American Bank Note Company

“ The law is silent on several subjects that seem of great importance to most bankers in the United States. For instance, it does not require that the banks shall deposit with a government official, or in any way set aside any kind of security for the protection of the note holder. It does not even require that the banks shall carry a cash reserve against either notes or deposits, nor does the law make the notes a legal tender for any payment. A bank need not accept the notes of other banks. The Government does not guarantee the redemption of the notes. ”

“ Where the custom has existed for a long time, and has become general, Courts of justice, as before observed, will notice it ex officio; and where it has not, it is matter of proof. If this is not the light in which these transactions are to be considered, all banks are chargeable with usury; for all take interest beyond what is allowed by law, if time is to be determined by the note itself. The general rule of law is, that demand of payment must be made of the maker, when the note falls due ”

“ The defendant endorsed the note in question, with full knowledge of the custom. A demand on the fourth day is in perfect harmony with the principles of the common law, if applied to the contract, the maker having the whole of the third day to pay his note, and not being in default until the fourth. The inconveniences suggested on the argument growing out of a usage here, differing from that which is in practice in other places on this subject, are not of great public concern. If they exist, they affect the banks and their customers only. ”

“ It has been a real disadvantage to England that this duty has never been sufficiently recognized, and that the provincial note issue, which is a very convenient power for a bank to possess, and incidentally a considerable advantage to its customers, has been swept away without any attempt being made to remedy its deficiencies. There may be objections raised to a note circulation secured by the bonds of the government, but the security of the note issues of the national banks of the United States made against such bonds, has scarcely ever been questioned. ”

“ There is no evidence that it had knowledge of any obligation of Huntington to take up the notes, if any such existed; and there is no evidence that Huntington did any thing about procuring an arrangement for their being taken up. It dealt with the bank or banks holding the notes in the ordinary way. By law, a collecting bank is the agent of the holder of the note, and in no sense the agent of the maker. Montgomery Bank v. Albany City Bank, 7 N. Y. 459; 22 Barb. 627. What the holder was entitled to was his money, or the proper diligence to obtain it. ”

“ I know we've all had the insane idea that the right of note issue was some kind of a special privilege to the bank out of which it would make some enormous profit; when, as a matter of fact, it is nothing of the kind; but on the contrary, only a great convenience and accommodation to the people themselves. Furthermore, in as much as it will enable the bank to protect its reserves, by paying out its notes, instead of paying out its reserves, it will reduce the expense of the bank to that extent and so reduce the interest rates upon its loans. ”

“ So strong is the wish of most people to see their money that they for some time continue to hoard bank-notes: for a long period a few do so. But in the end common sense conquers. The circulation of bank-notes decreases, and the deposit of money with the banker increases. The credit of the banker having been efficiently advertised by the note, and accepted by the public, he lives on the credit so gained years after the note issue itself has ceased to be very important to him. ”

“ It comes to be believed that bank notes have a substantive existence, that they, on which interest is obtained, are not like the notes of individuals, on which interest is paid; in short, that they are money, perhaps even capital.
The view of notes as supplanting specie to an exactly equal amount is what is called the "currency principle." According to it the note issuers have a monopoly privilege and strive with each other for shares in a quantum of gain which cannot be surpassed. ”

“ Indeed, we do not know in what other sense the word discount is to be interpreted. Even in England, where no statute authorizes bankers to make discounts, it has been solemnly adjudged, that the taking of interest in advance by bankers, upon loans, in the ordinary course of business, is not usurious.
If, indeed, the law were otherwise, it would not follow, that the transfer to the bank of the present note would be void, so that the maker of the note could set it up in his defence. ”

“ Is there an individual in this broad land who, from the foundation of the National banking system to this day, ever hesitated a single moment to take a national-bank note at its face value, no matter in what corner of the country the note was issued? You know there is not. Is it not true that business men deposit their money, as a general thing, in national banks with a greater sense of security than they ever felt with regard to any other banking system? ”

“ It has been claimed that by the organization of the national banks 166 the government was enabled to dispose of its bonds and aided in carrying on the war. Do the facts warrant the claim? All national bank notes have been redeemable solely in Treasury notes. They do not possess the legal-tender qualification equal to the Treasury note, and cannot therefore be considered any better than the currency in which they are alone redeemable, and in comparison with which they have less uses. ”

“ And certainly there is no pretence to say, that if discounting promissory notes be a purchase in point of law, it could have been the legislative intention to include such an act in the prohibition. It is notorious, that banking operations are always carried on in our country by discounting notes. ”

“ The legal remedy which the bill-holder has amounts to nothing. In modern times the refusal to redeem a note is a common bank operation, and he must be endowed with more than ordinary firmness who will make the demand, as he is sure to encounter the insulting, contumacious spirit of a chartered gentleman."
The Legislature passed a resolution, December 19, 1838, that the Bank of the State should take the best measures it could devise to preserve all the bank notes in the State at par. In 1840, the banks of the State were divided into those which were paying specie and those which were not. ”

“ The holder may commence suit against the maker at maturity without presenting the note for payment. If the note contains indorsements, the note must be presented to the maker, and if payment is refused, to enable the holder to hold the indorsers liable, notice of the fact must be given the indorsers. If the note is payable at a particular place, as for example, a bank, the holder must present the note at the bank at maturity, or not be able to collect interest thereafter, if the maker proves that he had funds there sufficient to pay the note at maturity. ”

“ In the Constitution of 1850, it was provided that no banking law should have effect until it had been submitted to a popular vote and approved by a majority. Stockholders of every banking corporation issuing circulating notes were made individually liable for debts contracted while they were such. All bank notes were to be registered and stock security deposited for them. Note holders were to be first preferred creditors. No law might ever be passed authorizing or sanctioning the suspension of specie payments. ”

“ It is true, that in case of an extraordinary demand for money, beyond the means of supply by the state banks, the Bank of the United States may sometimes prefer discounting the note of one man to that of another—the paper of A to that of B; and that some of the directors might have given the preference to A, because he was a neighbour—others by his being a friend or relative, and others again by mere party sympathies. ”

“ They are almost the exclusive furnishers of the local and common bank note currency; the Bank of England notes being chiefly used in the great cities for large mercantile and Government payments. These joint-stock banks, private companies, and individual bankers are, practically, in the British empire what the local banks are in the United States. They perform the same functions, and differ in name only; not in substance nor in conduct. They have no charters, but they have a legalized existence; they are not corporations, but they are allowed by law to act in a body ”

“ Nothing in the act is to be construed as a guarantee by the State of the notes beyond the application of the securities to their redemption. The banks are to pay the expenses incurred in executing this act. No bank may be formed under it with a capital of less than $100,000. Each bank shall make semi-annual reports to the Comptroller of its affairs under separate heads which are prescribed, and shall be liable to every note-holder to whom it refuses redemption at the rate of fourteen per cent. ”

“ In either way it was a legal proceeding, effectual and perfect; and as no reason exists for a different construction, we think that the parties, by treating it as a cash deposit, must be deemed to have considered it as paid in money, and then deposited; since that is the only way in which it could legally become, or be treated as cash. Nor is there any novelty in this view of the transaction. Bank notes constitute a part of the common currency of the country, and, ordinarily, pass as money. When they are received as payment, the receipt is always given for them as money. ”

“ The fact of their existence renders necessary to every counter who would secure herself against loss an examination of the numbers printed on every five-dollar note of that bank passing through her hands; for the bank, never having issued those stolen, cannot be made to redeem them. Other banks have currency in circulation upon a similar basis, the number of notes varying in different instances from one upward. ”

“ We have already seen that the transfer of the note before maturity, as collateral security, and so indorsed that the bank became a party to the instrument under obligation to make due presentment and give due notice of non-payment, was itself a sufficient consideration to constitute the bank a bona fide holder for value, within the recognized principles of the law merchant. ”

“ The Bank Commissioners of Connecticut, in 1841, expressed the opinion that "the practice of some banks to confine their discounts exclusively to business paper or paper that is subject to no renewal, is a great innovation, and denies to a worthy class of borrowers those facilities and advantages to which they are entitled in common with those of more various and extended business." True bank note circulation could not be maintained by the country banks, but if they could get a distant circulation they could live on an abuse of issue-banking. ”

“ A bank note, on the other hand, is both circulating medium and money. Between these two lies the final line of distinction between what is money and what is not. True, the line is delicately drawn, especially when we come to such checks as cashier's checks or certified checks, for the latter are almost identical with bank notes. Each is a demand liability on a bank, and each confers on the holder the right to draw money. Yet while a note is generally acceptable in exchange, a check is specially acceptable only, i.e. ”

“ A convertible bank note is one which actually can be thus changed into the coins whenever it is desired, and so long as this is really the case, it is evident that the note is just as valuable as the coins, and is more convenient. The only fear is that, if a banker be allowed to issue these bank notes, he will not always have coins enough to pay them when presented. Very frequently banks have been obliged to stop payment ”

“ In the United States, however, the function of note issue has always occupied the chief place in public thought about banks. It is as note issuers that they have had their greatest share in the national life, and it is in this capacity that the historian has chiefly to deal with them. ”

“ Many men having constant transactions with the banks do not realize the importance of the choice of a bank; few understand the correct way in which a note should be drawn, or how to determine the exact due date of a sixty or ninety-day note, or acceptance; what "protesting" a note or draft really means, and what effect it has on the drawers or endorsers; the functions of the Clearing House and the simplicity of its methods; why the banks are compelled to pursue a certain course in the collection of paper sent them, even though this course may be very objectionable to the payers ”

“ Whatever be the value or denomination of the notes, the holder is at liberty to demand payment of the whole whenever he pleases, and receives it without abatement, as the banker makes his profit at the time of their issue. When notes are lost, payment is stopped, as here, and they are speedily traced, as it is the practice not to take notes of a high value—say, 100 dollars—without first inquiring at the bank as to their genuineness. ”

“ Notes bought by banks from note brokers without their indorsement are held to be guaranteed by them to be all right in all points except that which covers the question of whether they will be paid or not. The bank uses its best judgment in taking the risk. ”