a draft sent to it for collection has been paid by the drawee giving his check therefor, and the initial bank thereupon gives credit to the owner of the draft, it cannot afterward, upon failure of the correspondent bank to collect the check, cancel the credit.72

The Supreme Court of the State of Illinois, in the case of Ridgely Bank v. Patton and Hamilton, 109 Ill. 479, in discussing the question as to the right of a banker to apply money on deposit to the payment of a note payable at the bank, without the order of the depositor, says, "clearly a banker has no right to apply money on deposit to the payment of a note of the depositor payable at the bank, without the order of the depositor." 73

Payment to the initial bank's correspondent, in the States holding the initial bank liable directly to the holder, is payment to the initial bank to which the holder may look."

74

A case reported in 1842 by the Supreme Court of the State of New York, holds that where a bank at Troy received a note for collection, payable at Buffalo, which was sent to a bank of Orleans for collection whence it was transmitted to a bank in Buffalo, the cashier of the bank of Orleans, acting under the mistaken supposition that the money due on the note had been collected and deposited to the credit of his bank, paid the amount to the bank at Troy, which bank paid it over to the holder; the bank of Orleans having parted with the money under a plain mistake of fact, held, that it might maintain an action for it directly against the holder.

§ 292. Bank's liability for negligence in failing to make collections.

The general rule is, that an action against a bank for negligence in failing to collect an instrument sent to it for collection, the burden of proof rests on the plaintiff to show that the drawee was solvent, and the draft collectible; and that the loss was due to negligence. Where a bank holds a draft according to its custom or the customary method of business for ten days without notice to the drawer, and during which time the drawee

72 Kirkham r. Bank of America, 165 N. Y. 132, 58 N. E. 753.

73 41 Ill. 267.

74 Reeves, Stephens & Co. v. State Bank of Ohio, 8 Onio St. 466.

makes an assignment, held, that it does not in itself, constitute such negligence as will make the bank liable to the drawer."5

Such a custom would not excuse the bank from liability, where it became necessary to bind an indorser or other party to the instrument, notice in such case is essential and must be given in a fixed time.

Negligence must result in loss to the owner of the paper.

75 Sahlien et al. v. Bank of Lonoke, 16 S. W. 373.

76

76 Finch et al. v. Karste et al. 56 N. W. 123.

CHAPTER XXXIX.

SAVINGS BANKS.

§ 293. General discussion — Nature.

Savings banks were originally mutual in principle, eleemosynary in character. They were organized for the purpose of stimulating and fixing the habit of saving with the poor. They acted as fiduciary agents, only for those whose limited means or incompetency in some direction forbade the making of their own investments.

Only clerical services were compensated by salaries. The legislative functions and the power of making investments were lodged in a board of trustees. The members often lacking financial knowledge and experience serving without pay, the services rendered being as usual where the public is the recipient, careless and perfunctory with the result, savings institutions came frequently to grief, involving considerable partial losses to depositors.

In the course of time it was found that the scope of savings banks must be enlarged and that they must cease to be local, that deposits from a distance must be received, that investments. must be sought away from home, and that provisions must be made for the receipt and caring for money of estates and of trust funds in considerable amounts. Then it was that the weakness of the old machinery became apparent and it dawned on the public that savings banks must be under the control and active supervision of those experienced in matters of finance, and who had a personal and pecuniary interest in the welfare of the institutions under their charge, beyond the question of mere employment and salaries. The result has been capitalized savings banks, particularly is this the case on the western coast of America.

Savings banks under the laws as previously stated are or may be of two classes, namely: Mutual associations or capital stock corporations. The mutual bank is organized without capital stock and for the sole purpose of accumulating, holding, and loaning the funds of their members. They are designated as institutions for the deposit and safe keeping of money, and the

profits, if any, arising from the investment of such deposits, are annually or semi-annually paid to the depositors.

Where the statute authorizes the incorporation of such savings banks (without capital stock) neither by terms or implication will the law permit the bank to conduct any other than a savings bank business. No corporation can, by law, engage in any business other than that expressly authorized by the law and its charter. The purpose of this provision of the law is obvious. If it is a mutual savings bank it cannot derive power by impli cation or otherwise to enter into or engage in any business except wholly in the interest of its members. And the statute when it imposes duties to be performed directing the class or kind of securities which it may hold or invest in is mandatory.

The limitations and powers when imposed upon the managers or officers of such institutions by the statute must be strictly complied with, and the officers in such cases acting for such associations become trustees.

The laws providing that the deposits may be loaned and invested (especially if it direct that they or a certain proportion of the same shall be invested in securities of a definite character) makes the managers or officers who direct and authorize such investments trustees, and as such they are held to the strictest

account.

If the statute making these provisions is violated, the officers or trustees become personally responsible, and they should be held to suffer.

The statute directs the powers and limitations in the conduct and management of savings banks. The prohibitions and limitations fixed against the officers and directors of savings banks, forbidding them from borrowing any of the deposits or other funds of such corporation fully establishes the principle that they are acting as trustees, and it is a well-established principle of law that trustees cannot personally use, in any manner, either directly or indirectly, the funds of their principal, either for profit or otherwise. They cannot make profit from them. Therefore it is the duty of directors and trustees of such corporations to strictly comply with the law while they act in such positions and relationship with their depositors.

As stated, when a savings institution is incorporated without capital stock, they are merely places of deposit where money.

can be left to remain or to be taken out at the pleasure of the owner, and under such terms as may be stipulated in the bylaws and agreed upon between the parties. In such a case the assets consist in loans of money made by them for the benefit of the members or depositors from whom the money was derived. In case of loss, they have no property out of which it can be paid, and the loss is apportioned pro rata among the depositors.

A mutual savings bank, having no stock, it receives the money of depositors for investment, and invests it in securities taken for the general benefit of all the depositors. When the bank is incorporated without capital stock, it becomes merely an incorporated agency, for receiving and loaning money on account of those to whom the money belongs. After the necessary expenses are paid for its management, the interest received upon the investments is to be ratably divided among the depositors. The trustees and officers, in the absence of fraud or peculation of the funds of such bank, have no personal liability.

A savings bank, incorporated for the sole purpose of receiving and investing the deposits and all the earnings of the bank other than those which go to the payment of the necessary expenses, belong to the depositors ratably.

Such is the nature of a mutual savings association.

Savings banks incorporated with capital stock are very different from the mutual association. In such a bank the stock of the corporation becomes a security to the depositors in case of loss. The trustees or directors in a corporation organized with capital stock are also held and bound by the same law in relation to the funds entrusted to them as are the trustees in a mutual association. And if the bank is organized with a single purpose namely, to conduct a savings bank business, having a capital stock does not give it power to conduct a commercial banking business.

Where the statute by special act provides for the incorporation of a capitalized savings bank, defining its duties and powers, it is confined in its operations and powers to the provisions of the law creating it. It cannot obtain through its charter greater powers than those authorized by the act or the law authorizing its creation and defining its privileges.