more carefully applied in the determination of the rights of parties in these difficult controversies? (e.) Checks received just before a bank's failure, in violation of law, must be returned; and if they have been sent away for collection, the proceeds always belong to the depositor, though collected after the bank's failure.57 When, however, they have been rightly received before its failure and rightfully credited to the sender by reason of an agreement to treat them in this manner, then the proceeds can usually be kept by the collecting bank. In some cases the depositor may employ another remedy. If his deposit remains in specie, the contract may be rescinded and the actual property recovered.58 (f.) Neither the common nor the statutory law transforms into a preference a general deposit which the depositor intends to withdraw on his written order, but is persuaded by false representations of the bank's officers concerning the solvency of the bank. The real transaction is nothing more than a representation by the debtor to his creditor not to press his claim. Though the creditor succeeds, and by evil means, the nature of the depositor's deposit is not thereby changed endowing him with any special right for its recovery.59 57 Levi v. National Bank, 5 Dill. 104; Richardson v. N. O. Coffee Co., 43 C. C. A. 583; In re Havens, 8 Ben. (U. S.) 309; Commercial Bank v. Armstrong, 148 U. S. 50; Blair v. Hill, 50 N. Y. App. Div. 33; First Nat. Bank v. Strauss, 66 Miss. 479; Richardson v. Denegre, 35 C. C. A. 452; Guignon v. First Nat. Bank, 22 Mont. 140; Showalter v. Cox, 97 Tenn. 547; American Ex. Nat. Bank v. Loretta Mining Co., 165 Ill. 103. See §§24-26 for more cases. 58 Higgins v. Hayden, 53 Neb. 61; Wilson v. Coburn, 55 Neb. 530; First Nat. Bank v. Strauss, 66 Miss. 479; Assignment of Commercial Bank, I Ohio N. P. 358. A depositor in seeking to recover his deposits may proceed within the discretion of the court on the petition appointing the receiver or in an independent suit. Blake v. State Sav. Bank, 12 Wash. 619. Under the Nebraska statute the depositor can also recover interest. Capitol Nat. Bank v. Coldwater Nat. Bank, 49 Neb. 786. 59 Venner v. Cox, 35 S. W. (Tenn. Ch. App.) 769. A loaned money to B, giving him a check on a bank which A deposited to his credit. The bank, though insolvent, had money enough to pay the check. Having failed 10. Pleading. In pleading a complaint alleging that the defendants as directors of an insolvent bank received from the plaintiff a deposit of money knowing the bank to be then insolvent, of which fact he was ignorant, whereby he lost his deposit, states a cause of action.60 11. Duration of Officer's Liability. In seeking to recover the deposits thus wrongfully confided to a bank from its officers, an important question has arisen concerning the duration of their liability for them. If the act of taking them is regarded as a penal offence,61 the period for their recovery is shorter than if the act is viewed in a milder light.62 12. What Banks and Bankers Are Included by Statute and Common Law. Lastly, what banks and bankers are included within the operation of the statute and common law against receiving deposits when in an insolvent condition? In New York, merchants and bankers who are thus amenable are those reporting to the bank superintendent.63 Of course, all incorporated banks are included, and very generally private bankers.64 before the money was drawn out, A could not recover it of B, nor escape paying his note. Hubbard v. Petley, 85 S. W. (Tex. Civ. App.) 509. 60 Baxter v. Coughlin, 70 Minn. I. See Baxter v. Nash, Ibid, 20. 61 Eads v. Orcutt, 79 Mo. App. 511, 523. 62 Frame v. Ashley, 59 Kan. 477. 63 Hall v. Baker, 66 N. Y. App. Div. 131. 64 Frey v. Torrey, 36 N. Y. Misc. 216; Blair v. Hill, 50 N. Y. App. Div. 33. In Texas a complaint against a banking partnership must allege the names of the partners. Roby v. State, 51 S. W. (Tex. Civ. App.) 1114. A discharge in bankruptcy will not protect him from his debt. Frey case, 36 N. Y. Misc. 216; Ewart v. Schwartz, 16 Jones & Spencer (N. Y.) 390; Stokes v. Mason, 10 R. I. 261. CHAPTER VII. AUTHORITY TO MAKE LOANS. 1. Authority is defined by statute. 2. Forms of loans. Drafts and promissory notes. 3. Overdraft. a. May be a proper loan. b. Liability of drawer and application of subsequent deposits. c. Liability of principal or d. Interest on overdraft. f. Security of bank from loss 4. Letter of credit. a. Notice of guaranty. 5. Stock in other corporations. 6. Purchase of its own stock. 7. Stock mortgages. 8. Loan on uncollected checks. 9. Loans on fraudulent representations. Effect on surety's liability. 10. Borrower's warranty of genuineness of paper. II. To whom loans may be made. a. To agent for principal. b. To executor. c. To technical trustee. 12. When loans may be rescinded. 13. Payment of a loan by credit ing borrower's account. for present loan. 14. Security Bills Stock of lending bank. of lading. 15. Individual loan to bank officer with his bank stock as security. 16. Negotiation of security is not affected by illegality of loan. 17. What security may be taken for past debts. 18. What use and disposition may be made of it. 19. Consequences of making illegal loans. Ultra vires. a. Improper mode of execution does not invalidate. b. Executory contract will not be enforced. c. Executed contract is left by the courts to the parties. d. If executed on one side courts deal with it in one of three ways. dr. The contract is disregarded and the money paid is covered on implied contract. re e. Effect of ultra vires acts between bank and creditors. f. Contract is presumed to be based on adequate authority. 20. Authority to transfer paper. Re-discounting. 21. Authority to lend for another. a. Care required in accepting collateral. 22. Authority of bank to borrow. 23. Restrictions on bank's authority to lend its money. 24. Bank may collect money it ought not to have loaned. 25. Bank cannot lend its credit. 26. Bank's responsibility for collaterals. a. Must keep them safely. b. Cannot transfer them before maturity. c. How long pledgee can retain them. 1. Authority is Defined by Statute. d. Care it must exercise in collecting. e. Pledgor's right to repledge. 27. Bank's duty to collect collaterals. a. Cannot sell them to itself. 28. Loans to corporation. 32. Defences to loans. 33. Renewals. 34. Paper left for discount and refused. 35. Damage on promised, but not executed loan. 36. Interest. 37. Loans by foreign bank. Authority to lend is defined by statute, and many of the questions relating to loans are statutory interpretations.1 A bank can lend its general deposits,2 and, unless there be a positive inhibition, can take real estate security.3 Again, a bank possessing authority to lend on the security of public stocks,* bond and mortgage, can discount commercial paper.5 In exercising this authority, the legal presumption is that the bank was duly incorporated.R I See Chap. IX, §20. 2 Foster v. Essex Bank, 17 Mass. 479, 505. 3 Bank v. Hemme Orchard & Land Co., 105 Cal. 376. 4 A national bank cannot lend on bonds except those issued by the government. See Ch. I, §25a. Sometimes a limitation is imposed on the length of loans. Dockery v. Miller, 9 Humph. (Tenn.) 371. An agreement that one-sixth of a loan is to remain in deposit is illegal. Western Bank v. Mills, 7 Cush. (Mass.) 539; Mills v. Rice, 6 Gray (Mass.) 458. 5 Detroit Sav. Bank v. Truesdail, 38 Mich. 430; State Bank v. Criswell, 15 Ark. 230. 6 Yungfleisch's Appeal, 1 Walk. (Pa.) 125. 2. Forms of Loans. Drafts and Promissory Notes. Loans may assume various forms; the most common are promissory notes and bills of exchange. Formerly, when usury laws were more rigidly enforced, the distinction between loans and purchases was important; because a loan might be tainted with usury and under legal condemnation that would not be, if it truly was a purchase. In discounting a note, the compensation for the service was fixed by law; in purchasing a note, a bank could pay what it pleased. To prevent banks from violating the usury laws under the guise of purchases, they were sometimes forbidden from purchasing bills of exchange and other instruments. In interpreting the national banking law,10 as well as the banking laws of some of the states,11 the distinction between authority to lend by purchase and by discount is no longer recognized. 9 7 Farmers' & Mech. Bank v. Baldwin, 23 Minn. 198; First Nat. Bank v. Pierson, 24 Minn. 140, changed by Gen. Stat. 1866, Ch. 33, §15; Niagara Co. Bank v. Baker, 15 Ohio St. 68; Ridgway v. National Bank, 12 Ky. L. Rep. 216. See Fleckner v. Bank, 8 Wheat. (U. S.) 338. Money loaned by a bank at a usurious rate of interest for which a note is given, including the interest, payable at a future day, is not a discount. Planters' & Merch. Bank v. Goetter, 108 Ala. 408. Nor is a note taken for a pre-existing debt. Lime Rock Bank v. Hewett, 52 Me. 531. 8 Ibid. 9 American Life Ins. & Trust Co. v. Dobbin, Lalor Supp. (N. Y.) 252, 256; Niagara Co. Bank v. Baker, 15 Ohio St. 68. See cases in note I, and Nicholson v. National Bank, 92 Ky. 251. In New York a selling bank that took a time draft in payment made by the purchasing bank did not lend or discount in violation of a statute. (Laws, 1839, Ch. 255, §3.) Though the draft was illegal (See Laws, 1850, Ch. 251) the seller could surrender it and recover on an implied assumpsit the value of the bill measured by the agreed discount. Buffalo City Bank v. Codd, 25 N. Y. 163. A bank has prima facie authority to purchase bills of exchange. Bank v. Ellery, 34 Barb. (N. Y.) 630. 10 Danforth v. National State Bank, 1 C. C. A. 62; Morris v. Third Nat. Bank, 142 Fed. 25; Smith v. Exchange Bank, 26 Ohio St. 141; First Nat. Bank v. Sherburne, 14 Ill. App. 566; Pape v. Capital Bank, 20 Kan. 440; Atlas Nat. Bank v. Savery, 127 Mass. 75; Prescott Nat. Bank v. Butler, 157 Mass. 548; Merchants' Nat. Bank v. Hanson, 33 Minn. 40; Atlantic State Bank v. Savery, 82 N. Y. 291, affg. 18 Hun (N. Y.) 36; Union Nat. Bank v. Rowan, 23 S. C. 339. See Lazear v. National Union Bank, 52 Md. 78, and Nicholson v. National Bank, 92 Ky. 251. II Bank v. Norton, 3 A. K. Marsh, (Ky.) 422; Salmon Falls Bank v. |