Question 445. - Would it not be possible for the officers of a bank on the eve of failure, without breaking the law, to pay a friendly depositor the amount of his balance in notes of the bank on the understanding that he was not to use them until the danger had either passed or else the bank suspended, and that until the notes were presented for payment interest would be allowed as though the amount were still on deposit?

Answer. - The clauses of the Act respecting the note issue seem to cover quite fully the case you mention, although it is always possible for a fraud to be committed under them which might not be discovered. Section 61 authorizes the issue and re-issue of notes "for circulation." This would invalidate an issue made under such conditions as those you quote, as the notes would clearly not be issued for circulation, and they would probably be held, under section 131, not to give a preferential claim. We think, however, that the claim would be held to come directly under clause 63, as such a transaction would be really hypothecation of the notes of the bank by one of its officers to secure a debt, notwithstanding the form in which it was placed, and the fact that the party receiving them held them and brought them back for redemption after the failure of the bank, would be apt to lead the Court to take that view. We would think also that it would be most unlikely that a bank manager would lend himself to such a transaction, as he would thereby render himself liable to the penalties set out in section 155.