CHAPTER VIII.

CHECKS.

§ 171. Peculiarities of checks. A bill of exchange drawn on a bank and payable on demand is called a check. There would be no occasion for mentioning this particular kind of bill, were it not for two peculiar rules applicable to them. Apart from these peculiarities a check stands on the same footing as any other bill (1).

§ 172. Certification. Instead of demanding payment, the holder may present a check to the bank on which it is drawn requesting that the bank certify upon its face that the drawer's account is "good" for the amount of the check. If the bank assents to the request by writing "Certified" or "Good" upon the check, the bank makes the instrument its own absolute obligation-in effect, its promissory note or certificate of deposit, and the drawer and indorsers are discharged (2). Thereafter, the holder must look to the bank alone for payment. The instrument, however, continues negotiable, and, if it is transferred by indorsement, the indorsers subsequent to the certification are of course liable as such. For the same reason, if the drawer of a check secures its certification before he delivers it to the payee, he remains liable. The practical consequence

is, that, if the holder obtains the certification, he is the loser in the event of the bank's failure; but, if the check was certified for the drawer, he is responsible in case of the bank's insolvency (3).

§ 173. Time within which checks must be presented: To hold drawer. The general rule is that bills of exchange payable on demand must, in order to charge the drawer and indorsers, be presented within a reasonable time after their issue. But the drawer of a check remains liable thereon indefinitely, unless he is actually injured by the delay in making presentment. "A check must be presented for payment within a reasonable time after its issue, or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay" (4). Furthermore, what is a reasonable time within which to present a check within this rule is a question to which usage has given a more definite answer than in the case of other kinds of bills. In Grange v. Reigh (5), for example, it appeared that the defendants, after banking hours on July 20, drew and delivered to plaintiff in Milwaukee, where plaintiff resided, a check for $1,211 upon the South Side Savings Bank, located in Milwaukee. The check was not presented on July 21st, during all of which day the bank was open and would have paid the check had it been presented. The bank did not open after July 21, by reason of which the check was not paid. In holding that the loss by reason of the bank's failure must fall upon the plaintiff, the court said: "The settled law applicable to the facts

(3) Head v. Hornblower, 156 Mass. 458.

(4) Neg. Inst. Law, sec. 186.

(5) 93 Wis. 552.

of this case, is, that, if a person receives a check on a bank, he must present it for payment within a reasonable time, in order to preserve the right of recourse on the drawer in case of non-payment by the drawee; and that, when such person resides and receives the check at the same place where such bank is located, a reasonable time for such presentation reaches, at the latest, only to the close of banking hours on the succeeding day, excluding Sundays and holidays. Plaintiff failed to comply with the law in this respect; hence defendants were discharged from all liability to answer for the default of the bank."

§ 174. Same: To hold indorsers. With respect to indorsers also a check must be presented more promptly than other bills. When the parties all reside in the same place, the holder should present the check on the day it is received or on the following day; and, when payable at a different place from that in which it is negotiated, the check should be forwarded by mail on the same or the next succeeding day for presentment.

(6) Smith v. Janes, 20 Wend. 192 (N. Y.).

CHAPTER IX.

DISCHARGE OF INSTRUMENT.

§ 175. Payment. Payment by the acceptor or maker to the holder, at or after maturity, discharges the contract of the acceptor or maker and the contract of every other party to the instrument. The life of the paper as an obligation has ended, and in no way and in favor of no one can the obligation of the parties to it be revived. If the bill or note is not surrendered to the maker or acceptor at the time of payment; or if, in the case of surrender, it is put in circulation again, without his consent, no purchaser of the paper can acquire any rights against the parties who had been the acceptor, maker, drawer, or indorsers before its discharge (1).

§ 176. Payment must be to the holder. Payment to effect a discharge must be to the holder, i. e., the legal owner of the instrument (2). In consequence, payment to the person in possession of a bill or note payable to order, upon which the payee's indorsement is forged, is not a discharge of the instrument (3). That, in such a case, the maker or acceptor paid in good faith and the person receiving payment was innocent, makes no difference.

(1) Neg. Inst. Law, sec. 119 (1).

(2) N. I. L., secs. 119 (1), 88.

(3)

Smith v. Sheppard, Chitty on Bills (10th Ed.) 180, note.

However, if the bill or note is payable to bearer, payment in good faith to any one in possession of it will discharge the instrument. The instrument being transferable by delivery, the person in possession is the legal owner thereof (4).

§ 177. Payment must be at or after maturity. Payment before maturity does not discharge a negotiable instrument (5). Its utmost effect is to make it unconscientious for the holder who has received payment to enforce the instrument. "Payment," said a learned judge, in holding that an innocent purchaser before maturity could recover on a note, which had been paid before its maturity but had subsequently passed into the plaintiff's hands, "means payment in due course, and not by anticipation. Had the bill been due before it came into the plaintiff's hands, he must have taken it with all its infirmities. In that case, it would have been his business to inquire minutely into its origin and history. But, receiving it before it was due, there was nothing to awaken his suspicion. I agree that a bill paid at maturity cannot be reissued, and that no action can afterwards be maintained upon it by a subsequent indorsee. A payment before it becomes due, however, I think does not extinguish it any more than if it were merely discounted" (5a).

§ 178. Payment by drawer or indorser. Payment by the drawer of a bill, or the indorser of a bill or note, satisfies his liability to the holder, but does not discharge the instrument, or the obligations of the maker or acceptor