ing and not a reasonable animal." The fact that banks have sometimes tried to insist upon customs which are not reasonable from any standpoint, not even their own, may be proof of the aphorism. Thus it was once insisted that a bank by custom could establish the rule that it would not correct mistakes after a customer had left the banking room. Such an alleged custom was held to be "immoral," unreasonable and void. Such was the wrongful holding as to a usage to treat the passing of checks to the credit of the depositor as a receipt and not a transfer; and a custom among banks to examine a check indorsed by another bank and to return it after having credited it is unreasonable. On the same ground, probably, a bank's custom to notify a non-resident of the maturity of a note instead of demanding payment was judicially condemned' where it was sought to hold the indorser.

2

§ 117. Usage must be known. Even if a usage be lawful, reasonable and uniform, it does not necessarily bind any one, unless it can be shown that the party sought to be charged with notice of the usage dealt with reference to it. It is apparent that a usage of this kind is only of value in interpreting a contract; it does not make a contract or prove one. If it is shown that the parties had either actual or constructive knowledge of the usage, it will be presumed, nothing else appearing, that they contracted with reference to the custom, which will be considered as written into the contract. The question is therefore one of fact. The bank will be presumed to know its own customs or the customs of its business. Such a custom may put it upon notice of

1 Gallatin v. Bradford, 1 Bibb, 209. See Second Nat. Bank v. Western Nat. Bank, 51 Md. 128.

2 Shaw v. Jacobs, 89 Iowa, 713. The principle of the decision was correct, but the great weight of authority is that a deposit of a check upon another bank for credit is not a sale but a bailment.

* Comm. Ex. Bank v. Nassau Bank, 91 N. Y. 74.

4 Bank of Alexandria v. Deneale, 2 Cranch, C. C. 488.

1 Harper v. Calhoun,7 How. (Miss.) 203.

2 Pope v. Bank of Albion, 57 N. Y. 126; Kilgore v. Buckley, 14 Conn. 363; Marrett v. Brackett, 60 Me. 524.

certain facts which it would otherwise have no notice of." The bank is bound by its own usages, and cannot abrogate them without notice to parties dealing with it. But as to third persons dealing with the bank the question of knowledge of the usage becomes of prime importance. If a third person has actual knowledge of a customary mode of dealing of a bank he will be bound by the custom. This actual knowledge will be inferred from the fact that he has chosen a particular bank with which to do business. It may also

be inferred from the fact that the usage was a general one in the business, or was so notorious that a person in the position of the third party should have known it. Thus, the usages of a bank as to demand, notice of non-payment and protest are valid as to those who voluntarily select that bank to do business with,10 and as to those who reside in the particular place" as well as to those who have actual knowledge of the usage.12 But if the third party has no knowledge of the usage, and cannot be charged with notice of it in the ways above indicated, he cannot be bound by it.13 Nor if a local usage has once been established by ju

3 Taliaferro v. First Nat. Bank, 71 Md. 200.

4 See cases cited in last two notes. 5 Barnes v. Ontario Bank, 19 N. Y. 152: Hotchkiss v. Artisans' Bank, 42 Barb. 517. Contra, Citizens' Bank v. Graffin, 31 Md. 507.

6 Sahlien v. Bank of Lonoke, 90 Tenn. 221; Bridgeport Bank v. Dyer, 19 Conn. 136; Pope v. Bank of Albion, 57 N. Y. 131; Renner v. Bank of Columbia, 9 Wheat. 581; Warren Bank v. Suffolk Bank, 10 Cush. 582.

7 Patriotic Bank v. Farmers' Bank, 2 Cranch, C. C. 560; Kilgore v. Buckley, 14 Conn. 367. This rule applies to those who make notes payable at a bank as well as to those who indorse such notes. See Mills v. Bank of United States, 11

Wheat. 431; Gindrat v. Mechanics'
Bank, 7 Ala. 324.

8 Sahlien v. Bank of Lonoke, 90 Tenn. 221.

9 Citizens' Bank v. Graffin, 31 Md. 507; Grissom v. Commercial Nat. Bank, 87 Tenn. 350.

10 See cases cited in note 7, supra. 11 Gindrat v. Mechanics' Bank, 7 Ala. 324; Gallagher v. Roberts, 11 Me. 484; Marine Bank v. Smith, 18 Me. 99; Shove v. Wiley, 18 Pick. 558; Wild v. Gorham, 10 Mass. 366.

12 Lincoln Bank v. Page, 9 Mass. 155; City Bank v. Cutler, 3 Pick. 414; Bank of United States v. Norwood, 1 Harr. & J. 423.

13 Bank of Alexandria v. Deneale, 2 Cranch, C. C. 488; Lawrence v. Stonington Bank, 6 Conn. 521.

dicial decision can a third party be affected by a change of that custom, where he is not shown to have been cognizant of the change."

ARTICLE II.-BANKING POWERS.

§ 118. In general.- The various functions of a bank are largely a matter of usage as established by judicial decision. The matters of deposit, discount and issue will be treated under appropriate heads. But there are yet other transactions in which banks have sometimes become engaged which have required the judgment of the courts as to whether they were within the powers of a bank or not. Since the governing statute or charter generally defines the powers of a bank by general phrases, such as "the business of banking," or a "general banking business," the courts must in such cases be guided by the limits of the business as defined by general custom or the decisions of courts. Custom may be appealed to to show that an act is within the ordinary business of a bank. Whenever the statute or the charter permits an act to be done by a bank, the terms of the statute or charter must govern. The same rule holds as to acts forbidden to a bank. The governing statute or charter may forbid an act by implication as well as by a direct prohibition, as in the case of national banks, which are by the terms of the national bank act impliedly forbidden to loan on real-estate security. The effect of an unauthorized act of banking has already been discussed."

§ 119. Dealing in its own stock.- A bank may purchase its own shares unless the statute expressly or by implication forbids it, but of course if the act is expressly or impliedly

14 Cookendorfer v. Preston, 4 How. the effect of unauthorized acts of 317. banking, where the objection is 1 Crain v. First Nat. Bank, 114 Ill. made on behalf of the state. The 516. powers of savings banks are noticed in the chapter upon Savings Banks. 1 Farmers' Bank v. Champlain Transp. Co., 18 Vt. 131; Robinson

2 See the former chapter entitled "Unauthorized Banking." In a later chapter will be considered

forbidden by its charter or by a governing statute it may not do so. But how such a purchase can be a banking transaction, unless the stock is taken to cancel a stockholder's debt to the corporation, or as collateral to a debt, is hard to understand. There seems to be no difficulty in holding that a bank may take a lien upon its own shares to secure a previously existing debt, or that it may take its own shares to cancel a debt from a stockholder." National banks are prohibited from purchasing their own shares, nor can the bank by such a purchase, it has been held, vest title in another. But this latter case is wrong, because a national bank may under some circumstances sell its shares, and a purchaser in good faith would obtain a good title, whatever might be the holding as to one cognizant of the defect in the title. It has been held that one who sells to a broker, who is really acting for the bank, stock in the bank, makes a valid sale, where he did not know the broker was acting for the bank.8 Of course the bank can sell its own stock, even upon credit, where it has lawfully acquired it. Even if the purchase by bank officers were illegal it has been held that the bank may ratify the act; 10 but an illegal act, our

v. Beall, 26 Ga. 17. Contra, German Sav. Bank v. Wulfekuhler, 19 Kan. 60. See also Bundy v. Jackson, 24 Fed. R. 628, as to a ratification.

2 Gillett v. Moody, 3 Comst. 479; Myers v. Valley Nat. Bank, Fed. Cas. No. 9519.

stances the bank can acquire its own stock, and in any event its transfer is good. Wallace v. Hood, 89 Fed. R. 11.

'If cognizant of the defect the purchaser could be said to be a party to an illegal transaction, yet

3 Taylor v. Miami Ex. Co., 6 Ohio, it is the purchase and not the sale 177.

which is illegal. But the bank can

4 German Sav. Bank v. Wulfekuh- not agree to take shares in payler, 19 Kan. 60. ment of a note which has been

"Taylor v. Miami Ex. Co., 6 Ohio, given to it for shares sold. Att water v. Stromberg, 77 N. W. R. 963.

177.

8 Johnson v. Laflin, 103 U. S. 800, 3 Dill. 65.

9 Union Bank v. Hunt, 7 Mo. App.

"Myers v. Valley Nat. Bank, Fed. Cas. 9519. This case holds that a national bank cannot be sued in trover for conversion of its shares, because judgment satisfied passes title to bank. But the case is hopelessly wrong, because under some circum- 628.

42.

10 Bundy v. Jackson, 24 Fed. R.

highest court holds, cannot be ratified by the bank so as to make itself liable on a contract." Sometimes the statute forbids a bank to loan money upon its own shares, and such a loan is illegal though made in the form of a deposit in another bank.12

§ 120. Purchasing stock of corporations.- A banking corporation has not the right to become a stockholder in another corporation,' unless the act is made necessary to preserve a security 2 which it has taken in a banking transaction, or unless it is permitted to do so in order to make a deposit of securities under a banking law. It has no power to subscribe for stock in a railroad corporation, nor to engage in the business of buying and selling stocks for profit; and if a bank buys stock in its own name which it has no authority to buy it will not be held as a stockholder. Where the bank is prohibited from purchasing or holding stock in another bank, it has been held that the bank cannot take a pledge of such stock. National banks have no power to engage in the selling of stocks or railroad bonds on commission,"

11 See § 33, ante, and note 3, § 105, ante. But if it converts property it has agreed to sell, it is liable in conversion. First Nat. Bank v. Anderson, 172 U. S. 573.

12 Bank v. Lanier, 11 Wall. 369. See also Bridgeport Bank v. New York, etc. R. R. Co., 30 Conn. 270.

1 Bank of Commerce v. Hart, 37 Neb. 197; Franklin Bank v. Commercial Bank, 36 Ohio St. 350, and cases cited therein. But on a wrong construction of a statute it is held that the bank can do so. Latimer v. State Bank, 71 N. W. R. 225. 2 See cases in notes 10, 11 and 12,

infra.

3 Curtis v. Leavitt, 17 Barb. 309. 4 Nassau Bank v. Jones, 95 N. Y. 115. But see City of Goodland v. Darlington Bank, 74 Mo. App. 365.

5

5 Talmage v. Pell. 7 N. Y. 328.

6 Cal. Bank v. Kennedy, 167 U. S. 362.

7 Franklin Bank v. Commercial Bank, 36 Ohio St. 350.

8 Searle v. First Nat. Bank, 2 Walk. (Pa.) 395; First Nat. Bank v. Nat. Ex. Bank, 92 U. S. 122.

9 Weckler v. First Nat. Bank, 42 Md. 581. This case was very well argued. It holds that a representation never ratified made by an agent as to an ultra vires contract is not within the scope of the agent's authority and therefore not binding on the bank. See Willett v. Farmers' Sav. Bank, 77 N. W. R. 519. The case is rightly decided as to that point. The third person had no right to rely on the representation. See also Farmers' Nat.