9. Insolvency (Section 125)

In the event of the property and assets of a bank being insufficient to pay its liabilities, each shareholder shall be liable for the deficiency to an amount equal to the par value of the shares held by him, in addition to any amount not paid up on such shares.

10. Suspension (Sections 126-131)

The nonpayment in specie or Dominion notes of any of its liabilities, as they accrue for ninety days consecutively, constitutes a bank insolvent and suspends the working of its charter. The charter shall remain in force a length of time sufficient only to enable the directors to make and enforce the calls on the shareholders deemed necessary to pay all the liabilities and to wind up the business of the bank. The total amount of such calls is limited by Section 125.

Shareholders of a bank who have sold or transferred their stock are not relieved from the double liability until the expiration of sixty days.

In case of insolvency the payments of notes then in circulation shall be the first charge on the assets of the bank, the second charge being the payment of money due to the Dominion government, and the third charge the payment of the money due to the Provincial government.

11. Penalties (Sections 131a-158)

The remaining sections deal entirely with offenses against the act and the penalties incurred. The majority of the penalties are applicable to banks and bank officers, but the following five may be incurred by the public:

For selling or transferring shares contrary to the requirements of the act;

For issuing or drawing any instruments intended to circulate as money or to be used as a substitute for money;

For mutilating or defacing bank notes or Dominion notes;

For making false statements in connection with warehouse receipts or bills of lading, or for wilfully disposing of or withholding from the bank goods covered by security under Section 88, an indictable offense;

For using the word "Bank," "Savings Bank," "Banking Company" or any equivalent term without being authorized to do so by the act, nor can any words in a foreign language with a similar import be used.

12. Amendments To Bank Act During 1913-1916

At the outbreak of the war in August, 1914, the Dominion Government extended the emergency currency privilege thruout the whole year, instead of limiting it to the usual period from September first to February twenty-eighth. It also authorized the chartered banks to make payments in bank notes instead of in gold or in Dominion notes, until further official announcement. Neither of these amendments were availed of to any appreciable extent.

An amendment to section 88 of the Bank Act was made in March, 1915, permitting the banks to lend money to farmers for the purchase of seed grain upon the security of the grain and the subsequent crop. This privilege was availed of to a very limited extent as the banks were content in most cases to rely upon the general credit of the borrower, as they had in the past.

In May, 1916, another amendment to Section 88 of the Bank Act was passed, permitting banks to loan money to a farmer or to any person engaged in stock raising upon the security of live stock. In provinces where chattel mortgages are legal the security of the live stock must be taken in the form of a chattel mortgage duly registered. In any province in which there are no statutes or ordinances in force relating to bills of sale or chattel mortgages, security may be taken by way of an assignment, but a memorandum of such security must be published in the Official Gazette of the Province within thirty days after the date of the assignment. These onerous requirements defeated the object of the amendment and little advantage was taken of it. The borrower naturally objected to the publicity incurred and the banks on their part were unwilling to undertake the responsibility and work entailed by such a transaction.

13. Bills Of Exchange Act

The whole business of banking is so intimately concerned with negotiable instruments and the laws governing their existence and validity that a fair knowledge of the general principles of the Bills of Exchange Act is essential even to the youngest bank clerk, and such knowledge is best obtained by a study of the act itself. For this reason little or no attempt has been made in this book to explain the nature of the various classes of negotiable instruments. Copies of the act are easily obtainable if annotated, so much the better, and every student of banking should make a systematic study of the act until it is thoroly mastered. Concise notes should be taken under the different heads, and sufficient space left for comments or illustrations gathered from actual experience or from legal decisions. This rough classification gives an idea of the scope of the act:

Sections 1-16. 17-164. 17-34. 35-39. 40-41. 42-46. 47-52. 53-59. 60-74. 75-84. 85-94. 95-126. 127-138. 139-146. 147-164. 165-175. 176-187

Interpretation and general provisions of the act. Bills of Exchange. Form of bill and interpretation. Acceptance and interpretation. Delivery and oral evidence. Computation of time, non-juridical days and days of grace. Capacity and authority of parties. Consideration. Negotiation of bills. Presentment for acceptance. Presentment for payment. Dishonor and protest. Liabilities of parties. Discharge of bill. Miscellaneous. Checks {Crossed checks). Promissory notes. Schedule.

The Bills of Exchange Act, like the Bank Act, is a Dominion statute and is largely based on and follows, almost word for word, the English Bills of Exchange Act.1

1 Copies of the Bills of Exchange Act can be obtained by forwarding twenty cents to the King's Printer, Ottawa.

Review

What are the powers and limitations of a Canadian bank? What are the regulations governing deposits? What information must a bank submit to the Minister of nance each year?

Under what conditions is a bank declared insolvent?