Bank draft

“ It is contended that in authorizing payment of checks by draft on reserve deposits section 2 violates the provision of article I, § 10, clause 1, of the federal Constitution, which prohibits a state from making anything except gold and silver coin a tender in payment of debts. This claim is clearly unfounded. The debt of the bank is solely to the depositor. The statute does not authorize the bank to discharge its obligation to its depositor by an exchange draft. ”

“ A bank here, drawing and selling such drafts against a credit to be established abroad by others, pledges its own credit to the payee and is secured against loss and the dishonor of its drafts only in so far as it may insure the creation of the appropriate credit and retain the benefit of it once it is created. The stipulation that the bankrupts should promptly set apart a credit for that purpose upon receipt of advice of the draft and advise the drawee of it was a material inducement to petitioner to pledge its own credit by the sale of its draft. ”

“ The amount of these outstanding was $7.4 millions. The majority of the Committee doubted the lawfulness of the branch drafts, but said nothing about the danger from them as instruments of credit. Adams said that they were useful but likely to do mischief. Their operation will appear sufficiently in the course of this history. When Biddle was asked how the branch draft arrangement differed from an obligation of a Philadelphia bank to redeem all the notes of all the banks of Pennsylvania, he answered that the Bank of the United States controlled all the branches which issued drafts on it. ”

“ An exchange draft is used more frequently than a shipment of currency.'
It thus appears that the custom, if otherwise established, does not fix a definite and uniform method of remittance. When checks are sent for collection and return, the bank is expected to cancel the checks, and charge them to the account of the drawers, and remit 'by means of its exchange draft of by a shipment of currency,' the former being used more frequently than the latter. Whether the choice of methods is at the election of the drawee bank or the collecting bank does not appear. ”

“ But in connection with banking and in ordinary commercial parlance it means money taken to a bank, left there, and understood to be subject to check or draft. [2] Money thus deposited and drawn on enters largely into the commerce of the country: checks and drafts are mercantile instruments, part of the machinery of trade, having commercial value and bearing no resemblance to the 'pass-book' held by the poor seamstress, or washerwoman, or cook, who can go but four times a year and after notice to have a debit entered in it. ”

“ The Federal Reserve Bank has formally declared that it is willing, when presenting checks, to accept in payment a draft of the drawee bank upon its Atlanta correspondent or a draft upon any other solvent bank-if collectible at par. Country banks are not entitled to protection against legitimate competition. Their loss here shown is of the kind to which business concerns are commonly subjected when improved facilities are introduced by others, or a more efficient competitor enters the field. ”

“ When the bank itself is not drawing, its notes form the best medium of remittance from the interior to the Atlantic capitals. They are sought after by merchants and traders with avidity, are never below par, and in the absence of bank drafts may command a premium. This will continue to be the case as long as the charter endures, and especially during the last moments of its existence, when its ability will be unquestionable, Philadelphia being the place of the redemption; whilst the notes themselves will be received in all the large cities in payment of duties. ”

“ The key to the proper interpretation of the act of Congress is its policy and purpose. The object of the law was to establish a system of national banking institutions, in order to provide a uniform and secure currency for the people, and to facilitate the operations of the Treasury of the United States. The capital of each of the banks in this system was to be furnished entirely by private individuals ”

“ 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 ”

“ In this act, of seventy-five sections, which organizes a vast machinery for private banking, which directs the delicate and complex arrangements for the supply of a paper currency to the State, and determines the investment of millions of capital, we find this sixtieth section. The act is enabling and permissive. It makes it lawful for persons to combine and to conduct business in a particular manner. It forms no partnership for the State, compels no one to embrace or to continue the application of industry and capital according to its scheme. ”

“ The one class may, under the laws of Congress and the laws of most of the States, be organized under general laws, and by the voluntary action of those desiring to associate for gain, and they choose their own trustees or directors. 'Banks for savings' are created by special charter, and the trustees or directors named by the legislature, and provision is made for the filling of vacancies in the management by the board itself. ”

“ Moreover, charges for other banking services, such as service charges for checking privileges, are free of governmental regulation, state or federal.
Entry, branching, and acquisitions are covered by a network of state and federal statutes. A charter for a new bank, state or national, will not be granted unless the invested capital and management of the applicant, and its prospects for doing sufficient business to operate at a reasonable profit, give adequate protection against undue competition and possible failure. ”

“ Commercial banks are unique among financial institutions in that they alone are permitted by law to accept demand deposits. This distinctive power gives commercial banking a key role in the national economy. For banks do not merely deal in but are actually a source of, money and credit; when a bank makes a loan by crediting the borrower's demand deposit account, it augments the Nation's credit supply. ”

“ Corporations with banking or discounting privileges may be either created by special acts, or formed under general law; but the Legislature shall, in both cases, provide for the registry of all bills or notes issued or put in circulation as money; and shall require ample security for the redemption of the same in specie. The Legislature shall have no power to pass any law sanctioning in any manner, directly or indirectly, the suspension of specie payment by any person, association, or corporation issuing bank notes of any description. ”

“ The National Banking Act (Rev. Stat. 999, sect. 5136) gives to every bank created under it the right 'to exercise by its board of directors, or duly authorized agents, all such incidental powers as shall be necessary to carry on the business of banking, by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt, by receiving deposits,' &c. Nothing in the act explains or qualifies the terms italicised. To hand over with an indorsement and guaranty is one of the commonest modes of transferring the securities named. ”

“ If the drafts should be paid, the drawees were to take the goods. To hold such indorsement to be a warranty would create great embarrassment in the use of bills of lading as collateral to commercial paper against which they are drawn.
The bank, after discounting the drafts, stood towards the acceptors in the position of an original lender, and could not be affected in its claim by the want of a consideration from the drawer for the acceptance, or by the failure of such consideration. ”

“ Now this Court is asked to change what legislative history and prior decisions have established is the precise meaning of an Act of Congress. This we cannot do. For, as we pointed out above, the banking field has traditionally been an area of particular congressional concern marked by legislation responsive to new problems. This can be illustrated by the history of § 548 alone. It was originally passed in 1864 because the 1863 Currency Act [4] contained no provision for state taxation of national banks or their shares. ”

“ Because of pertinent congressional legislation in the banking field, we find it unnecessary to reach the constitutional question of whether today national banks should be considered nontaxable as federal instrumentalities.
As will be seen, Congress has been far from reluctant to pass legislation in the banking field. There are important committees on banking and currency in both Houses which continually monitor banking affairs and propose new legislation when changes are felt to be needed. ”

“ Conceivably a bank could use an armored car as a place of business by stationing it at designated places during designated hours for opening accounts, receiving deposits, making loans, and the like. But no armored car was so used in these cases.
Federal law stated in the McFadden Act, 12 U.S.C. § 36 (f) , defines 'branch' as any facility 'at which deposits are received, or checks paid, or money lent.' And Congress provided that national banks may establish 'branches' whenever, wherever, and however state banks may do so. ”

“ They form a system of regulations. All the parts are in harmony with each other, and cover the entire subject.
But it is contended that the phrase, 'a rate of interest greater than aforesaid,' as it stands in the context, has reference only to the preceding sentence, which relates to banks where no rate of interest is fixed by law; and that hence it leaves the consequences of usury, where such rate is fixed, to be governed wholly by the local law upon the subject. This, in the State of New York, would, in all such cases, render the contract a nullity, and forfeit the debt. ”

“ The railroad company had no power to transfer vested in it by the charter. If it had the right at all, it must be found in the charter as an express grant, or it must have been held by the municipal law, which is always subject to be repealed.
As to the first branch. If granted in the charter, it must be found in the words 'usual powers of banking.' Does this clause include a power to sell? Even if the Planters' Bank had it specially, it would not pass to the railroad company under this general clause. In other States, the power to sell is not considered one of the usual banking powers. ”

“ 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. ”

“ National banks are federal instrumentalities and the power of Congress over them is extensive. 'National banks are quasipublic institutions, and for the purpose for which they are instituted are national in their character, and, within constitutional limits, are subject to the control of Congress, and are not to be interfered with by state legislative or judicial action, except so far as the lawmaking power of the government may permit.' Van Reed v. ”

“ A duty has been imposed upon their issues so large as to manifest a purpose to compel a withdrawal of all such issues from circulation. In harmony with this policy is the construction we think should be given to the thirtieth section of the act of Congress we have been considering. It gives advantages to National banks over their State competitors. It allows such banks to charge such interest as State banks may charge, and more, if by the laws of the State more may be charged by natural persons. ”

“ Banking associations, it is said, were established as instruments by which the government may perform the trust of furnishing and regulating the National paper currency, and the argument is that inasmuch as they are instruments of the government to carry into effect a National purpose they cannot be impleaded in a State court. ”

“ Some of the banks over whose charters the State has reserved a plenary control, are by the act permitted to join it. It is said 'that the whole of this act is to be taken; the purpose of the act and the time of the act. It is a unit.' It will not be contended that the fifty-first section of this act, by which this multitude of banking companies are adjudged to be corporations, with succession for twenty years, places every other relation established by the act, beyond the legislative domain for the same period of time. ”

“ But among them the creation of additional money and credit, the management of the checking-account system, and the furnishing of short-term business loans would appear to be the most important. For the proper discharge of these functions is indispensable to a healthy national economy, as the role of bank failures in depression periods attests. It is therefore not surprising that commercial banking in the United States is subject to a variety of governmental controls, state and federal. Federal regulation is the more extensive, and our focus will be upon it. ”