ble from an ordinary bill of exchange, in that it is always drawn on funds deposited with the drawee; but in truth a check does not in terms purport to be so drawn, and a check is not any less a check when not actually drawn upon funds, while an instrument which was in express terms drawn upon funds deposited with the drawee, however sufficient it might be as an assignment, would not be a check. To construe a check as an assignment is, therefore, to deny its existence as a check.153

While a check of itself does not operate as an assignment of the drawer's funds in the hands of the drawee, it is competent for the parties to create such an assignment by agreement, oral or otherwise, in addition to the check, that such shall be the effect of the transaction. This is held, even by courts which recognize that a check does not constitute. an assignment.154 In such case it, however, seems that the action lies, not on the check, but on the collateral agreement for an assignment, of which the check may be evidence.155

Happily this general question has now been settled in most states by the enactment of the Negotiable Instruments Law, which, in accordance with what has been the prevailing rule, provides: "A check does not of itself operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder, unless and until it accepts or certifies the check." 156

153 See 2 Ames, Cas. Bills & Notes, 735; 11 Harv. Law Rev. 548. 154 Fourth Street Nat. Bank v. Yardley, 165 U. S. 634, 17 Sup. Ct 439, 41 L. Ed. 855; Fortier v. Delgado & Co., 122 Fed. 604, 59 C. C A. 180. See "Assignments," Dec. Dig. (Key No.) § 49; Cent Dig. § 85-98.

155 See 11 Harv. Law Rev. 60.

156 Negotiable Instruments Law, § 189.

CERTIFIED CHECKS

38. LIABILITY OF BANK-Where a check is certified

to be good by the bank on which it is drawn, the

bank assumes an unconditional obligation to the holder to pay it on presentment.

39. LIABILITY OF DRAWER AND INDORSERS— Where the holder of a check procures it to be certified, the drawer and all indorsers are discharged from liability thereon; but where the drawer before delivery procures it to be certified, he is not thereby discharged.

Nature and Effect of Certification

Strictly speaking, a check is not presentable for acceptance, but is presentable only for payment. The bank may, however, assume the obligation of paying the amount, if it sees fit, by certifying the check.

Certification is often said to be the equivalent of acceptance, but this is somewhat misleading. Acceptance is the signification by the drawee of his assent to the order of the drawer.157 While a bill contains in express terms only an order to pay, by the law merchant, if the bill is payable at a future day, or at or after sight, the drawer also orders the drawee to accept the bill upon presentment—that is, to promise to pay it according to the terms of the order; 158 but if the order is to pay on demand, the order does not call for acceptance. By the certification of a check, the drawee does, indeed, promise to pay the amount of the instrument to the holder; but certification is different from mere acceptance, in that it is not an added obligation, but a substituted obligation.159 This holds true at least where the certification is at the request of the

157 See Negotiable Instruments Law, § 132.

158 2 Ames, Cas. Bills & Notes, 787. 159 2 Ames, Cas. Bills & Notes, 801.

holder. The check calls for payment, and not for acceptance, and if the holder sees fit, instead of receiving the money, to take the obligation of the bank for payment at such time as he shall call for it, he thereby discharges the drawer and takes the sole obligation of the drawee.160 The transaction is in

legal effect the same as if the holder surrendered the check, received payment, deposited the money with the bank, and received its certificate of deposit or note payable on demand.181 Upon certification the bank charges the amount to the drawer precisely as if the check were paid, and the drawer loses all control of the fund and cannot stop payment.162 The obligation of the certifying bank is, therefore, to pay the amount of the instrument to the holder upon demand.163

It follows from what has been said that after certification the bank cannot refuse payment to the payee or other bona fide holder, on the ground that the drawer's funds were insufficient.16 The bank's position is the same as if it had paid the

160 Post, p. 136.

101 See cases cited post, note 163.

162 Willets v. Phoenix Bank, 2 Duer (N. Y.) 121; First Nat. Bank of Jersey City v. Leach, 52 N. Y. 350, 11 Am. Rep. 708; Freund v. Importers' & Traders' Nat. Bank, 12 Hun, 537; Id., 76 N. Y. 352. See "Banks and Banking," Dec. Dig. (Key No.) § 145; Cent. Dig. $$ 419-433.

163 Merchants' Nat. Bank v. State Nat. Bank, 10 Wall. 604, 19 L. Ed. 1008; Bickford v. First Nat. Bank of Chicago, 42 Ill. 238, 89 Am. Dec. 436; Willets v. Phoenix Bank, 2 Duer (N. Y.) 121; Farmers' & Mechanics' Bank v. Butchers' & Drovers' Bank, 14 N. Y. 623; Id., 16 N. Y. 125, 69 Am. Dec. 678; Meads v. Merchants' Bank of Albany, 25 N. Y. 143, 82 Am. Dec. 331; Poess v. Twelfth Ward Bank of City of New York, 43 Misc. Rep. 45, 86 N. Y. Supp. 857; Girard Bank v. Bank of Penn Tp., 39 Pa. 92, 80 Am. Dec. 507; Andrews v. German Nat. Bank, 9 Heisk. (Tenn.) 211, 24 Am. Rep. 300.

Certification gives no lien on the assets of the tank, People v. St. Nicholas Bank, 77 Hun, 159, 28 N. Y. Supp. 407. See "Banks and Banking," Dec. Dig. (Key No.) § 145; Cent. Dig. §§ 419-433.

164 Espy v. First Nat. Bank, 18 Wall. 621, 21 L. Ed. 947; Hayes v. Northern Pac. R. Co., 74 Fed. 279, 20 C. C. A. 52; Jackson Paper Mfg. Co. v. Commercial Nat. Bank, 199 Ill. 151, 65 N. E. 136, 59 L.

check to the holder, in which case it could not, by the weight of authority, recover the amount from him upon the ground that it had paid under a mistake as to the sufficiency of the funds. 165 A different case is presented if the certification was procured by fraud and the check has not passed into the hands of a holder in due course.

166

Upon the ground that certification at the request of the holder discharges the drawer, and substitutes the sole obligation of the bank, thereby operating as payment so far as concerns the drawer, it has been held, also, that the bank cannot resist payment upon a ground which would have been a defense in an action by the payee or a holder standing in his shoes against the drawer, as that the check was procured from the drawer by fraud, although the drawer has notified the bank of his defense and instructed the bank not to pay the check.1

167

R. A. 657, 93 Am. St. Rep. 113; First Nat. Bank v. Union Trust Co., 158 Mich. 94, 122 N. W. 547, 133 Am. St. Rep. 362.

In New York the rule appears to have been that the bank may revoke the certification, unless there has been a change of position upon faith thereof. Irving Bank v. Wetherald, 36 N. Y. 335; National Park Bank of New York v. Steele & Johnson Mfg. Co., 58 Hun, 81, 11 N. Y. Supp. 538; Brooklyn Trust Co. v. Toler, 65 Hun, 187, 19 N. Y. Supp. 975, affirmed 138 N. Y. 675, 34 N. E. 515. See Negotiable Instruments Law, § 62. See "Banks and Banking," Dec. Dig. (Key No.) § 145; Cent. Dig. §§ 419–433.

165 Post, p. 148.

166 Bank of Republic v. Baxter, 31 Vt. 101.

Where the payee obtained certification by fraud, the bank was not estopped as against a transferee in good faith and for value, but by assignment and not by negotiation. Goshen Nat. Bank v. Bingham, 118 N. Y. 349, 23 N. E. 180, 7 L. R. A. 595, 16 Am. St. Rep. 765 (cf. Meuer v. Phenix Nat. Bank, 94 App. Div. 331, 88 N. Y. Supp. 83). See "Banks and Banking," Dec. Dig. (Key No.) § 145; Cent. Dig. §§ 419-433.

167 Times Square Automobile Co. v. Rutherford Nat. Bank, 77 N. J. Law, 649, 73 Atl. 479, 134 Am. St. Rep. 811 (intimating that the defense would be open if certification had been at request of the drawer).

Where B. & Co. drew a check to the order of B., who had it cer

Delay in presentment does not discharge the bank, and presentment may be made at any time within the period fixed by the statute of limitations.168 On principle, as in the case of ordinary certificates of deposit,169 demand is a prerequisite to the holder's right of action against the bank; 170 but under the Negotiable Instruments Law it seems that presentment is not necessary to charge the bank.171

Certification of Forged or Altered Check

After certification the bank cannot refuse payment to a holder in due course on the ground that the drawer's signature was forged.172 Here again the bank's position is the same

tified, and indorsed it to W. in payment for a horse, and W. deposited the check in plaintiff's bank, which credited him with the amount, but was notified by B., before payment to W., that W. had obtained the check by fraud, in an action by plaintiff against the drawee bank, wherein B. on interpleader was substituted as defendant, it was held that plaintiff might recover. Plaintiff bank was held to be a holder for value, though it had not parted with value. Blake v. Hamilton Dime Savings Bank Co., 79 Ohio St. 189, 87 N. E. 73, 20 L. R. A. (N. S.) 290, 128 Am. St. Rep. 684.

It would seem that in such cases the fraudulent payee or holder should be charged as a constructive trustee for the drawer, and that the bank, if it had been notified by the drawer not to pay, should have the right and duty to protect the drawer by refusing payment to the holder. See 19 Harv. Law Rev. 143. See "Banks and Banking," Dec. Dig. (Key No.) § 145; Cent. Dig. §§ 419-433.

168 Jackson Paper Mfg. Co. v. Commercial Nat. Bank, 199 Ill. 151, 65 N. E. 136, 59 L. R. A. 657, 93 Am. St. Rep. 113. See "Banks and Banking," Dec. Dig. (Key No.) § 145; Cent. Dig. §§ 419-433; “Bills and Notes," Dec. Dig. (Key No.) §§ 394-398; Cent. Dig. §§ 996-1050. 169 Ante, p. 79.

170 Bank of British North America v. Merchants' Nat. Bank, 91 N. Y. 106. See "Bills and Notes," Dec. Dig. (Key No.) §§ 394-398; Cent. Dig. §§ 996-1050.

171 Negotiable Instruments Law, § 70; ante, p. 81.

172 First Nat. Bank of Chicago v. Northwestern Nat. Bank, 152 Ill. 296, 38 N. E. 739, 26 L. R. A. 289, 43 Am. St. Rep. 247; Commercial & Farmers' Nat. Bank of Baltimore v. First Nat. Bank of Baltimore, 30 Md. 11, 96 Am. Dec. 554; Farmers' & Mechanics' Bank v. Butchers' & Drovers' Bank, 16 N. Y. 125, 69 Am. Dec. 678. See