Receiving a check does not of itself extinguish the debt. The taker of the check may present it for payment, and if payment is refused by the bank, and the maker is notified promptly, the taker may sue the maker on the check, or on the debt for which the check was given. Certified checks are discussed under the section on negotiable instruments.
157. Loans and Credits. One of the primary functions of banks is to make loans. Different kinds of banks are authorized to make different kinds of loans. Savings banks generally are authorized to make loans on real estate. National banks are not permitted to loan on real estate. Banks ordinarily are permitted to discount notes. By discounting promissory notes is meant purchasing them at a sum less than their face value, partially, at least, on the credit of the seller. Banks are not permitted to discount notes at usurious rates of interest. Banks are restricted by their corporate charters as to the nature of the loans they can make.
Credit is the term applied to a present benefit obtained for an agreement to do something in the future. A person's credit depends largely upon his business reputation and assets. Companies called mercantile agencies are organized for the sole purpose of furnishing credit information. These companies publish books giving the trade records and estimated assets of business men in the various cities and towns of the different states. These books are sold to wholesalers, or to anyone desiring credit information. Companies also employ men to obtain and furnish special reports on people's assets and business reputation. The bulk of business is done on credit. Compared with the total amount of business transacted, a small amount is done for cash. Credit is an important part of a business man's capital.
158. Rights and Obligations of Banks in Case of Forged, Lost, or Stolen Checks. Forgery or material alteration of a negotiable instrument renders it void. Banks are authorized by depositors drawing checks to pay valid checks, but not forged ones. Ordinarily, a bank must stand the loss if it pays a forged check. The only exception is in case the depositor has so carelessly drawn the check that it can be forged without the bank being able to discover the forgery by the exercise of due care. Most jurisdictions also hold that a depositor must examine his returned checks within a reasonable time after their return by the bank. If a forgery is not reported within a reasonable time after the return of the check by the bank, the check is presumed to be genuine, and the depositor cannot thereafter complain. Where a check is payable to bearer, or payable to order, and indorsed in blank by the payee, making it payable to bearer, and is lost or stolen, an innocent party purchasing it from the finder or thief gets good title to it. Such paper circulates like money without further indorsement. A bank in paying such a check to a bona fide holder who takes it from a thief or finder without notice of its having been lost or stolen, is not liable to the maker for the loss.
DEPARTMENT OF RECORDS, AMERICAN SCHOOL OF CORRESPONDENCE
159. National Banks. The constitution of the United States does not expressly give Congress the power to create national banks but it gives Congress the power to collect taxes, duties and imports, to borrow and coin money and to make all loans necessary to carry into execution the powers expressly given. To carry into effect the powers given relating to money, Congress is deemed to have the power to create national banks. Congress has passed laws under which national banks may be organized by associations consisting of not less than five natural persons who are required to sign and file articles with the comptroller of currency at Washington, D. C., which articles shall specify the name of the proposed bank, its place of operation, its capital, the names and residences of its shareholders, and the number of shares held by each. National banks may be organized with a capital of not less than twenty-five thousand dollars ($25,000.00) in cities whose population does not exceed three thousand, and with a capital of not less than fifty thousand dollars ($50,000.00) in places whose population does not exceed six thousand inhabitants, and with a capital of one hundred thousand dollars ($100,000.00) in places whose population does not exceed fifty thousand inhabitants, and with a capital of not less than two hundred and fifty thousand dollars ($250,000.00) in places exceeding fifty thousand inhabitants.
Before commencing business, national banks are required to transfer and deliver to the treasurer of the United States, United States registered bonds, in amount not less than thirty thousand dollars ($30,000.00), and not less than one third the paid-in capital stock. Upon making such a deposit of bonds, the comptroller of currency is authorized to issue to the bank, notes of the bank in different denominations, equal to 90% of the market value of the bonds deposited. These are the only circulating notes national banks are authorized to use. The comptroller of currency is authorized to replace worn notes or returned notes, proof of the destruction of which is furnished. National banks in the seventeen largest cities of the United States are required to keep on hand, money equal to 25% of their circulating notes and deposits. National banks of all other places are required to keep on hand, money equal to 15% of their circulating notes and deposits. National banks are not permitted to make loans on real estate or on their own stock, except to protect loans already made. In case of insolvency of a national bank, the stockholders are liable in an amount equal to the par value of their stock, in addition to their liability to pay the par value of their stock subscriptions. The shareholders having legal title to the stock at the time of insolvency of the bank are the ones liable for the additional liability. National banks may charge the rate of interest authorized by statute of the state where the bank is located. If unlawful interest, called usury, is charged, the bank forfeits the entire interest. If the usurious interest has been paid by the borrower, double the amount of the usury may be recovered from the bank by the borrower.
National banks are authorized to buy drafts and notes, to discount commercial paper, to borrow and loan money, to deal in government bonds, to loan money on collateral, but not to guarantee or indorse commercial paper, except in the transaction of their legitimate business. They are permitted to discount or purchase bills and notes, but not to charge more than the legal rate of interest, even though the paper is purchased. They may charge reasonable rates for exchange in addition to interest.