pays. It may loan borrowed money to its own directors if the loan is not otherwise illegal. National banks, for money loaned to them or deposited, may issue certificates of deposit payable on demand or a future day. Such certificates are not post notes within the prohibition of section 5183 of the Revised Statutes of the United States. But such certificates must represent an actual loan."

§ 126. Lending of credit.- A bank has not the right to lend its credit on personal security, nor can it become an accommodation maker of drafts, or an accommodation indorser of commercial paper; but such indorsement or such accommodation draft is valid in the hands of a bona fide holder. Since it may receive special deposits, a national bank is liable for its negligence where it undertakes to recover stolen special deposits. A bank may guaranty the payment of a note discounted by it" or sold by it. But a guaranty against loss given by the president to sureties upon a note to the bank, or upon any transaction not made by the bank, is beyond the power of the bank. A certification of a check is in effect a guaranty of its payment by the bank, and, as such, it may be oral, if the drawer has funds, or conditioned upon the payment of a draft left with it for collec

3 National Bank of Commerce v. National Bank of Mo., Fed. Cas. No. 18,310.

4 Cases last cited.

5 Riddle v. First Nat. Bank, 27 Fed. R. 503; Hunt v. Appellant, 141 Mass. 515.

6 Logan Nat. Bank v. Williamson, 2 Ohio Cir. Ct. R. 118.

"Talman v. Rochester City Bank, 18 Barb. 123; Dabney v. State Bank, 3 S. C. 124. The rule is the same as to national banks. People's Bank v. National Bank, 101 U. S. 181.

6 Thomas v. City Nat. Bank, 40 Neb. 501.

7 First Nat. Bank v. Bennett, 33 Mich. 520. What the court prob

1 Johnson v. Charlottesville Nat. ably meant to decide was that parol Bank, 3 Hughes, 657.

evidence was inadmissible to vary

2 National Bank of Commerce v. the terms of the written contract. Atkinson, 55 Fed. R. 465.

Comm. Nat. Bank v. Pirie, 82 Fed.

3 Johnson v. Charlottesville Bank, R. 799.

3 Hughes, 657.

4 Wylie v. Northampton Nat. Bank, 15 Fed. R. 426, reversed 119 U. S. 361, holding the text.

8 Merchants' Nat. Bank v. First Nat. Bank, 7 W. Va. 544.

tion. But one case decides that, where a man deposits securities with one bank, and that bank guaranties the securities to a second bank, which thereupon issues a letter of credit to the depositor of the securities, the guaranty is not binding upon the first bank.10 This case is clearly wrong, because the transaction was in effect a deposit of notes with the first bank, which thereupon discounted or transferred them to the second bank by guarantying their payment.

§ 127. Collections.- Since a bank, as one of its ordinary powers, has the right to receive paper for collection, it can be held liable for its neglects in performing that function.' There would seem to be no good reason why a bank has not the power to guaranty the paper it takes for collection, both as to the person depositing the paper for collection and as to the person from whom it collects.

9 Case last cited.

10 Seligman v. Charlottesville Nat. Bank, Fed. Cas. No. 12,642. But the court was in error in calling the transaction a guaranty. A representation by the bank as to the surplus and paid-up capital of an insurance company is ultra vires, but not a representation that the insurance company has so much money on deposit with the bank. Hind

man v. First Nat. Bank, 86 Fed. R. 1013.

1 Exchange Nat. Bank v. Third Nat. Bank, 112 U. S. 276; Mound City Paint Co. v. Commercial Nat. Bank, 4 Utah, 353; White v. Third Nat. Bank, 4 Weekly Law Bul. 791. The power is incidental to banking. Keyes v. Bank of Hardin, 52 Mo. App. 323; Yerkes v. National Bank, 69 N. Y. 382; Tyson v. State Bank, 6 Blackf. 225.

CHAPTER VII.

DEPOSITS.

3

§ 128. Nature of relation.- When a man makes a general deposit in a bank the relation that exists between the bank and him, as a depositor, has not been accurately defined. It is settled that the relation is one of debtor and creditor; so far all the courts agree. But a debtor, if he refuse to pay his creditor, can only be sued for the debt. A banker, however, can be sued not only for the debt, but he can be sued also for damages for refusing to pay the check which demanded the debt.2 What is the nature of this further obligation? It is not one of contract at common law, because the form of the action is an action on the case. The banker is sued for a violation of his duty, which was to pay his depositor's checks as long as he had sufficient funds rightfully credited to the depositor. But every duty owed has its correlative right in the person to whom the duty is owed. It is the nature of this right that is in question. Some courts have said it is a contract right arising out of the agreement made by the bank with its depositor. It is certainly not an express contract, because no such contract is ever made. It is not a contract implied as of fact, because the measure of damages is that of tort and not of contract, and because wilfulness and maliciousness are a part of the act; not actual malice necessarily, but the malice that is implied from the doing of a wrongful act. Therefore the dis

1 Bank of Kentucky v. Wister, 2 Ad. 415. But Taunton, J., shows

Pet. 324.

2 Mt. Sterling Bank v. Green, 99 Ky. 262.

that it is a breach of duty.

5 Schaffner v. Ehrman, 139 Ill. 109. See the appellant's brief in this case

3 First Nat. Bank v. Shoemaker, in 15 L. R. A. 134, discussing this

117 Pa. 94.

question, but only succeeding in

Marzetti v. Williams, 1 Barn. & "darkening counsel." The opinion

does not help the matter.

6

The closest analogous

honoring of the check is a tort. relations are the duties owed by a common carrier or an innkeeper. In those cases the law raises the duty on motives of public policy out of the relation. So in the case of a banker and his depositor the law raises the duty out of the relation. Historically, the deposit in the bank is a bailment, belonging to the same general class as the carrier's and innkeeper's bailment. The relation of bailor and bailee imposes certain duties, a breach of which is redressed by a common-law action. Although the bailment has been in process of time changed to a debt, certain characteristic features of it have remained. There is a contract only in the sense of a quasi-contract. The contract is wholly ex lege; it is not the result of any agreement between the parties. It is true that in declaring on the carrier's duty in assumpsit a contract is pleaded, but that was merely the statement of the duty to charge an assumpsit. There was no consideration pleaded. Assumpsit was originally an action on the case, and the promise was considered important after the common-law pleaders had lost sight of this fact. The statement of the contract is now merely by way of inducement to show the relation out of which the law raises the duty. This is the form of pleading in case. So the ingredient of malice in the action for dishonoring a bank check and the allegation thereof in the declaration is merely a method of charging a failure of duty. It is wholly dispensed with in

6 See Keener on Quasi-Contract, 18, and the introduction to the present work. He makes the point that the duty enjoined is to act, which makes the carrier's duty quasi-contract. One case recognizes that the duty of a bank in case of a collection, which depends upon the same principle, is raised out of the relation, because where a contract to use proper steps in collecting is alleged it need not be proven if the relation is proven. Jagger v. German-American Bank, 53 Minn. 386.

7 See two articles on assumpsit by a very great authority in 2 Harvard Law Rev. 1, 53.

8 The failure to recognize this very palpable fact led the supreme court of Illinois in Schaffner v. Ehrman, 139 Ill. 109, to call this suit one in slander. It is no more a slander than the refusal of any debtor to pay his debt is a slander upon the creditor. It merely happens that one of the elements of damage is loss of credit.

code pleading; it is simply a way of saying that the bank acted unlawfully in violating the duty which the law raised out of the relation. The duty owed by a bank is just as much the result of a custom as is the duty of a common carrier or an innkeeper. The old form of declaration against an innkeeper was on the common custom of the realm. The custom simply became recognized by the courts and thus became a rule of law. Suppose the duty had been originally created by a statute; there would then have been no question of its quasi-contractual character. Another test would be this: Suppose a state statute should abolish the duty of a bank to honor its customer's checks and leave the remedy simply one of debt." It certainly could do so; yet if the relation is one of contract it could not do so as to future deposits; but it could not abolish the debt of the bank to its depositor as to a future transaction. If a statute should declare that a deposit of money in a bank should not create a debt, the statute would be void. But if it should say that the bank should not be responsible for more than the debt on failure to honor a check, the statute would be good. The debt is a genuine contract, therefore, and the other part of the legal relation is not.10 It will be seen later that this question is not a mere academic one, but has an important bearing upon questions in banking law.

§ 129. Kinds of deposits.- Deposits are either general or special. A special deposit may be of something else than

9 Statutes have varied the duties of innkeepers and carriers, and those statutes no doubt affected all future instances of the relation.

10 See Louisiana v. New Orleans, 109 U. S. 285, as to quasi-contracts not being within the protection of the constitution as to contracts. The case itself is wrong, however, where it decides that a quasi-contract can be abolished as an obligation by statute, except as to future

transactions; that obligation is protected by the clause in the fourteenth amendment as well as by the clause against the taking of private property. The quasi-contract, after the obligation has once arisen, is property. The dissenting opinion of Justice Harlan does not display any knowledge of the nature of a quasi-contract, although he was right in his conclusion.