CHAPTER III

NATIONAL BANKS.

§ 32. The creation of national banks. The creation of national banks is the exercise of the power implied from the express words of the constitution, authorizing congress to establish a system of finance and currency. The policy upon which the people acted was no doubt the necessity for a general and uniform system whereby public credit was to be based upon the security of the whole nation. The direct purpose of the national banking act is to secure public credit by the issuing of bank notes to circulate as money, such notes being founded upon the security of the bonds of the United States (1). Manifestly this is an indirect way to exercise the power to borrow money.

§ 33. The organization of national banks. The national banking system is quite simple. Congress by various acts has authorized any five or more persons to organize a national bank; but requires as a condition that its circulation shall be based upon the bonds of the United States, and that the business of all such banks shall be under the direct supervision of an officer of the national government, known as the comptroller of the cur

(1) Merchants Nat. Bank v. U. S., 214 U. S. 33; Briscoe v. Bank, 11 Pet. 257; M'Culloch v. Md., 4 Wheat. 316.

rency, who has the power at any time to examine into the condition of any national bank and to suspend the business if not found to be in a satisfactory condition.

The organization of a national banking corporation does not differ materially from that of other banking corporations. In fact a great many national banks have been created by transforming an existing state banking corporation into a national bank.

§ 34. Rights and liabilities peculiar to national banks. It is impossible, within the space allotted to this subject, to reproduce the national banking statute, and as the banking business conducted by national banks is not changed in its nature, all that is necessary is to notice the rights and liabilities peculiar to national banks. The stability of the system requires that the rights and liabilities of these banks shall be governed by one law, and that, the law of the national government. The states cannot tax national instrumentalities as such. The great case of M'Culloch v. Maryland (2) established that. The states cannot impose penalties upon the national banks or regulate their manner of doing business (3).

While officers and directors may be liable in damages for the violation of relative common law duties, such as assault or fraud, their civil liability, so far as imposed or regulated by congress, is governed solely by the national law, and not by what the state courts consider the common law (4).

(2) Note (1) above.

(3) Schlesinger v. Gilhooly, 189 N. Y. 1.

(4) Yates v. Jones Nat. Bank, 206 U. S. 158.

§ 35. Same: Share-owners liability. There is no common law liability upon share-owners for the statute fixes the liability in this respect, providing that share-owners shall be liable in case of insolvency of the bank to an assessment equalling the par value of the stock, beyond the amount invested; or, in other words, the statute imposes a double liability. State laws cannot limit this liability (5).

The liability is imposed upon the real owner. A mere pledgee is not treated as the owner, but the real ownership is a question of fact, and a mere colorable holding in the name of one, while the real ownership is in another will not evade the law (6).

(5) Christopher v. Norvell, 201 U. S. 216.

(6) McDonald v. Dewey, 202 U. S. 510; Ohio Valley Nat. Bank v Hulitt, 204 U. S. 162.

CHAPTER IV

CLEARING HOUSES AND CLEARING HOUSE CERTIFICATES.

§ 36. No necessary relation between clearing houses and clearing house certificates. Occasionally there arises in the larger cities a condition of affairs which impels the banks to resort to a device for conserving their cash reserve, known as clearing house certificates. In these the general public is immediately interested. At all times in the larger cities and within a convenient radius, there exists the constant business necessity for transferring the money on deposit from one bank to another-and this, in the ordinary course of business, is usually accomplished by means of a general exchange of checks, made at a convenient place under the supervision of what is called a clearing house.

From the fact that the former of these devices is called clearing house certificates, and the latter organization is called a clearing house, one might be led to infer that there is some necessary connection between the two, and that the former is a part of the ordinary business of the clearing house, but this is an erroneous impression. Once the different functions of these devices is understood, the legal aspect of the transactions becomes clear.

§ 37. What is a clearing house? A clearing house is a place of meeting and exchanging credits and debits between banks, created by their customers in issuing checks and drafts.

§ 38. Same: How created. The clearing house is created by the voluntary agreement of the banks of a certain city or vicinity. There can be no question of the power or right of the banks to enter into such an agreement for this purpose, because the association does not contemplate the creation of any obligation or liability as to the paper handled, except that for the negligent loss or destruction of checks or drafts the members of the association would no doubt be liable, jointly and severally.

§ 39. Same: No privity with banks' customers. The customers of the banks associated are not in any sense members of the association nor in any degree in privity with its transactions so far as they relate to the ordinary clearing business (1). In a case involving this question the court said: "As said in Overman v. Bank, 30 N. J. Law 61: 'Where there is no claim that the association called the "clearing house" is an institution authorized by special legislation, or any authority existing in such association in any way to alter or modify the law merchant in regard to checks or commercial paper, such association cannot be held to have power to make usages or rules to bind those who are not parties to its organization. Its usages and rules, if not in conflict with law, may, by the implication of tacit adoption in the contracts of members, bind them in the same way that a general usage of trade

(1) Mt. Morris Bank v. Twenty Third St. Bank, 172 N. Y. 245.