money taken.196 In general, the principles which govern the rights, duties, and liabilities of the directors and officers of corporations apply also to those of a bank.""" DUTIES OF BANK OFFICERS IN THE PAYMENT OF CHECKS 188 54. A general deposit in a bank is always subject to be drawn upon by the depositor by way of check; 1" and when a check is presented for payment to the proper officer of the bank by the person entitled to receive payment of the same, it is the duty of such officer to pay it, if the drawer of the check have funds in the bank to cover its amount.189 The due presentment of the check is a demand upon the bank for its payment, and the bank can only refuse to pay its amount in the following cases: 190 1. Where the drawer does not have the amount of money on deposit in the bank that the check calls for;"" in such case, the bank is under no obligation to pay any sum on the check when in the hands of any person other than the drawer himself, though the drawer himself might recover from the bank upon such a check the actual amount of his deposit in the bank. 2. When the bank has notice that the funds deposited do not belong to the drawer," as where a deposit has been made by "A, trustee," a check drawn by "A," in his individual name only, and not as trustee, is not properly drawn, and the bank is not bound to honor it. So, where one man makes a deposit in another man's name, as is frequently done, the check of the former drawn upon such deposit will not be honored by the bank; and, if a deposit be to the credit of some one as agent, and the bank know or ought to 186 147 Pa. 140 (1892). 187 See The Law of Corporations. 188 See subtitle Deposits infra. 189 See The Law of Commercial Paper: Checks. 190 Zane B. & B., Sec. 143. 193 know who is principal, it cannot pay on the check of the agent; but where nothing on the face of the deposit account shows who is principal, and the bank has no other means of information, the money as between the bank and the depositor belongs to the latter, and his checks must be honored.1 3. When the bank is put upon inquiry as to the fact that funds deposited, but known to be trust funds, either by the form of the deposit or in some other way, are being misappropriated.1 4. When the bank has notice of any assignment, or has accepted or certified checks to the amount of the deposit; if a depositor make an assignment for the benefit of creditors, this includes his bank deposits as well as his other property, and such deposits are no longer subject to his check; when a bank has certified a check of its depositor, such amount of his deposit as is sufficient to cover that check is withdrawn from his account, it ceases to be his property, and becomes the property of the bank, held to meet the certified check when presented for payment. 197 5. When the bank has notice of a lien on the deposit;"" for instance, where an attachment has been issued upon the money of the defendant depositor in the hands of the bank. 6. When the bank has notice of the death of the depositor; in such case, it is no longer bound to honor checks signed by him before his death, though payment of the same, if made before the bank has notice of the death, will be valid and binding upon all parties. But, after the depositor's death, the deposit belongs to his executor or administrator, and, after receiving notice of his death, the bank must honor only those checks on a decedent's deposit which are drawn by such executor or administrator. 198 7. When it has notice of the insolvency of the depositor; he has then no longer the right to draw checks upon his deposit in the bank, for if he were allowed to do so, the 193 Zane B. & B., Sec. 143. 194 130 Pa. 419 (1889). 195 Zane B. & B., Sec. 113. 196 Ibid. 197 Ibid. 198 Ibid. door would be opened for preferences of certain of his creditors over the others. 8. When the bank has itself appropriated or has a valid lien upon the deposit for a claim paid to itself or to some one else; in such case, the bank is not bound to honor the depositor's checks, and thus deprive itself of its lien. With these exceptions, the bank is bound to pay the check of its depositor when it has funds to his credit. For its refusal to pay without legal cause, the drawer has a twofold remedy: First, he may sue at once for his deposit, without further demand; for, the presentation of the check in itself constitutes a sufficient demand. This remedy, however, is generally considered insufficient by the depositor whose check has been dishonored, because the smaller the check the worse the injury. Second, he may sue the bank for damages for its improper refusal to pay his check, thereby injuring his credit and reputation. In such a suit, he is entitled to recover substantial damages, without proof either of special pecuniary loss to himself, or malice on the part of the bank.200 55. Checks are to be paid, not in the order in which they are drawn, but in the order in which they are presented. If two or more checks be presented at the same time, the bank may pay them in the order that it pleases. If an account be made up of deposits from two or more sources, the title to one of which is questioned, the law applies the payment made by the bank upon a check drawn upon such account to the reduction of that part of the account which is made up of deposits not in dispute, and leaves those deposits which are in question, so question, so far as practicable, unimpaired.201 We have seen that notice to the bank of the death, insolvency, etc. of the depositor relieves the bank from its obligation to honor the depositor's check. As in the relation of agency, notice given to the proper agent of the bank is binding upon the bank. CLEARING HOUSES DEFINITION 203 56. A clearing house is a place or institution where the settlement of mutual claims, especially of banks, is effected by the payment of differences called balances; 202 a voluntary association of banks for the purpose of facilitating exchanges and settlements between them;""" a place where the representatives of the banks meet and, under the supervision of a committee or officer selected by the members, settle their accounts with one another, and make and receive payment of balances, and so clear the transactions of the day for which the settlement is made." 204 ORIGIN AND HISTORY 57. The bankers of Edinburgh, Scotland, claim the credit of establishing the first clearing house; but the earliest one of whose transactions there is any record is that of London, which was founded about 1775. The ale house was then the general resort of persons about to start new enterprises, and it was there that the messengers or clerks first held their meetings; but as the system grew to be of such utility as to make it indispensable, the association procured rooms in Lombard Street, for the convenience of exchanging checks and other securities, and reducing the amount of actual money used in the settlement of their accounts. This was the beginning of the clearing-house system. The New York clearing house was established in 1853, Boston established one in 1856, Philadelphia, Baltimore, and Cleveland in 1858, Worcester in 1861, Chicago in 202 Cent. Dict. 203 Zane B. & B., Sec. 366. 204 173 Pa. 566 (1896) 1865; since that date the system has spread throughout the country, so that there are about thirty-one clearing houses. known to exist in the United States. They also exist in Australia, France, Germany, Switzerland, Italy, and generally throughout the continent of Europe.' 205 OBJECT AND MODE OF OPERATION 58. The object of the clearing house is to avoid the inconvenience and labor involved of each bank sending to all the others to make presentment of the paper it may hold, thus facilitating the exchanges of such paper, principally checks, between the various banks which are members of the association. In large cities, checks representing millions of dollars are deposited in the banks every day. The separate collection of these would be almost impossible, were it not for the clearing-house system. In the clearinghouse associations, the methods and details of the clearing operations differ, in some respects, but all are conducted toward the same object. 59. The usual manner of operating a clearing house is as follows: Clerks from each bank attend the clearing house with checks and drafts, usually called exchanges, on the other banks belonging to the clearing house. These exchanges are distributed by messengers among the clerks of the banks that must pay them. Each bank in turn receives from all the other banks the exchanges they have received drawn on it and which it must pay. The exchanges which a bank takes to a clearing house are called creditor exchanges; the exchanges which it receives from other banks represented there are called debtor exchanges. If the creditor exchanges of a bank exceed its debtor exchanges, it is a creditor bank, and must be paid the balance; if the reverse be the case, it is a debtor bank and must pay the balance. The balances are paid by the debtor banks to the clearing house for the creditor banks." 206 In the New York clearing-house, two clerks from each = 2052 Pa. Dist. Rep. 509 (1893). 206 Cent. Dict. |