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1. What is PAYMENT. II. By WHOM MADE.
I. WHAT IS PAYMENT.
$ 1392. Payment-General Principles.
1393. Application of Bank Deposits.
Payment-General Principles, § 1392. By the law merchant, commercial paper is payable and to be paid in money only. If the bill is drawn in a set of several parts, payment of any one part is payment of the bill. No payment is sufficient, however, unless made and received in good faith;? nor is it a good payment if made in violation of law. Whether the facts prored amount to a payment is a question for the jury. But a mere offer to pay is not a payment."
Application of Bank Deposits. $ 1393. If the maker of a note has funds, provided for its payment, in the hands of the agent who holds it for collection at its maturity, this will be a payment, and will discharge the maker. But although an acceptor has sufficient funds at maturity in the bank where the bill is payable, and it is thereupon marked "Paid” and canceled by the bank, such cancellation may be revoked by the bank later in the day, on the acceptor becoming insolvent and the payment being counterinanded.? And where a surety has funds in the hands of the bank
? Downes v. Church, 13 Pet. 205. 2 And this is a question of circumstances. Chit. Bills, 446; Scholey v. Ramsbottom, 2 Camp. 483; Lovell v. Martin, 4 Taunt. 799. Thus, if the holder gives his check to the drawer, to take up the bill on obtaining a renewal of the acceptance, and it is sent by the drawer to the acceptor, and by him
as a payment, and the renewal refused, the acceptor will still remain liable on the bill. Torrance v. Bank, L. R. 5 P. C. 246. So, the fraudulent payment of an individual note by an administrator, out of the trust estate, afterwards recovered from the payee, is not a payment. Fleece 1. OʻRear, 83 Ind. 200. : E. g. in violation of an injunction. Springfield Marine & Fire Ins. Co. v.
So, if part payment is made by the maker of a note in contemplation of bankruptcy, and it is afterwards recovered by his assignee, the surety will be liable for the amount, although he has already paid the balance after allowing for such payment, and taken up the note. Watson v. Poague, 42 Iowa, 582. 4 Globe Nat. Bank v. Ingalls, 130 Mass. 8.
Although the funds on deposit for that purpose were afterwards lost by the failure of the bank where they were deposited. Moses v. Trice, 21 Grat.
Peck, 102 Ill. 265.
Grandy v. Abbott, 92 N. C. 33. And such deposit has been held to be applicable both to notes not yet due, Thomas v. Bank, 99 Iowa, 202, 68 N. W. 780; and to those already matured, Winslow v. Iron Co. (Tenn. Ch. App.) 42
S. W. 698.
." It appearing that, by the usage of the clearing house, the cancellation simply denoted an intention to pay the bill. Warwick v. Rogers, 5 Man. &
holding the note, they are not applicable to its payment without express authority.8
There is no presumption of law that funds of the maker in the holder's hands are applicable to payment of a note, and their applicability is a question for the jury.' Thus, if a joint and several demand note made by A. as principal, and B. and C. as sureties, is discounted for A., and the proceeds credited and interest charged to him, the note being intended as a continuing security, the fact of his having at one time sufficient funds in the holder's hands to pay the note will not amount to a payment of it so as to discharge a surety.10 So, if a note is payable to a banking firm which is dissolved before its maturity, deposits made by the maker with the new firm are not applicable to the note at its maturity without express authority from him.11 And a bank having in hand a general deposit of the maker or acceptor is not bound to apply it to the payment of a bill or note, 12 although previously authorized by the maker to do so.13 So, too, if
G. 340. So, the acceptor may remain liable, although the collecting bank has renewed the bill by discounting for the drawer a forged acceptance, and has returned it as canceled, and although the drawer afterwards deposited (but withdrew immediately) a sum sufficient to cover the bill. Bell v. Buckley, 11 Exch. 631. In Great Britain, an intentional cancellation, apparent on the bill, discharges it or the party whose name is canceled; but if done by mistake or unintentionally, or without authority, it is inoperative, the burden being on the holder to prove that fact. Bills of Exchange Act, $ 63.
8 Lamb v. Morris, 118 Ind. 179, 20 N. E. 746.
9 McGill v. Ott, 10 Lea (Tenn.) 147. And if a note is secured by a bill of lading of cotton, and the cotton is afterwards sold, and the proceeds deposited in the bank by the maker, before maturity of the note, but not appropriated by him to it, it will not be a payment. Randall v. Pettes, 12 Fla. 518. As to the agency created for maker or drawer by making the note or bill payable at a designated bank, see $ 1411, infra. Where the bill is payable to the bank, it is under no obligation to apply the drawer's deposit to its payment. Flournoy v. Bank, 79 Ga. 814, 2 S. E. 547.
10 Pease v. Hirst, 10 Barn. & C. 122. 11 Dawson v. Wilson, 55 Ind. 216.
12 Citizens' Bank of Steubenville v. Carson, 32 Mo. 191. And a surety cannot insist on such application, where the note was, by express agreement or a general course of dealings with the bank, not to be included in the depositor's general account. National Mahaiwe Bank v. Peck, 127 Mass. 298.
13 And subsequent withdrawal of the funds by the maker is a revocation of the authority to the bank, and does not release a surety who would have the deposit is made after the note becomes due, 14 or by the maker of a collateral mortgage.15
Payment by Credit Given.
$ 1394. It is not necessary to a good payment that the money should be actually delivered in specie to the holder of the bill. A credit given him by the party ultimately liable is sufficient.16 And where a draft is charged in a running account, and the credit items are sufficient to cover it and all prior items, they will be so applied in the order of their priority, and will extinguish the draft.17 So, if a check is deposited in the bank on which it is drawn, and credited to the depositor, in the expectation that the drawer will make his account good, it will be a payment as to the holder. 18 But a check presented for deposit with the depositor's pass book, and noted in it, is received prima facie for collection, and not as a cash deposit, and is not paid by such entry; 10 especially where the depositor knew that the drawer hiad no funds in the bank, and the credit was entered without examining the drawer's account.20 been discharged if the funds had been applied. Second Nat. Bank of Lafayette v. Hill, 76 Ind. 223.
14 People's Bank of Wilkesbarre v. Legrand, 103 Pa. St. 309; Voss v. Bank, 83 III. 399. But in a suit against an indorser, his deposit may be set off. People's Bank of Wilkesbarre v. Legrand, supra. And conversely, in a suit brought to recover a bank deposit
, the bank may set off a judgment against on an overdue note. Marsh v. Bank, 34 Barb. (X. Y.) 298. 13 Pease v. Warren, 29 Mich. 9.
Byles, Bills, 228; Chit. Bills, 432; 2 Daniel, Neg. Inst. 251; 2 Pars. Votes & B. 219; Atkins v. Owen, 4 Nev. & M. 123, 2 Adol. & El. 35; Bell v. Buckley, 11 Exch. 631. But, not a mere agreement for a credit. Pedder v. Watt,
And when a bank receives checks on deposit, and credits them, they are, in general, taken by it as an agent for collection only, and not as a purchaser. 2 Daniel, Neg. Inst. 639; 2 Edw. Bills & N. $ 749.
17 Hammett v. Dudley, 62 Md. 154.
, 92 Tenn. 452, 21 S. W. 897; Carithers v. Stuart, s7 Ind. 424. Although the check was sent to the depositor at 3 p. m., to have the drawer make it good, and, on’his failure to do so, it was returned promptly to the bank a few
Oddie v. Bank, 45 N. Y. 735.
Peake, Ad. Cas. 41.
If a note is credited on a larger claim of the maker against the holder, and the balance is paid in cash, it will be a payment of the note. A set-off is not a payment, however, unless it is expressly agreed upon as such.22 So, an unexecuted agreement to deliver up a note, and have the amount of it credited on a larger claim of the maker against the holder of the note, does not amount to a payment.°3
Credit to Agent-Partner.
§ 1395. If the holder of a bill directs that it be paid to a certain banker, procuring a credit with such banker will amount to a payment of the bill.24 So, if the amount of a note is credited to a bank holding it as agent for collection (according to the custom of dealings between the banks), it will be a payment, although the bank making the note and giving the credit failed on the day it was so credited.25 And if a collecting bank, A., forwards a bill to the acceptor to be remitted to the B. Bank, and credited to the collecting bank, A., and it is so remitted and credited, but the A. Bank fails the day before the money is received and credited by the B. Bank, such credit will amount to a payment discharging the B. Bank from further liability.26
But if a bank acts merely as collecting agent, the owner is preferred, upon its insolvency, to general creditors as to the fund collected.27
21 Wallace v. Rowley, 91 Ind. 586.
22 Byles, Bills, 228; Callendar v. Howard, 10 C. B. 290. So, under an agreement for discounts upon “payments," a recoupment of part of the note is regarded as a reduction of the amount due, and not as a payment. Russell v. Klink, 53 Mich. 161, 18 N. W. 627.
23 Kenniston v. Bartlett, 46 N. H. 517.
25 Gillard v. Wise, 5 Barn. & C. 134, 7 Dowl. & R. 523. In this case, by the dealings between the banks, the maker became the agent of the collecting bank, to receive and credit such payment. So, where the bank which gave the credit was the drawee, and failed next day. Briggs v. Bank, 89 N. Y. 182. And such credit by the maker's bank (then in funds) to the collecting bank discharges the maker, and renders the collecting bank liable to the owner, although the bank giving the credit was then insolvent, and made an assignment two days later. First Nat. Bank of Nashville v. McClung, 7 Lea (Tenn.) 492.
26 Charlotte Iron Works v. American Exch. Bank of New York, 34 Hun (N. Y.) 26. 27 People v. Bank of Dansville, 39 Hun (N. Y.) 187. See $ 726, supra.