Sec. 61. CHAPTER XIV. THE ISSUE AND CIRCULATION OF NOTES. The distinctive feature of the note issue of Canadian banks Character of has been already discussed in Chapter I., especially in connecCanadian tion with the legislation of 1890 and 1900. The notes are not bank note issue. Nature of bank note. secured by the pledge or special deposit with the government of bonds or other securities, but are simply credit instruments based upon the general assets of the bank issuing them. In order, however, that they may be not less secure than notes issued against bonds deposited with the government, they were made a first charge upon the assets (sec. 131). To avoid discount for geographical reasons each bank is obliged to arrange for the redemption of its notes in the commercial centres throughout the Dominion (sec. 70). Finally, to perfect the security for redemption and to avoid discount after the suspension of a bank, either because of delay in payment of note issues by the liquidator or of doubt as to ultimate payment, each bank is obliged to keep in the hands of the government a deposit equal to 5 per cent. of its average circulation (sec. 64). Should any liquidator fail to redeem the notes of an insolvent bank, recourse may be had to the entire fund if necessary. As a matter of fact, liquidators almost invariably are able to redeem notes as they are presented, but in order that the notes of an insolvent bank may be held or accepted without loss pending redemption, these notes bear 5 per cent. interest from the date of suspension to the date of the liquidator's announcement that he is ready to redeem (sec. 65). A bank note is the promissory note of a bank payable to bearer on demand. See notes to sec. 176 of the Bills of Exchange Act, Chapter LII., infra. In Canada the issue of notes intended for circulation is the exclusive privilege of the Dominion Government (see Chapter XXIX., infra), and the banks chartered under the Bank Act (see sec. 136). Bank notes are not legal tender (see Chapter XXIX., infra). but must be received in payment or redeemed on demand by the issuing bank (see sec. 71). A bank note contains a contract which is ambulatory by rea- Sec. 61. son of the mere passing of it from hand to hand. It is also, a Nature of thing which is in itself valued as money and currency. A mater- bank note. ial alteration will invalidate it-such an alteration including the alteration of the number which does not in fact affect the contract or promise to pay. (Suffell v. Bank of England, 1882, 9 Q.B.D. 555, 567; 3 R.C. 640, 651.) But, by the effect of sec. 145 of the Bills of Exchange Act, the alteration of a bank note if it is not apparent does not invalidate the note in the hands of a holder in due course. (Leeds & County Bank v. Walker, 1883, 11 Q.B.D. 84.) A stolen note or a note obtained by fraud, being like cash, must on presentation be paid by the bank to any holder who is not shewn to have come by it dishonestly. (Miller v. Race, 1758, 1 Burr. 452; 3 R.C. 626.) But the bank is entitled to delay payment of a stopped note for a reasonable time in order to make enquiries. (Solomons v. Bank of England, 1791, 12 East 135 n., 3 R.C. 634, 12 R.R. 341.) Negligence in taking a stolen note or forgetfulness of information regarding it is not sufficient to disentitle the holder to payment (Raphael v. Bank of England, 1853, 17 C.B. 161), but deliberate refusal to make enquiries when the circumstances excite suspicion may be sufficient evidence of bad faith. (Solomons v. Bank of England, supra; Jones v. Gordon, 1877, 2 App. Cas. 616.) THE ISSUE AND CIRCULATION OF NOTES. 61. The bank may issue and re-issue notes payable to bearer Authority on demand and intended for circulation: Provided that, (a) the bank shall not, during any period of suspension of payment of its liabilities, issue or re-issue any such notes; and, (b) if, after any such suspension, the bank resumes business without the consent in writing of the curator, hereinafter provided for, it shall not issue or re-issue any of such notes until authorized by the Treasury Board so to do. for. Proviso. Sec. 61. $5 or multiples there of. Amount limited. Bank of British Notes under $5 or not in $5 to be 2. No such note shall be for a sum less than five dollars, or for any sum which is not a multiple of five dollars. 3. The total amount of such notes, in circulation at any time, shall not exceed the amount of the unimpaired paid-up capital of the bank. 4. Notwithstanding anything in this section contained the total amount of such notes of the Bank of British North America in circulation at any time shall not exceed seventy-five per centum of the unimpaired paid-up capital of the Bank: Provided that, (a) the Bank may issue such notes in excess of the said 5. All notes heretofore issued or re-issued by any bank, and multiples of now in circulation, which are for a sum less than five dollars, or for a sum which is not a multiple of five dollars, shall be called. in and cancelled as soon as practicable. 53 V., c. 31, s. 51; 63-64 V., c. 26, s. 10. called in. Under the Act of 1871 a bank was permitted to issue notes for $4 or more each, but in 1880 the present limitation to notes for $5 or a multiple thereof was introduced. Sec. 62 (the original of which was passed in 1899) permits the issue of notes for one pound sterling or a multiple thereof in British possessions other than Canada. By sec. 8 of the Currency Act (Chapter XXIX., infra), no bank note payable in any other currency than the currency of Canada shall be issued or re-issued by any bank. The section was divided into its present sub-sections in 1906. The proviso of sub-section 1 was added to the Act in 1900, and is enforceable by penalty under section 138. notes. This proviso is designed to guard against the possible fraud- Sec. 61. ulent action of the directors in issuing notes after the suspen- Limitations sion of a bank, e.g., to any depositors or any class of depositors, on issue of and thus giving such depositors a prior lien upon the assets of the bank. When a bank suspends payment its right to issue notes ceases until (1) it resumes business with the consent in writing of the curator, or (2) having resumed business without such consent, it is authorized by the Treasury Board to issue notes. The authority from the Treasury Board is required as a safeguard against a bank's only nominally resuming business, and then issuing notes and thus defeating the purpose of the other provisions of the section. The danger of course is that notes once issued, even illegally, will be a charge on the Redemption Fund in case of the insolvency of the bank. The penalty imposed for contravention of the section is therefore made very heavy. The limitation of the total amount of notes in circulation at any time to the amount of the unimpaired paid up capital has been in force since the passing of the General Banking Act of 1871. This limitation is enforceable by penalty under sec. 135. As the creation of the Bank Circulation Redemption Fund in 1890 (see sec. 64), gave added security to bank notes, and facilitated their circulation in larger quantities, the penalties upon excess of circulation were at the same time increased to the amounts mentioned in sec. 135, (being nearly ten times as large as the penalties provided by the previous Acts). The form of monthly return (Schedule D.) provides for a statement of the greatest amount of notes in circulation at any time during the month to which the return relates, and by sec. 153 the making of any wilfully false or deceptive statement in any return, etc., is made an offence. See also secs. 63 and 139 forbidding under heavy penalties the pledging assignment or hypothecation by a bank of its notes, and sec. 140 imposing a penalty for issuing with intent to defraud, or accepting with knowledge of such intent, bank notes intended for circulation and not in circulation. The Bank of British North America is not subject to the double liability provision of sec. 125 (see sec. 6). That bank is therefore, limited to a note circulation equal to 75 per cent. of its unimpaired paid up capital, with power, however, to issue Sec. 61. Note issue at agency in than Canada. up to an amount not exceeding the whole of such capital upon depositing with the government, in cash or bonds of the Dominion, an amount equal to the excess of its circulation over 75 per cent. 62. Notwithstanding the provisions of the last preceding British possection any bank may issue and re-issue at any office or agency session other of the bank in any British colony or possession other than Canada, notes of the bank payable to bearer on demand and intended for circulation in such colony or possession, for the sum of one pound sterling each, or for any multiple of such sum, or for the sum of five dollars each, or for any multiple of such sum, of the dollars in commercial use in such colony or possession, if the issue or re-issue of such notes is not forbidden by the laws of such colony or possession. Governor in Council to fix rate for 2. No issue of notes of the denomination of five such dollars, or any multiple thereof, shall be made in any such British circulation. colony or possession unless nor until the Governor in Council, on the report of the Treasury Board, determines the rate, in Canadian currency, at which such notes shall be circulated as forming part of the total amount of the notes in circulation within the meaning of the last preceding section. Redemption. Redemption abolished. 3. The notes so issued shall be redeemable at par at any office or agency of the bank in the colony or possession in which they are issued for circulation, and not elsewhere, except as in this section specially provided; and the place of redemption of such notes shall be legibly printed or stamped across the face of each note so issued. 4. In the event of the bank ceasing to have an office or agency if agency is in any such British colony or possession, all notes issued in such colony or possession under the provisions of this section shall become payable and redeemable at the rate of four dollars and eighty-six and two-thirds cents per pound sterling, or, in the case of the issue of notes, of the denomination of five dollars, or any multiple thereof, of the dollars in commercial use in such |