be, and as a general rule undoubtedly is, the practice of creditors, in mercantile communities, to take checks in the collection of debts, and frequently to surrender other instruments on receiving them, such a practice, on the part of the principal, falls far short of a usage which would permit the agent to do likewise.48 If, however, the principal received the check from the agent for collection, who took it instead of money, without objection, he would waive his right to hold the agent responsible, and ratify the transaction.49 It has been held that a bank might receive its own certificates of deposit in payment of a note sent it for collection, and that the debtor would be discharged thereby, though the bank soon after became insolvent and never remitted to its principal.50 Where a commission merchant was authorized to receive cash checks or sight drafts in payment for consignments sold by him, he was held not thereby justified in accepting time checks in payment, and that any loss resulting therefrom should be borne by him.51

§ 1626. Whether receiving certified check is payment. It not infrequently happens that a depositor intending to offer his checks to creditors, procures their certification by the bank before he delivers them to the payees; and the questions then arise whether or not such certified checks, when taken for debts, are to be regarded as so much cash taken in absolute payment, or are, notwithstanding the certificate of the bank, still mere checks, the same to be protested for nonpayment; and not having done so they were chargeable with negligence and the consequent loss." See 52 N. Y. 546 (1873); Bank v. Union Trust Co., 149 Ill. 343, 36 N. E. 1029.

48. Whitney v. Esson, 99 Mass. 110; National Bank v. American Exchange Bank, 151 Mo. 320, 52 S. W. 265, 74 Am. St. Rep. 527, citing text.

49. Rathbun v. Citizens' Steamboat Co., 76 N. Y. 376 (distinguishing Walker v. Walker, 5 Heisk. 425), Church, C. J., saying: "The circumstances here are capable of but one construction, according to the mode and habits of business, and that is, that the plaintiffs adopted and ratified the act of the carrier (in taking the check) by the unqualified acceptance of the check.

The case of Walker v. Walker, 5 Heisk. 425, gives some countenance to the contention of the plaintiff," but Chief Justice Church explains the difference between that case and the one under consideration, showing that in the Tennessee case the drawer of the check failed before the principal received it from his agent; and that as the principal did not know that intervening fact he was not regarded as ratifying the transaction. Northwestern Life Ins. Co. v. Sturdevant, 24 Tex. Civ. App. 331, 59 S. W. 61.

50. British & American Mortgage Co. v. Tibballs, 63 Iowa, 472. 51. Harlam v. Ely, 68 Cal. 522.

with the usual characteristics of such instruments; and whether or not the holder must exercise any extraordinary diligence in presenting them. Both upon reason and authority it may be stated, that although it be the fact that certified checks pass from hand to hand, as cash, they are not cash, or currency, in the legal sense of those terms, but they do not lose, by the fact that they are certified when delivered, any of the characteristics which attach to uncertified checks; nor do they impose any greater diligence upon the holder, who has the same time in which to present them as if they were uncertified."

§ 1627. The only effect of the certification of the check is to give it additional currency, by carrying with it the evidence that it was drawn in good faith, on funds to meet its payment, and lending it to the credit of the bank in addition to the credit of the drawer. Beyond this it does not differ from an uncertified check, nor does it make any difference whether the drawer is actually charged on the books of the bank or not with the amount of the check when it is certified as "good." According to general usage the bank, when it makes such certificate, expects to pay the check out of the drawer's funds in its hands, and makes some memorandum, or takes some other course, by which it will not permit the amount necessary to meet the check to be anticipated; and this both drawer and payee understand. So the practical effect of certifying the check is the same, whether the drawer is actually charged on the books or not, as in either case that amount of his funds is withdrawn from his control until the payment of the check is refused.53

§ 1628. Bank cannot offset amount due by holder against check.— A bank upon which a check is drawn, it has been held, cannot plead, as offset, an amount due the holder of the check against him, because a check is only conditional payment, the holder being the mere agent of the drawer to procure the money which is

52. Bickford v. First Nat. Bank, 42 Ill. 238; Rounds v. Smith, 42 III. 245; Brown v. Leckie, 43 Ill. 497; Larsen v. Breene, 12 Colo. 484, citing the text. But see Matter of Staten Island R. Co., 44 N. Y. S. C. 422. In this case, a certified check was held a sufficient payment within the meaning of a statute requiring a certain per cent. of stock subscriptions to be paid in cash. Following the case of Matter of Staten Island R. Co., supra, is the case of White v. Eiseman, 134 N. Y. 101, 31 N. E. 276; Dike v. Drexel, 11 App. Div. 77, 42 N. Y. Supp. 979.

53. Brown v. Leckie, 43 Ill. 501.

demanded by the check, and to apply the same when received in payment of the debt due by the drawer to him.54 Especially does this rule apply when the holder of the check is to receive the amount for the benefit of another. Vast amounts of property are sold by agents, brokers, and commission men for their principals, and it would be unreasonable and unjust when they received a check, as the means of procuring the money of their principals, to permit the bank to set off an amount due by them individually.55

SECTION VIII.

OVER-CHECKS.

§ 1629. We have already seen that it is a fraud for a person to draw a check upon a bank when he has no funds on deposit to meet it.56 It is in effect a representation to the payee that there are funds to meet it, and the holder is deceived and misled if such be not the case. But further than this, the overchecking a deposit has been regarded as a most improper act on the part of the depositor, and even fraudulent, unless done by arrangement with the bank; for its officers, naturally relying on the good faith of their customer, are apt to pay his check without security, and the bank may thus be defrauded of its money.57 Certainly it is a bad practice to overdraw, and one that should not be tolerated; but it is too severe to regard an over-check as in all cases prima facie a fraud and imposture in a criminal point of view.

§ 1630. Over-checks may be authorized by the bank. It is undoubtedly in the power of the bank to authorize over-checks, or checks without any funds whatever, upon negotiations with the drawer. Such dealing would be in the nature of a loan; and the bank would be bound, if the arrangement were consummated, upon a legal contract. But mere permission to overdraw, not communicated to the check-holder, would certainly be of no avail in legal effect. And such permission would not warrant a drawer in stating absolutely, solely on the faith thereof, that his check was "good." 58 In a case before the United States Su

54. Brown v. Leckie, 43 III. 501.

55. Brown v. Leckie, 43 Ill. 501.

56. See ante, § 1596.

57. True v. Thomas, 16 Me. 36; Morse on Banking, 318.

58. Ballard v. Fuller, 32 Barb. 68.

VOL. II-42

preme Court, in which it appeared that a mining corporation had legal authority "to enter into any obligations or contracts essential to the transaction of its ordinary affairs, or for the purposes for which it was created," could enter legally into an arrangement with a bank to pay its over-checks; and where such checks were customarily drawn by its president and secretary without objection, the bank had a right to assume that they were authorized to draw them.59 Ordinarily a bank may charge the legal rate of interest upon overdrafts, but where there is a statute providing a greater rate than the seven per cent., except where there is an agreement in writing to pay a greater rate, a rate in excess of the legal rate cannot be charged, but where the depositor gave his note closing out an overdraft, and the note provides for interest at the rate of eight per cent., the provision in the note is a sufficient compliance with the statute on the subject of usury.60

§ 1630a. Bank officer paying over-check without authority is bound. The officers of the bank should be careful to pay no over-check without distinct authority from the bank; for such over-check would be chargeable against them, and its payment would be a grave departure from official duty. And no payee or holder should receive a check, knowing that the drawer had no funds to meet it, as he would thus join in an attempt to mislead the bank; and if he got the money on such a check he could be compelled by suit to return it.61

59. Mahoney Mining Co. v. Anglo-Californian Bank, U. S. S. C., Jan., 1882, Morrison's Transcript, vol. III, No. 5, p. 785. See also vol. III, No. 2, p. 180. In New York held, that if one has an account in bank as county treasurer and overdraws his said account, the overdraft is in the nature of a loan to the depositor individually, as he had no right to borrow money upon the security of the county, and the proceeds of securities held by him in trust for the county, and in the custody of the bank, could not be used by the bank to make good the individual obligation of such depositor. See Greene v. The County of Niagara, 8 App. Div. 409, 40 N. Y. Supp. 862.

60. Loan & Exchange Bank v. Miller, 39 S. C. 175, 17 S. E. 592; Wheatley v. Kutz et al., 19 Ind. App. 293, 49 N. E. 391.

61. Martin v. Morgan, Gow. 123, 1 B. & B. 289, 3 Moore, 635; Byles on Bills (Sharswood's ed.) [*16], 88; Morse on Banking, 254; Wallace v. Lincoln Sav. Bank, 89 Tenn. 630, 15 S. W. 448, 24 Am. St. Rep. 625. The last case, query: "Is it negligence in a cashier to pay over checks to a reasonable amount of regular customers who had but little property, but who had credit and were accustomed to pay their debts.”

SECTION IX.

CANCELED, DISHONORED, AND STALE CHECKS.

§ 1631. When a check is presented to a bank for payment, or is offered in a business transaction, the bank or the party negotiating for it should examine it carefully and observe whether or not it bears upon it any mark indicating that it has been canceled, or has grown stale. And the party to whom the holder offers to transfer it, should observe whether or not there are any marks of dishonor about it. For if the check bear upon it indications that it has been canceled as, for instance, if it appears the bank will

62

to have been torn to pieces and pasted together be liable to the drawer, if it turn out that it had been canceled by the drawer, as its appearance was sufficient to excite its suspicions, and to have led to a refusal of payment. So if the check bear marks of its dishonor, a transferee would be entitled to stand in no better position than his transferrer, as it would then have (like any other negotiable instrument so marred) "a death wound apparent on it."63

§ 1632. Bank should not pay long outstanding check. A check is payable instantly on demand; and as heretofore set forth, it should be presented within a day when the payee receives it in the place where drawn, and forwarded by the next day, when forwarding is necessary, in order to preserve the payee's recourse against the drawer, in the event of a failure of the bank. But if the bank remains solvent the holder may retain the check as long as he pleases, and hold the drawer liable until the time for suit is ended by the Statute of Limitations. But the payee acts unwisely if he delays to present a check, as the bank and the drawer may both fail. And it is not advisable for a bank to pay a check which has been long outstanding, or for any one to receive it by transfer, without inquiry. For while age cannot in

62. Scholey v. Ramsbottom, 2 Campb. 185.

65

63. See Goodman v. Harvey, 4 Ad. & El. 870; 88 724, 732, 788, vol. I; Hutchings v. Da Costa, 88 Wis. 371, 60 N. W. 427.

64. See ante, § 1590 et seq.; Shawmut Nat. Bank v. Manson, 168 Mass. 425, 47 N. E. 196. In this case, it was held that a check cannot be considered as overdue, if deposited by payee on the date of issuance, in payee's bank, and thereafterward presented through the clearing-house to the bank upon which drawn.

65. Thompson on Bills, 118.