George Sumner.' After this is done, Sumner is bound to pay the $45 sixty days after March 18, to Welsh, or to any person to whom Welsh has endorsed the paper. If Sumner had dishonored the bill and it had been protested by a notary public, Ward, a third party, might have accepted it, with the consent of Welsh. He would then have bound himself to pay it if Sumner should again refuse. REVIEW QUESTIONS 1. Inspect the following draft: Castine, Me., Jan. 5, 1860. For value received, please pay to the order of G. F. and C. W. Tilden forty dollars, and charge the same against whatever amount may be due me for my share of fish caught on board schooner "Morning Star," for fishing season of 1860. To Messrs. Adams & Co. Yours, etc., Frank R. Blake. Accepted to pay.-Adams & Co., Jan. 6, 1860 Is this a negotiable instrument? Why? Who is the maker? payee? drawee? 2. Archer in Boston purchases furniture of Wilson in Grand Rapids, Michigan, of the value of $200. Wilson ships the furniture, and then draws on Archer for the price. How does he do this? Write a draft, designating a Boston Bank as the Continental Exchange Bank. The bank in Grand Rapids is The First National Bank. How does Wilson secure his money? 3. Inspect the following draft: $40000 La Crosse, Wis.,. Pay to the The Union State Bank Four Hundred & me no __DOLLARS Value received and charge to the account of To MM. Clarke Superior, Wis. Mary Wheelan When this draft is presented to Clarke, he writes across the face, "Accepted, June 22, to be paid half in money and half in bills, M. M. Clarke." Is this a proper acceptance? Why? What is its effect? 4. How is a bill of exchange dishonored? What is the result? CHAPTER XV CHECKS a. Drawer 1. Original b. Drawee c. Payee (I. Parties 2. Subsequent (1. Ordinary II. Form 2. Special a. Indorsers out Indorsement c. Indorsees and (a. Certified Checks b. Cashier's Checks c. Bank Drafts, or Checks d. Certificates of Deposit 155. A Check is an order drawn against a deposit of funds in a bank, for the absolute payment on demand of a definite sum of money to a certain person, or his order, or to the bearer. A check is similar to a draft, except that it always presupposes the existence of funds on deposit, without which it is worthless. All that has been said in reference to the use and transfer of a draft applies with equal force to a check, except that acceptance has no function in connection with checks, because they are payable on demand, and presentment for acceptance is not required. Nor is a check ever entitled to days of grace. There are three original parties to a check. These are the drawer, or the one who signs it; the drawee, which is always a bank; and the payee, who is entitled to receive the money. The contract represented by the check is between the bank and the drawer, consequently if for some reason the bank refuses to pay the check, the holder cannot maintain an action against the bank,* and his remedy is against the drawer alone. For the same * In a few states a check is regarded as an assignment of the deposit, and where this is the case the holder is given a right to sue the bank if the payment of a check is refused on demand. This is the law in Illinois, Kansas, Kentucky, Nebraska, South Carolina, Texas, and Wisconsin. reason the payee cannot stop payment on a check by notifying the bank, although the drawer can do so. 156. Relation to Banking. Checks are of great commercial importance. Business men do not as a rule have proper facilities for protecting their ready money from either fire or robbers. The bank offers them this protection without charge, its compensation being the use which it can make of the money so deposited with it, which it can expect will be left for some time. In some instances banks fail, and the depositors lose their money. The only cases in which the holder of a check may lose his money because of such a failure are those in which he has long delayed in presenting his check for payment. It is his duty to go to the bank with reasonable promptness (see Sec. 212 of this text) and secure the money which the drawer has, by means of the check, requested the bank to pay. If he delays beyond a reasonable length of time, and the bank fails, he cannot recover the money from the drawer, but must himself bear the loss. This rule is stated in Section 186, N. I. L., as follows: "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." 157. Form of Check. To be negotiable, a check must conform to the general requirements for negotiability. For instance, it must contain the negotiable words "or order," or "or bearer."* It is not safe to make a check payable to cash or to currency or to bearer unless they are to be cashed at once, for if lost or stolen it could be cashed by the finder or thief and the rightful payee would have no redress nor could the drawer claim that the bank had been careless in making payment. The safe method is to make checks payable to the order of a designated person, for in that case the bank has no right to pay any one except that person, or his order. 158. Special Forms of negotiable instruments, which are in their essentials checks, are (1) certified checks, (2) cashier's checks, (3) bank drafts, and (4) certificates of deposit. * Checks payable "to cash" and "to currency" are considered payable to bearer. Checks payable to "Self" must be indorsed before they are negotiable. PAY TO THE ORDER OF William & Carpenter $62540 Six Hundred Twenty-five & DOLLARS Samuel Barr A check is a form of draft. Note the similarity. 159. Certified Checks. If the payee who is about to receive a check, perhaps as payment for goods, is doubtful whether the drawer has to his credit in the bank the amount of money represented by the check, or is fearful that although the drawer may have the money in the bank at the time of giving the check it may be withdrawn before his check is paid, he may insist on a certified check, or he may accept the check and himself take it to the bank for certification at once. A certified check is an ordinary check, across the face of which is written a certification by the bank. The bank makes this certificate by writing or stamping across the face of the check the word, "Certified,' or some word of similar import, together with the date and the signature of a proper official of the bank. By this certification the bank agrees to pay the check. It then reserves the amount of the check out of the drawer's deposit. Until this is done there is only the original contract between the drawer and the bank; after it is done a new contract is created between the bank and the payee. After certification a bank is obliged to pay the certified check, even though it should prove to be a forgery, for the rule is that a bank is obliged at its peril to know the signatures of its depositors, and if it negligently certifies a forged check, or if it pays a forged check, it must assume the risk. Certification does not, of course, furnish protection against a subsequent alteration of the check; it is a guarantee to pay the check as it read at the time of certification. 160. Cashier's Checks are sometimes issued by banks instead of certificates of deposit or drafts. A cashier's check is in form simply an ordinary check, drawn on the bank by the cashier in his official capacity, and made payable to the depositor or someone he may designate. It is payable on demand, and has the advantage that the payee may usually receive payment from banks in other cities, if he can identify himself as the payee named, without waiting for it to be returned to the drawee bank. The cashier's check will, however, ultimately have to be returned by any bank so advancing money on it, to the issuing bank, for payment. 161. A Bank Draft differs from the ordinary cashier's check in that instead of the drawee being the bank issuing the check, the drawee is a bank in some other city, usually Chicago, New. York, St. Louis, San Francisco, Milwaukee, or other central banking point. This has a superiority over the ordinary cashier's |