ruling, in 3 Kernan, is too clear and positive to leave any doubt as to the law in New York State.

The doubt is simply, whether or not the allowance or disallowance of grace upon a certain anomalous description of paper is a proper subject of usage. Why it should not be so, it is difficult to say. It is clear that such paper whether it be called a check or a bill of exchange, is a materially modified form of either. It is in fact an independent species of paper. When therefore it is considered that the entire principle which gives days of grace upon particular species of commercial paper was in its origin wholly a matter of the usage of bankers; there seems no reason why the same usage if actually shown to exist, should not be properly extended to still another species of paper, of comparatively modern origin. Even if the instrument is a check, it is a peculiar alteration of the common form of checks. It is clear that the allowance of grace on business paper is a proper subject of usage since it owes its very existence to usage. Why then are not checks equally a proper subject for usage, and if so why may not usage draw distinctions in this respect between two different descriptions or classes of checks which vary from each other in so important a trait that very many courts are unwilling to apply the common name of check to each of them, but reserve it for the more usual kind, and prefer to describe the others as bills of exchange?

Presumptions established by Course of Dealing.

The course of dealing between two banks may be given in evidence for the purpose of raising a presumption from it. This is not precisely a usage; that is to say, it is not always necessary that it should bind the banks as an arbitrary rule for the conduct of their affairs with each other. Therefore the inference based upon it is not absolutely conclusive, but is capable of being rebutted by proof that the habitual course of dealing had in the particular instance been departed from. It is strictly as a

habit, which gives rise to certain natural suppositions, not as a legal usage which imperatively fixes those suppositions as facts, that such evidence is admitted. Thus that two banks. are wont to exchange accounts at short intervals, and each promptly to object to the account rendered by the other if it claims any error therein; that such accounts have been rendered, covering a point subsequently disputed but not objected to within the usual time, are acts admissible in evidence as going to show actual correctness and that the correctness has been acknowledged. But the same evidence would be incompetent to establish an usage between the banks of objecting promptly which should have the effect of estopping the bank which had failed so to object from afterwards claiming the correction of the error.1

By-Laws and Usages in Derogation of the Rights of third Parties.

A bank cannot arbitrarily make by-laws or institute usages which shall injuriously affect the rights of third parties. If any person deliberately assents to such by-laws or usages, it becomes a different matter, and thereafter, as a mutual understanding or agreement the bank might doubtless enforce it as towards this individual. But such assent, implying the waiver of valuable rights, will never be presumed simply because the bank has insisted upon laying down the rule for its own conduct. Thus a by-law or usage requiring all errors in payments over the counter, or in receipts or entries in a depositor's bank book, to be corrected by the party before leaving the bankingrooms, are absolutely devoid of any effect whatsoever. That as a matter of fact the party did count his money or did examine the writing or entry before he left the rooms, and that he then made no objection to the accuracy of the transaction, might be admissible in evidence to sustain, so far as it could, the presumption of correctness. But it would be strictly as circum

1 Union Bank v. Planters' Bank, 9 Gill & J. 439.

stantial evidence; and the further and independent fact that it was the law or usage of the bank to refuse to make any adjustment unless this process was observed would have nothing whatsoever to do with the matter, and would doubtless not be admitted in evidence, by reason of its entire impertinence. Neither can this power, which the directors could not claim at common law be asserted by virtue of the authority, given them by legislative enactment, to regulate the conduct of the business and affairs of the bank. Such authority does not empower them to make rules which shall wrongfully affect the rights of outside dealers with the corporation.1

Usages in contravention of Enacted Laws.

It may undoubtedly be laid down as a general principle that no custom or usage among banks, however universal or long established or uniform it may appear to be, can give validity to any transaction upon their part which conflicts with a positive statutory enactment. But though the doctrine in this shape is clearly sound it has been thus far illustrated only by cases arising under the usury laws. Banks have often sought to evade the restrictions of these laws under cover of a customary course of dealing. But all such efforts at evasion have thus far been rigorously defeated by the courts. An apparent exception to this statement might be supposed to be found in the custom of banks, when discounting, to deduct the interest in advance, thereby securing to themselves interest upon this interest for the period for which the discounted paper runs, and so actually receiving a fraction of one per cent more than the regular rate. But this should be regarded rather as an express power conferred by charter or organic law than as an exception based solely upon usage. Power "to discount" is

1 Farmers' & Mechanics' Bank v. Smith, 19 Johns. 115; Gallatin v. Bradford, 1 Bibb, 209.

2 Niagara County Bank v. Baker, 15 Ohio St. 68; Protection Ins. Co. v. Harmer, 2 id. 452; New York Firemen's Ins. Co. v. Ely, 2 Cow. at p. 707; Dunham v. Gould (Per Chanc. Kent), 16 Johns. 367.

usually in terms given in all such charters and laws. If not given it must be regarded as one of the essential elements of the banking business, which must be enjoyed by every banking institution by virtue of its general character and the objects for which it exists. Now "discounting" means a loan of money upon business paper where the interest is thus deducted beforehand; the deduction in this shape is a part of the definition of the word, an essential element in the transaction itself. A corporation therefore entitled to conduct the general business of banking, a fortiori a corporation specially empowered to discount," has legislative authority to compute interest in this peculiar manner. The habit of doing so must unquestionably in its origin in time past have been recognized as a usage. But since then it has come to be an inherent part of the transaction of discounting, and whenever discounting is done under legislative permission this computation may be made by virtue of the same permission and as part thereof. The exception to the usury laws is not therefore based on the solitary fact of a usage, but of a usage incorporated into and sanctioned by legislative enactment, and it is the latter not the former ground that must be relied upon as really authorizing the taking of usurious interest.1

Cases in which Usage cannot be set up.

Usage cannot be shown to absolve a bank from a positive and essential duty. The omission of any material portion of a transaction which it undertakes to perform cannot be excused on the ground of a custom to omit such portion. What the bank undertakes to do, it must do; it is only the manner of the doing, not the doing itself, that can be the proper subject of a custom.2

No act which practically amounts to a wrongful appropriation or an improper use of the corporate funds can be sanctioned

1 See McLean v. Lafayette Bank, 3 McLean, 587.

2 Borup v. Nininger, 5 Min. 523.

by a usage. Thus a usage to honor the occasional overdrafts of customers, whose general standing and repute is good, is bad at law. Proof of such a usage will not protect the corporation or any of its officers concerned in the transaction from the natural and ordinary results of its wrongfulness.1

Laws regulating legal tender cannot be affected by any local usages to disregard them, prevailing among banking houses.2 It is a matter of ordinary occurrence for persons using printed blanks for checks to cancel some portion of the printed matter which does not suit their temporary convenience; and banks are wont to disregard the fact of such cancellation as matter of suspicion, and to assume that it was done by the proper and authorized person. But the banks do this at their peril, and are not to be saved from a consequent loss simply because they can show a custom on their part to regard erasures of printed matter as no evidence of unauthorized alteration, when the same erasure of written matter would be so. Such a custom, said the court in Connecticut, has not existed so long or become so general as to be a part of the law merchant, and no person will be affected by it unless he be positively shown to have had knowledge of such an usage on the part of the bank and to have acquiesced in it. The habit is certainly somewhat older now than it was when that decision was rendered; but mere age will hardly give it authority in the courts. It is a usage containing intrinsic objections which may very probably prevent it from ever receiving recognition except upon proof of direct assent to it by the parties concerned.

Arbitrary Alteration by a Bank of its Usages or Rules.

A bank cannot by an arbitrary change in any of its rules or usages, injuriously affect the rights or interests of any dealer with it, who has previously had knowledge of such rules

1 Lancaster Bank v. Woodward, 18 Penn. St. 357.

2 Marine Bank Cases, 27 Ill. 525; 28 id. 90, 463; 29 id. 248.

3 Mahaiwe Bank v. Douglass, 31 Conn. 170.