son, even though no such person as the payee existed, is unauthorized.119

Same-Fraudulent Impersonation

Where an impostor fraudulently impersonates another person, and thereby induces a third person to draw a check, designating the payee by the name assumed by the impostor, and to deliver the check to him in the belief that the drawer is dealing with the person whose name has been assumed, and the impostor indorses the check in the assumed name, and the drawee bank in good faith pays it to him or to an indorsee, the bank is protected, and may charge the payment to the drawer.120 And if the impostor transfers the check so indorsed to a bona fide purchaser, he takes title thereby and can hold the drawer.121 These cases cannot be explained on the ground that the payee is fictitious, since the check is not payable to the order of a fictitious person, to the knowledge of the drawer; nor on the ground of the drawer's negligence, since the holding is the same where he exercises all reasonable care.

119 Jordan Marsh Co. v. National Shawmut Bank, 201 Mass. 397, 87 N. E. 740, 22 L. R. A. (N. S.) 250. See, also, Harmon v. Old Detroit Nat. Bank, 153 Mich. 73, 116 N. W. 617, 17 L. R. A. (N. S.) 514, 126 Am. St. Rep. 467. See "Banks and Banking," Dec. Dig. (Key No.) § 148; Cent. Dig. §§ 438-452.

120 United States v. National Exchange Bank (C. C.) 45 Fed. 163; Meyer v. Indiana Nat. Bank, 27 Ind. App. 354, 61 N. E. 596; Hoffman v. American Exch. Nat. Bank, 2 Neb. (Unof.) 217, 96 N. W. 112. See, also, Metzger v. Franklin Bank, 119 Ind. 359, 21 N. E. 973; Emporia Nat. Bank v. Shotwell, 35 Kan. 360, 11 Pac. 141, 57 Am. Rep. 171; First Nat. Bank of Ft. Worth v. American Exch. Nat. Bank, 170 N. Y. 88, 62 N. E. 1089.

Where the bank has paid to a purchaser, since the drawer had no claim against the bank, the bank had none against the purchaser. Land Title & Trust Co. v. Northwestern Nat. Bank, 196 Pa. 230, 46 Atl. 420, 50 L. R. A. 75, 79 Am. St. Rep. 717. See "Banks and Banking," Dec. Dig. (Key No.) § 148; Cent. Dig. §§ 438-452.

121 Robertson v. Coleman, 141 Mass. 231, 4 N. E. 619, 55 Am. Rep. 471; Burrows v. Western Union Tel. Co., 86 Minn. 499, 90 N. W. 1111, 58 L. R. A. 433, 91 Am. St. Rep. 380; Heavy v. Commercial Nat. Bank, 27 Utah, 222, 75 Pac. 727, 101 Am. St. Rep. 966; Jamieson & McFarland v. Heim, 43 Wash. 153, 86 Pac. 165. See "Banks

The cases are usually explained on the ground that the person to whom the check is delivered, though designated by the name of another, is the person with whom the drawer is dealing and to whom he intends the check to be paid, so that in paying it the bank carries out his intention. This explanation is open to the criticism that, while the drawer does intend payment to be made to the person to whom he delivers the check, he also intends that it shall be made to the person impersonated; but, whatever the explanation, the courts, with one exception,122 have uniformly held that the drawer is in effect precluded from asserting a different intention than that attributed to him. The Negotiable Instruments Law provides: "When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority." 123 It seems clear that the cases under consideration fall within the above exception, and that the drawer is "precluded from setting up the forgery or want of authority," and it has been so held,124 though not without dissent.125

and Banking," Dec. Dig. (Key No.) § 148; Cent. Dig. §§ 438-452; "Bills and Notes," Dec. Dig. (Key No.) §§ 373-377; Cent. Dig. §§ 952, 966-992.

122 Tolman v. American Nat. Bank, 22 R. I. 462, 48 Atl. 480, 52 L. R. A. 877, 84 Am. St. Rep. 850. Sec "Banks and Banking," Dec. Dig. (Key No.) § 148; Cent. Dig. §§ 438-452.

123 Negotiable Instruments Law, § 23.

124 Hoffman v. American Exch. Nat. Bank, 2 Neb. (Unof.) 217, 96 N. W. 112. See "Banks and Banking," Dec. Dig. (Key No.) § 148; Cent. Dig. §§ 438-452.

125 The contrary was held, both under this section and at common law, in Tolman v. American Nat. Bank, 22 R. I. 462, 48 Atl. 480, 52 L. R. A. 877, 84 Am. St. Rep. 850. See comments on this case by Dean James Barr Ames and Mr. Charles L. McKeenan, Brannan, Neg. Inst. Law, pp. 95, 125–131. See "Banks and Banking," Dec. Dig. (Key No.) § 148; Cent. Dig. §§ 438-452.

46.

47.

CHAPTER V

CLEARING HOUSES

Clearing House System.

Effect of Payment Through Clearing House.

48. Effect of Rules-Non-Members.

CLEARING HOUSE SYSTEM

46. In commercial centers the adjustment and payment of daily balances between banks is usually effected by means of clearing house associations, of which the several banks are members, at the clearing house, or central office, of the association, where the representatives of the several banks meet daily, and where each bank turns in and is credited with all checks and cash demands which it holds against the other banks, and is charged with all such demands against itself turned in by the others, and where each bank pays or receives, as the case may be, the balance found to be owed by or due to it, subject to subsequent adjustment directly between the banks immediately concerned of items found not good.

In all large cities the adjustment and payment of daily balances between banks is effected through the clearing house, by means of associations formed for that purpose, of which the several banks are members. Under this system there is a meeting each morning at the central office or clearing house of the clerks representing the several banks, and each bank turns in all the checks and cash demands which it holds against the others and receives credit therefor, while it is charged with all checks and cash demands against itself turned in by the

TIFF.BKS.& B.-12

other banks. The checks and demands which have thus been credited to and charged against each bank are then summed up, and the balance owed by or due to each, as the case may be, is then ascertained. At a later hour each bank pays to or receives from the clearing house the balance found to be against it or in its favor, and the total transactions are thus settled by the actual payment of a comparatively small amount of cash. In this daily settlement of the clearing house no account is taken of the fact that checks may be bad; but all checks and drafts on any bank or notes payable at the bank are charged against it, though the accounts of the drawers of the checks or makers of the notes may not be good, and though the instruments may be forgeries. The adjustment of these items is usually effected, not through the clearing house, but directly between the bank which turned in any such paper and the bank on which it was drawn or at which it was payable.

1

The rules of all clearing house associations are by no means identical; 2 but the procedure outlined is that generally adopted.

In substance, the system "substitutes a settlement made at a fixed place and time each day by representatives of all the members of the association in the place of a separate settlement by each bank with every other made over the counter."

Clearing house associations are ordinarily merely voluntary associations entered into for the purpose of settling daily bal

1 See Dunbar, Theory & Hist. of Banking, 43, 52.

2 See Rector v. City Deposit Bank Co., 200 U. S. 405, 26 Sup. Ct. 289, 50 L. Ed. 527; Blaffer v. Louisiana Nat. Bank, 35 La. Ann. 251. See "Banks and Banking,” Dec. Dig. (Key No.) §§ 318, 320; Cent. Dig. §§ 1224, 1226.

3 See Merchants' Nat. Bank v. National Eagle Bank, 101 Mass. 281, 100 Am. Dec. 120; Mt. Morris Bank v. Twenty-Third Ward Bank, 172 N. Y. 244, 64 N. E. 810; Philler v. Patterson, 168 Pa. 468, 32 Atl. 26, 47 Am. St. Rep. 896. See "Banks and Banking," Dec. Dig. (Key No.) 320; Cent. Dig. § 1226.

4 Philler v. Patterson, 168 Pa. 468, 32 Atl. 26, 47 Am. St. Rep. 896. See "Banks and Banking," Dec. Dig. (Key No.) §§ 318, 320; Cent. Dig. § 1224, 1226.

ances between the members." The associations are managed by a committee or other officers, as may be provided by the constitution and rules."

EFFECT OF PAYMENT THROUGH CLEARING

HOUSE

47. Where a rule provides that checks included in the clearing house settlement which are found not to be good shall be returned by the bank receiving them to the bank from which they were received, before a certain hour, the return of a check within such time is equivalent to a refusal to pay it. If a check be not returned within such time, the settlement becomes operative as payment, with the same effect as if payment had been made over the counter of the drawee bank; but in some jurisdictions it is held that if the drawee, because of its mistaken belief that the drawer's funds are sufficient, fails to return such check within such time, it may upon afterwards discovering its mistake return the check and require the other bank to refund the payment, unless the latter before notice of the mistake has changed its position, so that it would suffer loss if required to rectify the mistake.

See Yardley v. Philler, 167 U. S. 344, 17 Sup. Ct. 835, 42 L. Ed. 192.

Such an association, though it issue certificates for use in payment between its members, is not itself a bank. Crane v. Fourth St. Nat. Bank, 173 Pa. 566, 34 Atl. 296. See "Banks and Banking," Dec. Dig. (Key No.) § 318; Cent. Dig. § 1224.

• See Yardley v. Philler, 167 U. S. 344, 17 Sup. Ct. 835, 42 L. Ed. 192.

The association is properly sued in the names of the committee having control of its business, funds, and securities. Yardley v. Philler (C. C.) 58 Fed. 746. See "Banks and Banking," Dec. Dig. (Key No.) § 318-320; Cent. Dig. §§ 1224-1226.