Interest Accounts.

Ordinarily, a general deposit with an incorporated bank in this country does not bear interest. But private bankers usually pay interest on customers' balances, and e converso charge interest on their overdrafts. With us, however, it is a proper subject of a special agreement or understanding between the parties. In England it might be judicially noticed and assumed by the courts as the regular course of business. But probably it would not be so with us, where private banking is carried on much less extensively. Such agreements may be entered into also with an incorporated bank, though certainly they would never be assumed in dealings with a corporation or association, however it might be with a firm or an individual in the business. It naturally happens that nearly all the cases which we find on this subject are English. They chiefly concern disputes which arise as to when rests may be taken; and as to what rate of interest shall be allowed in cases not specifically provided for by a distinct agreement. Usage, if it contravenes no law, will govern in such controversies. So when a banker and his customer are shown to have conducted their banking account for a series of years upon a certain specified system, which is not in itself intrinsically illegal, it will be assumed that that system had been originally agreed upon between them, and the principles involved in it will be held binding for the solution of any subsequent disagreement.2 But acquiescence in the general system does not go further than to fix the principle upon which the accounts shall be computed; it does not admit the accuracy of particular items, any of which may be disputed.3

It is necessary, however, that the principle which it is sought thus to establish should be one which is in itself strictly legal. Thus it cannot be questioned that a bank, or banker, equally with any other individual, is subject to the operation of the usury laws, and cannot exact more than the legal rate of inter

1 Gwyn v. Godby, 4 Taunt. 346; Ikin v. Bradley, 5 Price, 536; Crosskill v. Bower, 32 Beav. 86.

2 Mosse v. Salt, 32 Beav. 269.

* Ibid.; Clancarty v. Latouche, 1 Ball & B. 420.

est, either directly or indirectly. The custom, pursued in discounting, of deducting the interest at the beginning of the term of the loan, thereby in fact gaining a very little more than the strict legal rate, is allowed and has been sanctioned by the courts; this matter is treated under the topic "Discount," p. 17.1 One of the most common methods of circumventing the usury laws is by taking "rests" at very short intervals, and so compounding the interest many times, perhaps, in the course of a single year. That “ rests may be taken at intervals of proper length is undoubted; the only question is, what interval is proper? In Clancarty v. Latouche, supra, a compounding at tri-monthly rests was declared to be usurious and intolerable. In Rufford v. Bishop, it was said that the decision in Clancarty v. Latouche seemed to throw some doubts on rests at a less interval than one year, but that it must be admitted that shorter rests were legal. No definite rule of law therefore exists on the point. In the United States, accountings in every branch of business are customarily had more promptly and frequently than is usual in England, and it is quite probable that tri-monthly rests might be sanctioned, if agreed to by both parties.

The nature of the customer's indebtedness to his banker for advances is not affected by the fact that the final footing is cast so as to include interest, which, by rests at proper intervals, has been from time to time converted into principal, and has since itself also borne interest. Hence a mortgage, given generally to secure the customer's balance, will secure a balance of which such interest, and interest upon interest, are component parts. But where a mortgage is given by the customer to secure a specific balance owing by him on a certain day, and subsequent transactions are had between the parties, in which, as well as in those which had preceded the mortgage, compound interest was uniformly charged, it was nevertheless held that the precise sum secured by the mortgage was thereby at once excepted from the general custom governing the other dealings of the parties, and that interest could not thereafter

1 Maine Bank v. Butts, 9 Mass. 49.

8 Rufford v. Bishop, supra.

25 Russ. 346.

be compounded thereon, but must be calculated at simple rates, as in all cases of ordinary mortgage debts.1

When a judgment is recovered by the bank against the customer for overdrafts or advances, interest will be allowed at the same rate which the bank itself was paying upon deposits on the same account.2 But where the banker and the customer arrange that all indebtedness of either to the other shall bear interest at a certain rate per cent, yet upon the death of the customer, or upon his closing his dealings with the banker, being at the time indebted to him, or upon his insolvency, or upon the death of the banker, or his ceasing to carry on business, or becoming bankrupt, the special arrangement at once ceases to operate, and from the date of such occurrence the balance of indebtedness then due from either to the other carries only such simple interest as is carried by any other ordinary contract debt.3

In casting interest or making the charge to the drawer, it is clear that the banker must debit the drawer of a check, not from the date of the drawing but from the date of the actual payment of the check. If the banker accepts the check some time before actually paying it, it has not been decided whether he may debit the drawer from the date of the acceptance or from that of the paying. But it has been said that the accepting of a check payable at a day future is equivalent to a loan, by the drawer to the banker, of the amount named, for the interval. Following this principle, it would practically amount to a debiting at the time of payment. For if the debit were made at the time of acceptance, yet the acceptance, creating at once a loan from the depositor to the banker for the interval, would cause interest to run on the same sum, for the same period at the same rate per cent, from the banker to the customer, and the one amount would exactly offset the other. But since the acceptance only binds the banker, at his own peril, to have funds enough of the depositor to meet it when Mosse v. Salt, 32 Beav. 269.

2 Gwyn v. Godby, 4 Taunt. 346; Ikin v. Bradley, 5 Price, 536.

8 Crosskill v. Bower, 32 Beav. 86.

♦ Goodbody v. Foster, cited to this point in Byles on Bills, Sharswood's ed.,

payment is demanded, and as until such demand he has the full use of such funds, it would seem interest should in reason be calculated to the date when demand may be made.

From the rule laid down at the opening of this chapter, that the banker is in no sense a trustee, or quasi trustee, for the benefit of his customer, it follows that under an agreement to allow interest, he is under no obligation annually to balance the account and credit the interest, so as to prevent the running of the Statute of Limitations.1

1 Pott v. Clegg, 16 M. & W. 321; Foley v. Hill, 2 H. L. Cas. 40.

CHAPTER III.

POWERS, DUTIES, AND LIABILITIES OF OFFICERS AND AGENTS.

Conduct of the Corporate Business through Agents or Officers.

THE old rule of law was, that a corporation could do no act save by a deed executed under its corporate seal. But this ancient principle has of late years been done away with by the compulsion of the practical necessities of business; and in our land and our time corporations without number transact their affairs with a very infrequent use of this once indispensable formality. In the case of The Bank of Columbia v. Patterson's Administrator, the Supreme Court of the United States first absolutely declared that the old rule could no longer be regarded as law, and the same has been since consistently and frequently held, in cases not only of banks but of various other species of corporations. But the practical effect of the old rule is reduced to a low point by the doctrine, that the class of corporations which are creatures of a statute, whether general or special, are not within the force of the common-law rule. If the statute provides that the management shall be in the hands of a board, or if it orders or authorizes the election of certain officers for the fulfilment of certain familiar functions, all acts done by such board or by such officers within the scope of their authority are to be regarded as done directly under and in pursuance of a power vested in them by the legislative enactment, and therefore as relieved from those formalities. which otherwise the common law might demand. Then, too, the ancient rule simply required that when the corporation

1 7 Cranch, 299.

2 Fleckner v. Bank of United States, 8 Wheat. 338; Mechanics' Bank of Alexandria v. Bank of Columbia, 5 id. 326; Stamford Bank v. Benedict, 15 Conn. 437; Ridgway v. Farmers' Bank, 12 Serg. & R. 256; Fishmongers' Company v. Robertson, 12 L. J. N. s. 185; 5 Man. & Gr. 286; Scott, N. R. 56.