discovering the mistake, promptly notify the customer, and do no act
which looks like exercising ownership over the note, as suing on the
note in its own name, or it will be held to have waived the error and
D4 MONROE'S DIGEST
made the note its own. Whetherill v. Bank of Pennsylvania, 1 Miles,
660. It has been held that a bank may assume a liability, which is
nearly akin to the principle of certifying a check as where it credits
to the payee the amount of the check, where both the drawer and the
payee are its customers, when, as a matter of fact, the drawer had not
sufficient funds to pay the check, and though the credit was given by
mistake in the hurry incident to business. This seems to be the rule,
even where the depositor to whom the amount of the check was credited
had not drawn against the fund so placed. to his credit. Boltonv.
Richard, 6 Term Reps. 139.
661. Of course the bank will not be liable for the mistake, and can
correct it, if the depositor knew the drawer had no funds or was guilty
of any other fraud, on the same principal that the bank could recover
a payment made in the same way. Morse, p. 320.
RIGHTS, DUTIES AND LIABILITIES OF NATIONAL BANKS.
662. 1. Rights or powers of national banks are : to exercise all
such incidental powers as are necessary to carry on the business of
banking, by discounting and negotiating notes, drafts and bills ; by
receiving deposits ; by buying and selling exchange, coin and bullion ;
by loaning money on personal security ; by obtaining, issuing and cir-
culating notes according to the provisions of the act of Congress.
663. The directors have power to regulate, by by-laws not incon-
sistent with the provisions of said act, the manner in which its
directors and other officers shall be elected or appointed, the manner in
which its stock and other property shall be transferred, and its general
business conducted. Act of Congress, 1864, 8.
664. Under this section it has been held that a national bank has
no power to act as a broker, and sell railway and other bonds on com-
mission ; and that an action cannot be maintained against such a bank
for damages sustained through the misrepresentation of its teller as to
the character of the bonds of a railway company which it sells to a
-customer ; that the power to engage in such a transaction not having
been conferred upon the bank by the statutes creating and regulating
it, the bank may set up the defence of ultra vires in such an action.
Meckler v. First Nat. Bank of Hagerstown, Court of Appeals of Mary-
land, April term, 1875 ; reported in 2d Central Law Journal, 471.
665. It is entitled to receive from the comptroller of the currenc}'
-circulating notes of different denominations, equal in value to ninety
per cent, of the current market value of the United States bond, de-
posited with the Treasurer of the United States ; but not exceeding
ninety per centum of the amount of said bonds, at the par value
thereof; and at no time can the amount of the notes issued to a bank
exceed the amount of the capital stock at that time actually paid in.
666. It has the right to purchase, hold and convey such real
estate, and such only, as shall be necessary for its immediate accommo-
dation in the transaction of its business ; such as shall be mortgaged
OF STANDARD DECISIONS. 95
or sold to it in good faith to secure, or in payment of, debts previously
contracted ; and such as it may purchase at sheriff's sale in the collec-
tion of debts due to it. And in no other manner and for no other
purpose can it purchase or hold real estate ; and it can hold real estate,
purchased in payment of debts due to it, for five years, and no longer.
667. It has been decided that a mortgage on real estate made to a
national bank to secure present or future loans are void, as being
against the provisions of the act of Congress ; it can only take real
estate security, to prevent losing loans previously made, in good faith.
Fuicler v. Scully, 72 Penn. St. 456.
668. National banks cannot be held responsible for special de-
posits (as box of valuables), left with their cashier or president, with-
out showing that the directors assented to it, or that the bank was in
the habit of receiving those deposits. It is even a question whether
those banks have a right to receive special deposits. This latter point
is not definitely settled, but strongly doubted ; but the first point
viz : that, without proving usage on the part of the particular bank in
receiving special deposits or sanction on the part of the directors of
that particular act, the bank cannot be held liable is settled clearly
and definitely by the two following cases : First Nat. Bank of Lyons
v. Ocean Nat. Bank, N. Y. Court of Appeals, March, 1875 ; Wiley v.
Nat. Bank of Brattleboro, Supreme Court of Vermont, February, 1875.
669. National banks cannot be proceeded against in bankruptcy ;
if insolvent, the remedy is to proceed in the mode pointed out by the
National Banking Act and its amendments. Inre, Manuf. Nat. Bank,
District Court of TJ. S., Northern District Illinois, December, 1873.
610. The term " capital," employed by banks in the business of
banking, in the 110th section of the revenue act of July 13th, 1866, and
on which the banks are liable to pay taxes, does not include moneys
borrowed by them temporarily in the ordinary course of the business
of the bank. It applies only to the property or moneys of the bank,
actually subscribed or set apart from other uses and permanently in-
vested in the business. Bailey, Collector v. Clark, Supreme Court of
U. S. October term, 1874.
671. While this decision applies, in terms, only to the rights of a
private banker, the principle is, unquestionably, equally applicable to
DUTIES OF NATIONAL BANKS.
672. No association can be organized under this act with a less
capital than one hundred thousand dollars, nor in cities whose popula-
tion exceeds fifty thousand persons with a less capital than two hun-
dred thousand dollars ; but, with the approval of the secretary of the
treasury, a bank in a place whose population does not exceed six thou-
sand people may be organized with a capital of fifty thousand dollars.
Act of 1864, 7.
673. A bank may increase its original capital under the direction
of the comptroller of the currency ; but no increase is valid until the
whole amount of such increase is actually paid in and notice of such
96 MONROE'S DIGEST
fact transmitted to the comptroller, and his certificate, approving such
increase, transmitted to the bank. Ibid, 13.
674. The bank is not authorized to commence business till fifty
per cent, of its capital is actually paid in, and the remainder of the
capital must be paid in installments of ten per cent, at least as often a&
once a month. Ibid, 14.
675. Each bank, before beginning business, must deposit "with the
Treasurer of the United States registered bonds of the United States r
not less than thirty thousand dollars, nor less than one-third of the
capital stock paid in ; and it must keep, at all times on deposit, with
said Treasurer, such bonds amounting to at least one-third of its capital
stock actually paid in. Ibid, 16.
676. It is the duty of each bank to have on hand, at all times, in,
lawful money of the United States, an amount equal to at least fifteen
per cent, of its notes in circulation and its deposits ; and banks located
in certain cities, designated in section 31, must have on hand at least
twenty-five per cent, of such money ; and whenever this reserve falls
below the above proportion, the bank is prohibited from declaring any
dividends of its profits or making loans or discounts, except the dis-
counting of or buying bills of exchange payable at sight, until the
above proportion between its reserve and notes and deposits is once
more restored. Ibid, 31.
677. Dividends of the net profits may be declared semiannually,
but it is the duty of the directors, before declaring any dividend, to=
carry one-tenth part of the net profits of the preceding half-3 r ear to its
surplus fund, until this fund shall amount to twenty per cent, of its
capital stock. Ibid, 33.
678. It is the duty of the bank to make to the comptroller of the
currency not less than five reports annually, according to the form pre-
scribed by the comptroller, verified by the oath of the president or
cashier, and attested by the signature of at least three of the directors \
and such report must also be published in some newspaper of the county
where the bank is located. The comptroller may also, in his discretion,,
call for special reports at any time. And the bank is liable to a
penalty of $100 for every day it is in default, after the first five day a
when the report is due.
679. In addition to the above reports, the bank must report to the
comptroller, within ten days after a dividend is declared, the amount
of such dividend, the amount of net earnings in excess of the dividend,
the report to be attested by the oath of the president or cashier. Act
of March 3. 1869.
680. The bank must never be indebted to an amount exceeding the
amount of its capital stock actually paid in and remaining undiminished
by losses, except on the following accounts : 1. On account of its cir-
culation ; 2. On account of moneys deposited with or collected by it ;
3. On account of bills of exchange or drafts drawn against money
actually on deposit to its credit, or due thereto ; 4. On account of lia-
bilities to its stockholders for dividends and reserved profits. Act of
681. The bank is not permitted to pledge, directly or indirectly, any
of its notes of circulation, for the purpose of procuring money to be
paid in on its capital stock or to be used in its banking operations ; nor
OF STANDARD DECISIONS. ' 97
is it permitted to use its circulating notes, in any manner or form, to
create or increase its capital stock. Ibid, 37.
682. Neither the bank nor any member thereof is permitted to*
withdraw, nor permitted to be withdrawn, either in the form of dividends-
or otherwise, any portion of its capital. And if any losses are sus-
tained by the bank, which are equal to or exceed its undivided profits-
then on had, then no dividend can be made. No dividend can be de-
clared to an amount greater than its net profits on hand, after deduct-
ing from such profits the losses and bad debts. All debts due the
bank, on which interest is past due and unpaid for the period of six
months, unless the debts are well secured, and in process of collection,
are to be counted as bad debts in making this computation. Ibid, 38.
683. The bank is not permitted to pay out on loans or discounts, or
in purchasing bills of exchange, or in payment of deposits, or in any
other mode to pay or put in circulation, the notes of any bank or bank-
ing association, which notes are not at such time receivable, at par, on
deposit, and in payment of debts by the association which has paid out
or put in circulation the said notes ; nor is it permitted to put in cir-
culation the notes of any bank which does not redeem its paper in law-
ful money of the United States. Ibid, 39.
684. It is the duty of the bank to keep at all times a full and
correct list of the names and residences of all its shareholders, with
the number of shares owned by each. This list is to be open during
business hours to the inspection of its shareholders and creditors, and
the proper taxing officers of the state. A copy of this list is to be
transmitted to the comptroller, verified by the oath of the president or
cashier, on the first Monday of each July. Ibid, 40.
685. Where a law of the State where the bank is located provides,
that the cashier shall transmit, to the clerks of the several towns in,
which any of the stockholders of that bank reside, a true list of such
stockholders, and a penalty is imposed on the cashier for the neglect of
such duty, the fact that the bank keeps such a list of its stockholders
as is required by act of Congress, and that the list is accessible to the
assessors of the town on application to the bank, will not absolve the
cashier from complying with the requirement of the State law on this
subject, nor mitigate the penalty. Newman v. Wait, 46 Vermont, Feb-
ruary Term, 1874.
686. Shares in national banks are taxable at the place of its loca-
tion by the State in which the bank has its habitat, and that is so,
whether the stockholders are residents or not of that place. Tappan v.
Merchants 1 Nat. Bank of Chicago, Supr. Court of U. S., April, 1874.
Shares of stock in national banks may be taxed by States or muni-
cipal corporations in the place where the bank is situated, and may be
assessed at a higher rate than their par value. They may be assessed
at their market value. Hepburn v. School Directors of Borough of
Carlisle, Penn.; decided by the Sup. Court of U. S. in 1875.
LIABILITIES OF NATIONAL BANKS.
68T. The capital stock of the bank is to be divided into shares of
one hundred dollars each, which are to be considered personal property
98 MONROE'S DIGEST
and transferable on the books of the bank, in the manner provided by
its article of incorporation ; and every person becoming owner of such
shares by transfer succeeds to all the rights and liabilities of the
vendor ; and no change can be made in the articles of association by
which the rights, remedies or security of existing creditors of the bank
shall be impaired. The shareholders are held individually liable, equally
and rateably, and not one for another, for all contracts and engage-
ments of the bank, to the extent of the amount of their stock therein,
at its par value, in addition to the amount invested in such shares.
Act of 1864, 12.
688. The total liabilities to any bank, of any person, or of any
company, corporation or firm, for money borrowed, including in the
liabilities of a company or firm the liabilities of the several members
thereof, must at no time exceed one-tenth part of the amount of the
capital stock of the bank actually paid in. The discount of bona fide
bills of exchange drawn against actually existing values, and the dis-
count of commercial paper actually owned by the person or persons,
corporation or firm negotiating the same, is not considered as money
borrowed. Ibid, 29.
689. It has been decided by the Supreme Court of Pennsylvania,
in O'Hare v. National Bank, 32 Leg. Intel. 29, that the act of 1864
( 29) does not prevent recovery on securities taken by a national
bank for a loan in excess of one-tenth of its capital, the transaction not
being collusive between the bank and the borrower. The court say :
" Evidently the limitation of the indebtedness to the one-tenth was in-
tended as a general rule for conducting the business of the bank a
rule laid down from experience to regulate its loans for its own best
interests and those of stockholders and creditors not a rule to regu-
late its customers. It was a regulation to prevent these associations
from splitting on the rock which has ruined so many banks, to wit :
that of lending too much of their capital to one person or firm the
intention being to protect the association and its stockholders and credi-
tors from unwise banking. We cannot suppose it was meant to injure
them by forbidding recovery of injudicious loans." This is a sound
construction of the law in question. Albany Law Jour., January 30,
690. The bank may charge, on loans and discounts, interest at the
rate allowed by the laws of the State where it is located ; but where,
by the laws of such State, a different rate is fixed for banks of issue
organized under the State laws, the rate so fixed is the rate which the
national bank may receive. And when no rate is fixed by the State
Jaws, then the bank may receive seven per cent., and such interest may
4)6 taken in advance. The knowingly taking a greater rate of interest
than the above creates a forfeiture of the entire interest on the debt;
and in case usurious interest has been actually paid to the bank, the
person or his representatives may recover back, in an action of debt,
twice the amount of the interest thus paid ; provided, that the action
is commenced in two years from the date of the payment. Adding the
current rate of exchange on bills payable elsewhere than where they
are negotiated to the above rate of interest is not to be deemed usury.
Act of 1864, 30.
691. The provisions of the Banking Act of 1864, imposing penalties
OF STANDARD DECISIONS. 99
upon national banks for taking usury, supersede the State laws upon
that subject. Davis v. Randall, 115 Mass. 547 ; decided in 1874.
692. Usury laws of states are not applicable to national banks ;
the United States have the right to fix interest laws applicable to those
banks, and the penalties for violations ; and those laws are exclusive
of State laws on the same subject, as applicable to those banks. Cen-
tral Nat. Bank v. Pratt, 2 Am. Law Times, (N. S.) 1.
693. Where the penalty imposed by Congress on national banks
for taking usurious interest is sought to be enforced in a State other
than where the bank is situated (the bank in this case was situated in
Iowa and the suit was brought in Illinois) the court has no jurisdic-
tion, as the court will not enforce a penalt} r imposed by another sov-
ereign State on its subjects. Miss. Riv. Telegraph Co. v. first Nat.
Bank, Supreme Court of Ills., Januaiy, 1875.
694. Where, as in New York, the State statute prohibits a cor-
poration from pleading usury, and a usurious loan is made by a
national bank to a corporation, the effect of such statute is as if the
State laws had fixed no law relating to interest, and the transaction is
governed simply by the provision of act of Congress, and the bank in-
curs the penalties of that act and not those of State laws. Receiver
of Ocean Nat. Bank v. Estate of Wild, United States Circuit Court,
S. D. of N. Y., 10 Bankr. Reg. 568.
695. Under the foregoing section it has been held that where a
bank stipulates for usurious interest, it may recover the principal and
that only, forfeiting all interest ; and where the usurious interest has
been paid, the penalty, the recovery back of double the amount of the
excess over legal interest and that it is the actual payment of the
usurious interest which consummates the usury, and from which the
limitation of the suit for the penalty begins to run ; and held further,
that in a suit by the bank against an indorser of a note, which note is
the result of several renewals, on each of which usurious interest has
been paid, the indorser can set off in this suit all the excess of interest
received by the bank on the several renewals. Brown v. Second Nat.
Bank of Erie, 72 Penn. St. 209 ; decided 1872.
696. Whenever a bank is notified by the comptroller that its re-
serve is below the amount required by law, and the bank fails for
thirty da} T s thereafter to make good its reserve, the comptroller may,
with the concurrence of the secretary of the treasury, appoint a re-
ceiver and wind up its business. Act of 1864, 31.
697. If any bank fail to redeem its notes at the places of deposit
designated by the comptroller, he may appoint a receiver and proceed
to wind up its business. Ibid, 32.
698. The bank is not permitted to make any loan or discount on
the security of the shares of its own capital stock ; nor is it permitted
to be the purchaser or holder of its stock, unless the purchase shall
become necessary to prevent loss of a debt previously contracted in
good faith; and stock so purchased must be sold within six months
from the day of purchase. Ibid, '35..
699. Under this section it has been held that a party owning a
stock certificate in a national bank may transfer the same by delivery
and indorsement, and the purchaser gets a good title, even though the
former owner was indebted to the bank, and the bank made him the
100 MONROE'S DIGEST
loan on the strength of it for national banks cannot legally make
loans on their stock ; and it is the duty of the bank to make the trans-
fer on its books, whenever the owner of the shares has disposed of the
same. The only exception being, when it is necessarj' to take pledge
of the stock, to prevent loss of loan made bona fide and at a previous-
time. Bank v Lanier, 11 Wall. 369.
700. National banks have no lien on stock of stockholders for un-
paid balance due from them on general account ; of course, this does-
not refer to unpaid subscription on the stock ; nor can the bank im-
prove its position by enacting in its articles of incorporation that
stockholders shall not be permitted to transfer their stock while in-
debted to the bank ; such a provision is in conflict with the law under
which the bank is incorporated, and is therefore null and void. Bui-
lard v. Bank, 18 Wall. 590.
701. It would seem, however, that the rule is otherwise as to cash
dividends due the stockholder on his shares. The following is the
syllabus made by the Albany Law Journal of July 24, 1875, of the
case of Hagar v. Union Nat. Bank, 63 Maine, 509.
702. " A bank bad sued an overdue note of a stockholder and at-
tached his shares. During the pendency of this action, the stock-
holder demanded payment of the dividends declared upon the attached
shares, which was refused. He subsequently settled that suit, and
then, without renewing his demand, brought the present action for his-
dividends. Held : That it could not be maintained ; that a bank has
the right to hold a cash dividend as pledged for the indebtment of the
shareholder of the bank."
703. The transfer of any notes, bills and other evidences of debt r
or of deposits to its credit ; the assignments of mortgages, sureties on
real estate or judgments ; all deposits of money, bullion or other valu-
able thing, for its use or for the use of its shareholders or creditors r
and all payments of money to either, made after the commission of an
act of insolvency, or in contemplation thereof, with a view to prevent
the application of its assets in the manner prescribed by law, or with a-
view to give preference of one creditor to another, except in the pay-
ment by the bank of its notes is utterly null and void. Act of 1864,
704. If the directors of any bank knowingly violate, or knowingly
permit any of its officers, agents or servants to violate any of the pro-
visions of the act of Congress, relating to national banks, the bank for-
feits all the rights, privileges and franchises derived from said act.
Such violations however, is to be determined and adjudged by a proper
circuit, district or territorial court of the United States, in a suit
brought by the comptroller for that purpose. And in cases of such
violation, every director who participated in or assented to the same, is
held liable in his personal and individual capacity for all damages sus-
tained in consequence of such violation by the bank, its shareholders
or any other person. Ibid, 53.
705. Although, under this section, the bank, as such, cannot be
proceeded against in a State court, it would seem that the directors-
might be sued in such court by any party entitled to bring the action.
This doctrine would seem to follow, from the principle laid down in
Commonwealth v. Barry, cited in the next section.
OF STANDARD DECISIONS. 101
706. Every president, cashier, director or other agent of the bank
who shall embezzle or willfully misapply any of its moneys or other
assets, or who shall, without authority from the directors, put in circu-
lation any of its notes ; or who, without such authority, shall issue any
certificate of deposit, draw any bill of exchange, or assign any of the
assets of the bank ; or who shall make any false entry in any book,
report or statement with intent to defraud, injure or mislead any per-
son or corporation, shall be guilty of a misdemeanor, and be liable to
imprisonment not less than five nor more than ten years. Ibid, 55.
701. State courts have jurisdiction over larcenies committed by
officers of national banks by embezzling the funds of the bank, and
this is so, though the act of Congress of 1864 makes the embezzling of
those funds a misdemeanor under the laws of the United States.
Commonwealth v. Barry, 116 Mass. 1 ; decided in Sept. 1874.
708. Suits against national banks may be brought in the United
States or State courts of the State or district where the same is located,
but suits to enjoin the comptroller from enforcing the provisions of
the acts of Congress must be brought in the United States courts. Act