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ART. VII.-PRINCIPLES AND LAW OF BANKING.
The Logic of Banking : a Familiar Exposition of the Principles of Reasoning, and their Application to the Art and Science of Banking. By J. W. GILBART, F.R.S., &c., &c. London: 1859.
itself contains much that is highly valuable ; but all the connection that it has with logic, consists in a partial application of syllogistic forms to a few of the principal questions that ordinarily come before bankers for consideration in the conduct of their business. To men who are accustomed to observe, and compare, and draw inferences, this portion of the treatise will, we fear, prove little better than useless ; while to those who are not in the habit of reasoning, it will assuredly fail to communicate the art, even in its rudiments. What Mr. Gilbart has in fact chosen, under this fantastic and unattractive appellation, to lay before the public, is a highly valuable repository of principles and maxims for the management of banking business—principles restiny, for the most part, on sound reasonings and great knowledge of political economy-maxims professedly derived from large and varied experience, and tested by reference to the opinions of the highest living authorities. As a hand-book of practical banking, adapted for daily use and consultation by persons engaged in that pursuit, who, apart from considerations of a legal nature, look for guidance as to the safest mode of deriving profit from the occupation, leaving questions of law to be dealt with by their professional advisers, there is in print, we apprehend, no work that, for soundness and perspicuity, can pretend to range with this. In a remarkably small compass, much information, and many valuable results of personal experience and long devotion to the subject, are comprised.
We gladly lay hold of the occasion to offer some remarks on the subject of banking, in such a form as seems best adapted to
be acceptable to the class of readers for whom we principally write. Since 1844 the practice of “keeping a banker” has grown so rapidly, is now established so widely, the sumns deposited have become in the aggregate so enormous, and the variety and importance of the questions relative to banking, which now so frequently occupy the courts of law and equity, and especially the latter, are so great, that it seems wholly unnecessary to offer any apology in a legal journal for the employment of some of its pages on topics of which the interest is so pervading. The truth is, that the science of banking is in a transition-state. Notions respecting the proper duties and objects of a bankerthe influence of his operations on the currency, and on prices, and the foreign exchanges, which were of universal acceptance so late as 1825, are, we don't hesitate to state, universally exploded at present. We trust, therefore, that in attempting to place before our readers, with some aid derived from the above work, and from other undoubted sources of the latest and best considered views, a condensed statement of leading principles, which govern the practical handling of the business of banking, and also of some of the rules which the law has laid down for the conduct and guidance of it—we may succeed more or less in serving the objects of those who have to choose a banker, and seek to learn the principles on which that choice ought to be determined; or who, having a banker, are desirous of making some approach, if possible, towards the means to solve the problem, whether he pursues his business in such a way as to deserve their confidence. If A is a banker who employs his customers' deposits in perilous adventures, he acts contrary to the rules of sound banking; if he evades or violates the law, as, for instance, in discounting accommodation bills, he is not in either case, it is obvious, such a dealer in money as a prudent man will trust with his cash balances. What we should wish principally to call attention to is, the complete mode in which the rules of law regarding banking support and confirm, as well as illustrate, those principles for the practical conduct of the business which have only of late obtained general acquiescence, the very opposite
notions having, but a few years back, prevailed among practical men; whilst the judges, in their decisions on banking questions, have never swerved from one line, the consequence of which is, that—the line having been on the first instance drawn with admirable truth-this head of law exhibits less of oscillation, and overruling, and variety of opinion and dicta, than perhaps any other of equal extent that can be mentioned. We believe the gratitude of the country is due in an especial manner to our judges for the enlightened views, the steadiness, and the
scrupulousness with which, ever since questions of this description began to appear in the courts, they have administered the laws regulating tbe relations of bankers with their customers.
In strong contrast with this uniformity of the law, stands out the tenacity with which popular opinion—including in the expression, not merely the hastily adopted sentiment or belief of the general public, but the settled conviction of the business classes, the practical men, respecting these relations—has been adhered to by them until within quite a recent period. More than one commercial panic was attributed to the over issue of their notes by the country bankers, which was said, by unduly increasing the currency of the kingdom, to raise prices, and operate disastrously on the foreign exchanges, and lead directly to that state of collapse of trade, and general withdrawal of confidence in all transactions, which constitutes what is called a panic. Now, the best authorities among the practical men (Mr. Weguelin, Mr. Hubbard, and others) tell us--and no person comes forward to deny it, because the statement is rested on practical details which cannot be questioned—that an excessive issue of bank-notes by the banks of issue is impossible in the nature of business; and so the conclusion which was arrived at by the Bullion Committee of 1810 is at length the received doctrine,' and very respectable opinions have been given, that so far from the increased issues of the country bankers causing increased prices of commodities, it is the
1 See Evid, before Committee of 1858, on the Bank Acts, pp. 345, 378, 379, 35, 180, q. 2619, 2620.-Rep. p. 25, Logic of Banking, pp. 208, 212, 353, 394, 463, 496, 502, 503.
rise in prices that causes for a time any increase in the country bank-note circulation which is ever observable. As regards the possibility of a banker materially increasing en permanence his note circulation, the question, it might seem, would have been at once disposed of, by adverting to the general legal relation between a banker and all his customers, whether note-holders or depositors with him, which the courts have always asserted, without any shadow of changing, to be that simply of debtor and creditor;? and this being once ascertained, the negative of the above question seems to follow, because the law affords no means by which a debtor can increase at his pleasure the number of his creditors, or the weight of his liabilities, and especially not in a case like that of a banker and customer, where each debt is payable on demand.
That portion of the commercial law which regulates banking, seems, as regards the great body of it, to be satisfactory to the public. It is true there is a large school of political economists, including many practical men, who complain of the operation of the Bank of England Charter Act of 1844 (7 and 8 Vict., c. 32), and others who dissent from the principle of the Joint Stock Banks' Regulation Act of the same year (7 and 8 Vict., c. 113), and many who deprecate the policy of applying the principle of limited liability to banking associations. A very small, indeed scarcely noticeable, amount of objection is felt to those parts of the law, touching this subject, which have been built up by judicial decision. The experience of both the Committee of the House of Commons on the Bank Acts which sat in 1857, and that which sat last year, shows this. Witnesses were examined before both on a great variety of heads, but extremely few material complaints, applicable to those parts of the law, were brought forward. The principal instance of this kind occurred in the course of the evidence before the committee of last year. It was this :—The Bank of Ireland manages that portion of the public debt, the dividends on which are payable
1 See Grant's Law of Bankers and Banking, p. 5—the cases collected. * See Evidence, &c., pp. 286, 287, 288.
in Ireland. An incorporated body, the trustees of Evans's Charity, in Kilkenny, held in their corporate capacity some stock. Their secretary, with whom their seal was of necessity intrusted, affixed it without authority to powers of attorney for the transfer of portions of this stock, which he appropriated, forging the names of persons purporting to be attesting witnesses to the due fixing of the seal; and the Courts in Ireland and the House of Lords held that the Bank was liable for the sum lost, and for interest, amounting on the whole to between £9000 and £10,000. But the apparent hardship of this result vanishes when the matter comes to be scrutinized. The case is one of those which occur so frequently in this department of law; and the ratio decidendi in which is involved in solving the question on which of two innocent parties is the loss to fall. Here the Corporation (that is, practically the objects of the Charity), and the Bank of Ireland, are the parties. The question, then, in this case, as in all others of the same class, is, which of the two innocent parties acted so as to open the way to the fraud being effectuated ? Not the trustees, for they were not shown to have been guilty of any laches, or neglect of duty in any respect. But how was it with the Bank? They were bound to see that the deed presented to them for the transfer of the stock was a valid document—that is, that it was the deed of the body from whom it purported to come; to ascertain that it was not sufficient to observe that the seal affixed to it was the common seal of the Corporation-yet that was all they did. They omitted to inquire as to the genuineness of the attestations (made nécessary by statute), and so let in the fraud, and the loss was properly cast upon them, according to the universal rule in all cases, where, from the circumstances that have occurred, it is inevitable that a loss must be suffered, and the only parties upon whom it can fall are innocent of the fraud, or any evil intention contributing to the loss. It may be that the case is one of that
" See Bank of Ireland v. Evans's Trustees, 3 Irish Law Report (N. S.) 280, S. C. 5 H. Lds. 389. Also, Youny v. Grote, 4 Bing. 259; Marsh v. Keativg, 2 Cla, and F. 264; Bridgman v. Gill, 24 Beav. 302.