A pass-book in the possession of a depositor is prima facie evidence of the debt of the bank to the owner of the book. At stated periods the bank notifies the depositor to bring in or deliver to the bank his book for the purpose of balancing the same, called "balancing the pass-book." The drawer's checks which have been paid are charged to his account and a balance is struck. The transaction then becomes, if all the items are settled between the parties, an account stated. At the time of balancing the pass-book, and settlement, the drawer of the checks should be required to make an examination of all checks charged up against him, and if any are forged or altered the declaration or fact should at the time and in the presence of the bank's agent be pointed out to the bank, otherwise the drawer thereafter should be estopped from alleging a forgery. After such examination of the checks they should be sealed and placed on file in the vaults of the bank for the purpose of evidence, should they be required, in matters arising between the maker and the payee.

The establishment of this rule, which the bank may enforce by a by-law,would forever settle the question as to when or within what period of time a forged or altered check could be declared a forgery and sued upon.

The present rule fixing the time when a suit may be brought is that if the drawer, upon discovery, give prompt notice, not being himself in fault, no length of time will bar the action to recover." 66

As to what is a reasonable time in which notice must be given, the Supreme Court, in the case of Third National Bank of St. Louis v. Allen et al., says: "The accepted rule is that the payor must be allowed a reasonable time to detect the forgery and demand restitution; what will be a reasonable time will greatly depend on the circumstances of each particular case."67

In Koontz v. Central National Bank (51 Mo. 275) the court held that where a draft was paid by mistake in July and no

66 Canal Bank v. Bank of Albany, New Hampshire Nat. Bank, 60 N. 1 Hill, 287; Star Fire Ins. Co. v. H. 442.

67 Third Nat. Bank v. Allen et al., 59 Mo. 310.

notice was given by the defendant of the error till the following December, Held, the plaintiff might still recover.

The rule as stated and the cases enunciating and sustaining it as the law leaves (but little hope and) no defense for a bank that permits its paid receipts or checks to be taken out of its possession, for at any time after discovery the drawer, not being in fault, may sue the bank for the amount paid out on the forged instrument, which forgery may have been perpetrated after it left the possession of the bank. Hence, the just and equitable rule allowing the bank to retain possession of the check.

CHAPTER XXII.

OVERDRAFTS.

$217. When unlawful.

A bank paying a check drawn upon it by a person when that person has no funds deposited with the bank to meet the check, or where the check is for a greater amount of funds. than the drawer has in the bank at the time of presentment, the payment of the check by the bank creates an overdraft.

The practice of banks allowing its customers to overdraw their accounts is one which is in violation of all legitimate banking.

There is no expressed or implied power granted by the law authorizing the officers of a bank to honor and pay checks issued by its customers unless there are sufficient funds deposited in the bank to pay such checks when presented.

An overdraft on a bank which is created through the acts of any of its officers, and who knowingly permits the same to be created without having direct authority from the board of directors, is guilty of a breach of trust and liable to an action to make good the amount.

A check drawn upon a bank and passed by a person knowing at the time of the drawing and passing of the check, that he had no means in the bank to pay the same and having made no previous arrangements. with the bank to pay such a check, the act is obtaining credit falsely, and is a fraud.1

§ 218. Usage or practice, no authority.

The Supreme Court of the United States in the case of Minor v. The Mechanics' Bank of Alexandria, 1 Pet. 46, in discussing the question of the established usage, custom, and practice of the bank in permitting overdrafts, which was claimed to be a justification by usage and practice, the court says: "We may now proceed to the consideration of the three instructions prayed for, in behalf of the defendants. The first

1 Merchants' Bank r. State Bank, 10 Wall. 604.

is, in substance, that if it were the established usage and practice of the bank, that the cashier might, in his discretion, permit customers to overdraw, and to have checks and notes charged up, without present funds in the bank; and for the cashier to receive and pass, as cash, checks and drafts upon other banks, and if the balances appearing against such persons charged in the books of the bank, arose out of the exercise of such discretion by the cashier, in the course of the ordinary transactions of the bank, and pursuant to the established usage and course of business there adopted and generally known to the president and directors, practiced and continued with their knowledge, for a series of years, from the commencement of the bank, to the termination of Minor's cashier-ship, though the existence of such balances or the particular circumstance attending them, were not formally communicated to the board of directors, the jury may infer the approbation, assent, and acquiescence of the president and directors as to such usage and course of business.

The refusal of this instruction is matter of no small embarrassment and difficulty to this court, from the terms in which it is couched, and the issues on the sixth, eighth, and ninth pleas, to which alone it can be properly applied. Those issues put to the jury the question whether the acts of the cashier, whatever might be their character or kind, were, or were not, done by the wrong, connivance, and permission of the president and directors of the bank. The point of the instruction is, that the established usage and practice of the bank for a long period, known to the president and directors, does afford a presumption of the approbation, assent, and acquiescence of the president and directors, as to such usage and practice; though the balances resulting therefrom were not formally communicated to the directors. From the shape of the prayer it is undoubtedly meant that such usage and practice was known to the president and directors, as a board, and in their official character, and received their approbation as such. In a general view, with reference to the principles of the law of evidence, we are not prepared to admit that such a presumption could not ordinarily arise. The ordinary practice and usage of a bank, in the absence of counter proof, must be supposed to result from the regulations prescribed by the board of directors,

to whom the charter and by-laws submit the general management of the bank and the control and direction of its officers. It would be not only inconvenient, but perilous, for the customers, or any other persons dealing with the bank to transact their business with the officers upon any other presumption. The officers of the bank are held out to the public as having authority to act, according to the general usage, practice, and course of their business; and their acts within the scope of such usage, practice, and course of business would, in general, bind the bank in favor of third persons possessing no other knowledge. In the case of the Bank of the United States v. Dandridge, 12 Wheat. 64, the subject was under the consideration of this court, and circumstances far less cogent than the present to found a presumption of the official acts of the board were yet deemed sufficient to justify their being laid before the jury, to raise such a presumption. If, therefore, the usage and practice alluded to in the instruction, were within the legitimate authority of the board, and such as its written vote might justify, there would be no question, in this court, that it ought to have been given.

"The pertinency of such a presumption to these issues cannot admit of dispute. But the real difficulty remains to be stated. Assuming that the court, upon these issues, ought to have given the instruction prayed for, the question is whether upon the whole record, that is such an error as now justifies this court in a reversal of the judgment. If the instruction had been given and thereupon a verdict upon these issues had been found for the defendants, could any judgment have been given upon these issues in favor of the defendants; or ought the judgment, non obstante veredicto, to have been for the plaintiffs? If it ought, then the error becomes wholly immaterial; since, in no event, could the instruction in point of law, have benefited the defendants. Upon deliberate consideration, we are of opinion, that the pleas, on which these issues are founded, are substantially bad. They set up a defense for the cashier, that his omission "well and truly to perform" the duties of cashier, was, by the wrong, connivance and permission of the board of directors. The question then comes to this, whether any act or vote of the board of directors, in violation of their own duties, and in fraud of the rights and interest of