CHAPTER VI. DEALINGS OF BANKS. ARTICLE I.-INFLUENCE OF CUSTOMS. § 113. In general.-There is no branch of business, unless it be shipping, where customs and usages cut so large a figure as in banking. In a former chapter the influence of usage in determining the duties of the various officers, as well as their powers, has been noticed. Customs have a large influence in governing the dealings of customers and traders at the bank. The general principles of law as to usages are comparatively well settled, yet even here courts display a tendency in some instances to disregard the settled law. In the following sections cases are examined, but others will be found below.2 114. Usage must be lawful.-A usage or a custom cannot change the express rule of law or statute.1 Days of grace are sometimes established by statute, and therefore a custom cannot change that law; but a custom can add another day to the three days allowed by statute or by the general rule of law. But where days of grace are established merely by the general local usage, a particular custom may exonerate a bank for failing to allow days of grace, 1 Allen v. Merchants' Bank, 22 Wend. 215; Bell v. Hagerstown Bank, 7 Gill, 216. 2 See §§ 261 and 288, post. 1 Piscataqua Ex. Bank v. Carter, 20 N. H. 246; Bank of Alexandria v. Deneale, 2 Cranch, C. C. 488; Marine Bank v. Chandler, 27 Ill. 525; First Nat. Bank v. Taliaferro, 72 Md. 164; Shaw v. Jacobs, 89 Iowa, 713; First Nat. Bank v. Nelson, 105 Ala. 180; Allen v. St. Louis Nat. 2 Morrison v. Bailey, 5 Ohio St. 13, Bowen v. Newell, 8 N. Y. 190; Mechanics' Bank v. Merchants' Bank, 6 Met. 13; Perkins v. Franklin Bank, 21 Pick. 483. 3 Renner v. Bank of Columbia, 9 Wheat. 581; Bank of Washington v. Triplett, 1 Pet. 25. thereby discharging an indorser. Two cases are found which solemnly hold that a bank cannot increase the legal rate of interest by a custom. It ought not to require a judicial decision to determine that a man, by habitually violating a law, cannot obtain the right to violate it, and thus repeal it as to himself. § 115. Usage must be uniform, certain and general.— It is said that a usage must be general; that one instance does not make a usage. This means that a usage must be uniform and certain, and uniformly acted upon. But it may very well be that the usage may be that of all the banks at one place or a particular bank at a place. But even if the usage is a general one among banks, if a particular bank has abandoned it the usage is non-existent as to that bank.1 Nor will the usage of any number of banks control a bank which has not adopted it. A person dealing with a particular bank is said to be presumed to know the usage of that particular bank, and it has been held that the bank may abrogate its usage without notice to its customer; but this decision cannot be correct because the customer is held to know the usage, and after he has found it out, by some species of omniscience, he is required to know that the bank has abrogated it. The contrary rule is correct. § 116. Usage must be reasonable.-There is a saying ascribed to a noted political thinker that "man is a reason 4 Haddock v. Citizens' Bank, 53 Iowa, 542. Compare Merchants' Bank v. Woodruff, 6 Hill, 174, which is contra, and cases in note 1. 5 Niagara Co. Bank v. Baker, 15 Ohio St. 68; Talbot v. First Nat. Bank, 76 N. W. R. 726. 4 Isbell v. Lewis, 98 Ala. 550. 5 Williams v. National Bank, 70 Md. 343. 6 Patriotic Bank v. Farmers' Bank, 2 Cranch, C. C. 560; Kilgore v. Buckley, 14 Conn. 363. Compare Sahlien v. Bank of Lonoke, 90 Tenn. 1 Duvall v. Farmers' Bank, 9 Gill 221; Howard v. Walker, 92 Tenn. & J. 31. 2 Grissom v. Commercial Nat. Bank, 87 Tenn. 350. 3 See Williams v. National Bank, 70 Md. 343. 452. 7 Citizens' Bank v. Graffin, 31 Md. 507. 8 Barnes v. Ontario Bank, 19 N. Y. 152, 169. 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.1 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;2 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. 3 § 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. 6 certain facts which it would otherwise have no notice of.3 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 chosena 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 8 3 Taliaferro v. First Nat. Bank, 71 Wheat. 431; Gindrat v. Mechanics' Md. 200. Bank, 7 Ala. 324. 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 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.14 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.2 § 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. 2 See the former chapter entitled "Unauthorized Banking." In a later chapter will be considered 1 Farmers' Bank v. Champlain Transp. Co., 18 Vt. 131; Robinson |