with notice to the bank also has the effect of revoking all out standing checks. 18 § 233. Overdrafts. A check in excess of the amount to the drawer's credit is termed an overdraft. It may be paid or refused at the discretion of the bank. If the overdraft is intentional on the part of the drawer and is paid, it is merely a method of borrowing from the bank, and even though there is no express agreement to that effect, the drawer is liable to the bank for the excess amount. National banks are prohibited by law from allowing overdrafts but, as already stated, frequently do so in spite of this prohibition. If an overdraft is presented to a state or private bank, its payment is merely a question of whether or not it shall accommodate the drawer. If he is a responsible party and a good customer, the accommodation is usually granted. 19 A check on a bank in which the drawer has no funds is not an overdraft. Unless drawn inadvertently, or covered by a deposit before presentation, such check would be clearly fraudulent and would subject the drawer to criminal prosecution. § 234. Stale Checks. It occasionally happens that checks are not presented for months and even years after their dates. Such checks are said to be stale. They are, however, in themselves perfectly valid and, provided the bank is still solvent, the check unrevoked, the drawer's deposit still in the bank and sufficient in amount to meet the check, and provided further that no statutory limitations have intervened and that the delay in collection has involved the drawer in no loss, the check is still valid.20 Any excessive delay in presenting a check is, however, always a suspicious circumstance-sufficient to put the bank on 18 Riley v. Albany Sav. Bk., 36 Hun (N. Y.) 513 (1885); see § 220, infra. 19 See § 231. 20 See 224. inquiry.21 The bank is therefore fully justified in any such case in delaying payment until the drawer can be communicated with, or in requiring the payee to secure the drawer's endorsement of his check, or a statement from him that the check is still in good standing. 235. Lost or Destroyed Checks. As a check is merely an order for money, its loss does not necessarily involve the loss of any actual values. The drawer still has his money and the payee his unpaid claim. The payee's proper course is to secure a duplicate of the lost or destroyed check, or if this is refused, to proceed against the drawer for payment of the original account. The only danger in duplicating a check alleged to have been lost or destroyed, lies in the possibility that these statements are false and made for the purpose of fraudulently obtaining a second check. If the payee has parted with the first check for a sufficient consideration and it is in the hands of an innocent holder for value, this holder-unless he delays presentation unduly can collect the amount of the check, even though a duplicate has been issued. His check would undoubtedly and properly be refused by the drawee bank but the holder could then have recourse on the payee and on the drawer as well and his claim would be good. 22 For this reason, unless the drawer is absolutely satisfied of the truth of the payee's contention that his check has been lost or destroyed, as the case may be, he should either delay the issue of a duplicate check for a sufficient length of time to void the preceding check for lack of diligence in its presentation, or otherwise require a bond of indemnity from the payee before issuing a duplicate check. Lost checks afford one of the few instances outside of the insolvency of the drawee bank in which an innocent holder may 21 Morse on Banks, § 443. 22 Morse on Banks, § 395a. suffer if he fails to present his check promptly for payment. If a check, supposedly lost, is not presented with reasonable promptness, the drawer is justified in issuing a duplicate check on the presumption that the first has been lost. Then if the holder of the original check presents it for payment, and the duplicate has already been paid, the drawer can show material injury resulting from the delay in presentation, and the loss would fall on the holder. In case of the loss of a check-especially if it be endorsed in blank-both the drawer and the bank should be notified as promptly as possible. The bank is then put "on notice" and if the check is presented for payment before a revocation, it will in self-protection either refuse payment entirely or delay the matter until the status of the check and the real rights of the holder can be determined. § 236. Forged Checks. If a bank pays a forged check supposedly drawn by one of its depositors, it cannot debit the amount of such check against the account of the depositor, nor has it rights of any kind against him unless it can show that the loss resulted through some fault or negligence on his part.23 Neither can the bank recover the amount of the check from the payee, or an endorsee, if the check is presented by him in good faith and he had no reason to suppose it to be fraudulent. The mistake is the mistake of the bank and, generally speaking, no matter how skilful the forgery nor how well calculated to deceive, the bank alone must suffer.24 The justice of this is obvious. As to the party in whose name a forged check is drawn, he has given the bank no instructions to pay out his funds, and, in the absence of such order, the bank cannot charge him with payments it has made even though on orders they believed to be his. 23 Shipman et al v. Bank, 126 N. Y. 318 (1891); First Nat. Bk. v. Rease. 168 Ill. 40 (1897); see § 272, "Forgeries." 24 Weisser v. Denison, 10 N. Y. 68 (1854); Cooke et al v. United States, 91 U. S. 389 (1875). As to the payee or endorsee of a forged check, the bank's inability to recover is in the nature of a penalty for its remissness in not detecting the counterfeiting of a depositor's signature with which it should be familiar. This penalty is, however, only inflicted when the party from whom the check is received is acting in good faith and has himself exercised all due diligence. If the bank can prove that he is not an innocent holder, or can show any fault on his part which has led the bank to be less careful in its scrutiny of the check than would otherwise have been the case, it can recover from him. Thus the mere possession of a forged check by responsible parties, or their neglect to mention suspicious circumstances connected with its acquisition,25 might be sufficient to lull the bank into a false security and prevent the care which they would otherwise have exercised. If the holder of a forged check presents it for payment or deposits it in his own bank, which is not the drawee bank, and the drawee bank discovers the forgery, the first bank can recover from the payee, even though the check was received and deposited by him in all good faith. The receiving bank in such case is not supposed to know the signature of the maker of the check, is not at fault in the matter and therefore cannot be held liable for any loss. Occasionally a check will turn up which is correct as to signature and as to every other requirement save as to the endorsement which is forged. In such case the drawee bank must submit to any loss involved if it pays the check. 26 This rule is based on the ground that the bank may only pay a check to the party designated by the drawer or to the endorsees of such party. If, then, it pays the check to some party who is neither the owner nor the endorsee by right, the bank alone is responsible. 25 Nat. Park Bk. v. Ninth Nat. Bk., 46 N. Y. 77 (1871). 20 Bank of Republic v. Millard, 10 Wall. 152 (1869). § 237. Alterations of Checks. Any material alteration in a check after it is once drawn, by any party save the drawer, renders the check void.27 If such a check is paid, the bank must usually bear the loss, but an exception arises where the drawer of the check makes such alterations possible by his own negligence. The most common instance of this is such careless drawing of a check as to permit the easy insertion of additional figures and words, increasing the amount. If such alterations are made and are not easily discoverable, any resulting loss falls on the maker. It has been brought about by his own carelessness and he is held to be the proper and only party to suffer.28 Other forms of negligence may occur as for instance, where a depositor failed to compare his cancelled checks promptly on their return and did not discover the continuing alterations made by his own confidential clerk. These changes were very skilful and the circumstances were free from suspicion—so much so that the court held the drawer was himself to blame and fastened the loss upon him.29 Even though the depositor is himself negligent, the bank will, however, be held liable for losses due to alterations unless the changes are so skilful and so difficult to detect as not to be discoverable by the exercise of ordinary vigilance. 27 See $273. Mahaiwe Bank v. Douglass, 31 Conn. 170 (1862); Belknap et al v. Nat. Bk. of N. A., 100 Mass. 376 (1868). 29 Leather, etc. Bk. v. Morgan, 117 U. S. 96 (1885); Myers v. Bank, 193 Pa. St. I (1899). |