the stockholders of the bank, could amount to a justification of the cashier, who was a particeps criminis.

We are of opinion that it could not. However broad and general the powers of the direction may be, for the government and management of the concerns of the bank, by the general language of the charter and by-laws, those powers are not unlimited, but must receive a rational exposition. It cannot be pretended that the board could, by a vote, authorize the cashier to plunder the funds of the bank, or to cheat the stockholders of their interest therein. No vote could authorize the directors to divide among themselves the capital stock, or justify the officers of the bank in an avowed embezzlement of its funds. The cases put are strong, but they demonstrate the principle only in a more forcible manner. Every act of fraud known departure from duty by the board, in connivance with the cashier, for the plain purpose of sacrificing the interest of the stockholders, though less reprehensible in morals, or less pernicious in its effects than the case supposed, would still be an excess of power from its illegality and as such, void, as an authority to protect the cashier in his wrongful compliance. Now, the very form of these pleas sets up the wrong and connivance of the board as a justification, and such wrong and connivance cannot, for a moment, be admitted as an excuse for the misapplication of the funds of the bank by the cashier."

every

The court very clearly defines the law to be that a custom or practice which, if unlawful, cannot be sanctioned, legalized or made lawful by the knowledge or orders of the board of directors.

In Peterson v. Union National Bank 52 Pa. St. 206, the court says: "The drawing a check upon a bank in which the drawer has no funds, and uttering it, is a fraud. It amounts to a false affirmation that the money is there to meet it. Hence it is a deceit practiced upon any person to whom the check may be negotiated and equally upon the bank upon which it may be drawn."

219. Overdrawing may be legalized.

Proceeding upon the theory that an overdraft is an unsecured loan, it may be legalized by an agreement made in ad

vance with the bank, whereby the drawer's checks up to a given sum are to be paid, though he has no money on deposit at the time to draw against. This may be done by the drawer indorsing over to the bank collateral security to secure advances (future advances) which it may make from time to time. A transaction of this nature eliminates it from all taint or fraud and establishes the overdraft as a loan which may be authorized and directed to be made by the board of directors. But where an officer of bank, with power to make loans, allows persons to overdraw or draw against the credit and funds of the bank without any previous arrangement as to security, the transaction cannot be legalized by the board of directors or by custom or practice. One unlawful act does not make another of the same nature legal or lawful by custom or practice. All such acts are frauds upon the bank. Neither can the board of directors make such acts lawful by acquiescence or approval. By attempting to legalize an unlawful act they make themselves personally liable.

§ 220. Officer allowing overdraft, criminal act, when.

"The mere fact of payment by the officer of a national bank of a check which creates an overdraft does not necessarily constitute a fraudulent misapplication of the funds of the bank."

"If an overdraft is made and allowed under circumstances justifying it or even under circumstances making it a fraud upon the bank, the entry of the transaction just as it occurred on the books of the bank is not a false entry under Revised Statutes, U. S., § 5209." 2

Where an officer of a bank pays a check drawn by a person who has no funds in the bank or other security, and at the time of payment he had knowledge, or was in a position to acquire knowledge of the fraudulent intent of the maker of the check, his act would constitute a criminal misapplication of the funds of the bank. "The drawing of a check unexplained must be deemed a fraud." 3

§ 221. Drawer liable to bank for overdrafts.

A bank can recover from the drawer the amount of overdraft. It is held in Franklin Bank v. Bryam, 39 Me. 489,

2 Dow v. United States, 82 Fed. Rep. 904.

3 Franklin r. Vanderpool, 1 Hall (N. Y.) 78; True v. Thomas, 16 Me.

that if the cashier of a bank, though he pay money wrongfully, if it can be traced into the hands of one cognizant of his breach of trust and participates in his wrongdoing, it is difficult to perceive why redress should be denied the bank."

"Where a depositor gives a check on his bank and his account is thereby overdrawn, a promise to pay the bank, if it honors the same, is to be implied."

4 Thomas v. International Bank, 46 Ill. App. 461.

CHAPTER XXIII.

CERTIFICATES OF DEPOSIT.

§ 222. Defined to be promissory notes.

A certificate of deposit is defined to be a written evidence of debt; an obligation entered into by the bank agreeing to repay a certain sum of money to the payee or the lawful holder of the same, on demand or at a stipulated time. A certificate of deposit, unless containing words especially denoting that it is non-negotiable, comes within the class of negotiable instruments. A certificate of deposit when once accepted, the time having been fixed in which the money is to be returned, cannot be presented for payment until the date of its maturity.

This custom of issuing certificates of deposit by banks rather than pass-books, came into use as a special accommodation to the bank's customers, as the issuing of such a certificate is a certification on the part of the bank that a certain indebtedness is due by the bank upon the same.

Certificates of deposit frequently bear interest in a sum agreed upon between the parties, and the rate of interest specified therein becomes an obligation of the bank to the holder of the certificate. An officer agreeing to pay a rate of interest other than that authorized by the board of directors to be paid upon such deposits, makes himself personally responsible, as it has been held that an officer has no authority to agree to pay interest upon deposits unless authorized to do so by resolution of the board of directors. Certificates of deposit when issued by the bank, specify a certain sum of money due from the bank to the holder or owner of the same, and when presented for payment, a partial payment should never be entered or credited upon the certificate, but when presented it should be canceled, the certificate preserved and filed among the paid certificates, and a new certificate issued for the difference due upon the same. A certificate of deposit is, in a legal sense, as between the bank and the holder, a note; and as between the parties set-offs are allowed; and as between the bank and an

innocent holder, by purchase from the payee, the bank cannot set-off a debt that may be owing from the party first holding the certificate, it being a negotiable instrument, is governed by the law affecting such instruments.

A certificate of deposit, by a large number of the courts is held to be nothing more or less than a promissory note. The form of the certificate ordinarily used, supplies and fulfills the definition and usual form of a promissory note.

The usual form of the certificate certifies that "A." has deposited with the bank a certain sum of money payable to himself or order, in current funds upon return of the certificate properly indorsed, said certificate to bear interest if the money is left on deposit for a certain period of time. The certificate is signed by an officer of the bank and dated.

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The signing of a certificate by the cashier of a bank in his official capacity, is a sufficient signing. A certificate of deposit. as between the bank and the holder of the certificate, is not issued or received as a promissory note. It is usually a transaction entered into by a depositor with the bank, who is not a general depositor or customer," the purpose of the depositor in so depositing his money being, to receive interest upon a sum of money which he would not otherwise use for a fixed period of time; not desiring to open a commercial account he deposits his money for safekeeping, and at the same time to receive a compensation for the use of the same.

The depositor never treats the transaction as a loan to the bank. He does not understand the certificate to be a promissory note, and the bank issuing the instrument does not regard it as such. A bank usually, in borrowing money, does so by resolution, duly passed by the board of directors, authorizing the same to be made, and a promissory note in form is issued, although it is held a cashier may borrow where it is the custom of the bank, without such a resolution. The courts, however, hold a certificate of deposit to be in form and in effect a promissory note, while in fact the transaction between the bank and the depositor is a deposit of a specific sum of money. If the law is settled that such instruments are promissory notes, the bank is, in effect, a debtor to the depositor for money borrowed, and is not a debtor for deposits received.

The subject is one of importance, particularly to a bank