CHAPTER XI.

CIRCULATING NOTES.

§ 311. Power to issue circulating notes. The power to issue bank-notes by an incorporated bank must always be a question of statute. In the case of a private banker it must always be an inquiry as to a statutory prohibition. As to a corporation it is a question of grant of power, although the want of a grant is to be inferred either from a failure to grant the power or a prohibition against its exercise. Certificates of deposit are not forbidden by the prohibition of the issuance of bank-notes,1 nor a time certificate of deposit forbidden by a prohibition directed against post-notes. A bank must have an existence in order to make a contract, and hence the bills of an unconstitutional bank are void.3 A banking corporation with general banking powers may issue bank-notes or post-notes, but the power to receive deposits and give acknowledgments therefor does not authorize the issuance of certificates to circulate as money. An insurance company, or a canal company, or a loan com

1 Talladega Ins. Co. v. Landers, 43 Ala. 115; Hargroves v. Chambers, 30 Ga. 580. Compare Mumford v. American Life Ins. Co., 4 N. Y. 463. But see In re Horner, 10 Leigh, 700. 2 See notes 5 and 6 to § 125, ante. But compare National Life Ins. Co. v. Beebe, 7 N. Y. 364; Weed v. Snow, 3 McLean, 265.

3 Skinner v. Deming, 2 Ind. 558. See $ 30, ante. While the bills might in this case be considered worthless, yet a remedy would exist against the corporators or those conducting the business. See § 30, ante.

4 Campbell v. Mississippi Bank, 6 How. (Miss.) 625. The power to issue notes is one of the ordinary functions of a bank; but if post-notes are forbidden they are void when issued. Swift v. Biers, 3 Denio, 70; Leavitt v. Blatchford, 3 N. Y. 19. So as to a post-dated draft. Oneida Bank v. Ontario Bank, 21 N. Y. 490. 5 Bliss v. Anderson, 31 Ala. 612. Compare People v. River Raisin Co., 12 Mich. 389.

"In re Ohio Life Ins. Co., 9 Ohio, 291.

Lawler v. Walker, 18 Ohio, 151. But its bonds, although negotiable,

pany cannot issue bills, where such power is either not granted or forbidden to all except banks; but an army sutler seems to be able to issue currency in spite of law. But this might be called another case of the "war power," by one who had a sense of humor. At any rate he does not fall within the terms of the prohibition." Drafts issued by a bank to circulate as money are not unlawful unless expressly forbidden by a valid law; 10 but under a prohibition against bills to circulate as money, which are not made payable in gold or silver, certificates payable in current bank-bills, and of course drafts or notes to circulate as money, payable in bills, are forbidden." If forbidden to issue bills not for immediate circulation, a bank which issues its notes upon the understanding that they are not to be returned for a period violates the prohibition." Municipal corporations have no power to issue bills to circulate as money, where all corporations except banking corporations are forbidden to do so, and it would seem even if there were no such prohibition 13 The state may incorporate a state bank and own all the stock and pledge the faith of the state to redeem the notes; 15 and yet, as we are informed by the bench that decided the Dred Scott case, would not violate the prohibition of the Federal Constitution directed against the issuance by a state

are not forbidden. McMasters v. Reed, 1 Grant Cas. 36.

8 Southern Loan Co. v. Morris, 2 Pa. 175 (the bill was negotiable and unlawful).

9 Weston v. Myers, 33 Ill. 424 (the documents were due-bills purporting to call for so much money).

10 King v. Dedham Bank, 15 Mass. 447; State v. Mathews, 48 N. C. 451. But see as to checks, Utica Ins. Co. v. Cadwell, 3 Wend. 296.

11 Darden v. Banks, 21 Ga. 297. 12 Commonwealth v. Bank of Mut. Redemption, 86 Mass. 1.

Wall. 349; Cothran v. City of Rome, 77 Ga. 582. Contra, Allegheny City v. McClurken, 14 Pa. 81; Devely v. Cedar Falls, 27 Iowa, 227.

14 Lampton v. Commonwealth Bank, 2 Litt. 300; Briscoe v. Bank of Commonwealth, 11 Pet. 257; Woodruff v. Trapnall, 10 How. 190. Contra, Bank of Commonwealth v. Clark, 4 Mo. 59; Linn v. State Bank, 2 Ill. 87. These last two cases were right. See § 16, ante, note 5.

15 Darrington v. State Bank, 13 How. 12. This is perhaps the wildest decision ever made by that

13 Thomas v. City of Richmond, 12 court,

of bills of credit.16 Two state decisions very properly held otherwise.17

§ 312. Statutory prohibitions.- Where there is a prohibition against the issuance of bank-notes, in order to show a violation of the act where the paper in itself is not a violation of the act, an intent to do so must be shown;1 but the fact that the document did circulate as money is proof of its adaptation to that purpose. Sometimes the statute is directed not against the issuance of such paper, but against the putting of it in circulation. But the issuance of orders upon a store payable in goods, whether issued by the store or by some one else, or tickets upon railroads good for one trip," or dray tickets, are not violations of such acts. But even though the note be issued unlawfully, it is proof of an indebtedness, but the notes themselves are no consideration for a contract.10 If the holder of such unlawful bills is in pari delicto with the bank or the person or corporation issuing the bill, there can be no recovery on the debt;" yet if there be a penalty imposed only on the person or corporation issuing the notes, the holder is not in pari delicto with the issuer.12

16 The bench that decided Darring. ton v. State Bank, supra, was practically the court that decided the Dred Scott case.

17 Bank of Commonwealth v. Clark, 4 Mo. 59; Linn v. State Bank, 2 Ill. 87.

1 State v. Humphreys, 2 Dev. & B. 555. But a due-bill for money is a violation of the act in itself. Hazleton Coal Co. v. Megargal, 4 Pa. 324. 2 Barnett v. State, 54 Ala. 579. 3 Norvell v. State, 50 Ala. 174; Downing v. State, 4 Mo. 572.

4 Durr v. State, 59 Ala. 24.

7 United States v. Monongahela Bridge Co., Fed. Cas. No. 15,796. 8 State v. Teak, 3 Sneed, 695. 9 Parmley v. Tenth Ward Bank, 3 Edw. Cli. 395.

10 Skinner v. Deming, 2 Ind. 558; Bank of Commonwealth v. Clark, 4 Mo. 59; Pratt v. Adams, 7 Paige, 615; Doty v. Knox Co. Bank, 16 Ohio St. 133; Wilson v. Spencer, 1 Rand. 76; Hamtramck v. Selden, 12 Grat. 28. See Reznor v. Hatch, 7 Ohio St. 248.

11 Thomas v. Richmond, 12 Wall. 349; Root v. Godard, 3 McLean, 102.

5 United States v. Van Auken, 96 See §§ 27, 32, ante.

U. S. 366.

6 Durr v. State, 59 Ala. 24.

12 Atlas Bank v. Nahant Bank, 3 Met. 581; Buffalo City Bank v.

§ 313. State bank tax.-The state bank tax applies to amounts paid out by the bank in its previously issued notes, as well as to payments in the notes of other banks. But it applies only to notes payable in money. Due-bills upon stores payable in goods or upon railroads payable in money are not taxable under it.3 Certificates of deposit nor drafts of one bank upon another, nor any other evidence of indebtedness not intended to circulate as money, would be subject to the tax. But there do not seem to have been any attempts to evade the tax by state banks, nor any attempt to put their paper into circulation. The pitiful attempts of the states by penalties imposed to compel state banks to maintain their notes at par or to pay specie for them are good illustrations of the utter worthlessness of the old state bank currency.

6

§ 314. Payment of notes.- A bank note is an engagement by the bank to pay bearer a certain amount of specie upon demand. Being negotiable it passes by delivery; hence if it be lost the holder loses his cause of action, if the note passes to a bona fide holder. But if a bank-note is lost

Codd, 25 N. Y. 163; Thomas v. Richmond, 12 Wall. 349, and cases therein cited.

These certificates are as a matter of law taxable under the state bank tax, but it is not likely that the law

1 Deposit Sav. Ass'n v. Mayer, Fed. will be enforced. See §§ 366 and Cas. No. 3813.

2 In re Aldrich, 16 Fed. R. 369.

3 United States v. White, 19 Fed. R. 723. Due-bills to railroad employees for wages, though used as money, are not taxable under this tax. Phila. R. R. Co. v. Pollock, 19 Fed. R. 401. And see United States v. Wilson, 106 U. S. 620.

4 A clearing-house being a voluntary association of banks, whether national or state, is a private institution. It issues certificates which are used as money. In fact in 1893 in New York city the banks would use nothing else for large sums.

367, post, for contrary decisions apparently.

5 Harrisburg Bank v. Commonwealth, 26 Pa. 451; Bank of Chambersburg v. Commonwealth, 2 Grant Cas. 384.

6 Bank of Kentucky v. Thornberry, 3 B. Mon. 519; Bryant v. Damariscotta Bank, 18 Me. 240; Brown v. Penobscot Bank, 8 Mass. 445; Wendell v. Washington Bank, 5 Cow. 161; State v. Banks, 12 Rich. Law, 609.

Suffolk Bank v. Lincoln Bank, 3 Mason, 1.

2 City Bank v. Farmers' Bank,

or stolen, the holder, like the holder of any negotiable paper, may recover from the bank, if the bank has not paid the note, upon giving indemnity. If the notes are destroyed, they may be sued for at law and a recovery had, without proof of a preliminary affidavit of loss," although such proof would have a bearing upon the question of interest. But a demand is necessary, at least to the recovery of interest. It was once a common practice to cut notes in two for safety in sending through the mail. If half of the note should be lost the holder was entitled to recover, certainly in equity, upon proof of loss and his ownership. Whether he was required to give security or not is questionable. Some courts held that half of a bank-note was not negotiable and hence no security was needed.10 Other courts held that in

Fed. Cas. No. 2738. This has been the settled law ever since Miller v. Race, 1 Burr. 452.

3 Waters v. Bank of Georgia, R. M. Charlt. 193. But see Hinsdale v. Orange Bank, 6 Wend. 379. But where bank-notes are passing from hand to hand in the manner of national bank-notes, which are never presented for redemption, no recovery should be permitted. Mobile Bank v. Meagher, 33 Ala. 622. No such suit could be brought on account of the difficulties in the proof.

4 Bank of Louisville v. Summers, 14 B. Mon. 217; Wade v. New Orleans Banking Co., 8 Rob. (La.) 140; Hagerstown Bank v. Adams Exp. Co., 45 Pa. 419; Ross v. Bank of Burlington, 1 Aiken, 43. If it were proved that the notes were destroyed no indemnity was required. Mobile Bank v. Meagher, 33 Ala. 622; Hagerstown Bank v. Adams Exp. Co., 45 Pa. 419. But if the proof were doubtful it was required. Wade v. New Orleans Banking Co., 8 Rob. (La.) 140.

9

5 Bank of Mobile v. Williams, 13 Ala. 544. Contra, Ross v. Bank of Burlington, 1 Aiken, 43.

6 No liability to pay would arise until proof of loss to the bank. Farmers' Bank v. Reynolds, 4 Rand. 186.

7 Streater v. Bank of Cape Fear, 55 N. C. 31; Ross v. Bank of Burlington, 1 Aiken, 43. See § 316, post.

8 There is no default and hence no liability for interest.

9 Allen v. State Bank, 21 N. C. 1; Bank of Virginia v. Ward, 6 Munf. 166; Armat v. Union Bank, 2 Cranch, C. C. 180; State Bank v. Aersten, 4 Ill. 135; Hinsdale v. Bank of Orange, 6 Wend. 378; Patton v. State Bank, 2 Nott & McC. 464; Union Bank v. Warren, 4 Sneed, 167.

10 Mobile Bank v. Meagher, 33 Ala. 622: United States Bank v. Sill, 5 Conn. 106; Murdock v. Union Bank, 2 Rob. (La.) 112; Hinsdale v. Orange Bank, 6 Wend. 379. So held where the part of a note torn off