefits, and escape the liabilities.
was bound to know that the cashier Owens V. Stapp, 32 111. App. C53.
had no apparent authority to do so, 69. Carr v. National Bank, etc., Co.,
and, in an action by the bank to re- 167 N. Y/. 375, 60 N. E. 649, 82 Am. St.
cover funds diverted by the cashier, Rep. 725; First Nat. Bank v. State
he can not claim estoppel as against Bank, 15 N. Dak. 594, 109 N. W. Bl.
the bank. Home Sav. Bank v Otter- 70. Where there is no evidence that
bach, 135 Iowa 157, 112 N. W. 769. a bank had obtained or enjoj'ed the
65. Unknown limitation contained in proceeds of a discount of his note
by-laws or resolution of board. Citi- — fraudulently obtained from another
bank by its president nor received any
zens' Bank, etc., Co. v. Thornton, 98
C. C. A. 472, 174 Fed. 753. interest, commission or other benefit
from the transaction; the former is not
66. Receiving and retaining benefits.
— Where all the parties engaged in the estopped to question the authority of
its president to charge it with liability
transaction and the privies were agents
on the note. First Nat. Bank v. Han-
of the bank, if there were any defect
over Nat. Bank, 13 C. C. A. 313, 66
of authority on their part, the reten-
Fed. 34.
tion and enjoyment of the proceeds of
the transaction by the bank constitutes
A New York bank, at the request
of the president of a Kansas bank, dis-
an acquiescence as effectual as would counted a note made ^by him, and by
have been the most formal raithoriza- his direction placed the proceeds to
tion in advance, or the most formal
the credit of the Kansas bank, and
ratification afterwards. People's Bank
telegraphed him that it had done so.
V. Manufacturers' Nat. Bank, 101 U. S.
On the receipt of the telegram, he
181, 25 L. Ed. 907.
caused .the proceeds to be placed to his
67. President. — First Nat. Bank v. credit in the Kansas bank, and used
Hanover Nat. Bank, 1.3 C. C. A. 313, the same. Held, that the Kansas bank
66 Fed. 34; Akers v. Ray County Sav. was not estopped to question the au-
Bank, 63 Mo. App. 316. thority of its president to charge it
68. —
Cashier. Hawkins v. Fourth with liability on the note. First Nat.
Nat. Bank, 150 Ind. 117, 49 N. E. 957. Bank v. Hanover Nat. Bank, 13 C. C.
Acts of the cashier of a bank, which A. 313, 66 Fed. 34.
same time repudiate its burdens by denying his authority to act as its agent
in making the contract, as, for instance, a contract or agreement made by
its presidenfi or cashier ;^2 thus a bank which receives and retains the
proceeds of a rediscount,'^^ the proceeds of a sale of its securities,''* money

borrowed in its name upon a pledge of certain of its assets,''^ money paid
it on a note under a receipt reciting that it was held for collection and
credit;''*^ which retains the consideration for a deed;''"' or which takes the
71. Contract by bank president. N. Y. 375, 60 N. E. 649, 82 Am. St.

Swindell & Co. v. Bainbridge State Rep. 725.
Bank, 3 Ga. App. 364, 60 S. E. 13; Bart- 75. Loan on pledge of banks securi-
lett Estate Co. v. Eraser, 1] Cal. App. ties. —Where an officer of a bank with-
373, 105 Pac. 130; Akers v. Ray County out authority borrowed money
in the
Sav. Bank, 63 Mo. App. 316; First Nat. name of his bank and pledged certain
Bank v. State Bank, 15 N. Dak. 594, of its assets as security, and the bor-
109 N. W. 61. rowed money was received and used
72. —
Cashier. Hawkins v. Fourtli by the bank, the transaction was such
Nat. Bank, 150 Ind. 117, 49 N. E. 957; that the directors had, or ought to
First Nat. Bank v. Brown, 20 Utah 85, have had, knowledge of it, and the
57 Pac. 877. bank was estopped to deny the au-
A bank can not be heard to deny its thority of its make the loan
officer to
cashier's authority to act as its agent in its behalf. First Nat. Bank v. State
in making a contract, while receiving Bank, 15 N. Dak. 594, 109 N. W. 61.
and retaining the benefits thereof. 76. Money on note for collection.
Porter v. Farmers', etc., Sav. Bank, 143 The cashier of a bank obtained a de-
Iowa 629, 120 N. 'W. 633. positor's consent to loan his deposit
73. Proceeds of a rediscount. through the bank to another of the
Even if the internal policy of a bank bank's customers, and the cashier ar-
-
requires the indorsements on its re- ranged with two customers to continue
discounts to be executed by the cashier the unpaid balance of a loan to them,
or other officer, where a bank retained whereupon a note for the same amount
the proceeds of a rediscount of a note as said deposit was given, and the
obtained from an assignment by the cashier represented to the depositor
president, it was estopped to deny the that he had made the loan consented
president's authority under Civ. Code, to; and, at the suggestion of the cash-
§ 3519, providing that he who can and ier, the note was left in the bank for
does not forbid that which is done on collection. Tlic cashier gave the de-
his behalf is deemed to have bidden positor a receipt for the note, reciting
it. Bartlett Estate Co. v. Fraser, 11 that it was held for collection and
Cal. App. 373, 105 Pac. 130. credit. Afterwards several install-
—
74. Sale of bank's securities. Where ments of interest on the note were
a note was sold by a cashier, and the paid to the bank, and credited to de-
proceeds received and retained by the fendant in his account. The bank
iiank, it and its receiver are estopped afterwards collected the note, and re-
from_ denying the authority of the fused to credit defendant with the
cashier to make the sale. Hawkins v. amount collected. H(?ld, that the bank,
Fourth Nat. Bank, 150 Ind. 117, 49 N. having received and retained the
E. 957. money, is estopned froir disputing the
Proceeds of sale of bonds held for authority of its cashier in the transac-
—
speculative purposes. Where a bank tion. First Nat. Bank v. Brown, 20
received the proceeds of a sale of Utah 85, 57 Pac. 877.
bonds held by it for speculative pur- 77. Retaining consideration for deed.
poses, effected by means of fraud on — In an action against a bank for
the part of its managing officer, ,it can breach of covenant of warranty in a
not escape liability on the ground that deed executed by its president and
the acts of the officer were individual secretary, where the bank has received
acts, and its business of buying and and retains the consideration for the
selling bonds was not within the deed, it can not set up want of au-
scope of its powers. Judgment, 59 N. thority in such officers to make it.
Y. S. 618, 43 App. Div. 10, afiirmed. Akers v. Ray County Sav. Bank, 63
Carr v. National Bank, etc., Co., 167 Mo. App. 316.
profits of speculative stock transactions;''^ receives the benefits of an in-

demnity bond,'''^ or claims credit for payments on a construction contract
in violation of its terms,**' is estopped from denying the authority of its offi-
cers or agents to bind it, in order to escape liability therefor.

—
Allegation and Proof of Notice. Where acquiescence in and benefits
from an unauthorized agreement of a president of a bank are relied on as
estoppel, notice of such agreement by the directors and beneficial results to
the bank from the -agreement must be alleged and proved. ^^
§ —
113 (3) Delay or Acquiescence Established or Settled Course
of Business. —
Where bank directors through long usage permit an officer
or agent of the bank,^^ as, for instance, the president^^ or cashier** to act
without their express authority, in matters in which they might lawfully
authorize him to act, they can not, after such action on his part, deny his
authority, to the detriment of those who have relied on it.*^ Where, on
numerous previous occasions, the cashier issued the bank's drafts in pay-
ment of his individual debt,*^ or guaranteed rediscounts, ^'^ where the presi-
78. Speculative stock transactions. — Bank, Ga. App. 364, 60 S. E. 13.

3
National Bank v. Fridenberg, 206 Pa. 82. When
the directors of a bank
343, 55 Atl. 960. permit an officer to hold himself out
Stock transactions on margins. — to the public as being invested with
Where a cashier of a bank was au- absolute power to manage and control
thorized lo buy and. sell stock, and his its affairs, insuch manner and for such
authority was apparently general as to length of time as to lead innocent per-
the character of the securities he was sons to make contracts with him,
to purchase, and as to whether they honestly believing that he has the au-
were to be on margins or cash, and thority he claims, the bank can not
he opened an account in the name of repudiate such contracts. Cox v. Rob-
the bank with certain brokers, and inson, 37 C. C. A. 130, 83 Fed. 377.
bought and sold stock both for cash 83. President. —
Lamson v. Beard, 36
and on margins, and large profits were C. C. A. 56, 94 Fed. 30, 45 L. R. A. 833.
made for the bank on the cash trans- 84. —
Cashier. Campbell v. National
actions, it could not claim, where the Broadway Bank, 65 C. C. A. 664, 130
cashier subsequently absconded, that Fed. 699; National Bank v. Equitable
it was not liable for the losses on the Trust Co., SL'.3 Pa. 328, 73 .\il. 794.
margin transactions. National Bank 85. Without express authority. Na- —
V. Fridenberg, 206 Pa. 243, 55 Atl. 960. tional Bank v. Equitable Trust Co.,
79. Indemnity bond. — Peninsular 223 Pa. 328. 72 Atl. 794.
Bank v. Hanmer,
14 Mich. 308. 86. Cashier's draft payable to in-
80. Credits or construction contract. —
dividual creditor. A bank can not re-
— The performance of a construction cover the amount collected on a cash-
contract lor a bank was in the hands ier's draft issued by its cashier and
of the president in so far as it was con- payable to his individual creditor,
cerned. Orders by the contractor on where it is shown that ha had on nu-
the bank were taken to the president, merous previous occasions drawn simi-
who ordered them paid. Some pay- lar drafts to pay his own debts, and
ments were violation of the con-
in such acts had continued sufficiently
struction contract, which required pay- long to establish a settled course of
ments to be made only on certificates business sanctioned by its officers, and
and estimates of the architect. Held, was known, or should have been, to
that the bank, claiming credit for such its directors. Campbell v. National
payments, could not deny the au- Broadway Bank, 65 C. C. A. 664, 130
thority of the president to make them. Fed. 699.
First Nat. Bank v. Fidelity, etc., Co., 87. Cashier's guarantying redis-
145 Ala. 335. 5 L. R. A.. N. S., 418, 40 counts. —Where the cashier, intrusted
So. 415, 117 Am. St. Rep. 45. by its with its entire man-
directors
81. Allegation and proof of notice. agement, has been accustomed, in Iiav-
— Swindell & Co. v. Bainbridge State ing paper rediscounted, to guaranty its
dent was accustomed to indorse paper for rediscount,** and where the man-
ager discharged guarantors of notes and accepted collaterals in lieu
thereof,*" the bank was estopped, by reason of the settled course of busi-
ness to question his authority to do so.
Where the directors have no knowledge of the prior acts relied on
to establish a course of dealing, the bank books having been purposely kept
in a manner to conceal the truth, no estoppel arises.^" Whether in a particu-
lar case an estoppel has arisen is a question of fact depending upon the
circumstances.®^
Evidence of Powers Habitually Exercised. —Evidence powers
of
habitually exercised by a cashier of a bank with its knowledge and ac-
quiescence defines and establishes, as to the public, those powers. And this
principle is equally true when applied to the president. But as the inherent
power of the president is so much more limited than that of the cashier,
the evidence of this character, from which the right to exercise unusual
powers can be inferred, should be much stronger in the case of the presi-
dent than in the case of the cashier of a bank.'^
payment, the bank will be estopped tion. —Where the president of a bank
from denying his authoritj' to so guar- wrongfully appropriated the bank's
anty it. First Nat. Bank v. Stone, 106 funds to his personal use, by means of
JMich. ;-:r;7, 64 N. W. 487. drafts, which he so entered on the
A bank which intrusts its entire bank's books as to conceal their
management to the cashier, and its as- fraudulent character, the bank is not
signee, are estopped to deny his au- estopped, by the president's course of
thority to guaranty the payment of its dealing, from denying his authority to
paper upon his having it rediscounted draw drafts for such purpose. TL,am-
for the bank. Davenport v. Stone, 104 son V. Beard, 36 C. C. A. 56, 94 Fed.
Mich. 531, 63 N. W. 723, 53 Am. St. 30, 45 L. R. A. 823.
Rep. 467. 91. Question of fact. Lamson v.—
88. President's indorsing paper for Beard, 36 C. C. A. 56, 94 Fed. 30, 45
—
rediscount. When the directors of a L. R. A. 822.
bank have known for many months 92. Evidence of powers habitually
that its paper was being rediscounted —
exercised. First Nat. Bank v. Kimber-
in large amounts, under the president's lands, 16 W. Va. 555.
direction, and without consulting the It may be difficult in some cases to
board, and that the money so ob- say, when the authority to make the
tained was being used in the business contract or arrangement for the cor-
of the bank, and they have made no poration by its president or other of-
inquiry as to how the paper was in- ficer may be fairly inferred from the
dorsed, the bank is estopped to dis- proof of the president or other officer
pute the authority of the president to being in the habit of doing acts be-
indorse such paper fnr rediscount. yond that which were inherent in him
United Statas Nat. Bank v. First Nat. by virtue of his office. For the doing
E?.nk. 24 C. C. A. 507, 79 Fed. 236. of some such acts habitually would
89. Discharge guarantors and accept not justify the inference, that he had
—
collaterals in lieu thereof. Where the authority to make the contract or ar-
inanager of a bank, with the knowledge rangement, if it differed essentially in
of the directors and without objec- its character from the acts not in-
tion, habitually exercises the authority herent in his office which he was in
to discharge guarantors of notes and the habit of doing, unless the acts, he
accept collaterals in lieu thereof, the was in the habit of doing were so nu-
bank is estopped, after third persons merous and variant as to justify clearly
have, in good faith, acted on such ap- the inference, that a general authority
pearances, to deny his authority. Arm- had been impliedly conferred on him
strong V. Cache, etc., Co., 14 Utah to do all acts and make all contracts,
450. 48 Pac. 690. which the directors had authority to
90. Concealment of misappropria- make and power to confer on the
§ 113 (3) REPRESENTATION 0^ BANK. 801
Failure to Repudiate after Knowledge. Where a bank, with full —

knowledge of all the facts, fails to repudiate an unauthorized act of its
officers or agents, within a reasonable time, but acquiesces therein and per-
mits the other party to rest in security, to his prejudice, it is estopped to
deny the authority of such officer or agent. ^^
—
Prejudice Question for Jury. Whether the mere silence of a bank
and failure to repudiate its agent's acts within a reasonable time after
knowledge thereof, prejudices the other party, so as to amount to an es-
toppel, is a question for the jury f^^ as, for instance, where a bank's deposit
in a correspondent bank was applied by direction of its cashier to his in-
dividual debt,^* or where the execution of an indemnity bond to a creditor
receiving a second mortgage in payment of his debt was not repudiated
imtil limitations had run against his demand.®^
—
Loan of Money. Where a bank acquiesces in a loan of money by its
cashier^s or president^'^ it is estopped to question his authority to make the
president to make. If the acts, he was bookkeeper and teller to

of plaintiff's
in the liabit of doing, were not thus examine such statements, and the
numerous and variant, to justify the bookkeeper and at least one director
inference, that he had authority to do examined the statement; and the di-
the particular act or make the par- rector questioned the cashier in regard
ticular contract for the corporation, to the items, and testified that he was
the acts so done must be of the same not satisfied with the answers given.
general character, so as to involve the The cashier remained with plaintiff for
same general power, though it may be at least six months thereafter, and sev-
applied in the particular act or con- eral months later became a fugitive
tract done or made to a different sub- from justice, subsequent to which
ject. First Nat. Bank v. Kimberlands, plaintiff sued defendant to recover the
16 W. Va. 555. money misapplied. Held, that it was
93. Failure to repudiate after knowl- the^ duty of plaintiff's officers to ex-
—
edge. Iron City Nat. Bank v. Fifth amine defendant's statement, and to
Nat. Bank, 31 Tex. Civ. App. 308, 71 have notified defendant of any want of
S. W. 613; Creswell v. Lanahan, 301 authority of the cashier within a rea-
U. S. 347, 25 L- Ed. 853. sonable time, and th?t plaintiff, by its
93a. Defendant bank, upon being in- failure so to do, was precluded from
structed by the cashier of plaintifif recovering the money. Iron City Nat.
bank, applied the latter's deposit to Bank v. Fifth Nat. Bank, 31 Tex. Civ.
the payment of the cashier's private App. 308, 71 S. W. 612.
debt, and sent him the note and col- 95. Execution of bond of indemnity
lateral therefor. Plaintiff did not learn
of this for several months, at which
against a prior mortgage. —A
creditor
of a bank took a mortgage upon land
time the cashier, who was not then belonging to a debtor of the bank in
connected with plaintiff', was hope- satisfaction of his claim, induced by
lessly and the collateral,
insolvent, the cashier's giving a bond of in-
even if he still had it, was worthless. deinnity in the name of the bank
Held, that the question whether preju- against a prior mortgage on the
dice resulted to the defendant from debtor's land. Held that, after the
the plaintiff's silence so as to estop bank's acquiescence in the arrange-
plaintiff is a question for jury. Fifth ment until the statute of limitation had
Nat. Bank
Iron City Nat. Bank, 92
v. run against the creditor's demand and
Tex. 436, 49 S. W. 368, modifying 47 receiving its benefits, the bond was
S. W. 533. binding upon the bank. Peninsular
Applications of bank's deposit
94. Bank v. Hanmer, 14 Mich. 208.
to cashier's debt. —
Plaintiff's cashier, 96. Loan by cashier. —Union Gold
who was insolvent, instructed defend- Min. Co. V. Rocky Mountain Nat.
ant bank to apply plaintiff's deposit in Bank, 2 Colo. 348.
payment of his individual notes, which
was done; and at the end of the month
—
Overdraft by agent. An overdraft,
defendant sent plaintiff a statement 97. Loan by president. — Roe f. Bank,
showing the payment. It was the duty 167 Mo. 406, 67 S. W. 303.
1 B & B—51
loan in an action for the recovery of the money, or to deny the legitimate
nature of the loan.®*
Cashier's Making Loan to Himself. —Acquiescence by the officers of
a bank in permitting the cashier to make loans to himself docis not estop
the bank from claiming that such loans are illegal under the state banking
law.99
Release. —A bank which acquiesces in a release from liability for a
valuable consideration of an indorser^ o^ joint maker^ of a note held by it,
or a release of a mortgage lien,^ is estopped to repudiate the release.
§ 113 (4) Prejudice to Other Party. —Where the apparent scope

of authority of an officer or agent of a bank is broad enough to include
the acts and agreements, or statements and representations, in reliance
upon which the person with whom he was dealing acted to his injury, the
bank will not be heard to deny the authority of such officer in that respect ;*
as, for instance, where a person was induced to change his position to his
by an agent, ot his principal's account, cashier of the money, which they

with the knowledge of the cashier of claimed he received in his former ca-
the bank, the credit being extended pacity of treasurer of the first land
to the principal, amounts to a simple company. Complete control of the
loan of monej'; and, whether the cash- bank's affairs was left to the cashier,
ier had authority to extend such ac- and the directors, v;ho rarely met, al-
commodation or not, his authority can lowed him to do as he chose. Held,
not be questioned in an action by the that plaintiff's note was paid, and the
bank to recover the money. Union directors were estopped to repudiate
Gold Min. Co. v. Rocky Mountain Nat. the release by the cashier. Wing v.
Bank, 2 Colo. 248. Commercial, etc.. Bank, 103 Mich. 565,
98. Loan for purchase of stock. — 61 N. W. 1009.
Where a bank permits its president as 2. Releasing joint inaker of note. —
its agent to arrange a loan of money A bank ratifies and estops itself to dis-
for the purchase of stock, it is estopped pute the act of its cashier and vice-
to afterwards deny the legitimate na- president releasing one of several joint
ture of the loan. Roe v. Bank, 167 makers of a note, when, with full
Mo. 406, 67 S. W. 303. knowledge of all the facts, it fails to
99. Cashier's making loan to him- object, and permits the released party
self. — Iowa State Sav. Bank v. Black, to rest in security until the other mak-
91 Iowa 490, 59 N. W. 233. ers, then solvent, have become utterly
1. Release of indorser. —A
cashier insolvent. Bank v. Shook, 100 Tenn.
loaned the bank's money, without 436, 45 S. W. 338, citing Union Bank
knowledge of the directors, to mem- z.Campbell, 23 Tenn. (4 Humph.) 394;
bers of a land company, including Fort V. Coker, 58 Tenn. (11 Heisk.)
plaintiflf, and took their notes therefor, 579; Raht v. Union Consol., etc., Co.,
but, in consideration of a transfer of 73 Tenn. (5 Lea) 1; Hart, etc., Co. v.
his interest to the bank, released plain- Dixon & Co., 73 Tenn. (5 Lea) 336;
tiff from liability as indorser on notes Evans V. Buckner, 48 Tenn. (1 Heisk.)
of the other members. Later, to pre- 291; Williams v. Storm, 46 Tenn. (6
vent failure of the company and loss Coldw.) 203.
to the bank, a new company was
formed, which paid to such cashier,
3. Release of mortgage liens. While —
the cashier of a bank has no authority
for the bank, money sufficient to pay to release a mortgage lien, the bank
all debts of the old company to the may so acquiesce in the release as to
bank, including plaintiff's note. The estop it from denying its validity.
cashier converted most of the money Brennen v. Connecticut Fire Ins. Co.,
to his own use, and the rest was used 99 Mo. App. 718, 74 S. W. 406.
by the bank, but none of the notes
were surrendered. The directors dis-
Prejudice to other party. Secu-
4. —
rity Sav.Bank v. Smith, 144 Iowa 203,
claimed all knowledge of any of such 122 N. W. 825, reversing on rehearing
transaction except the receipt by the 119 N. W. 726, on another point.
§ 113 (5) EEPRESKNTATION OF BANK. 803
injury,^ to surrender property or securities® held as collateral,'^ to refrain

from further action,® or to allow the bank to proceed to exhaust the only
means by which he could have protected himself.^
—
Party Alleging Estoppel Not Injured. Where the act of the bank's
officer or agent does not mislead or injure the person alleging the estoppel,
but was an advantage to him, the bank is not estopped from denying his
authority to act for it.i" Thus a bank is not estopped in favor of the
surety in a suit for the difference between the amount received and the
face of a note, from denying the authority of an attorney who induced a
third person to settle the note and deducted his commission therefrom. ^'^
113 (5) Loss to One of Two Innocent Persons. The principal

§ —
that where one of two innocent parties must suffer by the wrongful act of
a third, he who gave the power to do the wrong must bear the loss, is
5. Change of —
position. Security Sav. agreement, and the sureties, when sued
Bank v. Smith, 144 Iowa 303, 123 N. W. on the note, could hold the bank to the
835, reversing on rehearing 119 N. W. extent of the injuries sustained by their
726, on another point. reliance on the agreement occasioned
6. Surrender of property or securi- by the fact that the proceeds of the
ties. — Security
Sav. Bank v. Smith, 144 land, being insufficient, to pay the note
Iowa N. W. 835, reversing on
303, 132 and the unsecured claims, were applied
rehearing on another point 119 N. W. to the payment of the unsecured
726. claims. Judgment, 119 N. W. 736, re-
Where a bank cashier represented to versed on rehearing. Security Sav.
a surety on a note to the bank that the Bank v. Smith, 144 Iowa 303, 122 N. W.
note was paid, whereby the surety was 835, reversing on rehearing 119 N. W.
induced to surrender property of the 736, on another point.
principal maker to the latter, the bank 10. Party alleging estoppel not in-
is estopped to deny the truth of the jured. —
Bank v. Maxey, 76 Ark. 473,
cashier's statements. Franklin Bank v. 88 S. W. 968.
Steward, 37 Me. 519. 11. A bank advanced money to a
7. Collateral. —
The cashier of a bank, merchant on a note signed by sureties..
knowing that defendant was surety on The merchant having gone into bank-
the note discounted by it, falsely in- ruptcy, an attorney retained by the
formed him that the note was paid, in- bank generally, but who had no au-
tending that he should rely on the thority to collect claims for it except
statement, which he did, thereupon when specially intrusted to him act-
surrendering securities he held as col- ing for other creditors, and without
lateral, and signing other notes for the special authority, afterwards had a
same debtor. Held, that since defend- meeting with the merchant and some
ant had changed his position, to his in- of his sureties at which it was divulged
jury, on the faith of the statement, the that a third party was a secret partner
bank was estopped, as to him, from and liable for the debts contracted by
denying that the note was paid. Coch- him. Thereupon the attorney secured
echo Nat. Bank v. Haskell, 51 N. H. evidence against the third party, and
116,. 13 Am. Rep. 67. induced him to settle for the debts, in-
8. Bank v. Shoak, 100 Tenn. 436, 45 'cluding the note. The attorney then
S. W. 338. paid over the sum collected on the
9.Where sureties on a note payable note, deducting commissions, and the
to abank failed to proceed against land bank sued the sureties for the differ-
owned by the maker, relying on the ence between the amount received and
agreement of the cashier to enforce the face of the note. Held that, since
collection out of the land, who con- the act of the bank in receiving the
cealed from them the existence of un- money did not mislead or injure the
secured claims of the bank against the sureties, but was an advantage to them,
maker, the bank, proceeding against the bank was not estopped, as against
the land for the collection of the note them, to deny the authority of the at-
and its other claims, could not deny the torney. Bank v. Maxey, 76 Ark. 472,
power of the cashier to make the 88 S. W. 968.
applicable to a bank which seeks to deny the authority of its officer or agent
to act foi- it.^^ This principal applies to the acts of the president/^ vice-
president/* or cashier^^ within the apparent scope of his authority; aliter,
where the act of the officer is not within the apparent scope of his au-
thority/*
§ 113 (6) Attempt to Enforce. —A bank seeking to recover on a con-

tract can not claim the benefits arising therefrom and at the same time
repudiate its burdens. To allow a bank while suing on a contract to ques-
tion the authority of the officer or agentwho made it on its own behalf to
make and misrepresentations which are part of the contract
the statements
^'^
sued on, would be to allow it to accept its benefits and reject its burdens.
The same is true where the action is brought by a receiver of the bank.^^
la. Loss to one of two innocent per- the loan, crediting the Fidelity Bank
—
sons. People's Bank v. Manufacturers' with the amount, and so notified the
Nat. Bank, 101 U. S. 181, 25 L. Ed. 907. cashier. The amount was thereupon
"The doctrine of ultra vires has no placed to the vice-president's credit by
application in cases like this. Mer- his order, and was used by him so that
chants' Nat. Bank v. State Nat. Bank the bank received no benefit therefrom.
(U. S.), 10 Wall. 604, 19 L. Ed. 1008." The certificate of deposit was false,
People's Bank v. Manufacturers' Nat. and notes deposited as collateral were
Bank, 101 U. S. 181, 25 L- Ed. 907. obtained by him for the purpose of
13. President. —
Where one bank con- raising money for his personal use.
tracted and parted with its riioney on Held that, as the Chemical Bank dealt
the faith of the representations of an- with him solely in his official capacity,
other bank by its president that there thd Fidelity Bank is estopped to deny
was to its credit, in a third bank, a that the loan was made to it, and for
speciiic sum, and the fund which came its benefit, and it is liable for its repay-
into the hands of its voluntary as- ment. Stewart v. Armstrong, 56 Fed.
signee is the fund as to which the rep- 167.
resentations were made, the second 15. —
Cashier. People's Bank v. Na-
bank and its assignee are in equity es- lional Bank, 101 U. S. 181, 25 L. Ed.
fopped from asserting, to the prejudice 907.
of the first bank, that the character and 16. If it be conceded that it was
condition of the fund was otherwise within the power of the board of di-
than it was represented to be. Fourth rectors of a national bank to borrow
St. Nat. Bank v. Yardley, 165 U. S. 634, S200,oqo on time, it is yet obvious that
41 L. Ed. 855, 17 S. Ct. 439. the vice-president, however general
14. Vice-president. —
People's Bank v. his powers, could not exercise such a
Manufacturers' Nat.- Bank, 101 U. S. power unless specially authorized so
181, 25 L. Ed. 907. to do, and it is equally obvious that
A bank which has enabled its vice- persons dealing with the bank are pre-
president to mislead another bank into sumed to know the extent of the gen-
making a loan under the belief that it eral powers of the officers. Western
was conducting a genuine transaction Nat. Bank v. Armstrong, 152 U. S. 346,
with the former, which was in fact 38 L. Ed. 470, 14 S. Ct. 572.
made by its vice-president in futher- 17. Attempt to enforce. —
Willoughby
ance of his own criminal purposes; is V. Fidelity, etc., Co., 16 Okl. 546, 85
estopped to show the facts and must Pac. 713, 7 L. R. A., N. S., 548, ap-
be held responsible for the fraudulent proved in 205 U. S. 537, 51 L. Ed. 930.
loan. Stewart v. Armstrong, 56 Fed. 18. Willoughby v. Fidelity, etc., Co.,
167. 16 Okl. 546, 85 Pac. 713, 7 L. R. A., N.
The vice-president of the Fidelity S., 544, affirming 205 U. S. 537, 51 L.
National Bank wrote a letter to the Ed. 930.
Chemical National Bank, signed by Fidelity bond. —
Where the bond of
himself as vice-president, requesting a defaulting bank president, issued by
a loan upon a certain certificate of de- a surety company and accepted by the
posit, and certain bills receivable, as bank, is based on statements and rep-
collateral. The Chemical Bank made resentations made to the surety com-
§ 113 (7) Receiver or Assignee for Creditor. —An estoppel which

precludes a bank from denying the authority of one of its officers or agents,
binds its assignee for creditorsi^ or receivers.^" Where a bank is estopped
to deny the authority of its cashier to sell a note belonging to it^^ or of an
agent to make the statement and misrepresentations upon which a fidelity
-bond was executed,^^ the receiver is also estopped from denying the author-
ity of such officer or agent.
§ 113 (8) Estoppel of Person Dealing with Bank. A person bor- —

rowing money from a bank through its president can not deny the authority
of the president either to loan the money to him or to dictate the terms of
such loan. 23
114. Ratification's^'— § 114 (1) Authority and Acts Which May

§
Be —
Where ratification by bank is claimed, it must be by some
Ratified.
party that had power to do the act in the first place. '* The directors of
a bank may ratify any act done or contract made by the president,'^ cashier,'^
pany by the assistant cashier, a re- such statements and representations.

ceiver of the bank thereafter appointed Judgment. Willoughby v. Fidelitj'-, etc.,
in an action on the bond can not ques- Co., 16 Okl. 546, 85 Pac. 713, 7 L. R. A.,
tion the authority of the assistant cash- -N. S., 548, affirmed in Cherry v. Fidel-
ier to bind the bank by his statements ity, etc., Co., 205 U. S. 537, 51 L. Ed.
and representations as to the duties 920, 27 S. Ct. 790.
and accounts of the defaulting presi- 23. Estoppel of person dealing with
dent, and at the same time recover on bank.— Roe v. Bank, 167 Mo. 406, 67 S.
the bond procured on the strength of W. 303.
such statements and representations. 23a. See ante, "Loans and Discounts,"
Willoughby v. Fidelity, etc., Co., 16 § 108; post, "In General," § 116 (1);
Okl. 546, 85 Pac. 713, 7 L. R. A., N. S., as affecting officer's liability for illegal
548, affirmed in Cherry v. Fidelity, etc.,
loan. See ante, "Duties and Liabilities
Co., 205 U. S. 537, 51 L. Ed. 920, 27 S. with Respect to Loans, Discounts,
Ct. 790. Overdrafts, etc.." § 54 (3).
Assignee for creditors. Fourth
19. — Estoppel to deny authority, see ante,
St. Nat. Bank v. Yardley, 165 U. S. 634, "Estoppel to Deny Authority of Officer
41 L. Ed. 855, 17 S. Ct. 439; Davenport or Agent," § 113.
V. Stone, 104 Mich. 521, 62 N. W. 722,
24. Authority and acts which may be
53 Am. St. Rep. 467.
20. —
Receiver. Hawkins v. Fourth
ratified. —
Western Nat. Bank v. Arm-
strong, 152 U. S. 346, 38 L. Ed. 470, 14
Nat. Bank, 150 Ind. 117, 49 N. E. 957. S. Ct. 572.
21. —
Sale of note by cashier. Haw- Directors Act of
25. —
president. —
kins V. Fourth Nat. Bank, 150 Ind. 117, FirstNat. Bank v. Kimberlands, 16
49 N. E. 957. W. Va. 555; Swindell & Co. v. Bain-
22. —
Fidelity bond. Where the bond bridge State Bank, 3 Ga. App. 364, 60
of a defaulting bank president, issued S. E. 13.
by a surety company and accepted by Transfer of note. — The directors of
the bank, is based on statements and a bank may ratify a transfer of a
representations made to the surety note belonging to the bank made by
company by the assistant cashier, a re- the president without authority. Smith
ceiver of the bank thereafter appointed V. Lawson, 18 W. Va. 212, 41 Am. Rep.
in an action on the bank can not ques- 688.

tion the authority of the assistant cash- 26. Act of cashier. Wynn v. Tal- —
ier to bind the bank by his statements lapoosa County Bank, 168 Ala. 469, 53
and representations as to the duties So. 228.
and accounts of the defaulting presi- Where a cashier of a bank under-
dent, and at the same time recover on took to pay his personal indebtedness
the bond procured on the strength of to the bank by his acceptance as
any other officer or employee, without authority, which

vice-president,^^ or
they could have authorized him to do or make,^^ but not as ultra vires
act or contract.^*
Directors Personally Interested in Transaction Sought to Be
Ratified. —
The directors of a bank who are directors of a corporation in-
debted to the bank and others are incompetent to ratify, on the part of the
bank, a transaction whereby the corporation executed a mortgage to secure
an indebtedness to the directors and to the bank so as to make the lien of
one of the directors superior to the lien of the bank.^"
Stockholders Who May Ratify Acts of Directors. Subscribers to —
the capital stock of a state bank, who have, by fraudulently representing
that the stock has been paid up, obtained permission from the auditor to
commence business, can not, as stockholders, ratify a resolution which they
themselves have adopted as directors of the bank.î
Acts of Cashier Undertaken Away from Bank. A cashier, by con- —
tinuing an act undertaken while away from the domicile of the bank, after
his return, without objection on the part of the directors, makes the act
that of the bank, though he could not represent the bank away from its
domicile.^ 2
cashier of a note of a third person, the village in which the corporation and
bank might ratify his action so as to bank did business, and he advanced
render it a payment of his obligation. his money as a loan to the corpora-
First Nat. Bank v. Gunhus, 133 Iowa tion, expecting to be paid out of the
409, 110 N. W. 611. proceeds of the business of the cor-
27. Vice-president. —
Wyckoff v. River- poration, but his loan brought no profit
side Bank, 119 N. Y. S. 937, 135 App. to the corporation. Held, that the
Div. 400. bank did not thereby ratify the trans-
28. First Nat. Bank v. Kimberlands, action whereby S. claimed a priority
16 W. Va. 555; Parker v. Doimally, 4 of lien under the mortgage to secure
W. Va. 648. his note. Shaw v. Crandon State Bank,
29. Ultra vires acts — Excessive loan. 145 Wis. 639, 129 N. W. 794.
—Where the cashier of a bank con- Where, in a suit to foreclose a mort-
gage to secure notes payable to S., K.,
tracted to loan to one person more
than ten per cent of its capital stock and a bank, brought by S., who claimed
and surplus, the loan not being amply a priority of lien under the mortgage,
secured by security, the contract could because his note first matured, it was
not be rendered legal by ratification shown and K. were directors
that S.
or binding by estoppel. Swindell & of the mortgagor, a corporation, and
Co. V. Bainbridge State Bank, 3 Ga. were also directors of the bank, the
App. 364, 60 S. E. 13. act of the bank in setting up a counter-
An agreement to work mining prop- claim for foreclosure and averring a
erty. —
Weston V. Estey, 22 Colo. 334, priority of lien over S. did not amount
to a ratification of the transaction in-
45 Pac. 367.
30. Directors personally interested volving the execution of the mortgage
in transaction sought to be ratified. — creating a priority of lien in favor of
Shaw V. Crandon State Bank, 145 Wis. S. Shaw V. Crandon State Bank, 145
639, 129 N. W. 794. Wis. N. W. 794.
639, 129
A corporation executed a mortgage 31. Stockholder's who may ratify
to secure notes payable to S., K., and acts of directors. —
McNulta v. Corn
a bank. S. and K. were directors of Belt 'Bank, 164 111. 427, 45 N. E. 954,
the corporation and of the bank. The 56 Am. St. Rep. 203.
note of S. matured first. The proceeds 32. Acts of cashier undertaken away
of the loan from S. were deposited by —
from bank. Valdetero v. Citizens'
the corporation with the bank. S. was Bank, 51 La. Ann. 1651, 22 So. 425, 26
also interested in the prosperity of the So. 425.
§ 114 (2) What Constitutes and Requisites— § 114 (2a) In

General. —Unauthorized acts or contracts of the president, cashier, or their
assistantsmay be ratified by the directors, either expressly or impHedly, as
by accepting the benefits thereof with knowledge of the facts, or by any
course of dealing sufficient in equity and good conscience to work an es-
toppel. ^^ It is not necessarily that they formally ratify his act or conduct.**
§ 114 (2b) Knowledge of Facts. Although the directors of a bank—

are conclusively presumed to know the financial condition of the bank, its
general business, and its receipts and expenditures, as shown by its reg-
ular booksj they can not be adjudged to have ratified an act of which they
have no knowledge actual or constructive, as ratification implies knowl-
edge.^s
Unauthorized Contracts. —A bank can not be adjudged to have rati-
fied an unauthorized contract or an agreement made on its behalf of which
its directors or managing heads have no knowledge actual or constructive,
for ratification implies knowledge. Thus ratification of the act of a bank
officer in procuring a loan for the bank,*^ in taking a note for value pro-
cured by fraudulent representations on part of its president^'' or cashier,*^
33. What constitutes and requisites. 36. Procuring loan for bank. —
Ratifi-
—Apperson v. Exchange Bank, 10 Ky. cation of the unauthorized act of a
L,. Rep. 943, 10 S. W. 801. See post, national bank officer in borrowing
"Receiving and Retaining Benefits of $300,000 for the bank can only be made,
Transaction," § 114 (2e). if at all, by the board' of directors, act-
34. The president borrowed, of his ing with knowledge of the material
bank, money which he loaned to a fail- facts, and can not be inferred from the
ing debtor of the bank and of himself. mere fact that by direction of the same
The debtor gave a mortgage, and de- officer the money was placed to the
livered the mortgaged property to the credit of the bank, when it appears that
president, with authority to sell, and it was drawn out by him and the as-
apply the proceeds, etc. The president sistant cashier, and that no part of it
promised that the debtor's debt to the came to the use or benefit of the bank.
bank should thus be paid. Held, that Wtestern Nat. Bank v. Armstrong, 153
directors having relied on the presi- U. S. 346, 38 L. Ed. 470, 14 S. Ct. 573.
dent's promise that the debt would be
paid by means of such dealings, and
37. Fraud in procuring note. —
Where
the president, seeking to defraud third
having made no other attempt to col- persons, told them that they could give
lect it, but having permitted the presi- the bank their note, and such note
dent to acquire the mortgage lien on would not be enforced, and the bank,
property which otherwise might have without knowledge of such promise,
been subjected to the debt to the bank, discounted the note, giving full value,
it was not necessary that they should there was no ratification of the presi-
formally authorize or ratify his proceed- dent's acts. Baker v. Berry Hill Min-
ings. Apperson v. Exchange Bank, 10 eral Springs Co., 113 Va. 380, 71 S. E.
Ky. L. Rep. 943, 10 S. W. 801. 636.
Knowledge of facts. Western
35. — 38. A bank that takes for value a
Nat. Bank v. Armstrong, 153 U. S. 346, note siened by its cashier and others,
38 L. Ed. 470, 14 S. Ct. 573; First
without knowledge of a representation
Nat. Bank v. Drake, 29 Kan. 311, 44
by the cashier to his comakers that it
Am. Rep. 646. would not be delivered until signed by
Unknown and concealed fraudulent the president of the bank, does not
transactions of a cashier can be neither thereby ratify the cashier's representa-
authorized nor ratified by the bank. tions. First Nat. Bank v. Foote, 13
Campbell v. Mianufacturers' Nat. Bank, Utah 157, 42 Pac. 305.
67 N. J. L. 301, 51 Atl. 497, 91 Am. St.
Rep. 438.
can not be inferred from action of the directors in absence of knowledge of

the facts.
—
What Constitutes Knowledge. In determining whether or not a bank
must be deemed to have ratified unauthorized acts of its agents or em-
ployees, it is chargeable with knowledge of what in the exercise of ordinary
diligence ought to have been known to its board of directors or managing
officials.39 Banks have knowledge of the acts of their officers engaged in
the business of their employment and are bound thereby. Thus, where at
the end of the month a statement of account was forwarded by one bank,
in the usual course of business, to another, and its correctness approved,
the latter had knowledge of what occurred in the transactions included in
the account and ratified it.*"
Mere Mention of Unauthorized Contract. The mere mention by an —
officer of a bank of a contract which he had no power to make, to the board
of directors and their making no objection thereto does not amount to a

ratification.* 1
Failure to Object to Course of Business. Directors will be held to —
have ratified the cashier's acts where they impose on him a duty which they
should perform, and fail to object to his course of business when they
know, or could easily know, all the facts.*^
—
114 (2c) Negligence. Knowledge of Irregularities Failure to
§ —
—
Investigate. Where the bank has notice of irregularities or' misappro-
39. What constitutes knowledge. — authority, a note made to the cashier

St. Paul, etc.. Trust Co. v.Howell, 59 of his own bank, and having the pro-
Minn. 295, 61 N. W. 141. ceeds placed to the credit of his bank,
Payment not assumed by president from which he obtained an equal sum
—
and cashier. The president and cashier for his personal benefit by misrepre-
of a bank, intrusted with the manage- senting the character of the transaction
ment of its business, for a valuable con- to his cashier, held to have been rati-
sideration paid by the makers, assumed fied by his bank, through the action of
the payment of a note belong-ing to the its cashier in drawing for the proceeds
banli, and due in ninety days. They of the note, and, together with the vice-
subsequently assumed, in behalf of the president, accepting and approving a
bank, to extend the time of payment statement of the account sent to them
11 times in succession for ninety days at the end of the month by the dis-
each time, and at each extension paid counting bank. Kennedy v. First Nat.
the interest to the bank. It did not Bank, Fed. Cas. No. 7,701a.
appear that during all this time the 41. Mere mention of unauthorized
directors or other offici?ls of the bank —
contract. Plaintiff obtained subscrib-
made any inquiry or investigation as ers to the stock of a national bank just
to the management of its affairs by the before and after its organization, under
president and cashier. Held, that the agreement with the principal stock-
jury were justified in finding that the holder and president that he should be
bank was chargeable v/ith constructive paid therefor. Held, that the president
notice of the fact that the president had no right to make such contract
and cashier were interested, in the note, binding on the bank, and the fact that
and hence ratified their acts in making when he mentioned such contract to
the extensions. St. Paul, etc., Trust the board of directors they made no
Co. V. Howell, 59 Minn. 2«5, 61 N. W. objection thereto did not amount to a
141. ratification. Tifft v. Quaker City Nat.
40. Kennedy v. First Nat. Bank, Fed. Bank, 8 Pa. Co. Ct. Rep. 606.
Cas. No. 7,701a. 4&. Failure to object to course of
The act of a bank president in dis- business.— Wynn v. Tallapoosa County
counting with another bank, without Bank, 168 Ala. 469, 53 So. 228.
§ 114 (2d) REPRESENTATION OF BANK. 809
priation of funds by its cashier and continues him in its service, it is Hable
for any loss which may result to the customer through his theft or em-
bezzlement.*^
Negligence in Failing to Discover Fraud of Officer. Where plain- —
bank acted fraudulently in accepting an unauthorized pledge of another
tifif
bank's credit from its cashier, the latter bank did not ratify the transaction
because its officers and stockholders were negligent in failing to discover
the fraud.**
§ 114 (2d) Delay or Acquiescence. —

Delay to repudiate or long ac-
quiescence in an unauthorized act of a bank official, after knowledge of
thesame is brought home to the bank, will operate a ratification thereof.*^
Thus long acquiescence in the payment to the president of a debt due tO'
the bank,*^ in the unauthorized release of a judgment lien by the bank's
president,*'^ or in a cashier's collateral agreement as to presenting a sight
draft;** have each been held to operate a ratification.
43. Knowledge of misappropriation inconsequence of such payment, which

— Failure to investigate.—Where a bank was acquiesced in by the bank for
knew of the misappropriation of funds many years. Parker v. Donnally, 4 W.
by its casliier, and continued him in its Va. 648.
service, it is liable to the depositor for 47. Release of judgment. —
C, a bank,
bonds lost through
the gross negli- loaned money to A., taking a note and
gence of the cashier, or through his confession of judgment as security
theft. Steffe v. Bank (Pa.), 33 Pittsb. therefor. The note was made to "B.,
Leg. J. (O. S.) 157. President, or Bearer." Subsequently,
Knowledge of stock gambling trans- B. âve a release of lien, signed, "B.,
action. —A
bank which allows its cash- President," to enable A. to sell part of
the land. The note was not paid at
ier to retain his position, and omits to
make an investigation as to the correct- maturity, and execution issued against
ness of his affairs, after finding out that the sureties was enjoined, and an issue
he was in the habit of gambling in framed and tried between "B,, Presi-
stocks, is chargeable with gross negli- dent of the Bank," and the sureties.
gence, and will be liable for loss occur- B. had negotiated the loan, and done
all the business connected with it, and
ring after such knowledge, through
embezzlement by the cashier of securi- the judgment stood in his name. Held,
ties deposited in the bank. Prather v. that the long acquiescence of the bank
in the acts of B. constituted a ratifica-
Kean, 39 Fed. 498.
tion of them, and that it was bound by
Negligence in failing to discover
44.
Winton v.
fraud of officer. —
Fort Dearborn Nat.
the release given by B.
Little (Pa.), 9 Wkly. Notes Cas. 37.
Bank v. Seymour, 75 Minn. 100, 77 N. 48. Agreement as to presenting a
W. 543.
—
sight draft. The cashier of a bank ad-
Where the
45. transaction was made vanced money to a broker to purchase
known to the trustees individually, cotton, and the latter gave the cashier
and they never objected, this intelli- a sight draft on a Boston firm, to be
gent acquiescence was a binding ratifi- kept as a memorandum, and not to be
cation. Creswell v. Lanahan, 101 U. S. presented until shipments of cotton had
347, 35 L. Ed. 853. been made to the drawee to meet it.
46. Payment of debt to president.— The bank kept the draft for nearly nine
Payment of a debt due to a bank, made months, not entering it on its books as
to the president, will not be set aside a discount draft, but counting it as a
at the instance of the bank's creditors, cash item. When the cotton adventure
on the ground of such officer's want of proved a failure, the bank presented the
authority to receive payment, the con- draft, and, upon dishonor, it brought
trol of the affairs of the bank having an action against the drawer. Held,
passed to him by the failure of the di- that the bank's treatment of the draft
rectors and cashier to act; and it not rendered it subject to the cashier's
appearing that any loss or injury was agreement. National Bank v. Williams,
sustained by the bank or its creditors 46 Mo. 17.
Delay to Enforce Payment As Ratification of Release. —Mere delay

in enforcing payment of notes is not a ratification of an unauthorized agree-
ment to release payment.**
§ 114 (2e) Receiving and Retaining Benefits of Transaction. —

bank impliedly ratifies the unauthorized acts or contracts^** of its presi-
dent,^"* vice-president,^ 1 cashier,^^ or any agent or employee or their
assistants'^ by receiving and keeping the benefits thereof with knowledge
of the facts. As if under the contract so made by the president or other
officer money is to be paid to the corporation, and it is received by the
corporation and applied to its use even without the knowledge of the di-
rectors, if it is not returned, when it becomes known to the directors that
it has been applied to the bank's use, such conduct would be a ratification of
the contract of such president or other officer.'* A bank ratifies the acts
of its officer or agent with all its legal consequences and can not be heard
to dispute his authority where it receives and retains a loan secured by a
pledge of its securities,'' the proceeds of a discount,'® the proceeds of a
49. Delay to enforce payment not S. W. 876. See, also, Panhandle Nat.
ratification of release. — Swindell & Co. Bank v. Emery, 78 Tex. 498, 15 S. W. 33.
V. Bainbridge State Bank, 3 Ga. App. 54. First Nat. Bank v. Kimberlands,
364, 60 S. E. 13. 16 W; Va. 555.
50. First Nat. Bank v. Kimberlands, Where money is received by the bank
16 W. Va. 555; Parker v. Donnally, 4 cashier for the bank under a contract
W. Va. 648. made by the president; even when such
Ratification need not be shown by receipt was unknown to the directors,
direct evidence that it was expressly it will be a ratification of the contract
approved by the board of directors, but unless the money so received is re-
such ratification may be inferred from turned, when its receipt becomes
their accepting the benefits of the act known to the directors. First Nat.
or contract. First Nat. Bank v. Kim- Bank v. Kimberlands, 16 W. Va. 555;
berlands, 16 W. Va. 555. Parker v. Donnally, 4 W. Va. 648.
—
President. First Nat. Bank
50a. v. Where president of a bank has
a
without authority transferred a note
Kimberlands, 16 W. Va. 555; Parker v.
Donnally, 4 W. Va. 648; Apperson v. belonging to the bank, the acceptance
Exchange Bank, 10 Ky. L. Rep. 943, 10 and appropriation of a consideration
S. W. 801. by the directors of the bank is an im-
—
Vice-president. Wyckoff v. River-
51.
plied ratification of the president's act.
where such acceptance and appropria-
side Bank, 119 N. Y. S. 937, 135 App.
tion is with knowledge of the presi-
Div. 400; Lechenger v. Merchants' Nat.
dent's act, and if such acceptance and
Bank (Tex. Civ. App.), 96 S. W. 638,
affirmed in 101 Tex. 646, no op. appropriation have been made by the
officers of the bank without the knowl-
52. Apperson v. Exchange Bank, 10
edge of the directors, failure of the
Ky. L. Rep. 943, 10 S. W. 801. directors to return the consideration
A bank ratifies the unauthorized act when receipt becomes known to
its
of its cashier by receiving and keeping them be held, also, a ratification
will
a part of the fruits thereof. German of the president's act:- Smith v. Law-
Nat. Bank v. Grinstead, 21 Ky. L. Rep.
son, 3 8 W. Va. 212, 41 Am. Rep. 688.
674, 52 S. W. 951.
53. Apperson v. Exchange Bank, 10
55. Loan secured by pledge. sav- —A
ings institute at Fishkill conducted its
Ky. L. Rep. 943, 10 S. W. 801.
After accepting the benefits of the
contract made by its agent, the bank
56. Proceeds of discount. —Where a
bank has received the proceeds of a
can not be heard to deny his agency, discount, and used them, it can not
especially where he acted under the dispute its cashier's authority to apply
direct authority and advice of the presi- for the discount. Tradesmen's Nat.
dent of the bank. Waxahachie Nat. Bank v. Bank, 6 App. Div. 358, 39 N.
Bank v. Vickery (Tex. Civ. App.), 26 Y. S. 554.
§ 114 (2e) REPRESENTATION OE BANK. 811
sale or transfer of notes made payable to it,^'^ or the consideration paid

for a contract;''* as, for instance, a payment by an obligor on a note under
an agreement for his release from further liability thereon,^* or a payment
by the principal of a portion of his debt under an agreement for an ex-
tension of time thereby discharging the surety f
where it accepts the bene-
fits of an indemnifying contract® ^ or of a bond guarantying the fidelity of an
employee;® 2 where it accepts the benefits and assumes the burdens of a

purchase of real estate,®* or of a fraudulent purchase of property held by
business through a bank, whose cash- off V. Riverside Bank, 135 App. Div.
ier, B., was treasurer of the institute, 400, 119 N. Y. S. 937.
and active manager of both. Without 59. Payment by one obligor under
the knowledge or consent of the other —
agreement for his release. When pay-
•officers of the bank, B. took from a ments were made on a note by one of
safe-deposit company in New York the obligors in consequence of an un-
certain securities of the institute, and derstanding with the president of the
pledged them to secure a loan for the payee bank th^t the obligor was to be
bank. In an action against the bank released, and the bank, with knowledge
and its receiver, held, that the insti- of the president's act, retains the money,
tute was entitled to recover for the it adopts the act with all its legal con-
conversion, the bank being chargeable sequences though it was unauthorized
with B.'s knowledge, and the applica- when done. Merchants' Nat. Bank v.
tion of the money to its uses being a McAnulty (Tex. Civ. App.), 31 S. W.
ratification of his borrowing it. Fish- 1091.
kill Sav. Inst. V. Bostwick, 19 Hun 354, 60. Discharge of sure^. —
Where the
affirmed in 80 N. Y. 163. cashier of a bank grants an extension
57. Where notes given to a bank by of time to the principal debtor, on the
its cashier in his individual capacity payment of a portion of the debt, and
and as treasurer of a company were thereby discharges a surety, the bank
sold by the cashier, and the proceeds ratifies the extension by receiving and
received and retained by the bank, it retaining the payment. Perkins v.
ratified the acts of the cashier. Ger- Bank, 5 La. Ann. 333.
man Sav. Bank v. Des Moines Nat. 61. Indemnifying contract. —A
bank,
Bank, 123 Iowa 737, 98 N. W. 606. being indebted to a depositor, induced
If a note for the purpose of raising him to accept a second mortgage from
money be made payable to a bank, and one of its debtors in payment thereof;
be discounted by the cashier of that and, to induce him to accept, the cash-
bank on his private account, and after- ier, in the name of the bank, gave him
wards be transferred, before maturity, a contract indemnifying him against
by him, with his indorsement in the the first mortgage. The bank never
name of the bank as cashier thereon, repudiated the act of the cashier, but
this constitutes a sufficient recognition accepted the benefits of the transac-
of the note by the bank to render it tion. Held, in an action on the con-
binding upon all the parties to it, tract, that it was binding on the bank,
whether principals or sureties. Keith even though be considered in excess
it
v. Goodwin, 31 Vt. 368, 73 Am. Dec. of the cashier's authority. Peninsular

345. Bank v. Hanmer, 14 Mich. 208.
58. WVckoflf Riverside Bank, 135
V. 62. Fidelity bond. —
A bank, in accept-
App. Div. N. Y. S. 937; Mer-
400, 119 ing its president's action in procuring
chants' Nat. Bank v. McAnulty (Tex. a bond guarantying the fidelity of its
Civ. App.), 31 S. W. 1091, affirmed in cashier, must be held to have assented
part and reversed in part in 89 Tex. to the conditions of the bond provid-
134, citing Ft. Worth Pub. Co. v. Hit- ing that the representations made by
son, 80 Tex. 316, 14 S. W. 843, 16 S. the president relative to the duties and
W. 551. accounts of the cashier should consti-
Retaining money paid in considera- tute an essential part and form the
tion. —
Where a bank through its execu- basis of the contract. Warren Deposit
tive committee retained the money paid Bank v. Fidelity, etc., Co., 116 Kv. 38,
to its vice-president in consideration of 25 Ky. L. Rep. 389, 74 S. W. 1111.'
a contract made by him, the act of the 63. Purchase of real estate. The —
vice-president was ratified, though it trustees of a bank, without any formal
wa.«* originally unauthorized. Wjyck- order, directed its cashier to purchase
812 BANKS AND BANKING. § 114 (2f>
itas collateral security,^* or takes and uses a judgment purchased for it;^^
and where it takes and retains the assets of a private banking business
under an agreement to take the assets and assume the liabilities of such,
business.®^
§ 114 (2f) Attempt to Enforce Contract. Suing on Contract. — —

A bank by bringing an action upon a contract made in its behalf by one
of its officers, ratifies his action in making the contract, and confirms his
agency,*'^ even though his duties did not include such transaction.*® A
bank by suing upon a check paid by its cashier,*^ an indemnifying bond;''^"
a contract of loan;''i a lease ;''2 or a note, whether made directly tO'
certain real estate for the use of the Nat. Bank (Tex. Civ. App.), 96 S. W.
bank; and he, acting under such di- 638.
rections, contracted with C. for his 68. Wilson v. Pauly, 18 C. C. A. 475,.
interest therein. The bank at once 72 Fed. 129.
took the benefits and assumed the bur- 69. Though the cashier of a bank
dens of the contract, paying the first who paid a check drawn on another
installment of the price; and there- bank as agent of the bank 'had no au-
after the board of trustees, by a formal thority to pay it with the funds of his-
order recorded in their minutes, rati- principal, his action in so doing was-
fied all the acts of the cashier. Held ratified by the bank when it brought
that, though such ratification did not suit on the check in its own name.
occur until after an action to compel Preston v. Dozier, 135 Ga. 25, 68 S. E.
the specific performance of the con- 793.
tract after the vendor had refused to 70. New indemnifying bond substi-
complete the same, it was sufficient to
render the acts of the cashier the acts
—
tuted for old one. In an action against
the surety on a bond given to a bank
of the corporation from the beginning. to indemnify it against all discount,
Washington State Bank :-. Dickson, 35 etc., of the paper of a certain corpora-
Wash. 641, 77 Pac. 1067. tion,' the defense was that the bond
64. Memphis City Bank v. Smith, 110 had been surrendered, and another one,
Tenn. 337, 75 S. W. 1065. in a larger sum, taken, and plaintiff de-
65.Purchase of a judgment and al- nied the authority of the cashier to-
lowance of credit thereon. The ac- — surrender the bond. The president
ceptance by a bank of a judgment sold and a co-director testified that they
to its president under an agreement by did not know that a new bond had
which the bank was to allow the judg- been accepted as a substitute for the
ment creditors a certain credit on ac- old one, but it appeared that all the
count of the transaction, an4 the use bank officials knew that the corpora-
of the judgment by the bank in pur- tion's discounts were in excess of the
chasing the property against which it amount secured by the first bond, and
was a lien, is a ratification of the act the bank, in endeavormg to recover for
of president in making such agree-
its the discounts, sued on the second bond
ment, and cures any want of authority first. Held, that the cashier's action
on his part in the premises. Goldbeck had been ratified. Judgment, 78 N. Y.
V. Kensington Nat. Bank, 147 Pa. 267, S. 38, 75 App. Div. 393, affirmed.
33 Atl. 565. German-American Bank v. Schwinger,
66. Agreement
to take over a private 178 N. Y. 569, 70 N. E. 1099.
—
bank. Where a majority of bank di- 71. Loan. —A bank, by bringing an
rectors informally agree to take the action upon a contract of loan made in
assets and assume the liabilities of a its behalf by one of its officers, ratifies
private banking business, and the cor- his action in making the contract, and is
poration thereupon takes and retains in law chargeable with knowledge pos-
such assets, it will be held to have rati- sessed by the agent that the loan was
fied the agreement. Bank v. Ketcham, in furtherance of an illegal purpose.
64 Wis. 7. 24 N. W. 468. Singleton v. Bank, 113 Ga. 527, 38 S. E.
67. Suing on contract. Wilson v. — 947.
Pauly, 18 C. C. A. 475, 72 Fed. 129; 72.The institution by a bank of a
First Nat. Bank v. New Milford, 36 suit based on a lease executed by its
Conn. 93; Lechinger v. Merchants' vice-president being a ratification of
§ 114 (2f) REPRESENTATION OF BANK. 813
it/3 discounted by an incompetent number of directors^* or by the cashier

without the knowledge of the directors/^ or taken by the cashier, under a
contract which he was unauthorized to make/® or altered by the payee at the
instance of the president of the bank/''' ratifies the transaction in toto'^*
and is in law chargeable with knowledge of whatever he knew at the time

of making the contract/^ thereby binding itself by his knowledge of fraud,*''
or that it was in furtherance of an illegal purpose.^^
—
Protesting Check. A bank may ratify the receipt of a postdated check
for collection, by its paying teller, by protesting the same where there was
a balance to the credit of its drawer on the day of its date which was paid
out on drafts, part of which was held by the bank.*^
—
Enforcing Payment of Interest. Where the cashier of a bank, being
at the time a stockholder and director of an insurance company, acted as
cashier for the bank, and at the same time, either for the makers of notes,
the insurance company, or himself in receiving the notes and carrying
them through the books of the bank as discounted paper, evidence that
after the bank became fully advised of what the cashier had done in the
his act, his authority to execute it can Where the president of a bank
77.
not be assailed in the suit. Lechenger at which the note was payable caused
V. Merchants' Nat. Bank (Tex. Civ. the payee in the note to make an alter-
App.), 96 S. W. 638. ation therein, the acceptance by the
73. In an action by a national bank bank of a payment on the note and the
on a note made directly to it, the bringing of a suit thereon as altered
maker may set up the fraud of plain- amounted to a ratification of the alter-
tiff's president in procuring the note, ation. First Nat. Bank v. Fricke, 75
as, by bringing the action, the bank Mo. 178, 42 Am. Rep. 397.
ratifies the agency of the president, 78. It ratifies the contract in toto. —
even though his duties did not include La Grande Nat. Bank v. Blum, 27 Or.
such transactions. Wilson v. Pauly, 18 215, 41 Pac. 659.
C. C. A. 475, 72 Fed. 129. 79. A
bank, by bringing an action
Although a note be discounted
74. upon a contract made in its behalf by
by an incompetent number of the di- one of its officers, ratifies his action in
rectors of a bank, yet, if the bank sue making the contract, and is in law
upon the note, this is a ratification of chargeable with knowledge of what-
the discount, and it is binding upon the ever he knew at the time of so doing.
parties thereto. Planters' Bank v. Singleton v. Bank, 113 Ga. 527, 38 S. E.
Sharp (Miss.), 4 Smedes & M. 75, 43 947.
Am. Dec. 470. 80. First Nat. Bank v. New Milford,
75. Where one who was both town 36 Conn. 93.
treasurer and cashier of a bank drew 81. Singleton v. Bank, 113 Ga. 527,
a note as treasurer, intending to use 38 S. E. 947.
the proceeds for his own benefit, and 82. Protesting check. A postdated
check was given after banking hours
—
discounted it at the bank in which he
was cashier, but without the knowledge to the paying teller, on his promise to
of the directors, held that, if the bank carry it to the credit of the holder on
should sue the town on the note, they the day of its date. On that day there
would ratify the contract, and confirm was a balance due the drawer, which
his agency, thereby binding themselves was paid out a part on drafts held by
by his knowledge of the fraud pro- the bank itself. The check v/as pro-
posed. First Nat. Bank v. New Mil- tested at the request of the bank, and
ford, 36 Conn. 93. returned to the payee. Held that, by
76. A
bank, by suing on a note taken protesting the check, the bank ratified
by its cashier under a contract made its receipt for collection by the paying
by him, ratifies the contract in toto, teller, and could apply none of the
though he was unauthorized to make money on its own drafts until the check
it.La Grande Nat. Bank v. Blum, 27 was first paid. Averell v. Second Nat.
Or. 215, 41 Pac. 659. Bank, 6 Mackey (17 D. C.) 358.
matter, instead of repudiating his acts, it affirmed them by coercing from
the company payment of interest from the date of the notes and by threaten-
ing to dishonor its checks, is sufficient to bind the bank.**
—
Foreclosure of Mortgage. Foreclosure by entry and sale by vote of
the board of investment was a sufficient ratification of procuring an assign-
ment of a mortgage to a bank by its treasurer.** i
§ 114 (2g) Assertion of Individual Liability of Officer. —For a

bank to assert the individual liability of one of its officers for his unauthor-
ized act is not to ratify but to disaffirm, as, for instance, to seek to assert
his liability for a diversion of its funds.*'
§ 114 (2h) Bank Seeking to Indemnify Itself against Fraud.

—A bank which was induced to make a loan by fraudulent representations
does not ratify the transaction by taking steps to protect itself by means
of a mortgage upon the payees so as to preclude itself frorti up
setting
the fraud in an action by the principal of the payees to reap the fruits
of his wrongful act.**
§ 114 (3) Operation and Effect— § 114 (3a) In General.—The

ratification by a bank o'f an unauthorized contract made on its behalf by
any of its officers or employees, renders it valid and effective*'^ and it is
conclusive upon it.** Thus an unauthorized alteration of the nature of a

debt due the bank,*^ an unauthorized transfer or hypothecation of any
note or securityof the bank.ô a loan of money for the purchase of
83. Enforcing payment of interest. and took steps to protect the bank and
— Ellerbe v. National Exch. Bank, 109 himself by taking the mortgage from
Mo. 445, 19 S. W. 241. the payees, such attempt did not con-
84.Foreclosure of mortgage. Ger- — stitute a ratification of the transaction
rity V. Wareham Sav. Bank, 202 Mass. by the bank. Bank v. McGilvray &
214, 88 N. E. 1084. Co. (Ala.), 52 So. 473.
85. Assertion of individual liability
—
of officer. Where a cashier of a bank
87. Effect of ratification. Hume v. —
Eagon, 73 Mo. App. 271.
without authority used the bank funds 88. Bank v. Reed (Pa.), 1 Watts &
to pay his individual debt, no ratifica- S. 101.
tion of his unauthorized act arose by If any act or contract ofan officer
the bank attempting to hold the cash- of bank made without authority .i.s
a
ier individually liable for the funds subsequently ratified by the directors
wrongfully diverted. Home' Sav. Bank upon full knowledge of all the circum-
V. Otterbach, 135 Iowa 157, 113 N. W. stances of the case, the bank will be
769- _ bound thereby as fully as if the officer
86. Bank seeking to indemnify it- had been expressly authorized to do
self against fraud. —
Bank v. McGilvray the act or make the contract. First
& Co. (Ala.), 52 So. 473. Nat. Bank v. Kimberlands, 16 W. Va.
Where defendant's cashier .declined 555.
to make a loan until proper security 89.Alteration of nature of debt.—
should be given, and during his absence Though the cashier of a bank exceeds
applied to the acting cashier,
plaintifif his' authority, in altering the nature of
and by fraudulently representing that a debt due the bank, a subsequent ac-
the cashier had agreed to make the quiescence by the bank in such an ar-
loan for the bank obtained a cashier's rangement is conclusive upon it. Bank"
check to the borrower, which the bor- v. Reed (Pa.). 1 Watts & S. 101.
rower transferred to plaintiff, and as 90. Transfer or pledge of note.
soon as the cashier returned he at- Rev. St. 1889, § 2759, as amended in
tempted to repudiate the transaction, 1895, providing that the transfer or hy-
114 (4) REPRESENTATION OE BANK. 815
stock,^^ and a conveyance, not authorized by resolution of the directors,®^

are, after ratification, binding on the bank or its receiver.**^
§ 114 (3b) Adoption of Entire Contract. —A bank in ratifying an

unauthorized contract in its its agents must
behalf by one of adopt the con-
tract in its entirety, and this it can not do if the contract
and not in part,®*
is in part ultra vires, as, for instance, an agreement by its cashier to go
into the mining business and work mining properties.®'
§ 114 (4) Pleading and Proof. —

Where ratification by the bank of
an unauthorized agreement by the president to release its debtor is relied
upon, some specific act or acts of ratification should be alleged. ®®
estoppel from acquiescence is relied upon, knowledge of an un-
If
authorized agreement made by an officer of a bank on its behalf by the
directors and the beneficial results accruing therefrom must be alleged and
proved.®''
—
Evidence of Ratification. The proof of a ratification of an unau-
thorized contract made on its behalf by an officer of a bank must be clear
pothecation of any note or security of exhibit the note to the bank examiner
a bank by any officer or employee as an asset, the matter being within
without being authorized by the board the scope of the manager's agency, the
of directors shall be "null and void," bank could not ratify his act in dis-
does not render such transfer abso- counting the note and repudiate his
lutely void, but only voidable, and its agreement. National Citizens' Banki'.
ratification by the directors afterwards Bowen, 109 Minn. 473, 134 N. W. 341.
renders it valid and effective from the 95.Mine owners indebted to a bank
beginning. Hume v. Eagon, 73 Mo. made their note, and executed a deed
App. 371. of trust to the bank's cashier, to secure
91. Loan for purchase of stock. — the indebtedness. The note was not
Though the act of a bank's president paid at maturity, and without the pay-
in arranging for a loan of money. for ment of any money to him or to the
the purchase of stock is unauthorized, bank, and without authority, the cash-
yet, if the loan is afterwards ratified ier released the deed of trust, and two
by the bank, the bank can not subse- other papers were executed between
quently question its legitimate charac- the parties. One was an absolute deed
ter. Roe V. Bank, 167 Mo. 406, 67 S. of the property to the cashier; the
W. 303. other, an agreement whereby he was
92. Conveyance. —Under
Rev. St., to work the mines till the indebtedness
of the bank was paid from the pro-
p. 591, § 8, providing that no convey-
ceeds, and certain amounts paid to the
ance not authorized by previous reso-
grantors, after which he was to become
lution of the board of directors shall
made by any moneyed corporation the absolute owner. Subsequently a
be
creditor of the bank attached the prop-
of any of its effects exceeding iri value
erty as belonging to the bank. Held,
$1,000, a subsequent confirmation of
that the bank could not be held to have
such conveyance, made by the officers
adopted the contract of its cashier,
of a bank, is equivalent to a previous
since it must have done so in its en-
resolution, and renders the conveyance
tirety, and the agreement to operate
valid as against a receiver subsequently
the mines would have been ultra vires.
appointed. Curtis v. Leavitt, 15 N. Y. 9.
Weston V. Estey, 22 Colo. 334, 45 Pac.
93. —
Receiver. Curtis v. Leavitt, 15 367.
N. y. 9.
Weston Estey, 23 Colo. 334,

96. —
Pleading and proof. Swindell
94. v.
& Co. V. Bainbridge State Bank, 3 Ga.
45 Pac. 367. App. 364, 60 S. E. 13.
Where a bank manager in general
charge of its business procured de- 97.Estoppel from acquiescence. —
fendant's signature to a note for the Swindell & Co. v. Bainbridge State
bank's accommodation to enable it to Bank, 3 Ga. App. 364, 60 S. E. 13.
gl6 BANKS AND BANKING. § US
and not vague and indefinite. Evidence of a vague and indefinite character
should not ordinarily be admitted as a basis for inferring a ratification
from a habit of the officer to make similar contracts or do similar acts, but
such evidence may be admitted where it is to be followed up by proof
that the contract or arrangement was subsequently ratified by the board
of directors with knowledge of the fact.»*
Facts Which Are Evidence. —The fact that the directors of a bank
unite in making a guaranty note to secure a loan to the bank previously
arranged for by the cashier evidence of ratification of the cashier's act.^^
is
So also is the fact that, where on the discovery of the robbery of a bank,
the cashier, with the advice of a minority of the directors, offered a reward
for the capture of the thief and return of money all the directors lived in
;
the same place, and did not disavow the cashier's act.i
—
Submission to Jury. Whether a mere silence of the bank in failure
to repudiate its agents' acts within a reasonable time after knowledge
thereof amounts to ratification is a question for the jury.^
§ 115. Rights Acquired by Bank.— Rule as to Addition of Words

Bescriptio Personae and Exception Thereto. The general rule is —
that the addition of such words as "Agent," "Treasurer," "President,"
etc., to the name of an officer of a bank is simply descriptio personae; but
there is an exception or partial exception, to the rule in the case of cashiers

of banks. It is now held that, where negotiable paper is made to A. B.,
"Cashier," or any abbreviation of that word, it is prima facie, at least the

property of the bank of which A. B. is cashier.^ In such cases, where the
98. Proof of accord and satisfaction Nat. Bank v. Fifth Nat. Bank (Tex.
agreed to by president. First Nat. — Civ. App.), 47 S. W. 533, modified
Bank v. Kimberlands, 16 W. Va. 555. Fifth Nat. Bank v. Iron City Nat.
99. Facts which are evidence.— Bank, 93 Tex. 436, 49 S. W. 368, which
American Exch. Nat. Bank v. First held that the evidence was sufficient
Nat. Bank, 37 C. C. A. 374, 83 Fed. 961. to justify the submission to the jury.
1. Kelsey v. National Bank, 69 Pa. 3. Anheier v. Signor, 8 N. Dak. 499,
436. 79 N. W. 983; Bank v. Muskingums
2. —
Submission to jury. Fifth Nat. Branch, 39 N. Y. 619; First Nat. Bank
Bank v. Iron City Nat. Bank, 93 Tex. v. Hall, 44 N. Y. 395.
436, 49 S. W. 368.
_
"This exception to the rule has been
The cashier of plaintifl bank au- established because banks act only
thorized defendant bank to apply through agents, and the cashier is the
plaintifif's deposit to his private in- chief financial agent of the bank, and
debtedness. Plaintiff had no knowl- usage has sanctioned the practice of
edge of this until some time after it permitting banks to do business in
had ceased to have any business rela- that manner. This being so, the en-
tions with defendant, and after it had forcement of the general rule would
severed its connection with its cash- often work injustice, and the exception
ier, who had been indicted for the em- becomes a legal necessity. But we
bezzlement of the funds in question. findno case where this exception has
After learning of the act, plaintiff been applied to any transactions other
neglected to repudiate it. The cashier than those relating to commercial pa-
was insolvent, and plaintiff received no per. In Daniel, Neg. Inst., § 417, the
benefit from the transaction in ques- exceptions are limited to such trans-
tion. Held, that there was not suffi- actions. The reason upon which it is
cient evidence of ratification to justify based necessarily so confine it. Banks,
its submission to the jury. Iron City particularly national banks, do not or-
§ lis REPRESENTATION OE BANK. 817
instntment is indorsed by "A. B., Cashier," and delivered to a bona fide

holder, the bank alone is liable on the indorsement.* The most that could
be claimed for the word "Cashier" in any other case would be that it raised
a presumption of fact.^ Indeed, that is its entire scope in commercial paper,
except where the paper is in the hands of a bona fide indorsee.^
Cashier Deemed to Hold for Bank. —The cashier of a bank who re-
ceived money on a mortgage to the bank, and deposited it in his own name
holds it for the bank, and the bank, in favor of third parties, must be
deemed to have received it when the cashier took it.'^
—
Guaranty of Note. A guaranty of a note, the consideration of which
moved from a bank, to whose cashier it was addressed, and whose official
action it imported, although not addressed to him as cashier, may well run
to the bank.8
Defense by Makers of Note Indors«d by Cashier to Bank. —Where
directors are chosen and recognized as such by the proprietors of a bank,
and they appoint a cashier, and he acts under that appointment by their
direction, the maker of a note afterwards indorsed by the cashier can not
set up, in defense to a suit brought by the indorsee, irregularities in the
choice of the directors and appointment of the cashier.^
dinarily deal in real estate. In the assignor's place and get it signed and
exceptional cases where they are per- acknowledged. The assignor stated to
mitted to do so, they do not take or the notary that he would not sign it
convey real estate through an agent. if it was for the bank, as he did not
Such matters require more formality, wish to get his property mixed up in
and, in cases of transfer by the bank, his mother's affairs. Tne notary told
they require a corporate seal. A trans- him that Schuyler said that he (the
fer to 'A. B., Cashier,' might, in equity, assignor) would know what it was for.
be enforced by the bank, upon a show- The assignor replied that he would
ing that it was intended as a transfer sign it for Schuyler, but would not
to the bank. The same might be sign it for the bank. Thereupon it was
done to whomsoever the transfer signed and delivered to the notary.
might be made, but it would require Held that, conceding a presumption
evidence to establish such intention." arose that the assignment was to the
Anheier v. Signor, 8 N. Dak. 499, 79 bank because of the addition of the
N. W. 983. word presumption was
"cashier," such
4. Anheier v. Signer, 8 N. Dak. 499,
one of and was rebutted by the
fact,
79 N. W. 983; Folger v. Chase (Mass.),

evidence. Anheier v. Signor, 8 N. Dak.
18 Pick. 63; Farmers', etc.. Bank v.
499, 79 N. W. 983.
Troy City Bank (Mich.), 1 Doug. 457. 6. Anheier Signor, 8 N. Dak. 499,
v.
Assignment to A., "Cashier." — 79 N. W. 983; v. Bank (U. S.),

Baldwin
5.
1 Wall. 234, 17 L. Ed. 534; Bank v.
land contract was assigned to "C. C. French (Mass.), 31 Pick. 486; Metcalf
Schuyler, cashier," the assignor know- V. Williams, 104 U. S. 93, 26 L. Ed.
ing that Schuyler was the cashier of a 665; Southern Pac. Co. v. Von Schmidt
certain bank, and being also at the Dredge Co., 118 Cal. 368, 50 Pac. 650.
time indebted to the bank as surety on
The assignor was 7. Cashier deemed to hold for bank.
his mother's notes.
indebted to Schuyler, and, at the time
— Bridenbecker v. Lowell (N. Y.), 33
Barb. 9.
the indebtedness was incurred, he
slated to Schuyler that he owned a
8. Guaranty of note. —Woodstock
certain section of land, and that Schuy-
Bank v. Downer, 27 Vt. 483, 65 Am.
The assign- Dec. 210.
ler should lose nothing.
ment of such land was drawn up in 9. Defenses by makers of note in-
the bank by Schuyler, and given to a dorsed by cashier to bank. Cooper v. —
notary with instructions to go to the Curtis, 30 .Me. 488.
1 B & B— 53
Cashier Treasurer of Another Company. Using Funds of Com- —

pany to Conceal Embezzlement of Bank. —
Where the cashier of a
bank who had become indebted to it, in order to conceal his defalcation or
pay his indebtedness, transferred to the bank the funds of a company of
which he was treasurer, and to account for such transfer, drew checks
upon the company payable to the bank and charged the amount of them
against the company upon the bank books, the bank in accepting such pay-
ment through its cashier, can not retain the benefits of his act without ac-
cepting the consequences of his knowledge and becoming liable with the
cashier to the company in the amount of the funds so fraudulently trans-
ferred.io
Cashier's Misappropriation of Deposit of Company of Which
—
Cashier Treasurer. Where the cashier of a bank who has the entire man-
agement of its affairs, draws checks of a cornpany of which he is treasurer,
payable to the bank and presents such checks as treasurer to himself as
cashier, and misappropriates the proceeds thereof, the bank will be held to
knowledge of his fraudulent purpose at the time of presenting the check,
and can not base thereon a claim of liability in its favor against the com-
pany.ii
§ 116. Notice to Officer or Agent— § 116 (1) In General.— It is
well established, both in law and in equity, that notice to an agent in rela-
tion to the business in which he is employed is notice to the principal. ^^
The same rule applies equally to a corporation as to a natural person. i*
Notice to an officer or agent or attorney of a bank, who is at the time acting
for the bank and within the limitations of his authority to supervise, is
notice to the bank.i* Notice to an active managing officer of an incorpo-
10. Using funds of company to con- other appropriate officer of a banking

ceal —
embezzlement of bank. Emerado institution, isnotice to the company.
Farmers' Elevator Co. v. Farmers' Messick & Co. v. Roxbury, 1 Hand.
Bank, 20 N. Dak. 270, 127 N. W. 522. 190, 12 O. Dec. 95.
11. Cashier's misappropriation ofde- As a rule, knowledge to officers of a
posit of company -of which cashier bank is knowledge to the bank. Baker
treasurer.— Emerado Farmers' Eleva- v. Orme, 6 O. C. C, N. S., 289, 17-27
tor Co. V. Farmers' Bank, 20 N. Dak. O. C. D. 465, affirmed in 74 O. St. 337.
370, 127 N. Y. S. 522. 14- Notice within limitation of au-
12. Notice to officer or agent.- ^'?^^^'
*°'?J^-~;L'''''^n^'*A ^^""t,"^^"'^/-
Bank Mumford, ^^ ,^^- ^9 Am. Rep. 319, citmg
V. 6 Ga. 44; Veasey v. i^\
Graham, 17 Ga. 99, 63 Am. Dec. 228. 5^"^'
,o A !• ... ^- T., ,
r" AT^"^
Co. (N. o^^ ^°'^h
Y.), 4 Paige
";
137: ^'t'
LaFarge
13. Applies to corporation.-Bankz;.
pire Ins. Co. v. Belle (N. Y.), 21
Mumford 6 Ga 44; Veaseyj-. Graham, garb. 54; National Bank v. Norton (N.
17 Ga. 99, 63 Am. Dec. 228.
y.), 1 Hill 572; Bank v. Davis (N. Y.),
Where a cashier has entire charge 2 Hill 451; North River Bank v.
of the business of a bank its president Aymar (N. Y.), 3 Hill 262; Smith v.
being such in name only service on South Royalton Bank, 32 Vt. 341, 76
the cashier, by the surety on a note, of Am. Dec. 179; Washington Bank v.
notice to sue the principal, is service Lewis (Mass.), 22 Pick. 24; Commer-
on the bank. Skillern v. Baker, 82 cial Bank v. Cunningham (Mass.), 34
Ark. 86, 100 S. W. 764. See post, "Ac- Pick. 270; Housatonic Bank v. Martin
tions on Loans or on Paper Dis- (Mass.), 1 Mete. 294; Hoover v. Wise,
counted," § 187. 91 U. S. 308, 23 L. Ed. 392.
Notice to the agent, attorney, or In respect to discounts and securi-
rated bank, given during banking hours at the usual place of business is
notice to the bank.i^ Hence, where the proper officers of a bank are charge-
able with knowledge of the state of its account with another bank, such
knowledge is that of the bank,!" and notice to an officer of a bank, which
imposes a duty on the bank, is notice to all agents of the bank acting in their
official capacity."
Extent of Constructive Notice Rule. — It seems that a bank will be
held to have constructive notice only of such facts as have been brought to
the actual notice or attention of its officers or agents or of such facts only
as have been constructively brought to the notice or attention of some of
its officers or agents, by the actual notice of such other facts as would nat-
urally put the officer or agent upon inquiry. i^ The rule under considera-
ties, see post, "In Respect to Dis- ing a receipt of the bond from plain-
counts and Securities," § 116 (2). tiif. Held, that the bank could not
In respect to deposits, see post, "In claim that the cashier was acting in
Respect to Deposits," § 116 (3),. his individual capacity alone, and that
As to evidence of authority, see post, the bank had no notice of plaintiff's
"Evidence as to Authority," § 118. title. Zugner v. Best, 44 N. Y. Super.
As to knowledge or notice with Ct. 393.
reference to business outside scope of A manufacturing company having
official duties, see post, "Notice Re- sold out all its property, thereby de-
ceived in Private Business or Outside termining the agency of its officers,
Scope of Duties," 116 (4).
§ a bank, the president of which was
Where the president and cashier ot also a director of the corporation, was
a bank, being also members of a part- bound by the legal effect of its presi-
nership composed of themselves and dent's knowledge in receiving a note
another person, to the capital stock of executed to it by the officers of the
which they had, under the partnership corporation after the sale. Union Bank
articles, agreed to contribute a given V. Wando Min., etc., Co., 17 S. C. 339.
sum, without the knowledge or con- 15. Notice to active managing officer.
sent of the other partner executed and — Second Nat. Bank v. Howe, 40 Minn.
delivered to the bank a note in the 390, 42 N. W. 200, 12 Am. St. Rep. 744.
name of the partnership, for the pur- As to notice to directors, see post,
pose of raising the money they had ''Notice to Directors," § 116 (5).
agreed to pay into the partnership 16. Knowledge of officers imputed
biisiness, the bank was affected with to bank. —
Kissam v. Anderson, 145 U.
notice that the transaction was for the S. 435, 36 L. Ed. 765, 12 S. Ct. 960.
private benefit alone of the two par- 17. Notice imposing duty on bank.
ties raising the money, and hence could — Gibson V. National Park Bank, 49
not hold the partnership itself, nor the N. Y. Super. Ct. 429.
remaining partner, liable on the note. 18. Extent of constructive notice
Brobston v. Pcnniman, 97 Ga. 527, 25 rule. —
Iowa Nat. Bank v. Sherman, 17
S. E. 350. S. Dak. 396, 97 N. W. 13, 106 Am. St.
Where the cashier of a bank in Rep. 778, modified on rehearing 19 S.
liquidation is also its general agent, Dak. 238, 103 N. W. 19; Mann v.
he has all the powers of a cashier, and Second Nat. Bank, 34 Kan. 746, 10 Pac.
also the power to manage and control 150.
the bank, and his knowledge of a The fact that the cashier of plaintiff
transaction with a debtor, resulting m bank knew that the maker of a note
a compromise of the banks claim discounted by it, who had transferred
against the debtor, is imputable to, and to as collateral, several of defend-
it,
his action binding on, the bank. Metz- ants bonds, which on their face ap-
ger V. Southern Bank, 98 Miss. 108, 54 peared to be still due, and regular in
So. 341. form, but which had in fact been paid,
Plaintiff's husband took a bond of was the treasurer of defendant, and
hers and her bank book to the cashier also of the corporation holding the
of a bank. The cashier put the bond trust deed to secure the bondholders,
in the bank safe, and v/rote on plain- did not, as a matter of law, charge
tiff's bank book a memorandum show- plaintiff with knowledge that such
tion alike includes and applies to positive information or knowledge ob-

tained or possessed by the agent in the transaction, and to actual or construc-
tive notice communicated to him therein. ^^
Reason —
of Rule and Qualifications. The rule is based on the ground
that it is the duty of the agent to communicate to his principal all knowl-
edge which he possesses material to the principal's business, and the pre-
sumption that he has done so.^" When the fact in question comes to the
knowledge of an officer of a bank when he is making authorized official in-
quiries, or is otherwise engaged officially for his principal, it can be of no
consequence that he fails to communicate it.^^ The rationale of the rule
has been differently stated by different authorities. Some authorities rest
the rule entirely upon the presumption of an actual communication between
the agent and his principal others upon the legal conception that for many
;
purposes the agent and the principal are regarded as one.^^ Under the
operation of this reason, what are sometimes called exceptions or qualifi-
cations to the rule have grown up.^* For example, an agent is not pre-
sumed to have communicated to his principal professional confidences re-
ceived in representing a third person, or knowledge acquired while acting
for himself or for a third person and not for his principal,^* or where the
maker held the bonds in a fiduciary 396, 97 N. W. 12, 106 Am. St. Rep. 778,
capacity, obtained possession
or of modified on rehearing, 19 S. Dak. 238,
them by fraud. Rockville Nat. Bank 103 N. W. 19, 117 Am. St. Rep. 941.
V. Citizens' Gas Light Co., 73 Conn. 19. Morris v. Georgia Loan, etc., Co.,
576, 4.5 Atl. 361. 109 Ga. 12, 34 S. E. 378, 46 L. R. A.
A mortgagor of cattle sold them 506.
with the consent of the first mort- 20. Reason of rule. Wardlaw v. —
gagee, and deposited the proceeds of Troy Oil Mill, 74 S. C. 368, 54 S. E.
the sale to his own credit in a bank, 658, 114 Am. St. Rep. 1004.
which was a second mortgagee, and 21. Failure to communicate. ^Mor- —
applied the money to the pa5'ment of ris V. Georgia Loan, etc., Co., 109 Ga.
the debt due to the bank. Prior to the 12, 34 S. E. 378, 46 L. R. A. 506, citing
sale the mortgagor agreed with the National Security Bank v. Cushman,
first mortgagee that the proceeds of 121 Mass. 490; Bank v. Davis (N. Y.),
the sale should be sent to the bank to 2 Hill 451; Farmers', etc.. Bank v.
be applied on the first mortgage. Held, Payne, 25 Conn. 444, 68 Am. Dec.
that thefact that the bank officers 362.
knew of the first mortgage, and of its 22. Rationale of rule. — Morris v.
priority, and that such mortgage was Georgia Loan, etc., Co., 109 Ga. 12,
to be paid when the cattle were sold, 34 S. E. 378.
was not such notice to the bank of 23. Exceptions
or qualifications. —
the agreement between the mortgagor Wardlaw v. Troy
Oil Mill, 74 S. C.
and the first mortgagee as would 368, 54 S. E. 658, 114 Am. St. Rep. 1004.
charge it with a knowledge of the The general rule that a principal is
trust character of the fund. Smith v. held to know all that his agent knows
Crawford County State Bank, 99 Iowa in a transaction in which the agent
282. 68 N. W. 690, 61 N". W. 378. acts for him has its exceptions. Nib-
That the president of a bank is a lack V. Cosier, 26 C. C. A. 16, 80 Fed.
stockholder, and the cashier a stock- 596.
holder and secretary, of a corporation 24. Examples of exceptions. Ward- —
which is the payee of a note trans- law Troy Oil Mill, 74 S. C. 368, 54
V.
ferred to the bank, does not charge S. E. 658, 114 Am. St. Rep. 1004; Akers
the bank with constructive notice of V. Rowan, 33 S. C. 451, 12 S. E. 165.
defenses of the maker against the cor- 10 L. R. A. 705.
poration pai'êe, when neither the presi- Promissory note obtained by false
dent nor cashier had actual notice. representations and transferred to a
Iowa N'at. Bank v. Sherman, 17 S. Dak. bank, whose cashier was a partner in
§ 116 (1) RJJPREÊNTATION OF BANK. 821
knowledge is such that, according to human nature and experience, the

agent is certain to conceal, or where the agent is acting in an adversary
relation to the principal, or meditates a fraud against his principal or some
third person in his own which would be defeated by disclosure.^^
interest
The agent's knowledge will not be imputed to the principal where the legal
effect of what the agent did was to wrong, cheat or defraud the principal
for his own benefit.2« Where an officer or agent of the bank, as a party
business with the payee, held enforce- though he is the director of the bank
able by the bank, where the cashier and a member of its loan committee.
had no actual knowledge of the fraud. Wardlaw v. Troy Oil Mill, 74 S. C.
Scott V. Choctaw Bank (Ala.), 59 So. 368, 54 S. E. 658, 114 Am. St. Rep.
184. See Morris v. First Nat. Bank, 1004.
162 Ala. 301, 50 So. 137.
As to notice received in private the
Fraud upon principal. —
If three of
directors, including the president
business, see post, "Notice Received in and cashier, of a bank having eighteen
Private Business or Outside Scope of directors, make their note and have
Duties," § 116 (4). it discounted, and use the proceeds to
As to officer dealing in dual capacity, make an overdraft of an insolvent de-
see post, "In Respect to Discounts and positor, and, by agreement between
Securities," § 116 (2); "In Respect to themselves, keep the whole matter
Deposits," § 116 (3); "Notice to Di- secret from the other directors, from
rectors," § 116 (5). fear that the amount of the overdraft
25. Wardlaw v. Troy Oil Mill, 74 would get to the public and injure the
S. C. 368, 54 S. E. 658, 114 Am. St. Rep. credit of the bank, and agree among
1004; Holm v. Atlas Nat. Bank, 28 C. themselves that the bank shall make
C. A. 297, 84 Fed. 119. good the amount to them when they
Defendant, at the request of the deem it safe to notify the other di-
cashier of a bank who was defendant's rectors, and afterwards, at the in-
partner in a real estate business, gave stance of one of the makers, the bank
his note to the cashier to be sub- becomes the owner of the note, and,
stituted in the bank's assets for notes after the claim against the depositor
of the cashier. He was told by the has become barred by the act of limi-
cashier that the bank would not want tations, they disclose the whole trans-
the cashier's paper, and that it would action to the board of the bank, and
not look well to the bank examiner, ask that the bank charge off the note
and he told defendant that he would to profit and loss, the bank is under
never be called upon to pay the note. no obligation to do so, and in an ac-
Rev. Codes, § 4001, makes it a penal tion on the note by the bank against
offense to knowingly make false en- the makers they can not defeat re-
tries in the books of a bank, or to covery on the. ground that the note
knowingly subscribe, or exhibit false was made for the accommodation of
papers with intent to deceive the state the bank. It would be both unreason-
bank examiner. Held, that defendant able and unjust to impute notice to the
was chargeable with notice of the stat- bank of a transaction which was wholly
ute, and that it was the cashier's pur- unauthorized, and which all the parties
pose to violate it, and therefore the connected with it expressly agreed to
knowledge possessed by the cashier and did conceal from the bank. Such
would not be imputed to the bank, and knowledge on the part of three di-
thus give it notice that defendant re- rectors was not notice to the bank. To
ceived nothing for the note, as notice apply the doctrine of constructive no-
to an agent will not be imputed to the tice to such a case would make it an
principal, where the conduct of the instrument of fraud. Traders, etc.,
agent is such as to raise a clear pre- Bank v. Black, 108 Va. 59, 60 S. E. 743.
sumption that he would not communi- 26. Where agent cheats principal for
cate the fact in controversy to his —
own benefit. Niblack v. Cosier, 26 C.
principal. State Bank v. Forsyth, 41 C. A. 16, 80 Fed. 596; Central Bank v.
Mont. 249, 108 Pac. 914. Thayer, 184 Mo. 61, 82 S. W. 143.
The fact that the president of an- As to notice of officer's own fraud,
other corporation with which the bank see post, "Notice of Officer's Own
was dealing knew of a lien which was Fraud," §116 (6).
prior to the claim of the bank, does As to individual interest of officer
not constitute notice to the bank. as affecting knowledge or notice, see
in interest, deals for himself with the corporation, the latter is not charged
with notice of information possessed by such officer or agent, and this is
because in such transaction the assumed agent is in reality the adverse

party, and is not to be treated while so dealing as the corporation's agent.
Many if not a majority of the cases which announce the doctrine that, when
the agent has an interest which would be prejudiced by
in the transaction
a disclosure of the information, the presumption of its communication does

not prevail, will be found to be where the agent or officer acts in his in-
post, "In Respect to Discounts and Knowledge of a cashier and two di-
Securities," § 116 (2); "In Respect to rectors that, the cashier has, without
Deposits," § 116 (3); "Notice Received authority, pledged the bank's respon-
in Private Business or Outside Scope sibility upon the note of a corporation
of Duties," J 116 (4); "Notice of Offi- in which such officers are interested
cer's Own Fraud," § 116 (6). adversely to the bank, is not notice to
As
to individual interest of director the bank. Ft. Dearborn Nat. Bank v.
as affecting knowledge or notice, see Seymour, 71 Minn. 81, 73 N. W. 724.
post, "Notice to Directors," § 116 (5). "While the knowledge of an agent
is ordinarily to be imputed to the prin-
As to individual interest of officer
or agent as affecting person dealing cipal, it would appear now to be well
with bank, see post, "Individual In- established that there is an exception
terest of Officer or Agent as Affecting to the construction or imputation of
Person Dealing with Bank," § 117. notice from the agent to *^he principal
in the case of. such conduct by the
"This exception has been many-
agent as raises a clear presumption
times noticed and applied and was the
that he would not communicate the
subject of elaborate consideration by
fact in controversy, as where the com-
this court in Read v. Doak, 22 U. S.
munication of such a fact would neces-
App. 669, 12 C. C. A. 643, 65 Fed. 341, '
sarily prevent the consummation of a

and in Wilson v. Pauly, 18 C. C. A.
fraudulent scheme which the agent was
475, 72 Fed. 129." Niblack v. Cosier,
engaged in perpetrating. Kennedy v.
26 C. C. A. 16, 80 Fed. 596.
Green, 3 Mylne & K. 699; Cave v.
Where a bank has loaned money to Cave, 15 Ch. Div. 639; In re European
a corporation, the stock of which is Bank, 5 Ch. App. 358; In re Marseilles
nominally but not actually paid in full, Extension R. Co., 7 Ch. App. 161; At-
its right to look to the stockholders lantic Bank v. Harris, 118 Mass. 147;
for repayment to the extent to which Loring V. Brodie, 134 Mass. 453. " * *"
they have not paid the face value of State Sav. Bank v. Montgomery, 126
their stock is not defeated because the Mich. 327, 85 N. W. 879.
president of the corporation, having "A bank or other corporation can
a substantial pecuniary interest therein, act only through agents, and it iî gen-
was also the cashier of the bank and erally true that, if a director v^ho has
acted for both parties, negotiating the knowledge of the fraud or illegality of
loan without communicating to any the transaction acts tor the bank as —
other officer of the bank his knowl-
edge that the stock had been issued at
in discounting a note —
his act is that
of the bank, and it is affected by his
a discount, since a corporation in deal- knowledge. National Security Bankf.
ing with one of its own officers who Cushman, 121 Mass. 490." State Sav.
acts for himself and not for it is not Bank v. Montgomery, 126 Mich. 327,
chargeable with notice of facts known 85 N. W. 879.
lo him. First Nat. Bank v. Northup, "But this principle can have no ap-
82 Kan. 638, 109 Pac. 672. plication where the
director of the
Where a bank
purchased a note bank the party himself contracting
is
from a corporation which had received with it. In such case the position he
it without consideration, the fact that assumed conflicts entirely with the
its cashier, who discounted the note idea that he represents the interests of
after consultations with the directors, the bank. To hold otherwise might
was the president of such corporation, sanction gross frauds by imputing to
and knew all the facts, did not bind the bank a knowledge those properly
the bank with notice of the infirmities. representing it could not have pos-'
People's Sav. Bank v. Hine, 131 Mich. sessed." State Sav. Bank v. Mont-
181, 91 N. W. 130. gomery, 126 Mich. 327, 85 N. W. 879.
dividual capacity, and treats with some other officer or agent of the corpora-
tion. ^^ Where a bank purchases mortgage bonds of a corporation of which
its own president is also president, he knowing that the mortgage is invalid
the bank is not chargeable with his knowledge.^* The knowledge of the
president of a bank as to his own which
insolvency, or that of a firm with
he was connected, could not be imputed to the bank receiving securities in
connection with certain overdrafts and loans of the president, where such
president dealt with the bank in regard to his own affairs as with a third
party.2^ But the principal involved in the foregoing cases can not be fully
applicable to a case where one
knowledge of the invalidity of
party, having
the paper of which he is it in a bank of which
the ostensible owner, discounts
he is the duly authorized agent, and himself acts for the bank, and by his
act enables the bank to collect and retain the proceeds of such paper as
against the rights of the true owner. In such a transaction if he is not the
agent of the bank then the discount is illegal and the owner is entitled to
all its proceeds; if he is the agent of the bank, his action would be a fraud-
upon the rights of the owner of which the bank can not take advantage.^"
However the authorities seem to be divided as to whether the knowledge
of an officer of a bank, having a note discounted at the bank for his own
personal benefit, as to defenses to the note, is imputable to the bank.î It
seems to be established that where one is an officer of two corporations
which have business transactions with each other, his knowledge can not
be attributed to either corporation in a matter in which he does not repre-
sent it. If he represents one or both his action will be binding, and his
knowledge will attach to the one represented. ^^ If a person who is at the
27. Morris v. Georgia Loan, etc., Babbidge, 160 Mass. 56.3, 36 N. E. 462;
Co 109 Ga. 32, 34 S. E. 378, 46 L. R. Merchants' Nat. Bank v. Lovitt, 114
A. 506. Mo. 519, 21 S. W. 825; Buffalo County
28. DeKay v. Hackensack Water Nat. Bank v. Sharpe, 40 Neb. 123, 58
Co., 38 N. J. Eq. 158. N. W. 734; City Bank v. Barnard, 1
29. Knowledge
of insolvency. — Hall 70.
Crooks People's Nat. Bank,
V. 34 Where an officer or director of a
Misc. Rep. 450, 70 N. Y. S. 271; S. C, bank isalso an officer of a corporation
72 App. Div. 331, 76 N. Y. S. 92, 495, discounting a note at the bank, his
affirmed in 177 N. Y. 68, 69 N. E. 228. knowledge, acquired in the latter ca-
30. Principle inapplicable. Morris — pacity, is not chargeable to the bank.
V, Georgia Loan, etc., Co., 109 Ga. 12,
Corcoran v. Snow Cattle Co., 151 Mass.
34 S E 378 46 L. R. A. 506. And see 74, 23 N. E. 727; First Nat. Bank v.
First Nat. Bank v. New Millford, 36 Loyhed, 28 Minn. 396, 10 N. W. 421;
Conn 93 Benton v. German-American Nat.
31.
'
divided.— Where a
Authorities Bank, 122 Mo. 333, 26 .S. W. 975; Com-
oerson having a note discounted at a mercial Bank v. Burgwyn, 110 N. C.
hank for his personal benefit is an of- 267, 14 S. E. 623, 17 L. R. A. 326; Wil-
ficer of the bank, the bank is charged son v. Second Nat. Bank (Pa.), 7 Atl.
with his knowledge of defenses to it. 145, Contra, see First Nat. Bank v.
First Nat Bank v. Blake, 60 Fed. 78; Erickson, 20 Neb. 580, 31 -N. W. 387;
Tilden v Barnard 43 Mich. 376. 5 N. Oak Grove, etc.. Cattle Co. v. Foster,
W 420 38 Am. Rep. 197; Le Due v.
N 888;
7 N. Mex. 650, 41 Pac. 522.
32. Officer acting in dual capacity.—
Moore 111 C. 516, 15 S. E.
Black 'Hills Nat. Bank v. Kellogg, 4 Morris v. Georgia Loan, etc., Co.,
S Dak 312, 56 'N. W. 1071; Taylor v. 109 Ga. 12, 34 S. E. 378, 46 L. R. A.
National Bank, 6 S. Dak. 511, 63 N. W. 506, citing Smith v. Farrell, 66 Mo.
99 See contra First Nat. Bank v. App: 8. And see First Nat. Bank v.
same time bank and member of partnership makes, in his dual

cashier of a
capacity, a contract between the parties, knowledge possessed by him, though
not actually disclosed, will be imputed to both parties. ^^ Where an indi-
vidual has an interest in a promissory note which he knows was given with-
out consideration, and such individual as cashier of a bank, having full
authority and control of the discounts of the bank without reference to or
consultation with any other officer of the bank, discounts such note with
the funds of the bank, the latter is not a bona fide purchaser of the note,
without notice. If it ratifies the act of its officer and claims title to the note,
it must take it subject to the knowledge which the officer who discounted
it had at the time.^* However, if one though cashier of the bank makes
a contract with the bank on behalf of the partnership of which he is a mem-
ber, dealing in the transaction with other officers of the bank and not through
himself alone, his undisclosed knowledge will not be imputed to the bank
as notice. The law will not presume that the person occupying such a dual
relation dealt with himself alone in making a contract between the partner-
ship and the bank, and the burden of proving that he did so act is upon the
person so asserting.^s ]\jor will his knowledge be imputed to the bank,

when he, acting in such dual capacity, is actually endeavoring to deceive
the bank to benefit himself in his adverse interests. ^^
Dunbar, 118 111. 625, 9 N. E. 186; D, & Co., and cashed through another
Farmers', etc.. Bank v. Kimball Mill- New York bank, the drafts being dis-
ing Co., 1 S. Dak. 388, 47 N. W. 402, counted to meet the checks. The dis-
36 Am. St. Rep. 739; Bank v. Davis (N. counts made by the trust company
Y.), 2 Hill 451; Holden v. New York, were authorized by D. under a pro-
etc.. Bank, 72 N. Y. 286; Webb v. vision of the trust company's by-laws
Graniteville Mfg. Co., 11 S. C. 396, 32 declaring that the president generally
Am. Rep. 479. might make investments between meet-
—
Fraud of president. "The fraud of ings of the executive committee, re-
a bank president in contriving and porting the transactions to the com-
negotiating in his bank fraudulent mittee on the succeeding day, and,
notes of a corporation, for his own after the discounts were made, the
use, imputes knowledge to the bank, minutes showed the approval of loans
and it has no claim against the cor- made by the trust company. Held,
poration." Morris v. Georgia Loan, that the trust company was thereby
etc., Co., 109 Ga. 12, 34 S. E. 378, 46 charged with knowledge that the dis-
L. R. A. 506. counts were part of a fraudulent
D., who was president of a trust scheme on the part of its president to
company, was also the controlling obtain money for his individual pur-
stockholder in a manufacturing cor- poses. Cook V. American Tubing,
poration and the principal partner of etc., Co., 28 R. I. 41, 65 Atl. 641.
D. & Co., a firm acting as the corpora- Cashier acting in dual capacity
33.
tion's selling agent. At D.'s dictation, — Notice to both parties. Taylor v. —
the president and treasurer of the cor- Felder, 3 Ga. App. 287, 59 S. E. 844.
poration drew drafts on D. Co., & 34. Morris v. Georgia Loan, etc., Co.,
which were accepted by that firm and 109 Ga. 13, 34 S. E. 378, 46 L. R. A.
discounted at D.'s instance by the 506.
trust company. Just prior to the dis- 35. Cashier dealing through other
count, the president of the corpora- officer —Notice not imputed. Taylor —
tion, at D.'s instance, opened an ac- V. Felder, 3 Ga. App. 287, 59 S. E. 844.
count with the trust company in the 3G. Actual intent to deceive. Where —
name of the corporation, and on the the cashier of plaintiff bank was also
day before the discount was made two president of a printing corporation,
checks were drawn on the trust com- and as such permitted the corporation
pany by the corporation, payable to to become indebted to the bank in
§ 116 (1) RBPKESENTATION OF BANK. 825
President. —The general rule knowledge of facts brought home

is that
to the president of a bank, he beingan executive officer, binds the bank.^'^
Where the president of a bank receives notice while engaged in business
for the bank, the bank is chargeable therewith.^s Where a bank is hope-
lessly insolvent when the deposit is made, the knowledge of the president
is the knowledge of the bank.^^ Notice to the president of a bank concern-
ing the untrustworthiness of the cashier of the bank is notice to the bank.
excess of the corporation's charter funds with money borrowed by him

debt limit, the cashier's knowledge of on the bank's note, without the di-
such debt limit was not notice to the rectors' knowledge, and such bor-
bank as his personal interest was ad- rowed money was thereafter drawn out
verse to that of the bank and he was to pay the bank's lawful debts. Held
actually deceiving the bank. Ran- that, the bank having received the
dolph V. Ballard County Bank, 142 Ky. benefit of the loan through its presi-
145, 134 S. W. 165. dent, it was affected with his knowl-
37. President. —
Louisiana State Bank edge of the loan, and hence was liable
to the lender as for money had and
V. Senecal, 13 La. 525; Fouche v. Mer-
chants' Nat. Bank, 110 Ga. 827, 36 S. received to its use. Ditty v. Dominion
E. 356. Nat. Bank, 22 C. C. A. 376, 75 Fed.
As to knowledge or notice of presi- 769.
dent in respects to discounts and 38. Notice while engaged in busi-
securities, deposits, etc., see post, "In —
ness for bank. Bartlett v. Woodbine
Respect to Discounts and Securities," Sav. Bank, 57 111. App. 425.
§ 116 (2); "In Respect to Deposits," Tagg V. Tennessee Nat. Bank, 56

§ 116 (3); "Notice Received in Private Tenn. (9 Heisk.), 479; Union Bank v.
Business or Outside Scope of Duties," Campbell, 23 Tenn. (4 Humph.), 394;
§ 116 (4); "Notice of Officers Own Winslow V. Harriman Iron Co.
Fraud," § 116 (6). (Tenn.), 42 S. W. 698; Memphis City
A bank payingto the state governor Bank v. Smith, 110 Tenn. 337, 75 S.
individually the amount of a draft, W. 1065.
which the governor had indorsed to A bank chargeable with the knowl-
is
it, is liable to the state for the amount edge of president that a payment
its
collected by it, where the president of made by an obligor on a note was
the bank had notice that the state was with the understanding that he was
the real owner of the draft. McCann to be released when the president was
V. State, 4 Neb. 324. acting for the bank, and had no other
Where a bond and mortgage have interest in the transaction. Merchants'
been procured by false and fraudulent Nat. Bank v. McAnulty (Tex. Civ.
representations of the president of a App.), 31 S. W. 1091.
bank, they can not be enforced in a Where the president of a bank knew
court of equity, either bj' the bank it- that its cashier had purchased sheep
self or by any person for its use. from plaintiff, and was in debt there-
Curtis V. Hutchinson, 10 West. L. J. for, that outside of them he could not
134, 1 O. Dec. 471. pay the price, and that he had gone
Knowledge by a member of a firm with the sheep to market, to sell them,
of the true consideration of a certifi- the bank is chargeable with notice
cate of deposit, which the firm dis- that a draft sent to it by the cashier
counted at a bank in payment of in- was the proceeds of the sheep, and of
dividual notes of one of its members, plaintiff's interest therein as mort-
and which had been negligently altered gagee of the sheep, and was liable to
plaintiff for a portion of the draft ap-
in making out a duplicate certificate,
held to be imputable to the bank, plied on its own debt. Rock Springs
where the other member of the firm Nat. Bank v. Luman, 6 Wyo. 133, 42
was its president, and,_ as such, acted Pac. 874.
39. Knowledge of bank's insolvency.
as the sole representative of the bank
in accepting the certificate. 74 Fed. — St. Louis, etc., R. Co. v. Johnston,
1000, affirmed. Niblack v. Cosier, 26 133 U. S. 566, 33 L. Ed. 683, 10 S. Ct.

C. C. A. 16, 80 Fed. 596. 390; Martin v. Webb, 110 U. S. 7, 28 L.
The president of a bank, having em- Ed. 49. 3 S. Ct. 428: Manhattan Bank
bezzled funds of the bank on deposit V. Walker. 130 U. S. 267, 32 L. Ed.
with its reserve agent, replaced such 959, 9 S. Ct. 519.
unless the president is an accomplice of the cashier.*" A bank is chargeable

with notice of the insolvency of a debtor from whom it receives a payment,
and that such payment constitutes an unlawful preference under the bank-
ruptcy act, where its president had knowledge of such insolvency, gained
while acting for the bank in the matter of such indebtedness.* ^ The knowl-
edge of a president of a bank that certain stock had not been fully paid up
is imputable to the bank, if he, acting for it and in its behalf, accepted a
transfer of the stock to it, and it thereunder retained the same.*^ Notice
to a bank president of an outstanding mortgage is notice to the bank.**
And notice to the president of a banking corporation that stock standing
upon the books of the bank in the name of one person is held by him in
trust for another is notice to the corporation. And it is not necessary, in
order to aflfect the corporation with notice of such trust, that there should
have been a full communication of all the circumstances connected with it.
It is enough, in such case, if the party be put upon inquiry.** It seems that
an officer of a bank may have dealings altogether independent of his con-
nection with the bank, and that the bank will not be affected thereby.*^
But a bank can not receive the proceeds of a diverted trust in payment of
the debt due it, the diversion and its reception of the funds being the result
of the action of its president, and then hold the fund against the rightful
beneficiary under the trust, because of the averment of the corporation that
it did not know that its debtor was paying the proceeds of a diverted trust
asset, or because its receiving officer did not know from what source its
debtor got the money he paid to it.*®
—
Vice-President. Where a bank joins as a partner with certain persons
in forming a joint stock company and the vice-president of the bank be-
comes a member of the joint stock company, the bank is charged with
40. Notice of cashier's dishonesty. the bank in the transaction. Holm v.

—Merchants' Nat. Bank v. Guilmartin, Atlas Nat. Bank, 38 C. C. A. 297, 8-t
93 Ga. 503, 21 S. E. 55, 44 Am. St. Rep. Fed. 119.
182. 46. Diversion and reception of trust
41. Notice of insolvency of debtor. —
fund Action of president. Hughes —
—In re Gillette, 104 Fed. 769. v. Settle (Tenn.), 36 S. W. 577.
42. Notice that stock not fully paid. The president and sole manager of
— Foushe V. Merchants' Nat. Bank, a bank transferred a number of shares
110 Ga. 827, 36 S. E. 256. of the stock which he held in his own
43. Notice of outstanding mortgage. name to himself as executor and trus-
— Burgoyne v. Clarkson, 2 West L. J. tee, giving a check on the trust funds,
325, 1 O. Dec. 119. and having such funds transferred to
44. Notice that stock held in trust. his individual account, which was
— Porter v. Bank, 19 Vt. 410. largely overdrawn. The bank was at
45. Dealing independent of connec- the time insolvent, and the investment
tion with bank. ^Hughes — v. Settle of trust funds in its stock was highly
(Tenn.), 36 S. W. 577; Holm v. Atlas improper. Held, that all his knowl-
Nat. Bank, 28 C. C. A. 297, 84 Fed. 119. edge as an individual, executor, and
That the president of a corporation trustee, or as president, was imputable
for which a bank discounted notes, in to the bank, and, being in fraud of the
the ordinary and usual course of its cestuis que trustent, was void as to
business, v/as vice-president of the them; and that the bank was liable for
bank, does not charge the bank with the full amount of the trust fund mis-
notice of a secret infirmity in one of applied. Holden v. New York, etc.,
such notes, where he did not represent Bank, 72 N. Y. 286.
knowledge of the company's authority to borrow money and where cer-

tain officers of the company, without proper authorization, borrow money
from the bank, the bank can not recover from such company.*'^
—
Cashier. The cashier of a bank being an executive officer of the bank,
his acts, done in the ordinary course of business, bind the bank, and notice
to him is ordinarily notice to the bank.** Thus the cashier of a bank is
held out to the world as the bank's agent for the management of its notes
47. Vice-president. — Camerson v. dered it liable for the amount of the

First Nat. Bank, 4 Tex. Civ. App. 309, certificate; the directors having for a
33 S. W. 334. long time failed to supervise the bank's
48. Cashier.— First Nat. Bank v. afifairs and having allowed him to run
Ledbetter (Tex. Civ. App.), 34 S. W.' it as he pleased for his individual
1042. benefit. Whatever knowledge he had
acquired in his individual capacity was
Asto knowledge or notice of cash-
carried with him into the exercise of
ier in respect to discounts, securities,
deposits, etc., see post, "In Respect to
his duties as cashier. Lowndes v. City
Nat. Bank, 82 Conn. 8, 72 Atl. 150.
Discounts and Securities," § 116 (2);
"In Respect to Deposits," § 116 (3);
Where the cashier of a bank had in-
formation sufficient to put him on in-
"Notice Received in Private Business
quiry, the bank was bound to make the
or Outside Scope of Duties," §116 (4);
inquiry. Groff v. Stitzer, 75 N. J. Eq.
"Notice of Officer's Own Fraud,"
(5 Buch.) 452, 72 Atl. 970.
116 (6).
§
A bank
chargeable with the knowl-
is
Notice to the cashier of a bank or edge of cashier of facts relating to
its
banker, as to matters coming within a transaction in the line of its busi-
the scope of his duties, is notice to ness. McLeod V. Fourth Nat. Bank,
them. Duncan v. Jaudon (U. S.), 20 Fed. 225; New Hope, etc.. Bridge
15 Wall. 165, 21 L. Ed. 142; Merchants' Co. V. Phenix Bank, 3 N. Y. 156.
Nat. Bank v. State Nat. Bank (U. S.),
Notice to the cashier of a bank is
10 Wall. 604, 19 L. Ed. 1008. ordinarily notice to the bank. Grant
And knowledge acquired by the County Deposit Bank v. Points, 22 Ky.
cashier in the course of the business
L. Rep. 105, 56 S. W. 662.
of the bank, and not communicated by
him to the board of directors, should In an action growing out of the re-
fusal of a bank to allow certain shares
be regarded as the knowledge of the
Fidelity, etc., Co. v. Courtney,
of stock to be transferred on its
bank.
books, it appeared that, with the
186 U. S. 342, 46 L. Ed. 1193, 22 S. Ct.
knowledge of the cashier, who was ex
833, reaffirmed in Cherry v. Fidelity,
officio a member of the committee
etc., Co., 205 U. S. 537, 51 L. Ed. 920,
charged with buying and selling notes,
27 S. Ct. 790.
the stock had been pledged by the
"Beyond all question the cashier of
stockholder as security for a debt; that
the plaintiff bank represented his bank,
this debt was subsequently renewed;
he was an agent with full authority,
and that, after the renewal, a note of
and what he knew in respect to the
the stockholder was discounted by the
transaction in question must be re-
Mer- bank. Held, that the cashier's knowl-
garded as known to his bank."
edge of the original debt and pledge
chants' Nat. Bank v. State Nat. Bank
was sufficient to put him on inquiry,
(IT. S.), 10 Wall. 604, 19 L. Ed. 1008.
and therefore it should be presumed
The cashier drew a check on the es- that he knew that the renewal did not,
tate's account payable to another bank, as a matter of law, release the pledge.
obtaining therefor a certificate of de- Bank v. McNeil (Ky.), 10 Bush 54.
posit, which he indorsed and deposited brought home to
Knowledge of facts
in his bank to his individual account, the cashier, the bank's executive of-
checking it out for his own use. It ficers, binds it. Louisiana State Bank
did not appear in whose name the cer-
V. Senecal, 13 La. 525.
tificate was issued, and hence whether
the officers of the bank other than the Notice to the cashier of a bank is
cashier had notice of the ownership of notice to the bank. First Nat. Bank v.
the funds. Held, that the cashier's Ledbetter (Tex. Civ. App.), 34 S. W.
knowledge bound the bank and ren- 1042.
and other securities.*^ Notice to the cashier of a bank is notice to the

bank, in transactions conducted by him for it within the scope of his au-
thority, regardless of his bona fides in conducting such transactions, where
the bank adopts his acts.^" Where a bank cashier makes purchase of a
certificate of stock assuch cashier, he acts within the scope of his author-
ity,and the knowledge that he has of the condition of the stock must be
imputed to the bank.î So if he knowingly takes a note a firm indorsed
by a partner in payment of an individual debt, the bank is affected by his
knowledge.^ ^ Notice to the cashier of a bank that certain stock which is
pledged is trust stock,^^ that a certain fund assigned to the cashier is to
be applied to a debt of the assignors to the bank,^* that a mortgage is un-
recorded,^^ or that certain bills will not be paid,^^ is notice to the bank.
Where a bank cashier, who is also agent of a trustee, receives in payment
of the trustee's individual debt to the bank money which he knows belongs
to the trust estate, the bank is chargeable with the knowledge.^'^ Notice
to the cashier of a bank that its modification of the proposals of a party
is acceded to by him is notice to the bank.'* Where a bank, by its presi-
dent and cashier, executed a deed of land to the president individually, the
execution by the cashier constituted express notice of the sale to the bank.^*
So notice to the cashier of a bank of equities between the maker and iu-
dorser of a note, is chargeable to the bank where he was allowed full lib-
erty and the widest authority to discount paper, and the board of directors
Cashier held out as agent. Bank

49. — 55. Notice that mortgage unrecorded.
V.Mumford, 6 Ga. 44; Veasey v. Gra- —The articles of incorporation of a
ham, 17 Ga. 99, 63 Am. Dec. 228. bank provided that "it is to act as an
50. Scope of authority and not good agent in the investment of funds," and
faith criterion. —
Farmers' Bank v. Sal- "to transact any business that may
ing, 33 Ore. 394, 54 Pac. 190. properly be done by a financial agent."
51. Purchase of certificate of stock. Its cashier made a loan for a customer
—Farmers', etc., Bank v. Loyd, 89 Mo. who had money deposited therein,
took the acknowledgment to the mort-
App. 262.
52. Indorsement by partner—Pay- gage securing the loan, had possession
ment of individual debt.— Fall River °*. unrecorded mortgage, and re-
Union Bank V. Sturtevant (Mass.), 12 "'™
^^f
*T- °,!
installments of m-
Cush 372 terest, which u^""^®,
he placed to such cus-
„ '
tomer's credit, on his pass book. Held,
.r.fc;=.^t
.Âr
15
»T '..
11 ^^r^rT*"^ r!5-
Wall.
V 4.1,
165, 21 L. Ed. 142.

^
f^'^ffK'^
1^^^°"" ^"- ^^'
i.
^^°'-}
1 1 J J •
that the knowledge of its cashier was

the knowledge of the bank, affecting it
^jth notice of such unrecorded mort-
54. Notice of apphcation to be made gage. Christie v. Sherwood, 113 Cal.
of fund. —
Stebbins v. Lardner, 2 S. 526, 45 Pac. 820.
Dak. 127, 48 N. W. 847. 56. Notice that
bills will not be paid.
Where an assignment is made to the —Notice to the cashier of a bank that
cashier of a bank to be applied to the certain bills will not be paid is notice
satisfaction of a particular debt of the to the bank. Boggs v. Lancaster
assignors to the bank, and is received .Bank Watts
(Pa.), 7 & S. 331.
by the cashier under an agreement to
that effect, notice to the cashier of
57. Knowledge of trust fund. — Lor-
ing v. Brodie, 134 Mass. 453.
such understanding is notice to the 58. Notice of modification of pro-
bank itself, and the bank
thereby, and it was error in an action
is bound posals. —
Branch Bank v. Steele, 10-
Ala. 915.
on said note to exclude evidence of 59. Execution of deed to president.
such agreement. Stebbins v. Lardner, —Veasey v. Graham, 17 Ga. 99, 63 Am.
2 S. Dak. 127, 48 N. W. 847. Dec. 228.
^ 116 (1) REPRESENTATION OE BANK. 829
and discount committee rarely met, and did not look after the discounts
as was their duty.^^
Teller. —Knowledge of the teller of a bank is considered as knowledge
of the bank, where it pertains to a matter within the scope of the teller's
duty, and as to which he acts officially .^^ As the public is not sup-
•official
posed to have notice of the appointment of duties relating to bank matters

among bank officers, knowledge of its teller in regard to the collection of
money must be regarded as the knowledge of the bank, and notice to him
is; notice to the bank.^^
Attorney. —In general it may be said that notice to an attorney is notice
to his client,®^ but obviously notice is not imputed to an attorney in all his
personal, professional and official connections from the fact that one of his
-clients has notice.**
Manager of Branch Bank. —Where a banking corporation has several
branches in different places, the managers of which are treated as its agents,
and a draft in favor of the bank was payable at, and sent for acceptance
to, one of such branches, the acceptor has a right to presume that the man-
ager of such branch has authority to receive notice that the acceptance is
for the accommodation merely of the drawer, so that such notice will bind
the bank.65
Bookkeeper. —The knowledge of a bookkeeper of a bank is knowledge
of the bank, where it pertains to a matter within the scope of the book-
Notice of equities between maker

60. tiff sued the bank for the proceeds.
and indorser of note. —
Bank v. Pen- Held, that when the bank received the
laud, 101 Tenn. 445, 47 S. W. 693. draft through the teller for collection,
61. Teller— Official duty and action. the teller acted for the bank; and the
—Where the teller and bookkeeper, knowledge had by him as to the proper
after having paid worthless checks of disposition to make of the proceeds of
a company, the manager of which was the draft was the bank s knowledge,
also cashier of the bank and adminis- because it pertained to a matter within
trator of an estate and carried them the scope of the teller s official duty,
as cash, took the cashier's checks and as to which he acted officially,
against the estate's account to cover Ihl v.Bank 36 Mo App. 139.
his company checks, knowingly re- .62. Knowledge of teller as to coUec-
lieving the bank from liability, and J^°"--City Na Bank v Martin 70
depleting the estate's resources for a Tex. 643, 8 S. W. 507, 8 Am. St. Rep.
633.
purpose they knew to be wholly for-
63. Notice to attorney.-Wardlaw
eign to its affairs, the bank was liable
to it for the amount so drawn; knowl- l-J'°l
O/ îl 74 S. 368, 54 S. E.
,
C
658, 114 Am. St. Rep. 1004.
-edge of its teller and bookkeeper be-
ing imputed to it. Lowndes v. City 64. Rule of notice to attorney
Nat Bank 83 Conn. 8, 73 Atl. 150. limited.— The bank could not be
charged with notice through M, its
Plaintiff drew a draft in favor of de-
president, of a mortgage of another
fendant bank, and delivered it to the
bank's teller for collection, and directed
corporation of which w-as the at- M
the teller to deposit the proceeds to
torney when M
himself had no notice
°f \"5.h
plaintiff's own credit, or to the ac-
The Oil Mi 1, '^°'i^^^%J^tl^'%'';,J\°Z
74 S. C. 368, 54 S. E. 658, 114
count of the teller as trustee.
teller deposited the proceeds to his Am. St. Rep. 1004.
own personal account, and imme- 65. Manager of branch bank. —
diately checked out the entire amount, Canadian Bank v. Coumbe, 47 Mich,
-and converted it to his own use. Plain- 358, 11 N. W. 196.
keeper's official duty and as to which he acts officially.*^ A bank is charged

with notice of letters duly mailed to it and received by the general book-
keeper, whose duty open and distribute mail matter, although he
it is to
conceals such letters to hide certain irregularities in his office, and thereby
prevents their coming into the hands of the other bank officers.*'^
—
Notice to Trustee. Notice to a trustee, not otherwise an officer of a
bank, is not notice to the bank of any matter within the peculiar control
of the officers in charge.** '
Messenger. —A bank is not affected by information given to its mes-

senger, by a third party, which is without the scope of the messenger's
agency, where such information is not in fact communicated to the bank.*^
Effect of Change of Personnel of Officers.— Where a bank is charged
with notice of the character of a transaction, it continues to be affected by
such notice whatever changes may occur in its officers.""
Evidence —Question of Fact. — Whether entries in the books of a bank

are sufficient to charge the officers with notice of the transactions involved
is for the jury.'^^
§ 116 (2) In Respect to Discounts and Securities. The rule —

seems to be that knowledge or notice on the part of an officer or agent, with
respect to discounts and securities, when such matters are within the scope
of his duties or agency, are chargeable to the bank and bind it in subsequent
proceedings.'^ 2 g^^ the rule can not hold good when the officer is also acting
66. Bookkeeper. — Lowndes v. City "This was an action by Per Forstedt

Nat. Bank, 82 Conn. 72 Atl. 150.
8, against the United States National
A
bookkeeper's knowledge of a firm's Bank of Holdredge to recover the pen-
dissolution, acquired because of his alty provided for in § 5198, Rev. St.
position, was not notice to a bank of U. S. (.National Banking Act). In our
which he was assistant cashier and opinion, there is no fairly debatable
bookkeeper. Morris v. First Nat. question in the case. The jury were
Bank, 163 Ala. 301, 50 So. 137. well warranted in finding that the de-
67. First Nat. Bank v. Fourth Nat. fendant knowingly contracted for and
Bank, 6 C._ C. A. 183, 56 Fed. 967. received interest in excess of ten per
68. Notice to trustee. Bank v. — cent, and that the amount so received
Blakesly, 42 O. St. 645. was at least fifty per cent of the ver-
69. Information given to messenger diet and judgment. The contention
—
without scope of agency. .\ bank was of counsel for the bank that the bank
not affected by information given to officers who actually received the last
one of its messengers by a menner of payments upon the usurious contract
a former partnership, to whom a draft were not connected with the bank at
upon which the partnership was liable, the time the contract was made, and
and which was subsequently renewed, were therefore ignorant of the fact that
was presented, to the effect that the itwas tainted with usury, is, of course,
partnership had been dissolved, and without merit." United States Nat.
that the other partner was liable for Bank v. Forsedt, 64 Neb. 855, 90 N.
its debts, where the information was 'W. 919.
not in fact communicated to the bank, 71. Evidence —Nat.
Question of — fact.
and the messenger's agency was con- Searle, v. First Bank (Pa.), ,2
fined to mere
collections. Camp v. Walk. 395.
Southern Banking, etc., Co., 97 Ga. 72. Rule with respect to discounts
582, 25 S. E. 362. . and securities. —
A note with the words,
70. Effect of change of personnel of "Credit the drawer,'' written across its
officers. —
United States Nat. Bank v. face by the payee, and involving a
Forstedt, 64 Neb. 855, 90 X, 'W. 919. usurious bank discount, held, in a suit
116 (2) REPRESENTATION OF BANK. 831
by the bank thereon, to be void, al- with notice either to its president or
though only the president of the bank cashier of its and that
true character,
knew of the usurious character of the it was made under an agreement that
transaction. Newport Nat. Bank v. designated collaterals should be held
Tweed (Del.), 4 Houst. 225. to secure its payment, and that such
As to knowledge or notice of di- collaterals were not so held but the
rector, see post, "Notice to Directors," contract to hold them w^s violated by
§ 116 (5). their transfer without the consent of
The cashier of a bank is held out to the maker, can not enforce payment
the world as its general agent, for the against the maker of the accommoda-
management of its notes, and other tion note. Smith v. Traders' Nat.
securities. Bank v. Mumford, 6 Ga. 44; Bank, 74 Tex. 457, 12 S. W. 113.
Veasey v. Graham, 17 Ga. 99, 63 Am. Notice to note teller as notice to
Dec. 228. —
bank. Where a borrower from a bank
Asto knowledge or notice of cash- presented collaterals to the assistant
ier, see ante, "In General," § 116 (l). cashier, who was authorized to repre-
Where the cashier of a bank has full sent the bank in the transaction, and
authority to make loans and discounts, was directed by the latter, in accord-
notice to him of equities against a ance with custom, to take such col-
note discounted by the bank is notice laterals to the note teller, who had
to the bank. Merchants', etc.. Bank v. chaige of the collaterals to be checked
Penland, 101 Tenn. 445, 47 S. W. 693. up, notice to the teller in regard to the
cashier of a bank which had ex-
G., rights of a third person in one of the
press notice that W. was manager of securities pledged was notice to the
H. & Co., and was prohibited from bank. Zeis v. Potter, 44 C. C; A. 665,
selling or discounting drafts received 105 Fed. 671.
in the course of business, having, as Absence of evidence as to scope of
agent of L,., bought a draft indorsed —
employee's authority. Prior to the ex-
to W., manager, and then, as cashier, ecution of a firm note sued on in >re-
received the pioceeds of the check newal of other notes by one of the
given by L., and placed it to the in- members of the firm, defendant, an-
dividual credit of W., and the draft other member of such firm, applied to
having afterwards been received by plaintiff bank, the holder of such note,
the bank for collection, and the pro- to open an account, and, in conversa-
ceeds when collected having been paid tion with one of plaintiff's employees,
to h; the bank is liable to H. & Co. notified him that the firm had been
therefor. Heinz v. Fourth Nat. Bank dissolved. Held that, in the absence
(Tenn.), 4S S. W. 1H3. of evidence as to the scope of such em-
A bank declared on a note payable ployee's authority, such notice to him
to defendant's order and by him in- was insufficient to bind the bank.
dorsed to the bank. Defendant's de- Marsh v. Wheeler, 77 Conn. 449, 59
fense was that the note was given to Atl. 410, 107 Am. St. Rep. 40.
the president of the bank with the un- Evidence to show knowledge of of-
derstanding that it was not to be used ficer.—In an action by a bank on a
by him, and that, when it was used note discounted by it, defendants con-
by such person in his capacity of tended that the note was payable two
president and passed to the bank in months after date, and not four, as al-
violation of the agreement, the bank leged by plaintiff, and that they were
was affected with notice of the agree- relieved from liability by nonprotest.
ment urjder which it was given, and It was doubtful whether the time writ-
could not recover on the note because ten in the note was two or four
its use was in violation of the agree- months after date. Held, that checks
ment and in fraud of the defendant's drawn on plaintiff by the maker of the
right. Held, that it was proper to in- note were admissible for the purpose
struct that if the president of the bank of charging plaintiff with knowledge
came to the knowledge of the defect of the maker's peculiar way of writing
in the note in bis capacity as such the word "two," though checks
the
president, and failed to communicate passed only the paying teller and the
his knowledge to the bank when the bookkeeper, and were not before the
note was received, the bank was directors, as in the case of notes of-
thereby affected with constructive no- fered for discount. State Bank v.
tice of the defect in the note. Tagg Postal, 12 Misc. Rep. 546, 34 N. Y. S.
V. Tennessee Nat. Bank, 56 Tenn. (9 18, 67 _N. Y. St. Rep. 873.
Heisk.) 479. Cashier presumed to have been
Abank which, as assignee of an ac- present at transaction. —A
cashier of a
commodation note, receives the same bank who was ex officio member of
in part for himself and in his A bank whose president has

own behalf J^
knowledge of a defect in a guaranty on negotiable bonds at the time that
it, acting through him, makes a loan thereon, is not charged with notice;
he being a part owner in the bonds, and the loan being in part for his ben-
efits* The knowledge of an officer of a bank, being also a member of its
discount committee, who takes part in discounting a note made to him in-
dividually for an unlawful purpose, in which he participates, is not imput-

able to the bankjs Knowledge of a president and cashier of a bank of a
proposed loan, and their conduct in assisting to procure it, is the knowl-
edge and act of the bankS^ knowledge by one of the officers of a
y^n(j
bank, who bank of a negotiable note
participated in the acceptance for the
before due, of a fact which could put a prudent peirson 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 existedJ'^ So where an agent of
a bank has notice that notes and a mortgage securing them were without
consideration and fraudulent, the bank can not hold the notes as collateral,
it being charged with the knowledge of its agentJ* But the mere fact
that the president or cashier of a bank which purchased municipal bonds
had notice or knowledge of facts which would have required inquiry as
to what the bonds were given for, had he made the purchase, is not notice
the committee charged with buying treasury the authority to give, the
and selling notes and bills, and who notes. Corcoran v. Snow Cattle Co.,
knew that a stockholder had pledged 151 Mass. 74, 23 N. E. 727.
his stock to secure a debt, held to be As to notice received in private busi-
presumed, in the absence of evidence ness, etc., see post, "Notice Received
to the contrary, to have been present in Private Business or Outside Scope
when a note of such stockholder was of Duties," § 116 (4).
discounted by the bank; and therefore As to individual interest as affecting
his knowledge that the stock had been knowledge or notice, see ante, '"In
pledged was a sufficient notice to the General," § 116 (1); post, "Notice of
bank. Bank v. McNeil (Ky.), 10 Officer's Own Fraud," § 116 (6); "In-
Bush 54. dividual Interest of Officer or Agent
73. Rule inapplicable where officer as Affecting Person Dealing with
acting in own behalf. —Where
the in- Bank," § 117.
—
terest of the president of a bank, who President interested in loan.
74.
was also its attorney, in the discount Louisville Trust Co. v. Louisville, etc.,
of a note sued on, was adverse to the R. Co., 22 C. C. A. 378, 75 Fed. 433,
bank, his knowledge of an infirmity in modified, 174 U. S. 553, 43 L. Ed. 1081,
the paper was insufficient to charge 19 S. Ct. 817.
the bank therewith. Davis v. Boone Asto knowledge of notice of presi-
County Deposit Bank, 35 Ky. L. Rep. dent, see ante, "In General," § 116 (1).
2078, 80 S. W. 161. 75. Discounting note made to of-
The president of a bank, acting in ficer individually. —
Graham v. Orange
hisown interest and not in that of the County Nat. Bank, 59 N. J. L. 225, 35
bank, procured the discount of certain Atl. 1053.
notes of a cattle company, given by its 76. Knowledge as to proposed loan.
treasurer, from the directors of the — Harris v. American Bldg., etc., Ass'n,
bank, who had no knowledge or notice 123 Ala. 545, 25 So. 200.
of any fact affecting the validity of the 77. Acceptance of negotiable note
notes. Held, that the bank was not before —
due. Hager v. National Ger-
chargeable with the president's knowl- man-American Bank, 105 Ga. 116, 31
edge of any such fact, and, in the ab- S. E. 141.
sence of evidence to the contrary, was Knowledge of fraud
78. and want
warranted in assuming that the com- of consideration. —
Baldwin v. Davis,
pany had the power to issue, and its 118 Iowa 36, 91 N. W. 778.
§ 116 (2) REPEesENTATlON OF BANK. 833
to the bank, where the purchase is not made by him, but by another,
having no such notice or knowledgeJ^ Nor is the knowledge of one mem-
ber of the discount committee of a bank, being also president of the bank,
who was not present when the renewal of a note was taken, and had no part
in the transaction, enough bank with notice of the fact, known
to charge the
to him, that the indorser of the note had become incompetent to do busi-
ness.** Where a bank cashier acting within the scope of his authority has
notice that bonds deposited by a debtor as collateral are held in trust by
such debtor,*! that there exists a mortgage prior to one accepted by him,*^
that there are defenses existing against a note accepted by him,*^ or that a
note discounted was obtained by fraud,** such knowledge is imputed to
the bank. Where a bank president acting in his official capacity, receives
information that there is an outstanding mortgage,*^ that a guaranty of
certain bonds on which, he acting for the bank, had loaned money, had
been repudiated by the guarantors, *s or that certain stock, on which a loan
is subsequently made by the bank, is pledged to another, although such
information was received some time prior,*'' the bank is bound thereby.
Where the president of a bank, acting for the bank and having no interest
Purchase made by another of-

79. den, 31 Ky. L. Rep. 739, 53 S.' W. 953.
than one having knowledge.
ficer — 85. Notice of outstanding mortgage.
Thompson v. Mecosta, 141 Mich. 175, — Notice to the president of a bank of
104 N. W. 694. an outstanding mortgage is notice to
80. Officer not present and taking the bank. Burgoyne v. Clarkson, 3
—
no part in transaction. Bank v. Sneed, West. L. J. 335, 1 O. Dec. 119; Otta-
97 Tenn. 120, 36 S. W. 716, citing Union guechee Sav. Bank v. Holt, 58 Vt. 166,
Bank v. Campbell, 23 Tenn. (4 1 Atl. 485.
Humph.) 394. 86. —
Repudiation of guaranty. A bank
81. Knowledge that bonds are held v/hose president acted for it in making
in trust. —
Knowledge of a bank cash- a loan on guarantied negotiable bonds,
after he had learned that the stock-
ier that stocks and bonds which a
debtor of the bank deposited as col- holders of the company making the
lateral security were held by the debtor guaranty had repudiated it as unau-
as trustee merely, will be binding on thorized, will be charged with notice.
the bank. Loring v. Brodie, 134 Mass. Louisville Trust Co. v. Louisville, etc.,
453; Gaston v. American Exch. Nat. R. Co., 32 C. C. A. 378, 75 Fed. 433,
Bank, 29 N. J. Eq. 98. modified Louisville, etc., R. Co. v.
82. Existence of prior mortgage.— Louisville Trust Co., 174 U. S. 553, 43
Where the cashier of a bank accepts L. Ed. 1081, 19 S. Ct. 817.
a mortgage with actual notice of a 87. Existence of pledge of stock. —
prior mortgage, the bank will be bound The president of a bank, to whom a
thereby. Trenton Banking Co. v. pledgee of stock exhibited the certifi-
Woodruff, 2 N. J. Eq. 117. cate held by him to ascertain with cer-
83. Existence of defenses to note.
— tainty that it had been regularly issued,
Notice to a bank's cashier of defenses stating the fact of the pledge, received
aeainst a note received by him iri the such information while acting in his
capacity, and the banlc was
regular course of the bank's business official
is notice to the bank. Messick & Co. thereby charged v/ith notice of the
pledge, so as to render its statutory
i:. Roxbury, 1 Handy 190, 12 O.
lien on the stock for a loan subse-
Dec. 95. ^^
quently made to the pledgor, although
.
84. Fraud note.— Notice

in obtaining
to the cashier of an incorporated bank
some two or three years afterwards,
subject to the rights of the pledgee,
that a note discounted with the bank
was obtained by fraud is notice to the whose debt had not been paid. Curtice
V. Crawford County Bank, 56 C. C. A.
bank, so that the defense is available
against it. Citizens' Sav. Bank v. Wal- 174, 118 Fed. 390.
1 B & B— 53
adverse to it, accepts payment from an obligor on a note held by the bank,
under an agreement as to the effect of such payment on the obligors lia-
bility, the bank is chargeable with notice of the agreement.^* While it may
be as a general rule, that the discounting of bills and notes is not within
the scope and duty of the president of a bank, and therefore notice to him
would not generally be notice to the bank in relation to such transactions,
still where it appears, that the ofificers of the bank consulted and acted
upon the question as to whether a note should be accepted by the bank as

collateral for an existing debt, notice to any of the officers who partici-
pated in the conference would be notice to the bank, and, in the absence
of proof as to what officers were in such consultation, it might be inferred
that the president and directors were those referred to.*®
—
Notice to Cashier to Sue. Notice to sue to the principal maker of a
note, by the security, directed to the cashier of a bank, which is the holder
of the note, is sufficient notice to the bank, especially if the bank acts upon
such notice.®"
Want of Knowledge by Officer as Evidence. 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 was pro-
cured by fraud is prima facie sufficient to show want of such notice by
the bank.91
Sufficiency of Excuse Rebutting Constructive Knowledge. The —
knowledge possessed by a bank president, or acquired by him in connection
with the discount of a note, is the knowledge of the bank, and his acci-
dental absence at a particular time is no legal excuse for the failure of the
bank to act upon such knowledge.®^
§ 116 (3) In Respect to Deposits.— The general rule that knowl-

edge or notice of facts by an agent or officer of a bank within the scope
of his agency is the knowledge of or notice to the bank of such facts, ap-
plies when questions respecting deposits arise. Thus where a depositor
notifies the receiving teller of the application to be made of the deposit
such notification is binding on the bank, as the transaction with the teller
88. Agreement as to effect of pay- W. 1056; Harrington v. McFarland, 1

—
ment by obligor. Where the president Tex. Civ. App. 289, 31 S. W. 116, af-
of a bank accepted a payment from one firmed in 93 Tex. 663, no op.
of the obligors of a note held by it, gS. Knowledge obtained in perform-
under an agreement that such obligor ance of duty.-Hager v. National Ger-
was to be released from all further lia- man-American Bank, 105 Ga. 116, 31
bility thereon, the bank was chargeable
3 „.g -j^^^
with the knowledge possessed by its '
^ ^
president of the character of this trans-
1:
N°*'"
-nt i.-
*° cashier to sue.— t.
Bank
,
^t?;
action where the president v/as acting "" ^lumford, Ga. 44. 6
for the bank and had no interest ad- 91- Want of notice by officer as evi-
verse to it. Merchants' Nat. Bank v. —
dence. Drovers' Nat. Bank v. Potvin,
McAnulty (Tex. Civ. App.), 31 S. W. 116 Mich. 474, 74 N. W. 724.
1091, affirmed in part and reversed in 92. Excuse rebutting constructive
part in 89 Tex. 134, citing Traders' Nat. knowledge.— Central Nat. Bank v.
Bank v. Smith (Tex. Civ. App.), 32 S. Levin, 6 Mt). App. 543.
is binding on the bank.93 Where the cashier of a bank has notice that a
deposit is a married woman's separate estate, the bank is chargeable with
such notice in an action against it for conversion of the deposit.** Where
the president of a bank, in the course of its business, learns that moneys
deposited with it account belong to an estate of
in the depositor's individual
which he is the assignee for creditors, the bank is charged with notice and
can not appropriate the moneys to the payment of notes held by it, and
personally made by the depositor.*^ Where the president of a bank, at the
time of the reception of a check for deposit, knew that it had been given
in payment to a curator for his ward's lands, and the cashier knew that the
curator and the drawer of the check were on a trade as to the ward's
lands, such facts justify an inference that the bank knew that the amount
called for belonged to the ward's estate.*® But the fact that the president
of a bank knew that a person depositing money in the bank on account of
a corporation had no authority to draw out suq^ money, if he had no
knowledge that the depositor intended so to do, where the depositor after-
wards withdrew the money, without the knowledge of the president, the
notice to the president was not such notice to the bank -as to render it
liable for the loss of the deposit.*'' When the cashier of alânk acts as
agent for the depositor, the bank is not bound by his knowledge, but where
he is acting for and on behalf of the bank the bank is bound thereby.*^ In
93. With respect to deposits. — Straus her separate property, placing the con-
V. Tradesman's Nat. Bank, 123 N. Y. veyance with defendant's cashier to
379, 35 N. E. 372. deliver on payment of the purchase
As individual interest of officer
to money, and that defendant, through
or agent as affecting knowledge or no- such cashier, collected such purchase
tice, see ante, "In General," § 116 (1). money and placed it to the credit of
As to knowledge or notice of presi- her husband, in violation of the agree-
dent, see ante, "In General," § 116 (1). ment to deposit it to her account, states
As to knowledge or notice of cash- a cause of action, as the knowledge ac-
ier, see ante, "In General," § 116 (1). quired by the cashier in the reception
As to individual interest as affecting of the deposit was chargeable to the
knowledge or notice, see ante, "In bank. Rhinehart v. People's Bank, 89
General," § 116 (1); post, "Notice of Mo. App. 511.
Officer's Own Fraud," § 116 (6); "In- 95. Notice to president of ownership
dividual Interest of Officer or Agent of deposit. —
First Nat. Bank v. Peisert
as Affecting Person Dealing with (Pa.), 2 Penny 277.
Bank," § 117. 96. Knowledge as to ownership of
Asto officer or agent dealing in dual deposit. — Mayer v. Citizens Bank, 86
capacity, see ante, "In General," § 116 Mo. App. 433.
(1); post, "Notice of Officer's Own 97. Mere knowledge that depositor
Fraud," 116 (6).
§ had no authority to draw on deposit. —
Where the depositor of a certified Fulton Bank v. New York, etc., Canal
check notified the receiving teller of Co., (N. Y.), 4 Paige 127.
the application to be made of it, evi- 98. When cashier's knowledge binds
dence of the president o' the bank as —
bank. Wlhere a cashier of a bank, act-
to when he first heard of the transac- ing as a special agent for a third party,
tion is immaterial, as the transaction purchase bonds for him, and then, as
with the teller will of itself be binding agent of the bank, receives them as a
on the bank. Straus v. Tradesman's special deposit, and afterwards, to con-
Nat. Bank, 122 N. Y. 379, 25 N. E. 372. ceal certain embezzlements of his own,
94. Knowledge that deposit is married he, without the knowledge of the de-
woman's separate estate. A complaint — positor transfers these bonds from the
by a married woman against a bank for special deposit, and enters them as part
conversion, alleging that plaintiff sold of the assets of the bank his agency
order to prevent the title to a deposit vesting in the bank it may be shown
that the bank had notice of its insolvency, thereby constituting such fraud
as will enable the depositor to repudiate the deposit and reclaim the same ;^®
and in such a case the knowledge of the cashier as to its hopeless insolvency
should be imputed to the bank.^ This question of knowledge on the part
of the ofiEcer or agent of a bank, being imputed to the bank has arisen in
various and different kinds of cases, some more favorable to the bank,
others less favorable, yet the voice of the authorities seems to sustain the
general rule that knowledge or notice on the part of the officer or agent
of the bank acting within the scope of his agency is binding upon the
bank.2
for the depositor ceases with the pur- thirty days beforeit closed would have
chase. Throughout the remainder of shown insolvency, and on the last
its
the transaction he is the agent of the day the bank v/as open for business a
bank, and his knowledge of the de- customer, being ignorant of its insol-
positor's rights is notice to the bank. vency, made a general deposit, which
The bank does not become a purchaser was entered on his pass book to his
for value without notice. First Nat. credit, but was not entered on the
Bank v. Dunbar, 118 111. 635, 9 N. E. books of the bank, and the cash was
186. Followed in First Nat. Bank v. mingled with other funds of the bank,
Strang, 138 111. 347, 27 N. E. 903. and two days before the deposit, the
99. Knowledge of insolvency. Orme — cashier and the vice-president ab-
V. Baker, 74 O. St. 337, 78 N. E. 439, sconded, leaving persons in charge
113 Am. St. Rep. 968; Cragie v. Had- who knew the bank was insolvent ac-
ley, 99 N. Y. 131, 1 N. E. 537, 52 Am. cording to its books, and on the second
Rep. 9. day thereafter a receiver took posses-
1. Cashier's knowledge imputed to sion and caused the cash deposited to
bank.— Orme v. Baker, 74 O. St. 337, be entered to the credit of the deposi-
78 N. E. 439, 113 Am. St. Rep. 968.^ tor, and collected the amount called
Where a deposit was received into for by the checks deposited, the knowl-
a bank at a time when it was insolvent edge of the cashier as to its insolvency
and just before it failed, and knowl- should be imputed to the bank. Orme
edge of such insolvency was known to V. Baker, 74 O. St. 337, 78 N. E. 439,
the cashier and vice-president, who 113 Am. St. Rep. 968.
vvêre owners of more than half of the 2. Orme v. Baker, 74 O. St. 337, 78
capital stock of the bank and caused N. E. 439, 113 Am. St. Rep. 968.
its insolvency by using the bank's funds "In Smith v. Anderson, 57 Hun 73,
in the prosecution of outside enter- 10 N. Y. S. 278, 33 N. Y. St. Rep. 5,
prises, and the books showed their en- the plaintiff delivered monies to the
tire course of'dealing, which w;re open president of a bank to be deposited
to the directors and all officers of the therein and the latter without plain-
bank, the knowledge of such officers tifif's knowledge or consent, deposited
of its insolvency was the knowledge them in his own name as her attorney,
of the bank. Baker v. Orme, 6 O. C. and afterwards unlawfully appropriated
C, N. S., 389, 17-37 O. C. D. 465, af- a large part thereof to 'his own use.
firmed in 74 O. St. 337. It was held that the bank is liable,
Wherea director of a banking cor- since is charged with the knowledge
it
poration as its cashier was placed in possessed by its president. On page
control and made the active manager 279 the court says 'if Warner (the
of the business, and, during the last president) had converted the money
year of the bank's existence, there was without the bank having received it,
no meeting of the directors, and dur- or v/ithout credit being given on its
ing that time the bank became hope- books, would not be liable.
it But
lessly insolvent through the fraud of when president receives funds which
its
the cashier and its vice-president, v/ho go into the bank, it is chargeable with
was who, both being insol-
a director, all the knowledge possessed by him;
vent, used the funds of the bank for otherwise those dealing with banks
theirown purposes without the knowl- would be without remedy in case of
edge of the directors, and an examina- fratjd or misappropriation on the part
tion of the bank at any time within of its president.' And on page 280, it
116 (4) EEPRESENTATION OF BANK. 837
§ 116 (4) Notice Received in Private Business or Outside Scope

of Duties.— Notice or Knowledge Outside Scope of Duties.— The
general rule seems to be that notice to a bank officer binds the bank only
when it is the duty of such officer to act on the information, or transmit
issaid: 'the bank created its president, receives securities on a loan from the
and if, through his fraud, it or a third bank to a trustee, with knowledge that
person must suffer, the maxim pro- the securities belong to a trust, the
tects the customer.'" Orme v. Baker, bank is affected with the knowledge
74 O. St. 337, 78 N. E. 439, 113 Am. St. of its cashier, and is put upon inquiry
Rep. 968. as to whether the trustee has authority
"In Black Hills Nat. Bank v. Kel- to pledge the securities." Orme v.
logg, 4 S. Dak. 312, 56 N. W. 1071, the Baker, 74 O. St. 337, 78 N. E. 439, 113
cashier took a note payable to himself, Am. St.^ Rep. 968.
as an individual, and transferred it to "In Farmers', etc., Bank v. Loyd, 89
the bank of which he was cashier. It Mo. App. 262, it was held that where
was held knowledge of the cash-
that a bank cashier makes purchase of a
ier defenses and equities exist-
as to certificate of stock as such cashier, he
ing against the note was the knowl- acts within the scope of his authority
edge of the bank." Orme v. Baker, 74 and the knowledge that he has of the
O. St. 337, 78 N. E. 439, 113 Am. St. condition of the stock must be imputed
Rep. 968. to the bank." Orme v. Baker, 74 O. St.
"In Le Due v. Moore, 111 N. C. 516, 837, 78 N. E. 439, 113 Am. St. Rep. 968.
15 S. E. 888, J. had executed his prom- "In Baldwin v. Davis, 118 Iowa 36,
issory note to M., the president of a 91 N. W. 778, it is held that where an
bank, who before its maturity and for agent of a bank has notice that notes
value, but for his own benefit, in- and a mortgage securing them were
dorsed the note over to the bank. The without consideration and fraudulent,
president and cashier composed the the bank can not hold the notes as
discount committee of the bank, and collateral, it being charged with the
the president participated in discount- knowledge of its agent. See, also,
ing the note. It was held, that the Bank v.Smith, 110 Tenn. 337, 75 S. W.
bank took the note subject to all the 1065, v/here the same doctrine is ap-
equities by which the president as an proved." Orme v. Baker, 74 O. St.
individual was bound, the presumption 837, 78 N. E. 439, 113 Am. St. Rep. 968.
being that his knowledge was the "Goshorn v. People's Nat. Bank, 32
knowledge of the bank." Orme v. Ind. App. 428, 69 N. E. 185, 102 Am.
Baker, 74 O. St. 337, 78 N. E. 439, 113 St. Rep. 348, is a case where a deposi-
Am. St. Rep. 968. tor, desiring to withdraw his bank de-
"Of like import is Oak Grove, etc., posit and commit it to a trust com-
Cattle Co. V. Foster, 7 N. Mex. 650, 41 pany, received from the bank cashier
Pac. 522. In Hardy v. First Nat. Bank, a suggestion as to a particular trust
56 Kan. 493, 43 Pac. 1125, it appeared company, and drawing a check de-
that the president and cashier, respec- livered it to the cashier, with instruc-
tively, of a bank, were part owners of tions to deposit the amount named with
a note sued on by the bank, which note the company suggested. Instead of do-
v/as taken in the name of S. by the ing so, the cashier substituted the de-
procurement of the president and cash- positor's money for paid checks of his
ier, who had full knowledge of the own on the bank which he was carrying
transaction in which it was given. It in cash. It was held that even on the
was held, that the endorsement of the theory that the cashier was the de-
note by S. without recourse did not positor's agent for the transmission of
operate to transfer it to the bank free the fund, the bank was liable for its mis-
from defenses existing between the appropriation, and transaction amount-
original parties to it." Orme v. Baker, ing to a payment of the deposi-
74 O. St. 337, 78 N. E. 439, 113 Am. St. tor's check merely with the evidences
Rep. 968. of the cashier's indebtedness, and
The same principle is maintained in the bank being cognizant of the fraud
City Bank v. Phillips, 23 Mo. 85, 64 through its cashier." Orme v. Baker,
Am. Dec. 254; Bank v. New Milford, 74 O. St. 837, 78 N. S. 439, 118 Am. St.
86 Conn. 93; Orme v. Baker, 74 O. St. Rep. 968.
837, 78' N. E. 439, 113 Am. St. Rep. 968. "In Martin v. Webb, 110 U. S. 7, 28
"In Loring v. Brodie, 134 Mass. 453, L. Ed. 49, 3 S. Ct. 428, it was held that
it is held that if the cashier of a bank knowledge of the president of a bank
it to the bank.3When several agents are employed by a bank with dis-

tinct and separate duties, the knowledge of one of those agents of the
residence of an indorser, who was not the proper agent to give notice, is
not the knowledge of the bank, and therefore can not be set up to charge
negligence in giving notice.* Notice of facts concerning transactions which
it is the duty of the cashier of a bank to conduct is not binding on the
bank when received by the president in conducting business of another

company, of which the president was director, and which business was in
no way connected with the bank.^ A president of a national bank has no
power, in the ordinary course of business, to certify to the fidelity or in-
tegrity of the cashier for the purpose of enabling him to procure a bond
insuring his fidelity; and hence the bank can not.be deemed, merely by
virtue of the president's relation to it, to have any knowledge of the giving
by him of such certificate.® Where a partner sells to a bank of which he
is cashier a note due the firm, and the bank acts wholly through its discount
committee, of which he is not a member, it is not affected with knowledge
possessed by him of infirmities in the note.''
Unofficial Knowledge or Notice. — Some of the authorities maintain

that it is essential that the knowledge to be attributed to the bank should
is its knowledge." Orme v. Baker, 74 Agent as Affecting Person Dealing

O. St. '337, 78 N. E. 439, 113 Am. St. with Bank," § 117.
Rep. 968. A bank not chargeable with notice
is
"In Cragie v. Hadley, 99 N. Y. 131, of fraud the inception of a note
in
1 N. E. 537, 52 Am. Rep. 9, the court which it discounted merely because its
held that the acceptance of a deposit president had knowledge of the facts,
by a bank irretrievably insolvent, con- which was gained by him in his capac-
stituted such a fraud as entitled the ity as an officer of another corporation,
depositor to reclaim his drafts or their where he had nothing to do with the
proceeds." Orme v. Baker, 74 O. St. discounting of the note, and had no
337, 78 N. E. 439, 113 Am. St. Rep. 968. knowledge of it at the time. McCal-
"Indeed there are peculiar and ur- mont V. Lanning, 84 C, C. A. 138, 154
gent reasons for a more stringent en- Fed. 353.
forcement of the rule against corpora- The fact that the president of a bank
tions than against individual principals, received a note executed by a depos-
from the fact that the only way of itor payable at the bank to his order
communicating actual notice to a cor- under an agreement to hold the pro-
porationis through its agents. Fulton ceeds for the benefit of a charitable
Bank v. New York, etc., Canal Co. organization did not give the bank
(N. Y.), 4 Paige's ch. 137: 'A corpora- notice of the existence of the note, fo"
tion can not see or know anything ex- the bank had no interest in the dis-
cept by the eyes and intelligence of its position of the depositor's funds in its
officers.' " Orme v. Baker, 74 O. St. hands but was a mere stake holder,
337, 78 N. E. 439, 113 Am. St. Rep. 968. and the president was under no duty
3. Notice as to matters without to communicate his knowledge to the
—
agent's scope of duty. Fulton Bank v. bank. Organized Charities Ass'n v.
New York, etc., Canal Co. (N. Y.), 4 Mansfield, 83 Conn. 504, 74 Atl. 781.
Paige 127. 4. Goodloe V. Godley (Miss.), 13
Asto notice received outside scope Smedes & M. 233, 51 Am. Dec. 150.
of official duties, see ante, "In General," 5. Washington Nat. Bank v. Pierce,
§ 116 (1) "In Respect to Discounts
; 6 Wash. 491, 33 Pac. 972, 36 Am. St
and Securities," § 116 (2); "In Respect Rep. 174.
to Deposits," § 116 (3); post, "Notice 6. American Surety Co. v. Pauly, 170
to Directors," § 116 (5). U. 133, 42 L. Ed. 977, 18 S. Ct. 553,
S.
As to individual interest of officer or affirming 18 C. C. A. 644, 73 Fed. 470.
agent, see ante, "In General," § 116 (1); 7. National Bank v. Feeney, 9 S. Dak.
post, "Individual Interest of Officer or 550, 70 N. 874. W.
have been acquired by its officer not casually, through his individual rela-
tions to the other parties, but in an official capacity; and because of a
necessity for him and to know the fact on behalf of the bank.*
to inquire
Thus it is held that knowledge of the cashier or other officer of a bank,
obtained by reason of his interest, and connection with other parties, but
not obtained in the performance of any duty he owed to the bank, is not
notice to the bank^ and that notice acquired by the president in a private
transaction is not chargeable to the bank.io Other cases hold that the
8. Merchants' Nat. Bank v. Clark, 139 County Nat. Bank v. Hall (Tex. Civ.
N. Y. 314, 34 N. E. 910, 36 Am. St. Rep. App.), 91 S. W. 807.
710; Scott V. Choctaw Bank (Ala.), 59 The cashier of a bank, in pledging
So. 184. stock of the bank, owned by him, as
Knowledge acquired by officers act- security for a personal debt, acts in
ing in individual capacity. "On the is-— his individual capacity, and not as an
sue as to notice to the bank of vices officer of the bank; and his knowledge
in the note when it was negotiated, of the transaction is not attributable
the bank requested the following to the bank to affect the validity of its
charge, to wit: 'In determining statutory lien on the stock as security
whether or not the plaintiflf had knowl- for a loan subsequently made him.
edge of the defenses, if any, of the de- Curti(5e v. Crawford County Bank, 110
fendant, H. L. Hall, to the note sued Fed. 830.
on at the time it acquired the same, 10. President's private transaction.
you will not consider any knowledge —Smith V. Carmack (Tenn.), 64 S. W.
or information that may have some to 373.
any person who was an officer or A bank is not to be charged with
agent of the plaintiff at a time, when notice of facts of which its president
he was not engaged in the plaintiff's acquires knowledge while dealing in
business. Knowledge or information his private capacity and in his own be-
derived by persons who occupied the half with third persons; nor is knowl-
relation of officers or agents of the edge on his part thus acquired im-
plaintiff times and in transactions
at putable to the bank when, acting
when and where they were acting for through another official, it deals with
themselves individually and not for the him at arm's length as with any other
plaintiff would not be binding on the individual representing himself alone.
plaintiff or affect its rights.' This _
People's Bank v. Exchange Bank, 116
charge embraces a correct principle of Ga. 820, 43 S. E. 269, 94 Am. St. Rep.
law and should have been given. Allen 144.
V. Garrison, 93 Tex. 546, 50 S. W. 335, Notice that a stockholder in a bank
affirmed in 48 S. W. 554; Texas Loan has pledged his stock to a third per-
Agency v. Taylor, 88 Tex. 47, 29 S. W. son, acquired by the president, who
1057." Grayson County Nat. Bank v. has no part in the active management
Hall (Tex. Civ. App.), 91 S. W. 807. of the bank's business, and who is not
To charge a bank discounting a note at the time acting in its behalf, is not
with the president's knowledge of equi- notice to the bank which will affect
ties between the parties, it is neces- its statutory lien on such stock for a
sary that the knowledge should have loan subsequently made to the stock-
come to him in his official capacity. holder without the president's knowl-
Merchants' Nat. Bank v. Clark, 139 N. edge. Curtice v. Crawford County
Y. 314, 34 N. E. 910, 36 Am. St. Rep. Bank, 110 Fed. 830.
710. —
Instructions. A bank, suing upon a
9. Knowledge obtained when acting note held by it, requested a charge
in his own interest. — National Bank v. that "in determining whether or not
the plaintiff had knowledge of the de-
p'itze, 76 Mo. App. 356.
A bank, purchasing a note subject to fense, if any, of defendant," the jury
certain defenses in the hands of the should not "consider any knowledge or
payee, is not bound by the knowledge information that may have come to
or information of such defenses that any person who was an officer or
may have corne to its officers at a time agent of the plaintiff at a time when
when they were not engaged in its he was not engaged in the plaintiff's
business, but when they were acting business." Although the evidence
for themselves individually. Grayson tended to show that other officers of the
principal is not bound by such unofficial information unless it is present to

the agent's mind at the time of the transaction. ^^ Upon the question
whether a principal is bound by knowledge or notice which his agent had
previous to his employment in the service of the principal, the authorities
disagree. 1^ The negative of the question has been uniformly maintained
in Pennsylvania and some other of the states. ^^ While the decisions in
other states maintain that the better rule is that the knowledge of an
agent, obtained prior to his employment as agent, will be an implied or
imputed notice to the principle, under certain limitations and conditions,
which are these: the knowledge must be present to the mind of the agent
when acting for his principal, so fully in his mind that it could not have
been at the time forgotten by him; the knowledge or notice must be of a
matter so material to the transaction as to make it the agent's duty to
communicate the and the agent must himself have no
fact to his principal;
personal interest in the matter which would lead him to conceal his knowl-
edge from his principal, but must be at liberty to communicate it." How-
bank knew of the whole transaction, dents of banks which subsequently

the charge only related to the knowl- become creditors of the insolvent cor-
edge of the bank's president. It was poration is not sufficient to charge
held that this charge was not suffi- the bank with notice, in the absence
ciently comprehensive to cover the of evidence that they acted for the
knowledge of other officers and did banks in extending the credit to the
not sufficiently cover the charge re- corporation at such time and under
quested. Grayson County Nat. Bank such circumstances as to authorize
V. Hall (Tex. Civ. App.), 91 S. W. 807. the inference that the knowledge form-
11. Unless present to agent's mind. — erly acquired was still present before
Campbell v. First Nat. Bank, 23 Col. their minds. Mathis v. Pridham, 1
177, 43 Pac. 1007; Armstrong v. Ab- Tex. Civ. App. 58, 30 S. W. 1015.
bott, 11 Colo. 220, 17 Pac. 517. Parties can not be required to store
Whether one who, at different times away in their minds all facts which
during a period extending from three they learn, so as to be able to call
years down to ten or eleven months them up at any time in the future to
prior to a levy of a writ of attachment affect other transactions than that in
in a suit by the bank of which he was which the knowledge was acquired.
and "had been the president, had been Such information has not the char-
frequently told in the course of his acteristics of notice in law, unless the
private business of a third ownership transactions affected thereby took place
of the property levied on, still retained under such circumstances as would
that knowledge at the time the at- lead to the reasonable conclusion that
tachment suit was begun, is a question the fact reported was still remembered.
for the jury. Campbell v. First Nat. Mathis V. Pridham, 1 Tex. Civ. App.
Bank, 22 Colo. 177, 43 Pac. 1007. 58, 20 S. 1015.W.
"Whatever knowledge he had in that 12. Information received prior to
respect, although acquired in his indi- agency. — Fairfield Sav. Bank v.Chase,
vidual capacity, under the circum- 72 Me. 236, 39 Am. Rep. 319.
stances of this case, he carried over Pennsylvania rule. In the late
13. —
with him into the exercise of his duties case of Housman v. Girard Mut. Bldg.,
and powers as cashier. He carries it etc., Ass'n, 81 Penn. 256, it was said
with him into every transaction in that notice to an agent twenty-four
which the bank participated through hours before the relation commenced
him. In re Carew's Estate, 26 Beav. is no more notice than twenty-four
39; New York, etc., R. Co. v. Schuyler, hours after it has ceased would be.
34 N. Y. 30; Holden v. New York, etc., 14. Rule imputing knowledge or no-
Bank, 72 N. Y. 286; Loring v. Brodie, tice to principal. — Fairfield Sav. Bank
134 Mass. 453." Lowndes v. City Nat. V. Chase, 72 Me. 226, 39 Am. Rep. 319.
Bank, 83 Conn. 8, 73 Atl. 150. A bank taking from payees notes of
Notice to individuals who are presi- third persons as collateral security is
not charged with notice of the under- had knowledge of the rights of third
standing between the payees and the parties,how he got it, or when it was
makers from the fact that one of the communicated. The class of cases to
third persons, unconnected with the which the doctrine as quoted applies is
bank when the notes were executed that where an active duty is imposed
was president on the making of the upon persons seeking to assert right.^
loan. Cooke v. Mesmer (Cal.), 128 to give a notice. The doctrine of in-
Pac. 917. See Christie v. Sherwood, nocent purchaser requires for its main-
113 Cal. 526, 45 Pac. 820; Wittenbock tenance the utmost good faith. This
V. Parker, 102 Cal. 92, 36 Pac. 374. could not exist where either a principal
A trustee of a bank, who was also or an agent, acting upon the matter,
an attorney, had actual knowledge of has either actual knowledge, or sufK-
an existing unrecorded deed of lands. cient to put him upon inquiry, and dis-
With that knowledge, he, as such at- regards the rights of others to their
torney, afterwards wrote and took an loss." Wolfe V. Citizens' Bank (Tenn.),
acknowledgment of a mortgage on the 42 S. W. 39.
same lands from the same grantor to "But this question, we think, is con-
the bank, and the deed was recorded. clusively settled in this state in the
Held, that the bank was not chargeable case of Tagg tj. Tennessee Nat. Bank
with his knowledge, unless the fact 56 Tenn. (9 Heisk.) 479, and Union
was in his mind at the time, nor unless Bank v. Campbell, 23 Tenn. (4 Humph.)
he was acting for the bank in the mak- 394. In the case of Tagg v. Bank, Judge
ing of the mortgage. Fairfield Sav. Freeman, speaking of the knowledge
Bank v. Chase, 72 Me. 226, 39 Am. Rep. of the president of the bank as to a
319. defect in a note discounted, although
If an agent receive notice while he the knowledge had been acquired pre-
is concerned for the principal, the vious to the transaction, said, 'If he
principal would be bound by it, though fails afterwards to communicate his
the agent might forget the facts, and knowledge when acting further for his
have no memory of them during the principal, his principal is bound as
transaction to which they relate; so, fully as if the communication had been
if the agent receive the notice before actually made.' See, also, Bank v. Da-
the agency, and have knowledge at the vis (N. Y.), 2 Hill 451." Wolfe v. Cit-
time of the transaction; but it would izens' Bank (Tenn.), 42 S. W. 39.
be otherwise if he have notice in his "In the case of Union Bank v. Camp-
own transaction before the agency, and bell, 33 Tenn. (4 Humph.) 394, Judge
have forgotten it when he comes to Green, with incisive logic, shows how
act as agent. Union Bank v. Campbell, utterlv futile an attempt would be to
23 Tenn. (4 Humph.) 394. establish notice if the principal con-
"Again, it is insisted that notice, to tended for in that case, as in this, could
have been effectual, must have been be maintained. And he says, 'The ex-
conveyed to the officers of the bank istence of knowledge in an agent when
while they were acting, and although acting for his principal is notice to the
Mr. Simpson, with other officers of the principal, however that knowledge may
bank, may have known beforehand of have been acquired.' " Wolfe v. Cit-
Mrs. Wolfe's rights, unless they had izens' Bank (N. Y.), 42 S. W. 39,
notice at the time of executing^ the In a suit to enforce a resulting trust
mortgage, it would be of no avail to in certain land alleged to have been
her; and we are cited to 4 Thomp. purchased by one of the defendants
Corp. § 5197. It is true that this dis- with funds belonging to complainants,
tinguished author does say that notice the title to which he wrongfully took
will not be imputed to the principal in himself, and which he subsequently
unless the knowledge of the fact mortgaged to the defendant bank, it
reaches the agent while acting for his appeared from the testimony of one of
principal, either generally, or with ref- the directors of the bank that he un-
erence to the transaction to which the derstood, from havin.ar been told by
notice relates. But this statement, we the mortgagor, that the property in
take it, was never intended by the au- controversy belonged to complainants,
thor to apply to that class of cases but that he did not know at the time
where the defendant was relying upon on what property the mortgage was to
the doctrine of innocent purchaser." be given. It also appeared from the tes-
Wolfe V. Citizens' Bank (Tenn.), 42 S. timony of the president and cashier
W. 39. that the loan in question was discussed
"In this class of cases it can cer- and passed upon by the directors, that
make no difference, if the agent
tainly it was understood that the deed of
who was acting on the matter in hand trust was to be given on the property
ever, additional modificationsmight be required in some cases.^^ Where

these evidences appear it seems just to say that such previous knowledge
on the part of the agent constitutes a present knowledge on the part of
the principal. The presumption that an agent will do what it is his right
and duty to do, having no personal motive or interest to do the contrary,
is so strong that the law does not allow it to be denied. There may be
instances where this rule operates harshly, but under the other rule pre-
viously stated any fraud can be easily perpetrated.^^ Of course the knowl-
edge must be that of the principal who is executing some agency, and
not acting merely in some ministerial capacity as servant or clerk.^'^ Although
it be conceded that an officer of a bank may have dealings altogether inde-
pendent of his connection with the bank and that the bank will not be af-
fected thereby,!^ yet a bank can not receive the proceeds of a fund in pay-
ment of a debt due it, the diversion and its reception of the funds being
the result of the action of its officer or agent, and then hold the fund against
the person justly entitled to it, because of an averment of the corporation
that it did not know that its debtor was paying the proceeds of such a fund,
or because its receiving officer did not know from what source its debtor
got the money he paid to it.^® The knowledge of officers of a bank, that
a firm, of which they are also members, is insolvent, is imputable to the
in controversy and other property, and lateral to another, surrenders them to

that they knew that complainants were the pledgor, who, from proceeds ob-
occi:pying such property as theio home, tained from a sale thereof, pays a debt
and understood that it had been fur- to a bank of which such agent is presi-
nished them by the mortgagor, and dent, having been urged by such
that the title was in him. Held suffi- president to make
a payment, the bank
cient to put the bank on inquiry, and will be liable, for the money so re-
to affect it with notice of complain- ceived, to the one having the secondary
ants' rights. Wolfe v. Citizens' Bank rights in the bonds as security; the
(N. Y.), 43 S. W. 39. president, and through him the bank,
—
Question of fact. It is for the jury being charged with notice how the '
to say, when the knowledge of fact had money was obtained. Hughes v. Set-
been communicated previous to the tle (Tenn.). 36 S. W. 577.
agency, whether, in view of all the cir- The cashier having drawn checks
cumstances, it was reasonably to be in- against his personal account, certifying
ferred that the fact was remembered, them himself, and subsequently having
and the knowledge still existed. Union drawn checks against an estate's ac-
Bank v. Campbell, 23 Tenn. (4 Humph.) count, of which he was administrator,
394. payable to his personal account, to
15. Additional modifications. Fair- — meet the other checks, the sum being
field Sav. Bank v. Chase, 73 Me. 336, subsequently used to take up the cer-
39 Am. Rep. 319. tified checks, the bank benefited to the
16. Fairfield Sav. Bank v. Chase, 73 amount of the certified checks made
Me. 236, 39 Am. Rep. 319. good and was liable therefor to the
estate, though the certification was not
17. Fairfield Sav. Bank v. Chase, 73
Me. 336, 39 Am. Rep. 319.
binding. Lowndes v. City Nat. Bank,
83 Conn. 8, 73 Atl. 150,
18. Hughes V. Settle (Tenn.), 36 S. It was not liable for the amount of
W. 577. a check drawn on the estate's account
19. Hughes V. Settle (Tenn.), 36 S. by the cashier as administrator to him
W. 577. individually, where it did not appear
Where an agent of an undisclosed for what the money was used, since the
principal, holding bonds as collateral, check was not irregular on its face.
with notice that, subject to such pledge,' Lowndes v. City Nat. Bank, 83 Conn.
they have been transferred as col- 8, 73 Atl. 150.
bank, where such firm has made an assignment to the bank.^"
§ 116 (5) Notice to Directors. —Notice to Directors as Officials.

— Knowledge of a material fact communicated by a bank director to the board
at a regular meeting is notice to the bank.î Where the directors of a
bank were informed of all facts essential to put them upon notice that
collateral upon which they were making a loan was held by the party
pledging it in a trust capacity, this was the knowledge of the bank and
the trust property could be followed into the hands of the bank and re-
covered. ^^ If a director knows of fraud or illegality in the inception of a
note discounted by his bank, the bank can not recover thereon, if he acted
for the bank in discounting the note.^*
Effect of Entire Change of Personnel of Board. —Notice to the board
of directors of a bank that certain stock of the bank is held in trust is
notice of the trust to a subsequent board of directors, and binding on the

bank.2*
Knowledge While Acting as Director Duty to Communicate. — —
Where a director acts for his bank in a business transaction, either indi-
vidually or as a member of the board of directors, knowledge which he
may have obtained in relation thereto is binding upon and imputable to
the bank, as the director is bound to communicate such knowledge to his
bank.2" Notice to the director of a bank of facts affecting the character
20. Officers members of insolvent or known to a previous board. Me-

firm. —An insolvent firm, two members chanics' Bank v. Seton (U. S.), 1 Pet.
of which were president and cashier of 299, 7 L. Ed. 153. ^
a bank, on the eve of bankruptcy con- Knowledge obtained while acting

25.
veyed their bank stock to the bank, in as director —
Duty to communicate. —
pursuance of a prior verbal hypothe- Union Bank v. Campbell, 33 Tenn. (4
cation. An action was brought by the Humph.) 394; Bank v. Rhea (Tenn.),
receiver of the firm to set aside the 59 S. W. 443.
transfer. Held, that the knowledge of In an action by a bank on a note,
the officers of the insolvency of their against accommodation indorsers, it
firm was the knowledge of the bank. appeared that one K., a director ot the
Nisbit V. Macon Bank, etc., Co., 12 Fed. bank, drew the notes, and procured de-
686, 4 Woods
464. fendant's indorsement, and that he
21. Knowledge communicated by di- agreed with them that a certain other
rector' to board. — Bank v. Whitehead person should also indorse the note.
(Pa.), 10 Watts 397, 36 Am. Dec. 186. One witness testified, without objec-
22. Smith v. Ayer, 101 U. S. 320, 25 tion, that, so far as he knew, K. was
L. Ed. 955. the bank's counsel. Plaintiff gave no
A subsequent board of directors of proof on the subject of K.'s agency.
a bank is to be considered as knowing Held, that the evidence was sufficient
all the circumstances communicated, to show that notice to K. was notice
or known, to a previous board. Me- to the bank of the agreement to pro-
chanics' Bank v. Seton (U. S.), 1 Pet. cure such additional indorser. Twenty-
399, 7 L. Ed. 153. See post, "Bank's Sixth Ward Bank v. Stearns, 148 N. Y.
Lien," V, G, 3. 515, 43 N. E. 1050, affirming 7 Misc.
23. National Security Bank v. Cush- Rep. 276, 27 N. Y. S. 883.
man, 131 Mass. 490. Where the principal directors of a
24. Effect of change of personnel of bank are also directors of a corporation
—
board. Mechanics' Bank v. Seton (U. whose property is heavily mortgaged
to the bank, the bank should be held
S.), 1 Pet. 399, 7 L. Ed. 153.
A subsequent board of directors of to have notice that fixtures of consid-
a bank is to be considered as knowing erable value covered by the mortgage
all the circumstances communicated were not paid for, an,d were bought
of negotiable paper taken by the bank is notice to the bank, where the
director is present, as a director, at a meeting when the note is offered for
discount and received.^* So where notice of the dissolution of a firm is
communicated to a bank director for the purpose of being communicated
to the board of directors, or where he is called upon to act as a director
in a transaction affecting the interests of the members of the dissolved firm,
he is bound to communicate that knowledge to the bank, and, if he do not,
^'^
the bank is by law charged with notice of the facts so withheld.
—
Knowledge of Director as Individual. Notice to a director of a bank
as an, individual, and not acting as such director, can not operate to the
prejudice of the bank.^s Knowledge obtained by him, while not engaged
under a conditional contract providing as to render direct notice of the dis-

title should remain in the seller till solution necessary. Union Bank v.
paid for in full. State Bank v. Fish Campbell, 23 Tenn. (4 Humph.) 394.
(Sup.), 120 N. Y. S. 365. The above case is cited in Bank v. Rhea
Where a director of a bank, which (Tenn.), 59 S. W. 443, to a similar
purchases an order assigning the prof- proposition.
its of a county contract, knows that 28. Notice to director as individual.
the maker received no consideration
therefor, the bank is chargeable with
— Westfield Bank v. Cornen, 37 N. Y.
320, 93 Am. Dec. 573; Continental Nat.
notice thereof, which will prevent a Bank v. McGeoch, 92 Wis. 286, 66 N.
recovery from the maker. Bank v. W. 606; Clarke v. Second Nat. Bank,
Rhea (Tenn.), 59 S. W. 443. 177 Mass. 357, 59 N. E. 121; Holm v.
Evidence insufficient to show di- Atlas Nat. Bank, 28 0. C. A. 297, 84
—
rector acting for bank. At the trial Fed. 119.
of an action by the assignee of an in- As to information received in private
solvent corporation to recover from a business, etc., see ante, "Notice Re-
bank as an unlawful preference a pay- ceived in Private Business or Outside
ment upon a note of the insolvent cor- Scope of Duties," § 116 (4).
poration, indorsed by one R., it ap- The knowledge of a director of a
peared that R. was president of the in- bank, as to the object for which cer-
solvent corporation and one of its tain bills of exchange were delivered
active managers, and was also a to a party applying to the bank for a
director of the defendant bank, and, discount thereof, such director not be-
with the treasurer of the insolvent cor- ing present at the meetin.g of the di-
poration, conducted the transactions rectors at which such application was
relied upon to constitute the prefer- made and such bills discounted, and
ence. Held, that there was no suffi- not having communicated his knowl-
cient evidence that R. was acting in edge to any other director or officer
behalf of the bank in any of these of the bank, is not to be regarded as
transactions. Clarke v. Second Nat. notice to the bank. Farmers', etc..
Bank, 177 Mass. 257, 59 N. E. 121. Bank v. Payne, 25 Conn. 444, 68 Am.
26. Director present as director Dec. 362.
—
when note is received. Clerks' Sav. Knowledge of a director of a bank
Bank v. Thomas, 2 Mo. App. 367. that a grantee holds land as trustee is
27. Notice of dissolution. — The knowl- not notice to the bank. Home, etc.,
edge of two of the directors of a bank Sav. Bank v. Peoria Agricultural, etc.,
of the dissolution of a firm was held Soc, 206 111. 9, 69 N. E. 17, 99 Am. St.
to be knowledge of the bank, although Rep. 132.
not communicated in the discount of Where one of the directors of a
a note by the board of directors, one banl< obtained possession of a note un-
of the directors having knowledge der the pretense of getting it dis-
participating in the act, and the other counted for the maker, and pledged it
only retiring because he was interested to the bank for a loan to himself, and
in the proceeds of the note, so as to re- to secure a prior existing debt due
lease one of the late partners from lia- from such director, it was held that,
bility on an endorsement of the firm as he did not act in his capacityof a
name by the other partner, the firm director in procuring the discount and
having had such dealings with the bank making the pledge, the bank was not
either officially or as an agent or attorney in the business of the bank, can

not bind the bank;^^ otherwise, corporations would incur the same lia-
bility for the unofficial acts of directors that partnerships do for the acts
of partners, which would end in extraordinary confusion of the corporate
business and create hazards.^t* Where he is not acting for the bank
and is not an organ of communication with the corporation though
he is present when the corporate act is afterwards done, which is sought
to be affected by the notice, notice to him can not be imputed to the
bank.31 Hence notice of the dissolution of a firm with which a bank
has business relations, where published in a newspaper, and accidentally
reaching a director, who has no power to act for the bank except
in conjunction with others, is not equivalent to actual notice to the
bank.32 fî^ f ^q^ ^j^^^ qj^^ ^^q recommends to the managing officers of a
bank to discount certain negotiable paper is a director of the bank does not
affected by his knowledge of the cir- on checks signed by the president and
cumstances under which he received treasurer of the corporation, for the
the note, and might recover against deposit paid by the trust company on
the maker the amount of the whole forged checks, a conversation with a
note, provided it did not exceed the director of the trust company and a
amount of the money advanced and member of its executive committee and
the prior debt. Washington Bank v. one of the regular attorneys for the
Lewis (Mass.), 22 Pick. 24. company, importing notice to him of
Notice to a director of a banking the payment by the trust company of
corporation privately, or acquired by the deposit on forged checks, was in-
him generally through channels open competent to bind the company in ab-
to all persons, and which he does not sence of a showing that the director
communicate to his associates in the acted for the company in the matter
management of the corporation, is not or communicated the information to
binding on the name. Black v. First the company. Shattuck v. Guardian
Xat. Bank, 96 Md. 399, 54 Atl. 88. Trust Co., 145 App. Div. 734, 130 N. Y.
Notice to a bank director, or knowl- S. 658.
edge obtained by him while oflficially 30. Bank
Fairfield Sav. Chase, 72
z'.
not engaged in the business of the Me. Am. Rep. 319.

226, 39
bank, will not affect the bank. Bank An oil-dealing firm made K. an at-
V. Davis (N. Y.), 2 Hill 451. torney in fact to make and indorse
Where the payee of a note happens notes in conducting its business. D.,
to be a director of the bank that dis- who was factor for the firm, drew a
counts the note for his benefit, with- note for his own accommodation to
out notice of the maker's claim for re- Ihe order of the firm, which, without
coupment, the bank can recover as an the knowledge of either of the firm,
innocent bona fide holder without no- was indorsed in the firm name by K.,
tice. The private knowledge oi an of- and discounted by an unincorporated
ficer is not the knowledge of the bank. banking association in which D. yjas
Loomis, etc., Co. v. Eagle Bank, 1 a stockholder, and which had dis-
Disn. 285, 12 O. Dec. 625. counted business paper of the firm for
29. Unofficial information or notice. him. Held that, D., being a partner
—Fairfield Sav. Bank v. Chase, 73 Me. in the bank, it was not a bona fide
226. 39 Am. Rep. 319. holder of the note, protected against
Notice to a director and stockholder D.'s improper use of it. Stockdale v.
of a bank, who was not an officer, con- Keyes Bros., 79 Pa. 251.
cerning the character of paper held by 31. Presence of director immaterial.
it, is not notice to the bank.
Murphy
V. Gumaer, 12 Colo. App. 472, 55 Pac.
— Custer V. Tompkins County Bank,
9 Pa. 27.
951.
In an action by the receiver of a cor- 32. Notice of dissolution of firm
poration which had deposited money transacting business with bank. Na- —
with a trust company, organized under tional Bank v. Norton (N. Y.), 1 Hill
the banking law, subject to payment 572.
charge the bank with knowledge which the director possessed.^^ The mere
fact that a director knew of fraud or illegality in the inception of a note
discounted by his bank will not prevent the bank from recovering thereon,
where he does not act for the bank in the discounting.^* So if a note is
discounted by a bank, at the instance of a director, who knows, but fails to
disclose, a condition on which it was given, the bank will not be considered
cognizant of the condition. ^^ When a bank deals with a mortgagor on the
faith of his apparent title, a private knowledge of its simulation in two of
the directors, who are not clothed with any special authority in the premises,
and who constitute a small minority of the whole number, which knowl-
edge was undisclosed to the board, can not destroy the rights of the corpo-
ration as a bona fide mortgagee.^^
—
Dual Capacity of Director. Where a director of a bank is a member
of a firm discounting a note at the bank, his knowledge in respect to the
note, not actually communicated to other officers or directors, does not
charge the bank.^^ The fact that a bank director is also a director in a
corporation discounting a note is not notice to the bank of equities between
the parties.38 Where a bank director is also president of a railroad com-
pany, his knowledge, in respect to notes discounted at the bank by the
railroad company, is not chargeable to the bank, where he refused to take
any part in the proceedings of the discount committee.^*
—
Individual Interest of Director. Where a director deals with his
bank in behalf of his individual interest, the bank is not charged with the
director's knowledge in regard to matters relating to the transaction,*" even
33. Effect of recommendation by di- 39. Refusal to take part in proceed-

rector. —
Shaw v. Clark, 49 Mich. 384, —
ings of discount committee. 'Waynes-
13 N. W. 786, 43 Am. Rep. 474. ville Nat. Bank v. Irons, 8 Fed. 1.
34. National Security Bank v. Cush- 40. Individual interest of director.
man, 131 Mass. 490. Innerarity v. Merchants' Nat. Bank,
A bank discounting a note before 139 Mass. 332, 1 N. E. 382, 52 Am. Rep.
maturity is not chargeable with knowl- 710.
edge of illegality or want of consid- As
to individual interest as affecting
eration acquired by one of its direct- knowledge or notice, see ante, "In
ors in other than his official capacity. General," § 116 (1); "In Respect to
if such director did not act with the Discounts and Securities," § 116 (2)
board in making the discount. First . "In Respect to Deposits," § 116 (3).
Nat. Bank v. Christopher, 40 N. J. L. As to a director's own fraud, see
435, 29 Am. Rep. 263. post, "Notice of Officer's Own
Fraud,"
35. Failure of director to disclose § 116 (6).
—
knowledge. Louisiana State Bank v.
Senecal, 13 La. 525.
As to individual interest of director
as affecting person dealing with bank,
36. Undisclosed knowledge of two see post, "Individual Interest of Of-
directors with no special authority.— ficer or Agent as Affecting Person
Mercier v. Canonge, 8 La. Ann. 37. Dealing with Bank," § 117.
37. Director member of both firm Notice or knowledge of failure of
and bank.— First Nat. Bank v. Christo- consideration of a negotiable note,
pher, 40 N. J. L. 435, 29 Am. Rep. 262; which the director of a bank sells to
Atlantic State Bank v. Savery, 82 N. it before the maturity of the paper, is
^- ^^^- .„ , . ,
not imputable to the bank, when in
38. Dual capacity of director.— the transaction the seller did not act
Casco Nat. Bank v. Clark, 139 N. Y. for it at all, but exclusively for him-
307, 34 N. E. 908, 36 Am. St. Rep. 705, self, and the bank was represented by
affirming 64 Hun
634, 18 N. Y. S. 887. another of its officials, who alone
though the director is present when the board of directors passes on the
transaction.41 Where a bank discounts a note for a director, he not being
present, it is not charged with his knowledge of antecedent illegaHties.*^
So where a director is interested in protecting his own title, his knowledge
in regard to matters relating thereto, which he has not disclosed to the
board of directors, is not notice to the bank.*3 bank, when making a A
loan, is not chargeable with notice of a fact because it is known to two
of its directors, when they do not act for it in the transaction, but, on the
contrary, act for the borrower, and are indorsers on the note.** The cir-
acted for it. Ei/glish-American Loan, ticewould necessarily prevent the con-
etc., Co. V. Hiers, 113 Ga. 833, 38 S. summation of the transaction in which
E. 103. the agent was engaged. Lilly v.
Where the director of a bank pre- Hamilton Bank, 103 C. C. A. 1, 178
sented a note as an applicant for dis- Fed. 53.
count, and did not act officially with 41. The fact that one who pledges
the other members in deciding whether to a bank, as security for a loan to
it should be discounted, his knowledge him, goods consigned to him for sale,
is not to be regarded as notice to the was a director of such bank, does not
bank. Frost v. Belmont (Mass.), 6 charge the latter with knowledge,
Allen 153. though the director was present at the
That a borrower was officially con- meeting when the loan was voted.
nected with a bank as director is in- Innerarity v. Merchants' Nat. Bank,
sufficient to charge it with notice of 139 Mass. 332, 1 N. E. 283, 53 Am. Rep.
his fraudulent purposes in negotiating 710.
a loan. Southern Commercial Sav. "A shipped a cargo of sugar to B,
Bank v. Slattery, 166 Mo. 630, 66 S. and gave him authority to sell the
W. 1066. same. The bill of lading recited that
Where a bank director and a cashier the shipment was by order of B, and
executed a note as makers, the di- that the sugar was delivered to his
rector being in fact only a surety for order, and made no mention of any
the cashier, who obtained a loan on it agency. B indorsed the bill of lading,
from the bank, without any other bank and delivered it to a bank of which
official having knowledge of the sure- he was a director, and pledged the
tyship, the director was liable as cargo to the bank as security for a
principal, since knowledge to him and loan by the bank to him. This loan
the cashier, in such case, was not was approved by the board of direct-
knowledge to the bank. First Nat. ors, at a meeting at which B was
Bank v. Briggs, 70 Vt. 594, 41 Atl. 580. present. Held, that B's knowledge of
Notice to a director of a matter af- the fraud was not imputable to the
fecting the interest of the bank, which bank; and that an action by against A
it is to the interest of such director to
the bank, for the conversion of the
conceal, is not notice to the bank. sugar, could not be maintained." Webb
V. Stasel, 4 N. P., N. S., 587, 17 O. D.
First Nat. Bank v. Lowther-Kaufman
Oil, etc., Co., 66 W. Va. 505, 66 S. E. N. P. 317.
713.
42. Discounting note for director. —
Where the payees of a note fraudu- Third Nat. Bank v. Harrison, 10 Fed.
lently acquired offered it to a bank of 343, 3 McCrary 316.
which they were directors and mem- 43. Where a director of a bank was
bers of the discount committee, but one of the grantees in an unrecorded
withdrew from the meeting* of the deed of property, which the grantor
subsequently conveyed to the bank,
committee, and took no part in the
committee's determination of the ad- the knowledge of the prior
director's
visability to purchase, and did not dis-
deed not notice to the bank of its
is
existence, if such director be in-
close any facts whicli would have led
terested in protecting his own title by
to the discovery of the fraud, the
payees' knowledge thereof was not im- not communicating his knowledge to
puted to the bank because of their re- the board of directors. Lyne v. Bank
(Ky.), 5 J. J. Marsh. 545.
lation to it, under the rule that the
law will not impute notice from an 44. Martin v. South Salem Land Co.,
agent to his principal where such no- 94 Va. 38, 36 S. E. 591.
1
cumstance that the indorser of a discounted note was a director in the bank
by which it was discounted will not be deemed constructive notice to the
bank that the note was made for his accommodation,* ^ or that the con-
sideration of the note was illegal.*®
—
Indirect Interest. Where a director does not communicate his knowl-
edge to his bank, the fact that he is indirectly interested in the transaction
may be sufficient to prevent the knowledge from being imputed to the bank.*'''
Presumption of Director's Knowledge. —^The authorities establish the
presumption that there is, as to the directory, a certain legal presumption
of knowledge as to the transactions, business and condition of the bank,
which is conclusive upon the bank, and against the existence of which, as a
matter of fact, no testimony will be received.''^ The doctrine is one founded
on public policy, essential to the safety of third persons in their dealings
with the bank, and to the protection of the stockholders interested in its
welfare and safe management. So far as is necessary to accomplish these
results, this doctrine should be carefully and strictly upheld.^" But this
doctrine should not be carried beyond this, or to such extent as to work

an injury to the bank. The purpose is to enforce the strictest fidelity and
watchfulness upon the directors as custodians of a most important and
delicate trust; a purpose which would be thwarted if it were turned into an
instrument of injury and destruction to the bank and its stockholders.^
Hence this doQtrine should not be invoked to uphold a wrongful appro-
moneys of the bank that the cashier or another officer thereof
priation of
made and entered upon the bank's books without the actual knowledge of
the director.5 2 Persons dealing with the directory have a right to pre-
sume that it knows all the affairs of the bank, that is, all that the bank as
a principal ought to know as of its condition and business. On the other
hand persons who are pecuniarily interested in the management and pros-
perity of the bank, stockholders and the depositors, look to the directors
for the protection of their interests and have a right to demand that such
directors watch after those interests in the minutest details. ^^ But as to
45. Discounted note indorsed for di- holders, will not be imputed to the
rector's accommodation. Commercial— bank. Central Bank v. Thayer, 184
Bank v. Cunningham (Mass.), 34 Pick. Mo. 61, 82 S. W. 142.
270; Washington Bank v. Lewis Presumption of director's knowl-
49.
(Mass.), 22 Pick. 24. edge.— First Nat. Bank v. Drake, 29
46. Illegality in consideration in Kan. ,311, 44 Am. Rep. 646.
note discounted.— Where a bank di- go. Basis of doctrine.— First Nat.
rector procures a note on which he is Bank v. Drake, 29 Kan. 311, 44 Am.
indorser to be discounted for his bene- j^gp 646
fit
in
knowledge of illegality
at a bank, his
consideration does not charge
the ir.
'
^
~^
'
iT V
^ limitation
tj
of
""'•'•""""' doctrine.
„„ ?/
the bank. Third Nat. Bank tj. Tinsley,
ât. Bank i
j. Drake, 29 Kan.
11 Mo. App. 498.
"f
3"' ""f
*4 A™- R^P- 646.
47. Indirect interest.— Knowledge of Should not be invoked to up-
52.
the cashier and of a director of a bank hold wrongful appropriation.— First
of a transaction with it, in which the Nat. Bank v. Drake, 29 Kan. 311, 44
cashier and the father of the director Am. Rep. 646.
were interested, and which they never First Nat. Bank v. Drake,
53. 29
imparted to other officers or stock- Kan. 311, 44 Am. Rep. 646.
§ 116 (6) rBprBsentation of bank. 849
an officer and director the reason for this doctrine that is, this conclusive —
presumption as to the knowledge of the directors fails, and therefore the —
presumption should not be held to exist. Presumptions are for the benefit
of those outside, who can not in fact know, and who must
rely upon the
representations and acts of those inside. no need of any pre-
There is
sumption for those inside, for the simple reason that they are where they
may in fact know.^* No officer should be permitted to enforce his own
wrong against his principal, the bank, through the inattention or neglect
of any other agents of the bank. Clearly, one agent can not empower
another to do wrong. Nor can the inattention and neglect of one officer
make the wrong of another and remediless. ^^
effective
Director's Knowledge as Evidence
of Bank's. Where the issue is —
whether the plaintiff bank had knowledge of the preference of a creditor
of its debtor, although the bank is not chargeable with knowledge of its
directors acting individually, yet the jury may consider the knowledge of
the directors as tending to prove knowledge on the part of the bank.^^
§ 116 (6) Notice of Officer's Own Fraud.— The general rule that
knowledge of the agent will be imputed to a principal rests upon the
agent's duty to disclose such facts to his principal ; hence it is seen that one
of the exceptions to the rule is where the agent engages in a scheme to
defraud his principal,^'^ or to defraud a third person where actual knowl-
54. Doctrine does not apply to of- party to a scheme or design to de-
ficers or directors. —
First Nat. Bank v. fraud, etc."
Drake, 29 Kan. 311, 44 Am. Rep. 646. In Commercial Bank v. Cunningham
55. Nat. Bank v. Drake,
First 29 (Mass.), 34 Pick. 370, which involved
Kan. 311, 44 Am. Rep. 646, citing the question whether certain notes
Minor v. Mechanics' Bank (U. S.), 1 held by a bank were to be deemed to
Peters 44, 7 L,. Ed. 47. have been made for the accommoda-
tion of a firm, one member of which
56. Director's knowledge as evi-
was a director of the bank at the
—
dence of bank's. Continental Nat. time the notes were taken, it was held
Bank v. McGeoch, 9 Wis. 286, 66 N. that the knowledge of the latter, al-
W. 606.
though a director, was not proof of
57.Where agent undertakes to de- notice to the corporation, "especially
—
fraud principal. American Surety Co. if he was a party to all these con-
V. Pauly, 170 U. S. 133, 42 L. Ed. 977, tracts, whose interest might be op-
18 S. Ct. 552; Henry v. Allen, 151 N. posed to that of the corporation."
Y. 1, 45 N. E. 355. This principle is reaffirmed in Inner-
As to imputing to bank officer's arity v. Merchants' Nat. Bank, 139
knowledge or notice where officer is Mass. 333, 1 N. E. 282, 52 Am. Rep.
attempting to perpetrate a fraud upon 710, in which the court said: "While
his principal, see ante, "In General," the knowledge of an agent is ordi-
§ 116 (1). narily to be imputed to the principal,
Tothe same effect are Benedict v. it would appear now to be well es-
Arnoux, 154 N. Y. 715, 49 N. E. 326, tablished that there is an exception
and Kettlewell v. Watson (N. Y.), 31 to the construction or imputation of
Ch. Div. 685. In the latter case it was notice from the agent to tlie principal
said that the presurnption arising from in case of such conduct by the agent
the duty of the agent to communicate as raises a clear presumption that he
what he knows to his principal "may did not communicate the fact in con-
be repelled by showing that, whilst troversy, as where the communication
he was acting as agent, he was also of such fact would necessarily prevent
acting in another character, viz, as a the consummation of a fraudulent
1 B & B— 54
edge of the facts by the principal would defeat the consummation of the
fraud.^* The presumption that the agent will inform its principal of
that which his duty and the interest of his principal requires him to com-
municate does not arise where the agent acts or makes declarations not in
the execution of any duty that he owes to the principal, nor within any
authority possessed by him, but to subserve simply his own personal ends
or to commit some fraud against the principal.'^ In such cases the prin-
scheme which the agent was engaged authority. Withers v. Lafayette County
in perpetrating." Thecourt here cites Bank, 67 Mo. App. 115.
Kennedy v. Green, 3 Myl. & K. 699; 58. Though generally the knowledge
Cave V. Cave, 15 Ch. Div. 639; In re of an agent," acquired in the course of
European Bank, L- R. 5 Ch. App. 368; his agency, is imputed to the prin-
In re Marseilles Extension Ry., L. R. cipal, a bank is not chargeable with
7 Ch. App. 167; Atlantic Nat. Bank v. notice of its cashier's fraud in inducing
Harris, 118 Mass. 147; Loring v. defendant to make a note to the bank
Brodie, 134 Mass. 453. for discount by it, the proceeds to be
Prior to the issue of a bond by a invested by the cashier for defendant's
fidelity insurance company guaranty- benefit, though he intended from the
ing a bank against dishonesty of its beginning to misappropriate the pro-
cashier, the cashier and president of ceeds, since knowledge of an agent's
the bank had conspired to rob it, and fraud is not imputable to the principal,
had been engaged in fraudulent prac- where actual knowledge of the facts
tices. When application was made for by the principal would defeat the con-
the bond, the company required a cer- summation of the fraud. Hilliard v.
tificate from the bank of the cashier's Lyons, 103 C. C. A. 651, 180 Fed. 685.
good character, which was made by As to individual interest of officer •
the president, apparently without any as affecting knowledge or notice, see

direct authority from the board of di- ante, "In General," § 116 (l); "In Re-
rectors, or any knowledge on their spect to Discounts and Securities',"
part that the certificate was made or § 116 (2); "In Respect to Deposits,"
required. Held, that the president's § 116 (3); "Notice to Directors,"
knov.'ledge of the cashier's dishonesty § 116 (5) post, "Individual Interest of
;
could not be imputed to the bank, so Officer or Agent as Affecting Person
as to make it responsible for the mis- Dealing with Bank," § 117.
representations contained in the cer-
59. American Surety Co. v. Pauly,
tificate. American Surety Co. v.
3 70 U. S. 133, 42 L. Ed. 977, 18 S. Ct
Paiily, 38 C. C. A. 644, 72 Fed. 470.
552.
A cashier of a bank, who was also
a director of a manufacturing com- Knowledge by the president of a
pany, and as such director assisted in bank of misappropriation of its
his
promulgating false statements as to funds in personal transactions is not
the financial condition of the company, notice to the bank. Lamson v. Beard,
for the purpose of defrauding all of 36 C. C. A. 56, 94 Fed. 30, 45 L. R.
its creditors, including the bank, was A. 822.
not the agent of the bank in such mat- The cashier of a bank sold cattle in
ter so as to affect the validity of its which he and complainant were jointly
claims against the company. Decree interested, receiving payment in a draft
Hadden v. Natchaug Silk Co., 84 Fed. and credit slip payable to the bank.
80, reversed in Hadden v. Dooiey, 34 These he deposited to his own credit,
C. C. A. 338, 92 Fed. 274; S. C, 35 C. and collected and thereafter checked
C. A. 554, 93 Fed. 728; reversed in out the entire amount, and converted
Dooiey v. Hadden, 179 U. S. 646, 45 L. it to his own use. He transacted the
Ed. 357, 21 S. Ct. 259. entire business on behalf of both the
Where the president of a bank, as bank and himself, and no one else con-
agent of a shareholder, fraudulently nected with the bank had any knowl-
and without authority has such share- edge of complainant's interest in the
holder's certificates canceled and new cattle or their proceeds. Held, that
certificates issued to him^self as trans- the bank was not chargeable with no-
feree he is acting in a double ca- lice that complainant had any interest
pacity, and the bank is bound by his in the fund deposited, and occupied
knowledge of th'i fraud and want of no trust relation to him which ren-
cipal is not bound for the acts or declarations of the agent unless it be
proved that he had having received
at the time actual notice of them, or
notice of them failed to disavow what was assumed to be said and done in
his behalf.®" So when the circumstances are such as to render it certain
that the officer did not communicate his knowledge to his principal, the
principal can not, on the ground of imputed knowledge, be held liable.®^
Where makes an agreement with a third
a cashier, acting for his bank,
party whereby they enter into an unlawful transaction, the cashier's knowl-
edge is not chargeable to or binding on the bank.®^ j(- ôuld seem to follow
that a bank is presumed to know what its president knows only while he
acts within the scope of his agency; hence knowledge of his fraudulent in-
tent in drawing a fund from the bank in his private capacity as trustee of
dered it accountable for such interest. manager of the bank, and the money
Bank v. Thompson, 56 C. C. A. 554, was, in the first instance, deposited to
118 Fed. 798. its credit with a correspondent, when
Where the other bank officers were it was immediately transferred on the
ignorant of the acts of the vice presi- books to the credit of the cashier, and
dent in his personal dealings with the checked out by him; nor is it liable to
bank, which were against its interests, the principal, for such money, when it
the bank is not bound by his knowl- realized no benefit therefrom. School
edge of such dealings. Findley v. Dist. V. De Weese, 100 Fed. 705.
Cowles, 93 Iowa 389, 61 N. W. 998. Unlawful transaction in pursu-
62.
The knowledge of the vice-president
of a bank of his own interest to mis-
—
ance of an agreement. Where, with
the knowledge of both parties of a
appropriate funds obtained by him rule of a bank prohibiting an officer
from the bank as treasurer of a cor- thereof from becoming its debtor, its
poration doing business with the bank cashier, in order to obtain money from
is not the knowledge of the bank, so
the bank to purchase corporate stock,
as to enable the corporation to set makes an agreement with a third party
ofif the amount obtained by him against
by which he is to purchase the stock,
the notes of the corporation. Gunster the cashier advancing the bank's
V. Scranton, etc., Power Co., 181 Pa. money to pay therefor, and the pur-
327, 37 Atl. 550, 59 Am. St. Rep. 650. chaser giving his note to the bank for
60. American Surety Co. v. Pauly, the money, and depositing the stock
170 U. S. 133, 42 L. Ed. 977, 18 S. Ct. as collateral, and the cashier assuming
552. payment of the note, such transaction
61. Where the cashier of a bank is illegal, and the cashier's knowledge
fraudulently procures note
plajntiff's
in respect thereto is not chargeable to,
as an accommodation for his personal or binding on, the bank. Savannah
benefit, and, selling the same, receives Bank, etc., Co. v. Hartridge, 75 Ga.
in payment a draft, which he indorses 149.
to his bank, it being ignorant, except
The fact that a cashier of a bank,
through him, of the circumstances of
the transaction, the bank is not who had abstracted funds therefrom,
knew the bank was insolvent, is not
charged with notice of the fraud, the
notice of such insolvency to the other
usual presumption that an agent has
officers. Perth Amboy Gaslight Co. v.
disclosed his knowledge to his prin-
Middlesex County Bank, 60 N. J. Eq.
cipal not arising, as the circumstances
84, 45 Atl. 704.
render it certain that the cashier did
not so disclose his knowledge to the Where a cashier of a bank pledges
bank. Hummell v. Bank, 75 lov/a 389, a certificate of stock indorsed in blank
37 N. W. 954. to secure a loan to him, the bank was
A bank is not chargeable with no- not chargeable with the knowledge of
tice of the misappropriation of money
the cashier that he had no authority
to pledge such stock. Brady v Mt.
by its cashier, acting as agent for a
third party, in his individual capacity, Morris Bank, 65 App. Div. 212, 73 N.
although the cashier was in fact sole Y. S. 532.
852 BANKS AND BANKING. 117
the fund, with intent to misappropriate it, is not imputed to the bank.^^
Where bank has fraudulently obtained a draft, and indorsed

the cashier of a
the same to his bank, his knowledge of the fraud is no ground for charging
the bank with constructive notice thereof.®* And where the maker of a
note, for a blank amount, hands it to a bank director to be filled up with a
certain amount to use in renewal of another note, if the director fraud-
ulently fills up the note for a larger amount, and discounted it for his own
use at the bank, without communicating the facts to any other director, but
sits as one of the discount board, the bank is not charged with knowledge
of his fraud.^^ But where the cashier of a bank in a given transaction alone
represents the bank and a third party, whose agent he is, the bank is charge-
able with knowledge of the cashier's fraud in the transaction.®® And where
the cashier of a bank conspires with a third person to sell worthless prop-
erty to defendant at par, in order that the proceeds may be applied to the
payment of a debt due the bank, the bank is chargeable with the knowledge
that the cashier had of such conspiracy.®'^
117. Individual Interest of Officer or Agent as Affecting Person

§
—
Dealing with Bank. It is an old doctrine that an agent can not bind his
principal, even in matters touching his agency, where he is known to
be acting for himself or to have an adverse interest.®* And where a banK
63. Fraud in his private capacity loan on the stock, and was advised by
Knobeloch v. Germania Sav. Bank, 50 the owner to remit the proceeds to
S. C. 259, 27 S. E. 962. him. The owner was at the same time
Possession of booksb.v a bank, con- indebted to the bank,' and the cashier,
taining entries of drafts fraudulently without authority, deposited the pro-
drawn by the president in personal ceeds in the bank, by which it was ap-
brokerage transactions, is not notice propriated in payment of the indebted-
thereof to the bank, v/here the books ness. Held, that the bank was charge-
were under the sole control of the able with notice of the cashier's fraud,
president, and kept in such a manner and could not make the appropriation.
as to conceal his defalcations. Lam- Winslow V. Harriman Iron Co.
son V. Beard, 94 Fed. 30, 36 C. C. A. 56, (Tenn.), 42 S. W. 698.
45 L. R. A. 822. 67. Proceeds applied to debt due
64. Cashier fraudulently obtaining —
bank. Merchants' Nat. Bank v. Tracy,
draft. — Hummel v. Bank, 75 Iowa 089, 77 Hun 443, 29 N. Y. S. 77, distinguish-
37 N. W. 954. ing New York v. Tenth Nat. Bank, 111
A bank
cashier's fraud in procuring N. Y. 446, 18 N. E. 618.
the execution of a note can not be im- 68. Agreement by agent having in-
puted to the bank merely from the fact terest. —Fowler v. Walch, 119 App.
that he was its cashier, on the cash- Div. 542, 104 N. Y. S.^ 54.
ier's transferring the note to the bank As to officer acting in dual capacity,
as security for a loan, so as to pre- see ante, "In General," § 116 (l).
clude the bank from recovering' on the As to individual interest of. officer or
notes as indorsee. First Xat. Bank v. agent as imputation
affecting of
Bevin, 72 Conn. 666, 45 Atl. 954. knowledge or notice to his principal,
65. Fraud in filling up note made out see ante, "In General," § 116 (l) "In
;
in blank. — Terrell v. Branch Bank, 12 Respect to Discounts and Securities."

Ala. 502. § 116 (2); "In Respect to Deposits,"
66. Where officer alone represents § 116 (3); "Notice to Directors,"
bank and a third party as agent. — § 116 (5).
Leonard v. Latimer, 67 Mo. App. 138. The manager of a bank conducted
A holder of bank stock placed it in by a firm has no authority to bind it
the hands of the bank's cashier for by the payment of tlie individual debt
negotiation. The cashier obtained a of a partner out of firm assets. Blake
§ 117 eBprEsentation of bank. 853
officer acts in his individual capacity or as agent for a third party, the bank
can not be held liable toone with notice for the acts or on the representa-
tion of such officero** So it may be generally stated that acts of officers
of a bank in any transaction in which both the bank and the officers are
interested do not bind the bank.'ô An officer of a bank can not bind the
V. Third Nat. Bank, 2ia Mo. 644, i]8 of consideration as a defense to the
S. W. 641. note, although the cashier appro-
That one who as cashier and for a priated the proceeds to his own use;
bank issued its draft had an interest the bank having discharged its duty
therein did not differentiate him from to defendant by turning the proceeds
any other payee thereof having an in- over to the cashier as the defendant's
terest. Milmo Nat. Bank v. Cobbs accredited agent. Milliard v. Lyons.
(Tex.), 128 S. W. 151. 103 C. C. A. 651, 180 Fed. 685.
"It is a well-established principle of 70. Acts in which both interested. —
law that agents can not act so as to First Nat. Bank v. Gifford, 47 Iowa
bind their principals, where they have 575.
an adverse interest. Story on Agency, "Such rule seems to be sustained by
§§ 310, 211. The
principle is illustrated the decided weight of authority. Wash-
by examples; thus, an agent employed ington Bank v. Lewis (Miss.), 33 Pick.
to sell can not become the purchaser, 24; Farmers', etc.. Bank v. Payne, 25
nor can one employed to buy become Conn. 444, 68 Am. Dec. 362; Farrel
the seller, nor indeed can the agent Foundry v. Dart, 26 Conn. 376; Seneca
represent his principal in any transac- County Bank v. Neass (N. Y.), 5
tion where he may derive a benefit at Denio 339; Winchester v. Baltimore,
the expense of the principal out of the etc., R. Co., 4 Md. 231; Piatt v. Birm-
transaction, or where the interests of ingham Axle Co., 41 Conn. 355." First
the agent and principal are antagonis- Nat. Bank v. Gififord, 47 Iowa 575.^
tic." Morgan & Co. v. Merchants' "The only case in seeming conflict
Nat. Bank, 81 Tenn. (13 Lea) 234. with the foregoing to which our at-
The rule of equity jurisprudence that tention has been called is Scripture v.
a party holding a fiduciary relation to Francestown Soapstone Co., 50 N. H.
trust property can not become the pur- 571, but even this case does not sus-
chaser of such property either directly tain the claim made by the defendant.
or indirectly, and if he does the sale In that case the party seeking to avail
is voidable and will be set aside at the himself of notice to the officer was an
mere pleasure of the beneficiaries, al- outside party, in no Vifay connected
though such fiduciary may have paid a with the corporation; while here the
full price and gained no advantage, is defendant seeks to avail himself of
not confined to trustees and fiduciaries his own knowledge, or, as it were, of
in the technical sense of those terms, notice to himself, and by this bind the
hut it embraces cashiers of banks. corporation. Such doctrine we are un-
Reilly v. Oglebay, 35 W. Va. 36. Vvilling to sanction." First Nat. Bank
69. Officer acting in individual ca- V. Gififord, 47 Iowa 575.
pacity eind not an agent of bank. — So, where, under a private agree-
Where the vice-president and manager ment between the cashier and the
of a bank is also manager of a part- president, whereby stock of the bank
nership of which the bank is a mem- was purchased by the cashier with
ber, his mismanagement of the part- money borrowed from the bank, for
nership business is not chargeable to which he gave his note indorsed by
the bank, since in that business he does the president, the bank was not bound
not act as agent of the bank. Cameron to hold the note for the protection of
V. First Nat. Bank, 4 Tex. Civ. App. the president. First Nat. Bank v. Gif-
son, 23 S. W. 334, affirmed in 93 Tex. ford, 47 Iowa 575.
656, no op. Ttie directors of a railroad company
The bank cashier in induc-
act of a made their personal promissory note,
ing defendant to execute a note to payable to the order of one I., who
the bank for discount by it, the pro- was one of the makers, and the presi-
ceeds to be invested by the cashier for dent of the company, and was the
defendant's benefit, and his act in re- president of the bank to which the
ceiving the proceeds were acts of de- same was transferred. The note was
fendant's agent and not the bank's and given in renewal of others upon which
hence defendant can not assert failure money had been obtained for the com-
bank by an agreement adverse to its interests made with another party,

when such party and officer are at the time such agreement is made en-
gaged in serving their own interests or the interests of another corpora-
tion in which they are jointly interested, and where the sole purpose of the
agreement is to benefit themselves or the corporation or company in which
they are interested J ^ Nor can he bind the bank by his representations or
acts in relation to a transaction in which he is acting for his own behalf,
to the knowledge of the other party, without ratification by the bank;'^^
it is generally conceded that where an agent has a personal interest ad-
verse to that of his principal, which would tend to prevent him from com-
municating his knowledge, a third person having notice of this adverse
interest can not hold the principal bound by such knowledgeJ^ But where
pany purposes. Held, that the bank ratified or received any benefit from
could not be bound by an agreement the transaction, can recover from the
made by such directors with a third bank the value of the certificate de-
party, whereby he agreed to pay this livered to her bv its cashier. Moores
note, and release the makers from all V. Citizens' Nat.' Bank, 111 U. S. 156,
responsibility, though L, the president 28 L. Ed. 385, 11 S. Ct. 345.
of the bank, was present, and con- B. lent money to A., cashier of a na-
sented to such agreement; being liable tional bank, for his private use, on his
on the note, he could not act for the representations to her that he owned
bank so as to release himself. Gallery stock in the bank, and that such stock
V. National Exch. Bank, 41 Mich. 169, had been transferred to her. These
2 N. W. 193, 32 Am. Rep. 149, affirming were representations made by him per-
Lewis V. Westover, 29 Mich. 14. sonally, and not as cashier; and there
71. Fowler v. Walsh, 119 .A.pp. Div. is no evidence that the plaintiff under-
542, 104 N. Y. S. 54; Bank v. Purdy, stood, or had any reason to under-
100 App. Div. 64, 91 N. Y. S. 310. stand, that those representations were
Where the president of a bank pro- made by him in behalf of the bank.
cured a note, signed by himself and The duty of transferring his stock to
others and payable to himself, as trus- the plaintiff before taking out a new
tee, to be discounted by the bank certificate in her name was a duty that
solely for the joint benefit of himself he, and not the bank, owed to the
and the other makers, he had no au- plaintiff. The making of such a trans-
thority,- as president, to bind the bank fer was an act to be done by him in
by an agreement that the note should his own
behalf as between him and the
be paid from the proceeds of the in- plaintiff, and in the plaintiff's behalf
vestment of the borrowed money, nor as between her and the bank. There
by an agreement that the bank should is nothing, therefore, in Lis extrinsic
accept another note signed by one of representations, for which the bank is
the makers of the original note alone, responsible. Moores v. Citizens' Nat.
in full payment of such original note. Bank, 'ill U. S. 156, 28 L. Ed. 385, 4
Fowler v. Walch, 119 App. Div. 542, S. Ct. 345.
104 N. Y. S. 54. 73. Thirdperson with notice of adr
72. As to personal sale of stock and —
verse interest. Traders' Nat. Banic v.
—
issue of certificate. Moores v. Citi- Smith (Tex. Civ. App.), 22 S. W. 1056.
zens' Nat. Bank, 111 U. S. 156, 38 L. A
cashier of a bank executed notes
Ed. 385, 4 S. Ct. 345. to the bank in his individual capacity
There is no precedent for holding and as treasurer of a company. These
that one who has dealt with the cash- notes he, as cashier, sold to a third
ier individually, and lent money to him person. The company note was re-
for his private use, and received from newed several times by the cashier as
him a certificate in her own name, treasurer, the new notes being indorsed
which stated that shares were trans- or guarantied by him as cashier of the
ferable only on the books of the bank bank. The individual notes were also
and on surrender of former certificates, renewed several times. Subsequently
and no certificate having been surren- the cashier gave notes for the amount
dered by him or by her, and there be- of the renewal notes directly to the
ing no evidence of the bank having third person, with the bank's guaranty.
§ 117 REPRESENTATION OE BANK. 855
the agent acts for the principal in the particular transaction, and the third
person does not know of such adverse interest, and one of them must
through his fraud, it would seem upon principle that the one who
sufifer
Held, that the third person took the Chicago, credited it to the account of
notes with notice that the cashier could the land company in the books of his
not deal with himself individually or bank, and inclosed it to the cashier of
as treasurer of a company, and hence the Chicago bank, with a letter, in his
the bank could not be bound by the individual name, stating that he had
guaranty. German Sav. Bank v. Des been called on to take up $25,000 for
Moines Nat. Bank, 123 Iowa 737, 98 N. a company in which he was interested,
W. 606. and did not want to borrow the money
Where the president of a bank and from his own bank, and asked if the
member of its discount committee sold Chicago bank would place tlie inclosed
to the bank a third person's note, nego- note to the account of the St. Paul
tiable upon its face and delivered by bank, adding that the latter bank
the third person under a personal con- would not draw against it. The cash-
tract between him and the president ier of the Chicago bank replied that
that the proceeds should be used to he had placed the proceeds of the land
purchase land upon such person's accompany note to the credit of the St.
count and the profits equally divided Paul bank, with the understanding that
between them, the president was acting none of it was to be paid out, and that
for himself and third person jointly they reserved the privilege of charg-
in negotiating the note, and the bank ing the land company note to the St.
was not charged with knowledge of Paul bank, at their option. The cash-
lack of consideration and diversion to ier replied, accepting the conditions.
an unauthorized purpose, known only The Chicago bank then discounted the
to the president. First Nat. Bank v. land company's note, and placed the
Persall, 110 Minn. 333, 125 N. W. 506, proceeds to the credit of the St. Paul
rehearing denied in 125 N. W. 675. bank, which then paid the $25,000 to
A bank cashier personally procured the land company. The St. Paul bank
the discount, by his bank's corre- was not a party to the note of the land
spondent, of a note of a land company company, and had no interest in it.
in v/hich he was interested. The corre- None of the officers of the St. Paul
spondent bank discounted the note bank, except those who were stock-
upon the condition that it be allowed holders in the land company, ever au-
to charge it against the cashier's bank thorized, knew of, or ratified the agree-
at its option, to which the cashier ment between their cashier and the
agreed. The cashier's bank was not a Chicago bank, and they had no notice
party to the note, and, except for the that the credit of $25,000 by the bank
knowledge of its president and two to the St. Paul bank was not an actual
directors who were also interested in and unconditional credit for cash de-
the land company, did not know of posited. Held, that the fraud of the
the transaction. Held that, since the Chicago bank injured the St. Paul
cashier's agreement amounted to a bank, though the latter honored the
pledge of his bank's responsibility upon check drawn by the land company in
the note, it was beyond the scope of favor of the payee of the note before
his authority and void. Ft. Dearborn the Chicago bank discounted the new
Nat. Bank v. Seymour, 71 Minn. 81, note of the land company, since the
73 N. W. 724. acts of the cashier in acting for both
The cashier of a St. Paul bank, who the land company and the St. Paul
was the secretary of a land company, bank were voidable by the latter, if it
drew a check for $25,000, as such secre- acted promptly, as it would have done,
tary, on his bank, to pay a note of the were it not for the acts of the Chi-
land company, and then accepted the cago bank. Ft. Dearborn Nat. Bank
V. Seymour, 75 Minn. 100, 77 N. W.
check, as indorsed by the payee of
the note, to be deposited in the bank 543.
to the credit of the payee. On the Where the president of a bank
next day the amount of the check was agreed with the maker of a note, in-
credited to the payee on the books of dorsed to the bank for discount for
the bank, and the land company was the benefit of a corporation, of which
charged with the amount. At the same both the president of the bank and the
time, the cashier drew up a note from maker of the note were officers, with-
the land company to plaintiff bank in out knowledge on the part~of the di-
employed such an agent should bear the loss rather than the otherJ* Then
the question arises, whether the officer or agent has such adverse interest
to the bank as will prevent the bank from being charged with notice to
him, which must be determined according to the facts of each particular
case as they arise. It seems, though, that his interest must be really ad-
verse, and if his interests on both sides equally balance, generally speaking,
he can not be said to hold such an interest as will prevent his knowledge
from being imputed to the bank.'''^
Unauthorized Use of Bank's Funds to Pay Third Person. Where —
a transaction between the president of a bank and defendants, in which
,. j.ii
rectors of thebank, that the maker —
adverse interest. Traders' Kat. Bank
should not be required to pay the V. Smith (Tex. Civ. App.), 22 S. W.
note, such agreement was no defense 1056.
to the maker's liability thereon; the Under an agreement with the cash-
latter knowing that the interest of the ier of defendant bank, complainant
president of the bank in the corpora- company mortgaged its property to
tion was in conflict with his duties to secure bonds, which were left in the
the bank. Bank v. Purdy, 100 App. mortgagee's possession, to be de-
Div. 64, 91 N. Y. S. 310. livered to the cashier for sale, Cm his
Where the president of a bank, the demand, the proceeds to be credited
stock of which is, under its charter, on complainant's debt to the bank. In
subject to a lien in favor of the bank the casiiier's absence, complainant was
for the indebtedness of the holder of notified that certain notes given to the
such stock to the bank, assigns a cer- bank were due, and the assistant cash-
tificate of stock, of which he is the ier, under instructions from the di-
owner, as collateral security for a per- rectors, agreed to extend credit till the
sonal loan, notice of the bank's lien cashier should return, on
' condition
being expressly given by the certifi- that the unsold bonds should be held
cate so transferred, the president's by the bank as collateral, and com-
knowledge of the assignment thus plainant thereupon gave a note recit-
made by him is not' notice to the bank ing that it was secured by said bonds.
of such assignment, so as to preclude The cashier, on his return, surrendered
it from asserting its lien upon such this note to complainant, taking re-
stock as to debts to the bank incurred newal notes, with the agreement that
by the president after the assignment, the bonds should be security for all
but before the bank has received any complainant's indebtedness to the
other notice of such assignment. bank; and, after obtaining the bonds
Franklin Bank v. Commercial Bank, 5 from the mortgagee, the cashier
O. Dec. 339. pledged them to the bank as collateral
Plaintiffs were the assignees of a security for his own debt. Held, that
corporation which had a deposit with the bank could not apply the bonds on
defendant bank. Defendant held three the cashier's indebtedness, but should
of the corporation's notes, which de- hold them as collateral security for
fendant's cashier, who was treasurer complainant's debt. Detroit Motor
of the corporation, had personally in- Co. V. Third Nat. Bank, 111 Mich. 407,
dorsed. On the assignment plaintiffs 69 N. W. 726.
informed defendant's cashier of the 75. Interest must be adverse.
same, who agreed to transfer the de- Where the president of the plaintiff
posit account of the corporation to bank purchased from an investment
plaintiffs, and to honor the checks of company, of which he was a stock-
one of them. Held, that the defend- holder and director, a note given to
ant's cashier was not the proper bank the company under an agreement to
officer with whom the plaintiffs should which he, as director, was a party, the
have dealt, because of his interest in plaintiff is chargeable with notice of
the affairs of the corporation, and the condition upon which the note was
hence the agreement to transfer the executed at the time it acquired the
deposit, being repudiated by the di- same. Traders' Nat. Bank v.. Smith
rectors, was void. Ellis v. First Nat. (Tex. Civ. App.), 22 S. W. 1056.
Bank, 22 R. I. 565, 48 Atl. 936. Where one who is an officer of an
74. Third person without notice of incorporated bank acts in a given mat-
§117 REPRESENTATION OF BANK. 857
the president paid defendants money belonging to the bank, which he

wrongfully appropriated, was concealed from the bank, and the mere state-
ment of the facts to the directors would have disclosed the fraud, defend-
ants are liable to the bank for the money so received.'^ In the absence of
special authority, conferred by the directors of a bank by resolution, ac-
quiescence, or implied assent, the president of a bank has no authority to
draw drafts on its funds in payment of personal debts.'^^ That the presi-
dent was permitted to draw them through the culpable negligence of the
directors is unavailing, where there was no finding of such negligence, or
that defendants were influenced thereby to accept the drafts, of which
they had notice the president was making improper useJ^ But if the
directors of a bank, trusting the president's integrity or individual re-
sponsibility, authorized him to use drafts drawn on its funds for private
purposes, whether paid for at the time or not, any loss' resulting from the mis-
use of such authority would on the bank, and not on a third person,
fall
who had taken the drafts for value and in good faith, which, in such case,
would be determined by the established rules governing the transfer of ne-
gotiable paperJ^
—
Cashier. A bank may recover funds misappropriated by its cashier
from one receiving them with knowledge of the misappropriation. ^^ Where
the cashier of a bank pays his individual debts by entering the amount
to the credit of his creditor, the bank may recover of the creditor the money
it may pay out on checks drawn on the faith of the unauthorized credit.
^^
And where the cashier's creditor accepts the cashier's false statement
that he had deposited a sum to creditor's account, the creditor is liable
to the bank for overdrafts caused by reason thereof, and the bank is not
liable to the creditor on account of the cashier's agreement.^^ Where the
ter in behalf of the bank, his acts are A custom of bank cashiers to draw
binding on the corporation, although on own banks to pay their per-
their
at that time and in the same matter he sonal indebtedness would be contrary
may have been acting also in his in- to law, and could not affect the legal
dividual interest. Smith v. Wilson, 1 consequence that a payee of drafts so
Tex. Civ. App. 115, 20 S. W. 3119 (see drawn, who knew that the funds were
85 Tex. 40aT. to be applied on the cashier's personal
76. Unauthorized use of bank's funds transactions, would be liable to repay
to pay third person. —
Lamson v. Beard, the same to the bank. Kitchens v.
36 C. C. A. 56, 94 Fed. 30, 45 L. R. A. Teasdale Comm. Co., 105 Mo. App.
822. 463, 79 S. W.
1177.
Necessity for special authority.
77. 81. Payment of individual debts.
—Lamson v. Beard, 36 C. C. A. 56, 94 Hier v. Miller, 68 Kan. 258, 75 Pac. 77.
Fed. 30, 45 I-,. R A. 822. 82. Overdrafts caused by cashier's
78. Negligence of directors. Lam- — false agreement. —A
cashier of a bank,
son V. Beard, 36 C. C. A. 56, 94 Fed. in sole charge thereof, promised his
30, 45 L. R. A. 822. creditor to deposit in the bank the
79. Effect of existing authority. amount of the debt at maturity. The
Lamson v. Beard, 36 C. C. A. 56, 94 amount was not credited on the pass-
Fed. 30, 45 L. R. A. 822. book of the creditor, nor was any en-
80. Misappropriation of funds by try made thereof on the books of the
cashier.— Hier v. Miller, 68 Kan. 258, bank. The creditor accepted the false
75 Pac. 77; Kitchens v. Teasdale statement of the cashier that the de-
Comm. Co., 105 Mo. App. 463, 79 S. W. posit had been made, and drew against
1177. the deposit, and his checks were paid
cashier of a bank places the amount of his debt to the credit of his creditor
on his pass book, the fact that the cashier is personally interested is suffi-
cient to put the creditor on inquiry as to the extent of the cashier's power.**
Where a bank cashier transmits funds to a commission company by draft
on the bank's correspondent, over his official title, to be used in grain specu-
lation, thecommission company is apprised that the cashier, by the abuse
of his power, is employing the funds of the bank in speculation on his indi-
vidual account.**
Authority of Cashier. —The general authority of a cashier of a bank
does not authorize him to issue drafts of the bank for himself or for his
private use.*^ And he has no such implied authority, the bank having re-
ceived nothing of value in the transaction. ^^ The cashier of a bank, as
such, has no authority to issue cashier's drafts to his own order in pay-
ment of his individual debts, and a creditor accepting a draft so drawn
takes the risk of such lack of authority.*'^ Where checks are drawn for
the cashier's individual use on his bank, the payee can not assume that he
is acting in the scope of his official duties, and such payee is under obliga-
tion to ascertain the special authority of the cashier to make out checks out-
side such official duties.**
—
Misappropriation of Assets Rights of Assignee. Where the di- —
rectors and trustees of a defunct bank have no authority to pledge the
assets of the bank, an assignment of a life policy held by it, as security for
a note, to a third person in consideration of their personal indebtedness to
on presentation. Subsequently the 87. Right to use cashier's drafts for

bank went into liquidation. The —
personal use. Gale v. Chase Nat.
creditor did not show that he could Bank, 43 C. C. A. 496, 104 Fed. 314.
have made his claim out of the cash- gg.Duty of payee to ascertain cash-
ier. Held, that the creditor was liable ier'sauthority.—The cashier of a bank
to the bank for his overdrafts, and the kept an account with defendants, who
bank was not responsible to him as a êre brokers and bought and sold
depositor for the amount the cashier stocks for him, and from time to time
agreed to deposit to his credit. Lang- defendants received checks of his bank
lois V. Gragnon, 133 La. 453, 49 So. 18. on another bank, its correspondent,
Sufficient notice of third party.
83. drawn by him in his official capacity,
— Hier v. Miller, 68 Kan. 358, 75 Pac. 77. and collected them and applied them
84. Fund to be used in speculation. to the cashier's individual account. In
— Kitchens v. Teasdale Comm. Co., 105 an action by a receiver of the bank
Mo. App. 46.% 79 S. W. 1177. of the cashier to recover of defendants
85. Authority, generally, of cashier. the amount of the checks received by
—Mendel v. Boyd, 71 Neb. 657, 99 N. them, held that, the checks being made
W. 493. payable to the order of defendants for
Cashier has no implied authority.
86. the cashier's individual use, defendants
—The cashier of a bank has no im- took them under an obligation to as-
plied authority to pay his individual certain that the cashier had authority
debts by entering the amount of them outside his ordinary official authority
as a credit on the pass book of his to make the checks, and could not as-
creditor, who keeps an account with sume that he was acting in the scope
the bank, and permitting the creditor of his official duties. Anderson v.
to exhaust such account by checks, Kissam, 35 Fed. 699, judgment reversed
which are paid; the bank liaving re- on other points. Kissam v. Anderson,
ceived nothing of value in the trans- 145 U. S. 435, 36 L. Ed. 765, 13 S. Ct.
action. Hier v. Miller, 68 Kan. 358, 960.
75 Pac. 77.
§118 RBPResBNTATION OF BANK. 859
such assignee, is invalid.*^

As Affecting Purchaser of Negotiable Paper. Where a person ac- —
cepts, in good faith, negotiable paper in a bank, the same being pledged to
him by the cashier, he acquires a good title, and such title can not be di-
vested by a fraudulent recovery thereof by the Cashier.s" Where a note
executed solely for the accommodation of a bank was made payable to the
order of the bank's cashier, and indorsed in blank, the mere fact that the
president of the bank negotiated the note for his personal benefit to a third
person, who knew his office, was not of itself notice to the purchaser of
the facts, or sufficient to put him on inquiry as to the legality of the presi-
dent's act.î A creditor of the president who in good faith received the
note from him before its maturity and without notice of the equities exist-
ing between the makers and the payee, was a bona fide holder for value
in the due course of business, although the creditor took the note as col-
lateral security for an existing debt of the president, and for this purpose
and upon this consideration only.^^
—
As Affecting Depositor Depositor for Collection. Where the cash- —
ier of a bank receives deposits, and evidences of debt for collection, the
bank can not avoid accounting to the depositor, on the ground that the
cashier, without the banker's knowledge, acted in furtherance of an inde-
pendent, fraudulent scheme to appropriate the funds to his own use.^^
Estoppel of Bank. —Where the cashier actually makes a false entry of
deposit in favor of his creditor, the bank is estopped to deny the validity
of the creditor's check to that amount, which has paid and not objected
it to
until ,after its failure, and can not recover against him.^*
§ 118. Evidence as to Authority.^Presumptions. The general rule —

is that a bank acts through its president, and through him executes its con-
tracts and agreements ; and an act pertaining to the business of the corpo-
89. Invalid assignment of assets for .

92. Bona fide holder without no-
personal indebtedness.— New York tice.—Kaiser v. United States Nat.
Bank, 99 Ga S58, 35 S. E. 620.
Life Ins. Co. v. Kansas City Bank, 121 _
Mo. App. 479, 97 S. W. 195.

93- ^s
affecting depositor-Deposi-
f '^ ^ .
A c -û c „^rr^
90 Acceptor^ in good faith of nego-
—
tor for collection. Hanson v. Heard,
gg ^ ^ 33 ^^j ^gg
tiable bond.— Ringhng v. Kohn, 4 Mo. ^^ Estoppel to deny validity of
App. 59.
where a trustee
—
checks. The cashier of a bank, being
"As a general rule, individually indebted to a depositor, in-
or agent has converted the subject of formed him that he had placed $3,000
his trust or agency into money, and to his credit at the bank on account
pays the same in the due course of _ of such debt, but only entered a credit
business, in discharge of his own in- of $.1,000 to the depositor on the bank
debtedness, to one ignorant of the na- books, and actually paid nothing to
ture of his title, the payee acquires a tj,ebank. The depositor having drawn
perfect and indefeasible right against checks for the entire $3,000, the re-
the real owner." Charlotte Iron ceiver of the bank sued him therefor.
Works V. American Exch. Nat. Bank Held, that the receiver was estopped
(N. Y.), 34 Hun 36; Stephens v. Board, to deny the credit of $1,000 shown by
79 N. Y. 183, 35 Am. Rep. 511. the bank books, but that he might re-
91 As affecting purchaser of nego- cover the $1,000 for which no credit
tiable paper.— Kaiser v. United States was given. Williams v. Dorner, 135
Nat. Bank, 99 Ga. 258, 25 S. E. 630. Pa. 445, 19 Atl. 1024.
ration, not clearly foreign to the general power of the president, done
through him, will, in the absence of proof to the contrary, be presumed
to have been authorized to be done by the corporate body.^^ But an excep-

tion to this general rule may be created by the provisions of the by-laws
of the corporation.^® The directors of a bank having the power to author-
ize the president to assign or transfer a note for the purpose for which it
was assigned, or subsequently to ratify it if unauthorized, such assignment
will be presumed to be binding on the bank until it is shown that it was
not authorized or ratified by its directors.^''' In the absence of evidence to
the contrary, it will be presumed that the president of a bank has authority
to offer a reward for information leading to the arrest of a defaulting
teller.^® The cashier, as one of the executive officers of a bank, has prima
facie authority to receive deposits and collect notes, checks, etc., as an in-
cident to the banking business, and to bind the bank to that extent.^* The
cashier of a national bank stands no different in this respect from the
cashiers of other banks of discount. Such banks have authority to make
collections, etc., as an incident to the business, although the authority is
not expressly mentioned in the national banking act.^ The cashier is pre-
sumed to have all the authority he exercised in dealing with the executive
functions legally within the power of the bank itself, or which are usually
or customarily done, or held out to be done by such agent. But the test
of the transaction whether it is with the bank and its business or with
is
the cashier personally and in his business. ^ As to the former, all presump-
tions are in favor of its regiilarity and binding force. In the latter, no
such presumption arises.* In fact, upon proof that it was known to the
95. Presumptions as to acts done. 1. Same rules apply to cashiers of

Bank v. Griffin, 168 111. 314, 48 N. E. —
national banks. Hanson v. Heard, 69
154; MoserKreigh,v. 49 111. 84; X. H. 190, 38 Atl. 788; Yerkes v. Na-
Mitchell V. Deeds, 49 111. 416, 95 Am. tional Bank, 69 N. Y. 383, 25 Am. Rep.
Dec. 621; Smith v. Smith, 62 111. 493; 208; Keyes i: Bank, 52 Mo. App. 323.
Glover V. Lee, 140 III. 102, 29 N. E. See post, "Representation of Bank by
630. Officer," § 263.
96. Exception to rule. Bank v. — 2. Presumption in favor of authority
Griffin, 168 111. 314, 48 N. E. 154.
Authority to make assignment.
exercised. —
Campbell v. Manufacturers'
97. Nat. Bank, 67 N. J. L. 301, 51 Atl. 497,
— Harris v. Randolph County Bank. 91 Am. St. Rep. 438; Claflin v. Farm-
157 Ind. 120, 60 N. E. 1025; National ers', etc.. Bank, 25 N. Y. 293; Moores
State Bank v. Vigo County Nat. Bank, v. Citizens' Nat. Bank, 111 U. S. 156,
141 Ind. 352, 40 N. E. 799, 50 Am. St. 28 L. Ed. 385. 4 S. Ct. 345.
Rep. 330; First Nat. Bank v. New, 146 In the absence of statute, the acts
Ind. 411, 45 N. E. 597; Hawkins v. of a bank cashier in the ordinary
Fourth Nat. Bank, 150 Ind. 117, 49 N. course of business actually confided to
E. 957. him are prima facie within the scope
98. Bank i: Griffin, 168 111. 314, 48 of his authority. Third Nat. Bank v.
N. E. 154. St. Charles Sav. Bank (Mo.), 149 S.
99. Prima facie authority of cashier. W. 495.
— Hanson v. Heard, 69 N. H. 190, 38 3. Campbell v. Manufacturers' Nat.
Atl. 788; Eastman v. Coos Bank, 1 N. Bank, 67 N. J. L. 301, 51 Atl. 497, 91
H. 23; Corser v. Paul, 41 N. H. 24, 77 Am. St. Rep. 438.
Am. Dec. 753; Bank v. Haskell, 51 N. Where a transaction is had with i
H. 115; Hunter v. New York, etc., R. cashier personally and in relation to
Co., 116 N. Y. 615, 23 N. E. 9. his business, there is no presumption
§ 118 REPRESENTATION OP BANK. 861
claimant to be an individual transaction, and not one for the bank, the
hurden is cast upon the claimant to establish by proof that the act of the
cashier thus done for his own benefit was authorized or ratified. These
are fundamental principles appHcable to principal and agent in every trans-
action arising out of that relation.* Where a bank is shown to be right-
fully in the collection business, including the collection of rents, the pre-
sumption is that the cashier of the bank, in receiving money due plaintiff
on a lease and depositing it subject to plaintiff's check, is acting offi-
cially, rather than individually. ^ It will be presumed, until the contrary
is shown, that a cashier who sold a note on behalf of a bank was authorized
to do so by the directors, or that they ratified his act.* In the absence of

proof to the contrary, the cashier of a bank will be held to have authority
to turn out assets of the bank in payment of its indebtedness.'^ Usually the
authority of the cashier of a bank is a limited authority, and a party seek-
ing to show a by the cashier from liability upon commercial paper

release
held by the bank, except from the ordinary course, must show that the
cashier had authority from the directorate, or that the act had been ratified
or acquiesced in by the bank. Such authority, however, may be shown
expressly or by necessary implication, or it may be established by the
particular usage, practice, or mode of doing business of the bank.* It is
not presumed that the cashier of a bank has authority, on receiving a de-
posit, to promise interest at a usurious rate.^ However, such a promise,
although unauthorized and illegal, can not relieve the bank of the obliga-
tion to return the money so received to the party to whom it rightly be-
longs. i"
Admissibility. —Agency for a corporation may be proved, and authority
to act for it implied, just as in the case of a natural person. ^^
that he had the authority he exercised Vigo County Nat. Bank, 141 Ind. 353,
in the matter. Campbell v. Manufac- 40 N. E. 799, 50 Am. 330;
St. Rep.
turers' Nat. Bank, 67 N. J. L. 301, 51 Smith v. Wells Mfg. Co., 148 Ind. 333,
Atl. 497, 91 Am. St. Rep. 438. 46 N. E. 1000; People's Bank v. Na-
4. Individual transaction must be tional Bank, 101 U. S. 181, 35 L. Ed.
proven ratified or authorized. Camp- — 907.
bell V. Manufacturer's Nat. Bank, 67 7. Payment of debts with assets.—
N. J. L. 301, 51 Atl. 497, 91 Am. St. Peninsular Bank v. Hanmer, 14 Mich.
Rep. 438; Bank v. American, etc., Trust 307.

Co., 143 N. Y. 559, 38 N. E. 713; 'Man- 8. Acts within cashier's scope of
hattan Life Ins. Co. v. Forty-Second, —
duty. Wing v. Commercial, etc.. Bank,
etc., R. Co., 139 N. Y. 146, 34 N. E. 303 Mich. 565. 61 N. W. 1009.
776; Shaw v. Spencer, 100 Mass. 383, 9. Acts prohibited by law. Hanson —
97 Am. Dec. 107, 1 Am. Rep. 115; v. Heard. 69 N. H. 190, 38 Atl. 788.
Petrie v Clark, 11 Serg. & R. 377, 14 10. Effect of illegal promise.— Han-
Km. Dec. 636; Rochester, etc.. Road son v. Heard, 69 N. H
190, 38 Atl. 788;
Co ?' Paviour, 164 N. Y. 381, 58 N. L'Herbette v. Pittsfield Nat. Bank, 163
E 114 53 L. R. A. 790; Huff. Ag. (3d Mass. 137, 38 N. E. 368, 44 Am. St. Rep.
Ed.), p. 110. 354.
Collection of rents.— Knapp
5. v. 11. to prove agency.
Admissibility
Saunders, 15 S. Dak. 464, 90 N. W. — Metzger Southern Bank. 98 Miss.
v.
137, 108, 54 So. 341; Carev-Halliday Lum-
6. Salenote by cashier. Haw-
of — ber Co. v. Cain, 70 Miss, 638,
Yazoo,
13 So.
kins V. Fourth Nat. Bank. 150 Ind. 117. 239, and see Rivers v. etc., R.
49 N. E. 957; National State Bank v. Co., 90 Miss. 196, 43 So. 471. See,
Authority of President. —The inference that authority to enter into a
certain contract has been conferred on the president of a bank may be

legitimately drawn from proof that he was in the habit of doing such acts
or making contracts of the same character as the particular act or contract
in question, and that these acts or contracts so done or made by him, though
in relation to different subjects, involve the same general power.^^ The
fact that the president of a bank has been authorized by the board of di-
rectors to transfer or assign notes belonging to the bank may be proven by
showing the existence of such facts as constitute a public holding out that
he had such authority, and may be legitimately inferred from the proof
that he was in the habit of doing acts of the same general character, though
applied to a different subject —as the assignment of bonds or judgments;
but such authority can not be inferred from the evidence that he was in
the habit of receiving deposits or payments of notes, or that he was actually
authorized to receive generally deposits and payments made to the bank.^*
And it is also true that it could not be legitimately inferred from his habit
also, the following, amongst many- missible as bearing on the question of

other authorities: Birmingham Trust, ratification or estoppel. Metzger v.
etc., Co. V. Louisiana Nat. Bank, 99 Southern Bank, 98 Miss. 108, 54 So.
Ala. 379, 13 So. 112, 20 L. R. A. 600; 241.
Second Nat. Bank v. Howe, 40 Minn. In an action against a bank for
390, 42 N. W. 200, 12 Am. St. Rep. 744; money received through the instru-
Merchants' Nat. Bank v. McAnulty mentality of its cashier, conversations
(Tex. Civ. App.),.31 S. W. 1091. between the cashier and plaintiff's of-
Where certain directors of a bank ficers during the negotiation of the
gave a note for a loan from another transaction held admissible after the
bank, the note being indorsed by the cashier's authority had been repudi-
bank by its president, and it was re- ated. Third Nat. Bank v. St. Charles
newed by another note indorsed by the Sav. Bank (Mo.), 149 S. W. 495.
cashier, and in a suit on the note The authority of an attorney in fact
against the bank the defense was that of a bank to receive lands in satisfac-
the officers had no authority to make tion of drafts held by the bank may be
the indorsement, and that the loan was inferred from the acts and conduct of
procured by them for their individual the parties, and need not be shown by
use, it was error not to admit evidence resolution or by-law of a board of di-
that the president of the borrowing rectors. Norton Bull, 43 Mo. 113.
v.
bank told the cashier of the lender be- The power
fore the renewal was made that the
bank officer to re-
of a
lease a surety without payment can be
loan was for the bank. First Nat.
conferred by direct action on the part
Bank v. Arnold, 156 Ind. 487, 60 N.
of the board of directors of the bank,
E. 134.
but may be inferred from evidence of
Where, in an action by a bank for
a general course of dealing, or from
an indebtedness due to it, defendant
proof that the officer or agent had
relied on a settlement with his cred-
been intrusted with the entire man-
itors, including the bank, and the pay-
agement of the business of the bank.
ment to the bank of the amount due
Pierce City Nat. Bank v. Hughlett, 84
under the settlement, and that the bank
Mo. App. 268.
was bound by the settlement by rea-
son of the acts of the cashier having Admissibility to show authority
12.
authority to manage the affairs of the of president. —
First Nat. Bank v. Kim-
bank, and by the bank's ratification of berlands, 16 W. Va. 355. See Farmers'
the acts of the cashier, or by estoppel, Bank v. McKee, 2 Pa. 318; Mount
evidence that the action was brought Sterling, etc., Road Co. v. Looney
shortly after the death of the mother (Ky.), 1 Mete. 550, 71 Am. Dec. 491.
of defendant, from whom he inherited 13. Smith V. Lawson, 18 W. Va. 212,
an interest in her property, was ad- 41 Am. Rep. 688.
§ 118 REPRESENTATION OP BANK. 863
of receiving deposits in the bank or his receiving payment of its negotiable

notes that the power to dispose of or transfer a negotiable note had been
conferred on the president of a bank for this would be the exercise of an
;
and one much more limited in its character.

entirely different sort of power,
Thus the clerk of the cashier of a bank in his temporary absence may re-
ceive deposits or payments of notes, but can not dispose of or transfer
the negotiable notes belonging to the bank.i* In an action on a certificate of
deposit signed by one alleged to be the president of the bank as "manager,"
a certificate to another than plaintiff, issued by the same person as manager,
is admissible in evidence as tending to show the authority of such president
to issue such certificate.^^
—
Authority of Cashier. Under an allegation that a guaranty sued on
was executed by the defendant bank in the name of its cashier, and that
such cashier was authorized by a general usage to bind the bank to similar
contracts, the plaintiff may prove any competent authority to the cashier,
and is not restricted to proof of usage.^^ On the question, whether the
cashier of a bank has authority to issue a certificate of deposit, other acts
of a similar kind, frequently done by him are admissible as evidence.!'^
—
Negotiation of Loan. Where the cashier of a bank effects a loan, and
itbecomes material to ascertain whether it was made for his own account
or for the use of the bank, evidence of the negotiation and circumstances
may be given for that purpose, whatever may be the form of the securities
given or received, when the latter are introduced only collaterally in the
cause 18
Purchase of Property. —In an action against the bank for the price of
property purchased a witness should not be permitted to testify that he
signed the order sued on as chairman of the organization committee of the
bank, without proof from the minutes of the creation of such a committee,
or of powers conferred on it. JSTor should such witness be permitted to
testify that in making the purchase he considered he was purchasing some-
thing needed by the bank and covered with his understanding of authority. i®
Authority of Assistant Teller. —The authority of an assistant teller
of a bank to certify checks as "good" may not be shown by evidence of a
14. Smith V. Lawson, 18 W. Va. 213, his semiannual statements, and evi-
41 Am. Rep. 688. See Potter v. Mer- dence of the custom of the bank or of
chants' Bank, 38 N. Y. 641. the cashier in issuing such deposits,
15. Power of president to issue cer- were admissible to show his authority
tificate of deposit. —
Jumper v. Com- to do so. Abbott v. Jack, 136 Cal. 510,
69 Pac. 357.
mercial Bank, 48 S. C. 430, 36 S. E.
725. 18. —
Negotiation of loan Evidence
Authority of cashier to execute
16. as to character in which made. Bank
—
guaranty. Seeber v. Commercial Nat. v. Kennedy (U. S.), 17 Wall. 19, 21 L.
Bank, 77 Fed. 957. Ed. 551.
17. Acts of similar kind Issuing — 19. Purchase of property —
Authority
certificates of deposits. —
Robinson v. of chairman of purchasing committee.
Bealle, 20 Ga. 375. — Cottondale State Bank v. Burroughs
In an action on certificates of de- Adding Mach. Co., 61 Fla. 143, 54 So.
posit signed by the cashier of a bank, 896.
general custom of banks to authorize such agents to pledge the credit ot

the bank by certifying checks. ^^
Weight and Sufficiency of Evidence.—Where the question in issue
is the existence of an agency for a bank or the existence of an authority
to act for the bank in a matter, the general rules as to the weight and suffi-
ciency of evidence apply. The agency or authority to act must be estab-
lished by a preponderance of the evidence. In the footnotes will be
found cases on the question of authority of particular officers on the fol-
lowing subjects: of vice-president to employ an attorney,î of president
to execute a bond,^^ of cashier to issue cashier's drafts to his own order
in payment of his individual obligations,^* of cashier in regard to convey-
ance and reconveyance of property,^* of cashier to execute instruments on
behalf of bank,25 of cashier to cancel bond given to the bank to indemnify
against discounts, etc.,^^ of cashier to bind bank by statements as to finan-
20. Authority of assistant teller. — cise such authority during a series of

Hill V. Nation Trust Co., 108 Pa. 1, 56 years or in numerous transactions; and
Am. Rep. 189. evidence that he had drawn not ex-
Authority of vice-president to
21. ceeding nine drafts in all in payment
—
employ attorney. In an action by at- of his own debts, only four of which
torneys to recover for personal serv- were to his own order, and all of
ices rendered a bank, in which the de- which were issued within the preced-
fense was that the vice-president, who ing six m_onths, is insufficient. Gale v.
employed the plaintiffs, both for him- Chase Nat. Bank, 43 C. C. A. 496, 104
self individually and for the bank had Fed. 214.
no right to act for the bank, the evi-
dence reviewed, and held insufficient
24. Conveyance of property — Cashier.
to sustain a judgment entered on a
— Evidence, in a suit to compel recon-
veyance of property conveyed to a
verdict for the defendant directed by
bank, held to show that the cashier
the court at the close of plaintiff's testi-
mony. Russell V. Washington Sav. who acted for it in the matter acted as
its authorized representative in agree-
Bank, 23 App. D. C. 398.
ing to reconvey within a year if grantor
22. Authority of president to execute
bond. —A
bond was executed under the within that time succeeded in selling
the property. Porter v. Farmers', etc.,
seal of a bank by its president who
Sav. Ba'nk, 143 Iowa 629, 120 N. W.
m.ade an affidavit stating that he was
633.
president, that the seal affixed was the
corporate seal of the bank, and that 25. Execution of instrument by
the seal was affixed by order of the cashier. —Theexecution of an instru-
board of directors, and that he sub- ment on behalf of a bank by its cash-
scribed the same by their order. Held ier is shown to have had the authority
prima facie evidence of the authority of the officers by evidence that the
of the president to execute the bond. bank's attorney, one of the directors,
Mutual Life Ins. Co. v. Yates County was consulted and approved the in-
Nat. Bank, 35 App. Div. 218, 54 N. Y. strument, that the cashier's acts_
in
S. 743. similar transactions were invariably
23. Authority
of cashier to issue acquiesced in and his own testimony
—
cashier's drafts. To warrant a finding that the act in question received the
director's approval. Whitney v. Fos-
that the cashier of a b?nk had implied
authority to issue cashier's drafts to ter, 117 Mich. 643, 76 N. W. 114.
his own order in payment of his in- 26. Authority to cancel bond. —
In an
dividual debts, such as will bind the action the surety_ on a bond
against
bank and protect a creditor in accept- given to a bank to indemnify it against
ing a draft so drawn for a sum so large all discount, etc., of the paper of a
as to be out of the usual line of con- certain corporation, the defense was
duct in tlie banking business, a settled that the bond had been surrendered
course of business must be shown, by and canceled, and another one taken,
which he was permitted, with the ac- and plaintiff denied the authority of
quiescence of the directors, to exer- the cashier to surrender the bond. A
118 REPRESENTATION OE BANK. 865
cial responsibility of third persons,^'^ of cashier with reference to lessee

of rooms in bank building,28 of particular officers to assign notes,29 of as-
sistant cashier in reference to erection of bank building, building con-
tracts, etc., 30 of teller to accept
and discount notes,^! of particular agents
to sign certificates The same general rules apply to Ihe
of deposit.32
question of ratification of acts done by the bank's agents.^^ Where a pre-
sumption exists in favor of the acts and authority of an officer of a bank,
such presumption must be overcome by negative testimony as in other
cases 31
by-law of the bank gave the cashier 31. Accepting and discounting notes
general charge of the books, papers,
and property, subject to the direction
—Teller.—Authority of a bank teller
to accept and discount a note for a
of the officers. The plaintiff's president particular person is shown by the fact
testified that the cashier generally de- that the teller v/as accustomed to ac-
termined the rate of discount, etc., and cept and discount notes for persons
looked after the securities, and a di- doing business with the bank, and had
rector testified that Ihe cashier had often, in the absence of the cashier,
general charge of the lending of accepted and discounted other notes
money. Held, that the cashier had for such person, and that these trans-
authority to cancel the bond. Judg- actions had been recognized and ap-
ment, 78 N. Y. S. 38, 75 App. Div. 393, proved by the officers of the bank.
affirmed. German-American Bank i'. Iowa Nat. Bank v. Sherman, 17 S. Dak.
Schwinger, 178 N. Y. 569, 70 N. E. 396, 97 N. W. 13, 106 Am. St. Rep. 778,
1099. modified on rehearing, 19 S. Dak. 238,
27. Statements as to financial re- 103 N. W. 19, 117 Am. St. Rep. 941.
sponsibility of third persons. In an — —
32. Signing certificates of deposit.
Cornwall v. McKinney, 13 S. Dak.
action against a bank to recover dam-
ages because of statements of its cash- 118, 80 N. W. 171.
ier to plaintiff on inquiry as to the re- 33. Ratification of acts done. — Evi-
sponsibility of a customer of the bank, dence held to show ratification by a
by which plaintiff was induced to sell bank and its directors of the acts of
goods to such customer on credit, its cashier in making loans and al-
when at the time he was financially lowing overdrafts in violation of its
irresponsible, evidence examined, and by-laws. Wvnn v. Tallapoosa County
held not to show that defendant cash- Bank, 168 Ala. 469, 53 So. 328.
ier was acting within the scope of his
34. Overcoming presumption. —The
presumption of the authority of the
authority when he made the state-
president of a bank to execute a bond
ments. Judgment 73 N. Y. S. 934,
Taylor to pay a debt which was a specific lien
68 App. reversed.
Div. 458,
N.
Bank, Y. on property acquired by it, arising from
V. Commercial 174
the use of its seal and bis affidavit to
181, 66 N. E. 736, S3 L. R. A. 783, 95
the bond, reciting his office, identify-
Am. St. Rep. 564.
ing the seal, and stating that it was
28. With reference to lessee of
affixed by order of the board of di-
rooms in bank building. — Sufficiency of rectors, and that they authorized him
circumstances to show that the act of to subscribe the bond, is not over-
a bank cashier in causing the rooms come by negative testimony of a di-
of a tenant in the bank building to be rector, who acted as clerk of the board
barred up was the act of the bank. of directors, that he did not know of
Continental Bank v. Lidwell, 3 Mo. any resolution being passed in regard
App., appx., 591. to the bond, and that he found no
29. Authority to assign notes. Evi- — such resolution in the records of the
dence held to show that a vice-presi- board nor any record of the property
dent and cashier had authority to as- being sold or conveyed to the bank
sign a note. Stone v. Gray, 10 Cal. though he knew the bank had an in-
App. 609, 103 Pac. 155. terest in it, especially where the bank
30. Authority of assistant cashier had afterwards conveyed its interest
—
Building contracts. Merchants' Bank in the property. Mutual Life Ins. Co.
Yates County Nat. Bank, 35 App.
V. Acme Lumber, etc.. Co., 160
Ala. 435, V.
49 So. 783. Div, 218, 54 N. Y. S. 743.
1 B & B— 55

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KP"

(Hameli Cam ^rtfnol %itbratg

'^" "' "anKs and bankj

[_ 3 1924 018 845 341

The original of tiiis book is in

tine Cornell University Library.

There are no known copyright restrictions in

BANKS AND BANKING

By the Editorial Staff of The Michie Company

UNDER THE SUPERVISION OF

THOMAS JOHNSON MICHIE

Tbe Michie Company, Law Publishers

I. Control and Regulation in General.

S 1. Right of Banking in General 2

§16(3) Form and Contents 36

II. Banking Corporations and Associations.

§ 22. Nature and Formation in General ,

§ 33. Location and Place of Business 66

B. Capitai,^ Stock and Dividends.

§ 38 (4) Relief against Reduction 81

§ 39 (2) Form and Requisites, Validity and Effect 83

§ 39 (6) Stock Mortgages and Bonds 89

§ 39 (7c) Facts Relieving from Liability 93

§ 40 (3ccbba) Consent of Directors 108

§ 42 (Ic) Stock on Face Transferable

§ 43>4. Voting Power of Stock 145

§ 42^. Persons Who May Be Stockholders 151

§ 43 (2bb) Priority of Bank Bills 154

§ 47 (8f) Beneficiaries of Stock Held in Trust : 174

§ 47 (lie) Payment, Satisfaction and Discharge 187

§ 48 (Ibed) Gifts 203

§ 49 (4) Set-Off and Counterclaim 223

§ 49 (6bbb) Joinder of Bank, Its Trustee or As-

§ 49 (6bbba) Actions by Creditors 235

D. Officers and Agents.

§ 51 (3) Election 258

§ 54 (9f ) Actions on Bonds 319

§ 57 (5) Liability with Respect to Reports, Statements, and Repre-

§ 63 (la) Following Words of Statute 415

E. Insolvency and Dissolution.

§ 63. Constitutional and Statutory "Provisions 457

§ 69. Waiver or Remission of Forfeiture 474

§ 75 (3) Special Deposits 518

§ 77 (Hb) Distribution of Assets 530

§ 77 (3c) Conflicting Receiverships 543

§ 80 (3a) To Whom Allowed 587

§ SO (9aaa) In General 630

III. Functions and Dealings.

A. Banking Franchises and Powers, and Their Exercise in General.

§ 95 (Ic) Conveyance before Incorporation Complete 668

§ 95 (le) Leases 670

§ 95 (2) Disposal of Property 670

§ 102. Grounds and Extent of Liability in General 693

§ 104 (5) Disposition, Encumbrance, or Lease of Real Estaie 725

§ 112 (3) Particular Torts or Wrongful Acts 781

§ 112 (3a) Fraud

§ 112 (3aa) In General 781

§ 112 (3ab) Fraud in Obtaining Loan for Bank 782

§ 113 (4) Embezzlement and Misappropriation 788

§ 114 (2e)Receiving and Retaining Benefits of Transaction.... 810