been incorporated with the principal or where expressly contracted for in the original agreement.

Example. B agrees to pay C $1000 three years from date with interest at 6% per annum, payable annually. B pays no interest and the three years have elapsed. C may recover the principal with simple interest, namely, $1180 (plus also interest from maturity to the date of the judgment). After judgment C is allowed interest on the total judgment debt at the legal rate.

83. Banks. Banks are financial institutions which receive money on deposit, loan money, sometimes issue money, deal in commercial paper, and facilitate exchange. There are several kinds of banks in this country.

National banks are chartered by the United States government with power to issue national bank-notes upon depositing as security therefor United States bonds. They are banks of deposit, discount, and loans, doing a general banking business. They may charge the rate of interest which the state where they are located has fixed for its own state banks. The penalty for usury is the recovery by the borrower of twice the amount of interest paid. National banks may be organized by not less than five persons. In any place having less than 3000 inhabitants they must have a capital stock of not less than $25,000; in a place of from 3000 to 6000, not less than $50,000; in a place of from 6000 to 50,000, not less than $100,000; in a place of over 50,000, not less than $200,000. On June 30, 1904, there were 5386 national banks with an aggregate capital of $776,904,335. On the same date the outstanding national-bank notes amounted to $449,235,095.

State banks are chartered by the state in which they are located, and, like national banks, are usually banks of deposit, discount, and loans. Owing to a national tax of ten per cent on all bank notes issued by state banks, none of them can profitably issue such notes.

Trust companies are chartered by states and are given many of the powers of banks of deposit, and are also authorized to act as fiscal agents, trustees, executors, administrators, etc. When a corporation wishes to issue bonds secured by mortgage it usually selects a trust company as trustee for the

bondholders. They often serve as agents or trustees in the organization or reorganization of corporations. Trust compa nies have increased greatly during the past few years, and now in New York City outnumber the national banks. Their powers are so large as compared with national or state banks that capitalists find it more profitable to invest in them than in the older and more conservative institutions. They are also much less restricted as to investments and security for loans.

Savings banks are, as the name implies, depositories for savings and not ordinary banks of deposit for live accounts. They pay interest on deposits and loan money on mortgages or other permitted securities at a higher rate. They are organized under state laws.

Private bankers are persons who carry on a banking business without forming a corporation. They may unite with banking proper a variety of other enterprises, and some of the largest financial operations are conducted through private bankers who promote or finance them. They often combine with a banking

business that of stock or bond brokers.

If a bank receives deposits subject to check, it usually allows no interest; but savings banks, trust companies, and sometimes private bankers receive deposits not subject to check and allow interest, while national banks and state banks generally do not. A bank of deposit makes its profits on loans. Even if it pays interest it loans at a higher rate than it pays. Loans of banks of deposit are made on indorsed commercial paper or on collateral security. National banks are forbidden to loan on real-estate security, but savings banks and trust companies loan on such security.

84. Bank deposits. When money is deposited in a bank the depositor becomes the creditor of the bank to the amount of his deposit. In ordinary banks of deposit there is an implied understanding that the depositor may draw checks upon his deposits in favor of third persons, and that the bank will honor them. There is no such understanding in the case of ordinary debtors, and the debtor is not bound to honor any order upon him unless it be for the full amount of his debt. In savings.

banks and in the case of interest-bearing deposits in other banks it is usually provided that some notice shall be given of an intention to withdraw any portion of the deposit, and that the deposit book shall be presented with the check or order. Ordinary deposits do not bear interest.

When money is deposited in a bank subject to check, the depositor usually receives a bank book in which each deposit is entered. This constitutes the evidence of his credits. When a check is paid the bank keeps it and this constitutes the evidence of its credits as against its depositor. The book and vouchers (paid checks) are then returned to the depositor, who should at once examine each check in order to ascertain that it is genuine, and should verify the account. If a forged or raised check has been paid, the loss falls upon the bank as between the bank and the depositor, but unreasonable delay in examining the checks after they are returned to him, or in notifying the bank of any irregularity, may estop the depositor from asserting his rights in this respect.

A depositor may have a note made by him payable at his bank. In that case, when the note falls due it is equivalent to an order upon the bank to pay it, and it is paid like a check and the note is included as a voucher when the account is written up. A depositor may, however, direct a bank not to pay from his deposit a note or check which he has made payable there. In this event the bank is bound to refuse payment unless it is itself the owner of the note, in which case, as creditor to that amount, it may offset the note against what it owes to the depositor.

Where one does not wish to draw checks against a deposit he may take a "certificate of deposit" from the bank. This is in the form of a receipt stating that "A. B. has deposited in this bank five hundred dollars payable to his order upon return of his certificate," and is signed by the cashier. If certificates are for a definite period, as three months, they are often made with interest. They are practically the promissory note of the bank.

85. Loans and discount; security. If one wishes to borrow money for temporary use in his business, he usually applies at

his bank for a loan.

he would make his

Assuming that he wishes to borrow $1000, promissory note for that amount (with or without security), payable at a specified time after date, and the bank would discount it and place the amount less the discount to his credit.

Discount is the taking of interest in advance upon a loan; it is incidental to banking, and bank discount is not usury, although the lender may thereby secure slightly more than the legal rate. It is technically discounting one's own commercial paper in order to raise money.

Discount is also used in the sense of purchasing for their present worth, or for less, notes made by one person and owned by another.

Examples. B wishes to raise money. He owns a note made by C; he sells this note to D. If he sells it for its present worth, there could be no question in any event of the validity of the transaction. But if he sells it for less than its present worth, the buyer will make a profit greater than the legal rate of interest. This, however, is not essentially usurious, any more than to buy a horse and make a profit upon it. If B does not indorse the note so as to become liable upon it himself, the sale may be for any price agreed upon. If B does indorse it, most courts still hold that the sale (if not a mere cover for usury) may be for any price agreed upon, although some courts hold this to be usurious if the buyer makes thereby more than the legal rate of interest.

In no case may a bank discount or purchase notes at a greater discount than the legal rate of interest. This limitation upon banks has created a class of dealers known as bill brokers, or popularly as "note shavers," who purchase such instruments at an agreed price for themselves or for other persons.

If one in borrowing money has to give security, this may be done by getting another person to indorse or guaranty his note, or by depositing collateral in the form of a pledge, or by giving a mortgage upon property. When there is an accommodation indorser the note is usually made payable to him, indorsed by him, and discounted at the bank by the accommodated party. If it is not paid by the maker when it is due, the indorser is notified and he is then liable to pay it. If the note is guarantied, it is made payable to the bank, and the guaranty is written.

upon the back and signed by the guarantor. Upon nonpayment by the maker, the guarantor is liable without notice. Pledge of collateral security has already been treated (see sec. 65 ante). A mortgage is in form a conveyance of property upon condition that if a specified sum be paid to the mortgagee at a specified date the mortgage shall be void and of no further effect.

INTEREST TABLE

The following table shows the ordinary legal rate of interest and the maximum rate by special agreement in each state and territory. The special agreement must in most states be in writing.