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been held that the depositor bears the loss.24 This decision is correct in case of a special deposit, but wholly wrong as to a general deposit, which creates the relation of debtor and creditor. Just as the bank must bear the loss where the deposit was in money which afterwards depreciated, it obtains the benefit if the money deposited taken at its real value increases in value.25 But an agreement to return in kind the deposit makes the deposit special, and evidence of usage is admissible to show that a certain entry in the books purported to be such an agreement.27 Whatever payments the bank makes upon checks is payment of the deposit pro tanto.28 Outstanding checks cannot excuse the bank's failure to pay.29

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§ 144. Liability to depositor for set-off.-The right of set-off between the bank and its depositor is reciprocal. The depositor has a right of set-off against the bank for his deposit against the bank's claim,' or for any other direct and ascertained claim which constitutes a set-off. But an unaccepted check in his favor, drawn by another depositor, would not be a claim that could be set off,3 except, perhaps, in those states which allow the holder of a check to sue the bank, and in that case only after the check has been presented.* If the bank is insolvent, the depositor or an indorser upon a note held by the bank may set off his individual deposit in

24 Mandeville v. State Bank, 19. 5 Har. & J. 489; Equitable Bank v. La. Ann. 392. Claasen, 23 N. Y. Supp. 310.

25 Gumbel v. Abrams, 20 La. Ann. 568.

26 Chesapeake Bank v. Swain, 29 Md. 483.

27 Case last cited.

2 Whittington v. Farmers' Bank, 5 Har. & J. 489.

3 Butterworth v. Peck, 5 Bosw. 341. But in those states which recognize the holder's right to sue the bank,

28 Mayer v. Heidelbach, 123 N. Y. it would logically follow that the 332.

29 Meridian Nat. Bank v. Hauser, 145 Ind. 496; Jackson Ins. Co. v. Cross, 9 Heisk. 283. Unless, of course, they are accepted or certified, and in some states unless they have been presented. See § 147, post.

1 Whittington v. Farmers' Bank,

check after presentment could be set off after insolvency. This would make it a simple process to wipe out the bank's assets against solv. ent debtors.

4 See the last note. Surely those states would hesitate before making such a ruling.

8

5

the bank, although the note matured after the insolvency. If the note was due at insolvency, all authority concedes the right. This right of set-off is not lost by the appointment of a receiver or an assignee; for such an assignee or receiver obtains only the bank's right, no more. It is said that where a director has been sued by the bank or its representative for securities which were transferred to him by the bank in the way of an illegal preference, he may set off his deposit to the extent of dividends he would have received upon his deposit in settlement of the bank's affairs. In another case an insolvent bank indorsed defendant's note to another bank after maturity. The second bank did not claim to be a bona fide holder. The ruling was that the defendant could set off his deposit in the first bank against the note sued upon by the second bank.10 The ruling would necessarily have been different if the plaintiff had been a bona fide holder." But where a bank agrees to hold a note for a surety upon the surety's agreement that he will not reduce his deposit below the note, the note belongs to the depositor and the bank is a mere trustee and cannot sue the surety.12

5 Schuler v. Israel, 120 U. S. 506; Jordan v. Sharlock, 84 Pa. 366; Skiles v. Houston, 110 Pa. 254. In Pennsylvania the depositor is in better position than the bank. So also in Wisconsin. Jones v. Piening, 85 Wis. 264: Merchants' Ex. Bank v. Fieldner, 92 Wis. 415; McCagg v. Woodman, 28 Ill. 84; Sickels v. Herold, 36 N. Y. Supp. 488; Clute v. Warner, 8 App. Div. 40; Davis v. Industrial Mfg. Co., 114 N. C. 321; Second Nat. Bank v. Hemingray, 34 Ohio St. 381. In this last case, by agreement, the firm deposit was used as a set-off against the debt of an individual partner. Yardley v. Clothier, 49 Fed. R. 337, a case which in a masterly way demolishes Armstrong v. Scott, 36 Fed. R. 63, which is contra; but

Munger v. Albany Nat. Bank, 85
N. Y. 580, is also contra, but the
case is correct on other grounds.
See also § 330, post.

6 State v. Brobston, 94 Ga. 95, where state had a lien upon the funds of the bank; Batty v. Scuddy, 10 La. Ann. 404; In re Van Allen, 37 Barb. 225; Seymour v. Dunham, 24 Hun, 93.

7 Yardley v. Clothier, 49 Fed. R. 337; Miller v. Franklin Bank, 1 Paige, 444.

8 Fort v. McCulley, 59 Barb. 87. 9 Lamb v. Pannell, 28 W. Va. 663. 10 Merchants' Ex. Bank v. Fieldner, 92 Wis. 415.

11 Philler v. Woodfall, 32 Wkly. Notes Cas. 183.

12 Harrison v. Harrison, 118 Ind. 179.

Certificates of deposit are governed by the same rule as other general deposits as to a depositor's right to set off.13 This right if waived is ended,1 and cannot be revived by a bill in equity.15

§ 145. Liability to drawer for dishonoring check.- As to the drawer, where a bank dishonors his check while funds are deposited to his credit sufficient to meet the check, the remedy is twofold. He may immediately sue for the deposit,1 because the check is a demand, or he may sue for damages. The fact of dishonor is to be determined by the true state of the account, not what the books show necessarily, although they may be considered as prima facie correct as entries made in due course of business. The depositor when suing for his deposit does not sue upon his check-that is a mere order; but it is proof of a demand if it was indorsed by the payee. But this remedy will generally be considered insufficient by the depositor whose check has been dishonored, because the smaller the check the worse is the injury. The common action, therefore, is an action on the case for damages. It has been pointed out in the introduction how this. remedy exists in favor of this particular creditor against his debtor, when it does not exist in favor of other creditors against their debtors. It is really a survival of the day when a deposit in a bank was a bailment, and is the old common

13 Newberry v. Trowbridge, 13 Mich. 263.

14 In re Commercial Bank, 4 Ohio Dec. 108.

15 Bung Co. v. Armstrong, 34 Fed. R. 94.

1 First Nat. Bank v. Shoemaker, 117 Pa. 94. The reading of this case reminds one of the artless statement of the reporter in Year Book 30-31 Edw. I.: "Defaute de bon serjant fet B perdre sez deniers," quoted 1 Poll. & Mait. Hist. Eng. Law, 199; Viets v. Union Nat. Bank, 101 N. Y. 563.

2 Viets v. Union Nat. Bank, 101 N. Y. 563.

3 See cases cited in notes 17, 18, 19 and 20 to this section.

4 This is the general rule applicable to all transactions.

5 First Nat. Bank v. Shoemaker, 117 Pa. 94.

6 Rowley v. National Bank, 63 Hun, 550. But this allegation is dispensed with if bank refuses to pay for lack of funds. Eichner v. Bowery Bank, 45 N. Y. Supp. 68.

7 Marzetti v. Williams, 1 B. & Ad. 415

law action of the bailor against his bailee. It is proven by the fact that the depositor in this action can recover both his deposit and the other damages he has suffered. In this action reasonable and "temperate " damages, and what that phrase means depends wholly upon the taste and fancy of the particular court, may be recovered without any proof of special damage or of malice. Other courts say substantial damages may be recovered without such proof.10 These damages need not be immediately connected with a tangible pecuniary loss." But it was held that where the error was discovered and the check paid within a few days, only nominal damages could be recovered.12 This ruling can be justified only on the maxim humanum est errare, because the damages are not necessarily diminished by a rectification of the mistake. But damages, such as for the arrest of the drawer,13 or the seizure of his business," are too remote. It is a complete defense to the action that the check was not indorsed by the payee. The fact that in some states the holder has a right of action on the check is no defense 16 in those particular states. It is no defense that the dishonor was caused by negligence of the bank's employee," but would the con

15

8 Atlantic Nat. Bank v. Davis, 96 Ga. 334; Rolin v. Steward, 14 C. B. 595.

9 Schaffner v. Ehrman, 37 Ill. App. 340, 139 Ill. 109; Rolin v. Steward, 14 C. B. 595.

10 Schaffner v. Ehrman, 37 Ill. App. 340, 139 Ill. 109; Svendsen v. State Bank, 64 Minn. 40; Patterson v. Marine Bank, 130 Pa. 419: Birchell v. Third Nat. Bank, 15 Wkly. Notes Cas. 174.

11 Patterson v. Marine Bank, 130 Pa. 419 (but should be the reasonable and probable consequences); Svendsen v. State Bank, 64 Minn. 40. Contra, nominal damages only, Brooke v. Tradesmen's Bank, 69 Hun, 202; Burroughs v. Tradesmen's Bank, 87 Hun, 6.

12 See Brooke V. Tradesmen's Bank, 69 Hun, 202.

13 Bank of Commerce v. Goos, 39 Neb. 437. The court in this case excluded such evidence, but the plaintiff's attorney, in his desire to swell the damages, got the evidence improperly before the jury and then lost his judgment. But the opinion on this latter point is quite weak.

14 Brooke V. Tradesmen's Nat. Bank, 69 Hun, 202.

15 Rowley v. National Bank, 63 Hun, 550. But see note 6, supra, where this proof is dispensed with. 16 National Bank v. Boles, 12 Ky. Law R. 422.

17 Atlanta Nat. Bank v. Davis, 96 Ga. 334.

tributory negligence of the plaintiff be a defense ?18 The fact that it has credited checks on itself as cash which were not good is no defense, but it would be a defense if the checks were on another bank.19 If a purchased draft, which has been credited as cash, has been lost in going through the mail, and the bank has charged off the draft on account of the drawer's and indorser's failure to furnish another draft, it will be no defense.20 Payment of the check on a forged indorsement will be no defense.21

§ 146. Liability of bank to holder.- Since the check is a mere order on the banker, the holder acquires no right against the bank until the check has been accepted or certified by the bank. Certification is, of course, an acceptance, but it is not the only method of accepting a check. Acceptance is a question of fact,' and is provable by circumstantial as well as by direct evidence. An unexplained delay in refusing payment may be an acceptance by the bank. An oral statement or telegram by the cashier," or by the teller, that the check is good, either as to drawer or indorser, is an acceptance. But payment to the wrong person on an unauthorized indorsement does not give the holder of the

18 Since it is not a suit for negligence the answer ought to be no. 19 Am. Ex. Nat. Bank v. Gregg, 138 Ill. 596, reversing 37 Ill. App. 425.

20 Kavanagh v. Farmers' Bank, 59 Mo. App. 540.

21 Citizens' Nat. Bank v. Imp. & Trad. Nat. Bank, 119 N. Y. 195; Viets v. Union Nat. Bank, 101 N. Y. 563.

4 Henrietta Nat. Bank v. State Nat. Bank, 80 Tex. 648; Espy v. Bank, 18 Wall. 605. Contra, Myers v. Union Nat. Bank, 27 Ill. App. 254. And see note 13, § 150, post.

5 Barnet v. Smith, 30 N. H. 256. Contra, Kahn v. Walton, 46 Ohio St. 195.

5 State v. Morton, 27 Vt. 310.

6 See also, as to oral acceptance, Farmers' Bank v. Dunbar, 32 Neb.

1 First Nat. Bank v. McMichael, 487, and Morse v. Mass. Nat. Bank,

106 Pa. 460.

2 See the case next cited.

3 First Nat. Bank v. McMichael, 106 Pa. 460. Contra, Colo. Nat. Bank v. Boettcher, 5 Colo. 185. Compare Overman v. Bank, 31 N. J. Law, 563.

1 Holmes, 209. But if the statute requires a writing, the rule is different. Duncan v. Berlin, 60 N. Y. 151; State Bank v. Lindeman, 161 Pa. 199.

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