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CHAPTER X.

EXCHANGES, SECURITIES AND COLLECTIBLE PAPER.

ARTICLE I.-EXCHANGES AND SECURITIES.

§ 203. Power and liabilities as to exchanges and securities. In a former section' we have noticed the general powers of a bank in dealing in negotiable paper and securities. It has the prima facie power to purchase bills of exchange at the place where it is authorized to do business.3 It may buy and sell negotiable bonds, or make exchanges of government bonds for customers. It is a legitimate feature of the banking business for one bank to cash checks or drafts upon another bank, and it may act as agent in making loans of money or of special deposits for customers. Exchange purchases when made by one bank for another bank have been held to be confined to drafts upon the particular bank which made the purchase. Letters of credit are nothing more than letters of guaranty made by one bank to another. The rules of law would not vary as between the two engagements. This matter will be discussed under the head of "Acceptance." When the bank is agent to loan moneys it is not liable as debtor, but is held to good faith 10 and skill as a banker."1

1 See § 113, ante.

5 Yerkes v. National Bank, 69 N. Y.

2 Bank of Louisville v. Ellery, 34 382. Barb. 630.

3 Primarily the banking business must be carried on at its place of business. See People v. Oakland Bank, 1 Doug. 282. And see §§ 24, 103, ante.

4 Mt. Vernon Bank v. Porter, 52 Mo. App. 244. This decision is really upon a statute, but the statute would not add anything.

6 Murray v. Bull's Head Bank, 3 Daly, 364.

7 Isham v. Post, 141 N. Y. 100; Wykoff v. Irvine, 6 Minn. 496. 8 Reynes v. Dumont, 130 U. S. 354. 9 Wykoff v. Irvine, 6 Minn. 496. 10 See last case cited.

11 Isham v. Post, 141 N. Y. 100.

2

§ 204. Forged paper.—In a former section referring to deposits1 was stated the rule as to the payment of forged paper that obtains between banks. The payment of exchanges is practically governed by these rules. If the acceptance be forged and the bank pays it, the party whose name is forged can of course hold the bank, if he gives notice when he discovers the forgery; and if the drawer returns the draft to the payee, who presents it and is refused payment, the drawer can thereupon sue the bank. But the indorsement of a fictitious payee's name, the fictitious payee being thought to be an existing person, is none the less a forgery. But it has been held that if the payee who indorses the draft is the person intended, his indorsement is not a forgery and no recovery can be had against the bank by the drawer. The negligence of the drawer of the draft has usually been held to be a defense against him where the draft was raised, and the same rule applies to the acceptor in accepting on a forged signature; but one court

1 See § 155, ante, and also § 154, ante.

2 First Nat. Bank v. Tappan, 6 Kan. 456. For duty as to examination to detect forgery, see § 154, ante.

3 Citizens' Nat. Bank v. Imp. & Trad. Nat. Bank, 119 N. Y. 195. The reason of the rule is that payment upon a forged signature is no payment at all. Star Fire Ins. Co. v. State Nat. Bank, 60 N. H. 442. As to raised drafts and forged signatures, see § 154, ante. If the bank agrees to repay an amount charged on a forged draft it will be held none the less, because it would be held without the agreement. Nat. Bank of Commerce v. Manufacturers' Bank, 122 N. Y. 367. If a bank pays a raised draft it may re

4 Chesin v. First Nat. Bank, 96 Tenn. 641; and see § 151, ante.

5 Emporia Nat. Bank v. Shot well, 35 Kan. 360; Crippen v. American Nat. Bank, 51 Mo. App. 508. Both these cases are wrong. They were intended to decide what is stated in the text. But both bank and drawer were deceived, and both made a mistake of fact in thinking that the person who indorsed was another individual intended by them. It was a clear case of mutual mistake. If they had intended the first person by the name of the payee, as the text above indicates, the decisions would have been correct. See note 23, § 154. 6 See § 154, ante.

Howard v. Mississippi Valley Bank, 28 La. Ann. 727.

became entangled in a metaphysical subtlety and held that where a clerk in a bank drew a draft which could be easily altered, and had it signed by the cashier, whereupon the clerk took the draft from the confiding cashier and altered it and discounted it, the forgery of the check and not the negligence of the cashier was the proximate cause of the loss. This decision is simply another proof of how prone even able courts are to fall into palpable error, The test is, Could the forgery have been committed if the cashier had not been negligent? If not, then the cashier's negligence was a concurring cause of loss, and the bank was liable. This case would overturn a principle that is absolutely settled as to the drawer of a check, and a bank draft is no more than a check by one bank upon another. The bank could hold the cashier liable to it for his folly, but the innocent holder had no remedy except against the bank. If the bank takes money from a person upon a forged signature, it will be compelled to pay it." If it pays to a person upon a forged signature or a forged draft it may recover,10 except where the signature of the drawer was forged and it paid to a bona fide holder." But the person who obtains the draft from the bank and sends it to the payee, who receives upon it more than the amount for which the draft was drawn, is not liable to the bank, unless he received the money.12

8 Exchange Nat. Bank v. Bank of Little Rock 58 Fed. R. 140, 19 U. S. App. 152. This case was not one of proximate cause at all. The injury arose from the forgery and the opportunity therefor given by the cashier. The cashier's negligence concurred in affording the opportunity and was taken advantage of by the clerk. The cases cited by the court do not justify the decision.

9 Even to one who pays supra protest. Goddard v. Merchants' Bank, 2 Sandf. 247.

10 See § 154, ante.

12

11 National Park Bank v. Ninth Nat. Bank, 46 N. Y. 77. Another bank has been held to be within this rule. Northwestern Nat. Bank v. Bank of Commerce, 107 Mo. 402; but see § 155, ante. For the rule under a statute, see Tradesmen's Nat. Bank v. Third Nat. Bank, 66 Pa. 435.

12 City Nat. Bank v. Stout, 61 Tex. 567. In this case the cashier of the bank assisted in deceiving the bank that paid.

ARTICLE II. ACCEPTANCE.

§ 205. Collectible paper.-In former sections (179 et seq.) was discussed the liability of a bank or banker for failure to take proper steps in making a collection intrusted to the bank. It is the purpose of the author now to discuss the rules of law applicable to the presentation of paper for acceptance when the paper requires such presentment, and the necessity for protest and notice of non-acceptance as well as the rules as to demand of payment and protest and notice of nonpayment. While this subject is not peculiar to banking law, and belongs within the scope of a general work on bills and notes, yet the subject is of such controlling importance in banking business that no excuse is needed for its insertion here. The acceptance of checks upon the particular bank by certifying them has already been noticed,' as well as the acceptance by the bank of paper payable at the bank,2 and that discussion will not be repeated. The different kinds of paper in regard to which these questions of acceptance and demand of payment arise may roughly be classed as orders for the payment of money (which do not amount to bills of exchange), checks, promissory notes (which include certificates of deposit, herein before discussed) and bills of exchange. An examination will first be made to indicate what instruments are bills of exchange requiring a presentment for acceptance.

3

206. Paper requiring presentment for acceptance.The instruments which require presentment for acceptance in order to hold certain parties upon them are classed under the head of bills of exchange; but not all bills of exchange need presentment for acceptance in order to fix the liability of parties to them. First, it will be necessary to indicate what instruments are bills of exchange, and then it will be necessary to show what bills of exchange need presentment for acceptance. Checks are not bills of exchange unless they are made payable after their date. A check is an order See § 161, ante.

1 See § 150, ante.

2 See § 150, ante.

for the payment of money drawn upon a bank or banker.' It is of the essence of such an order that it be payable upon demand. It is needless to say that such a check does not need to be presented for acceptance, nor is it entitled to days of grace. A draft of one bank upon another is merely a check, though it be drawn in duplicate; even if it be payable upon sight, it is a check, not a bill of exchange. An order upon a banker for the payment of money in the usual form, whether drawn by a bank or other person, is payable upon demand, and is not an inland bill of exchange. But checks are sometimes post-dated. This word is used in two senses. A check in the ordinary form, signed and delivered before its date, is sometimes called a post-dated check, but that is a wrong use of the term. The only effect upon such a check of the date is that it is not payable until its date.' But it does not become entitled to days of grace, nor is there any necessity for its presentment. It is simply of no effect

1 In re Brown, 2 Story, 502. But Industrial Bank v. Bowes, 165 Ill. 70, holds that an order upon an architect's certificate is a check, not a bill of exchange. The order was drawn not upon a banking house. The decision should have been put on the ground that the order was not a bill of exchange nor a check, but was simply the assignment of an account.

2 See the cases in note 8, infra. In re Brown, 2 Story, 502; Taylor v. Wilson, 11 Met. 44; Way v. Towle, 155 Mass. 374; Hawley v. Jette, 10 Oreg. 31; McDonald v. Stokey, 1 Mont. 388. And see cases cited in note 6, infra. Otherwise the rules governing checks and bills of exchange are practically the same, except as to the rights of the drawer, who can claim a demand only when he is injured by the delay. If injured, he is in the same position as the drawer of a bill. The

general similarity of checks and bills of exchange is noticed in Merchants' Bank v. State Bank, 10 Wall. 604; Rogers v. Durant, 140 U. S. 298; Henshaw v. Root, 60 Ind. 220; Wood River Bank v. First Nat. Bank, 36 Neb. 744; Laird v. State, 61 Md. 309; Smith v. Janes, 20 Wend. 192.

3 Bull v. Kasson Bank, 123 U. S. 105; First Nat. Bank v. Coates, 8 Fed. R. 540; Merchants' Nat. Bank · v. Ritzinger, 118 Ill. 484; Harrison v. Wright, 100 Ind. 515.

4 Merchants' Nat. Bank v. Ritz inger, 118 Ill. 484.

5 Grammel v. Carmer, 55 Mich. 201.

6 Merchants' Bank v. State Bank, 10 Wall. 604; Exchange Bank v. Sutton Bank, 78 Md. 577; Roberts v. Austin, 26 Iowa, 315; McDonald v. Stokey, 1 Mont. 388; Harrison v. Wright, 100 Ind. 515.

7 See § 152, ante, note 3.

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