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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 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. ? 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.
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.
and usages, without bringing home to him positive notice of the change. Until he has been sufficiently notified to the contrary he has the right to expect the ordinary course of dealing to be continued. But to enable the customer to take advantage of this doctrine, he must show that the alteration has taken place in an actual rule or bona fide usage, in the legal sense of the latter phrase, of the bank. The usage need not be a general usage of the bank; it may be one which is only good as between himself and the bank. For usages of this limited nature may exist and a baik by its course of dealing with a single customer may assume special obligations towards him individually which do not bind it as towards anybody else. But whatever be its extent it must constitute a usage proper. A mere gratuitous habit on the part of the bank to allow its customers privileges or favors, if it be really nothing more than this, may be stopped by the bank at any moment without prior notice, and without placing itself under any liability. It is of course impossible to draw an accurate line of demarcation between the usages which are of the former class and the habits which fall within the latter description. In each instance the appropriate character will be conferred by a combination of all the many minute circumstances which can be adduced to interpret the true nature of the transactions.
Certain Special Instances. Two or three special cases, in which certain matters have been regarded as proper to be the subject of usage and to be controlled thereby should perhaps be mentioned before leaving this portion of our topic. A custom of common carriers and messengers to leave parcels or notices directed to a particular officer of the bank at some especial desk, or with some officer other than the one named, may be shown; and delivery made in accordance with such custom will be a sufficient discharge of his duty on the part of the carrier or messenger.1
1 Barnes v. Ontario Bank, 19 N. Y. 152; Cumming v. Shand, 5 Hurl. & N. 95 ; 29 L.J. Exch. 129. 2 Hotchkiss v. Artisans' Bank, 42 Barb. 517.
An established custom that notices intended for the directors shall be left upon the cashier's desk, will bind any director whose own notes may happen to come into the bank.2
Commencement day at Harvard College (situated three miles from Boston) is not a legal holiday, upon which by statute the Boston banks would be authorized to close. But it has long been their usage to do no business upon that day, and to make demand and give notice, &c., upon commercial paper, upon the day preceding, in like manner as in case of Sundays and the like. The courts of Massachusetts have recognized the custom as good.3
A country bank in the State of New York was wont to send paper left with it for collection in New York city, by the captain of a steamboat plying to the city, instead of sending by mail. It was also wont to send only once a week, except in cases of an unusual accumulation of paper. The steamer arrived in the city early in the evening of the same day on which it started.
The court held that the custom was not inoperative as being unreasonable, or as wanting any of the requisites of a good custom ; and that at least as towards all persons affected with knowledge of it, it was valid and binding. 4
Usage proved by Parol Testimony. The custom or usage of banks generally, or of an individual bank, may be sufficiently proved by parol testimony. It is not
1 Hotchkiss v. Artisans' Bank, 42 Barb. 517.
5 Renner v. Bank of Columbia, 9 Wheat. 587; Mills v. Bank of United States, 11 id. 431. Indeed in a large proportion of the cases cited in this chapter parol evidence has been admitted without objection.
necessary that the witnesses who are relied upon should be experts in the banking business or in any manner engaged in the same, or connected with any bank whose individual usage is to be shown. If they have had any dealings which have brought the custom or usage within their observation and cognizance so that they actually know it as a matter of fact they are competent to testify to it, and it may be established by their testi
Clearing Houses. In all large cities where the banking business is sufficiently considerable to demand such a convenience “ clearing houses” are established. The main purpose of these is to render the daily settlements of the banks with each other simple and expeditious. The substantial characteristics of the plan are these : At a certain hour every morning, usually at ten o'clock, the deputy of each bank attends at the room of the clearing house bringing with him all the checks upon other banks which have been received by his own bank since the same hour of the preceding day. Each bank has its drawer or box in the room, and the messengers of all the other banks distribute all the checks which they have in their possession, placing each of them in the drawer or box of the particular bank upon which it is drawn. Each bank is then credited on the books of the clearing house with the amount of checks upon other banks which it has brought in for collection and is debited with the amount of the checks drawn upon it which all the other banks have brought. If the former amount exceeds the latter the bank is then declared to have “gained” the amount of the excess; but if the latter amount exceeds the former the bank is declared to have “lost” the amount of the difference. It is obvious that the sum total of the losses of the losing banks must be precisely equal to the sum total of the gains of the gaining banks. At a later hour in the same day the losing
i Griffin v. Rice, 1 Hilt. 184.