I. In general, 294.

turity, 295.

1. In general.

The earlier cases on this question are discussed in the annotation in 2 A.L.R. p. 139.

A certificate of deposit issued by a bank, and containing the provision that it was to bear "interest at the rate of 6 per cent per annum if left twelve months," was held negotiable in Chandler v. Smith (1918) 147 Ga. 637, 95 S. E. 223.

A provision in a certificate of deposit that it is to bear interest at 2 per cent if left for six months, and that interest is to cease one year after date unless renewed, does not render it uncertain so as to destroy its negotiability. White v. Wadhams (1918) 204 Mich. 381, 170 N. W. 60.

II. Provision for interest, or for a higher rate, from maturity, if the note is not paid when due.

(Supplementing annotation in 2 A.L.R. p. 140.)

As shown in the earlier annotation, the rule supported by the majority of cases is that a provision that if not paid when due the note shall thereafter bear interest, or shall bear a higher rate of interest does not render it non-negotiable. That rule has been followed in the cases decided

since the date of the earlier annotation. Hutson v. Rankin (1922) 36 Idaho, 169, 33 A.L.R. 91, 213 Pac. 345; Kuhn v. National City Bank (1918) 187 Ind. 726, 119 N. E. 145.

A provision for an increase in the rate of interest if the note was not paid at maturity was held not to render the note non-negotiable, in Goedhard v. Folstad (1923) 156 Minn. 453, 195 N. W. 281. Under the Minnesota statute, however, such a provision worked a forfeiture of all interest. Whether the increased rates ran merely from the maturity of the note, or from the date thereof, is not clear. In the subsequent case of Allen v. Cooling (1924) 161 Minn. 10, 200 N. W. 849, it is stated that the higher rate in the Goedhard Case was to run after maturity. The note involved in Allen v. Cooling (Minn.) supra, bore interest at the rate of 6 per cent per annum, payable annually, and contained the further provision, "principal and interest to draw interest at 8 per cent if not paid when due." This was treated as a provision for a higher rate of interest after maturity.

It was urged in Allen v. Cooling (Minn.) supra, that, the Minnesota statutes making the contract contain

ing such a provision illegal, the note was therefore non-negotiable. In answer to this contention, the court says that the contract is left a valid obligation for the principal sum, without interest, under the statute; that after giving full effect to the statute the note still possesses all the elements necessary to make it a negotiable note under the Negotiable Instruments Act.

At least, a provision in a note due in six months from date, and bearing interest payable semiannually, for an increased rate of interest after maturity or after default in the payment of interest, and providing that any interest overdue should bear interest, does not make the note non-negotiable. Sharpe v. Shoenberger (1921) 44 S. D. 402, 184 N. W. 209. The South Dakota court says that if the note had been made payable one or two or more years after date, the above provision. would have made the same a non-negotiable note by reason of the uncertainty of the promise, but that, the note in question maturing six months after date, there could be no uncertainty occasioned by the failure to pay interest semiannually, as the provision in relation to the payment of interest at the higher rate could under no possible circumstances become effective prior to the maturity of the note.

A provision in a note bearing interest that if not paid when due it shall bear a higher rate of interest until paid does not, when taken in connection with an acceleration clause under which the payee may at his option declare the whole note due and collectable in case default is made in payment of the interest instalments, destroy the negotiability of the note. Hutson v. Rankin (Idaho) supra.

A provision in a note due three months after date, and bearing interest at the rate of 8 per cent per annum until due, that it shall bear "8 per cent after due until paid," does not render the date of payment uncertain 80 as to destroy its negotiability. Leach v. Urschel (1923) 112 Kan. 629, 212 Pac. 111. Leach v. Urschel is followed in Commerce Trust Co. v. Snelling (1923) 113 Kan. 272, 214 Pac. 882,

a case involving a note stated to be in the exact form of the one considered in the Leach Case.

III. Provision for interest, or for a higher rate, from date, if not paid at maturity.

(Supplementing annotation in 2 A.L.R. p. 141.)

In the earlier annotation the weight of authority is shown to be that neither a provision that a note, bearing no interest if paid at maturity, shall bear interest from date if it is not so paid, nor a provision that it is to bear a higher rate from date, if not paid at maturity, or a lower rate than that therein specified, if paid at maturity, renders it non-negotiable.

The principle of the decisions there cited is applied in the reported case (COMMERCIAL CREDIT Co. v. NISSEN, ante, 287), where it is held that a provision in a note bearing interest that it shall bear no interest, if paid when due, does not render it nonnegotiable. It will be observed that the court regards its decision as overruling the decision in the earlier case of National Bank v. Feeney (1897) 9 S. D. 550, 46 L.R.A. 732, 70 N. W. 874, affirmed on rehearing in (1898) 11 S. D. 109, 46 L.R.A. 736, 75 N. W. 896, opinion on second rehearing in (1899) 12 S. D. 156, 46 L.R.A. 736, 76 Am. St. Rep. 594, 80 N. W. 186, a case discussed in the earlier annotation at page 145.

See Goedhard v. Folstad (1923) 156 Minn. 453, 195 N. W. 281, and Allen v. Cooling (1924) 161 Minn. 10, 200 N. W. 849, supra.

IV. Provision for interest on interest. (Supplementing annotation in 2 A.L.R. p. 144.)

A provision in a note due one year from date and bearing interest, "payable annually, and if not so paid to be compounded and bear the same rate of interest as the principal; and should the interest not be paid when due then the whole sum of the principal and interest shall become immediately due and payable at the option of the holder of this note," does not

Banks, § 65 - pledge of bills receivable contract of deposit.

6. When a pledge of a bank's bills receivable is wholly gratuitous, one which the public board could not require, or the bank make, even had the latter been authorized by the directors, such pledge is no part of the contract of deposit, nor is it, in any legal sense, a part of the consideration therefor. Banks, § 65 - pledge to secure deposit.

7. The legislature has at all times since statehood recognized a distinction between a loan and a deposit of money; and in the case of the funds of public corporations loans have been prohibited, while deposits thereof have been sanctioned by law. From the fact that a bank may secure a loan by pledging its bills receivable, the inference is not warranted that the legislature intended to give banks the power to pledge their assets to secure either a public or a private deposit.

[See 3 R. C. L. 419; 1 R. C. L. Supp. 822.]

Banks, § 204 - priority

and county depositor.

creditor

8. The general creditors of a bank are innocent parties and have equities which are superior to those of a county seeking to enforce a pledge of assets to secure a public deposit, when the defense of ultra vires is interposed against the public corporation. As between the creditors and depositors of an insolvent bank, whose contractual relation with the corporation was created lawfully intra vires — and the plaintiff, whose contract of pledge was ultra vires of the bank, the former must be preferred, and they are not estopped to assert the want of power. Counties, § 8-power to contract.

9. A county is a political subdivision of the state, and it may speak and act only in the manner and in the matters prescribed by the legislature in statutes enacted pursuant to constitutional authority. A county has not the

legal capacity to enter into an engagement which will, in effect, create a class of preferred depositors in banks, contrary to the policy of express law and the deliberate purpose of the legislative assembly.

[See 7 R. C. L. 926, 927; 2 R. C. L. Supp. 475.] Banks, § 65 ty deposit.

pledge to secure coun

10. Chapter 199, Sess. Laws 1923, the depository law, and other legislation, evidence the policy of this state with respect to the deposit of public funds and the manner in which such deposits must be secured; and it is contrary to that legislative policy for a bank to secure this class of deposits by a pledge of its general assets. It was not intended that the public should occupy the position of a preferred creditor, to the detriment of private depositors, in the event of the insolvency of the depository, or that such a result could be brought about by secret agreement between the parties. Banks, § 65 unlawfulness of pledge.

11. For reasons stated in the opinion, it is held that the attempted agreement of pledge was contrary to the policy of express law, and consequently unlawful, within § 5922, Comp. Laws 1913, and that the privilege to receive deposits of public funds was exercised in a manner contrary to the public policy of this state. The pledge agreement is unlawful, not merely in the sense that in making it the bank and the county exceeded their charter or statutory powers, but also in the sense that it is against public policy. Contracts, § 424 - refusal to enforce.

12. When the contract which a court of equity is asked to enforce is not only impliedly forbidden, but is also contrary to a well-defined legislative policy, the court will refuse to give any relief thereunder.

[See 6 R. C. L. 707; 2 R. C. L. Supp. 188; 4 R. C. L. Supp. 435; 5 R. C. L. Supp. 365.]