Sec. 127. Distinction between checks and other bills of ex-
change. In the previous chapters some mention has been made of
checks and of the liability of the parties thereon, especially with
respect to the legal effect of the failure of the holder to present a
check for payment within a reasonable time after issue and of his
failure to give notice of dishonor.
The drawer of a check occupies a somewhat different position
from the drawer of other bills of exchange. That is, he is from the
very creation of the instrument absolutely liable except for one sit-
uation ; namely, if the holder fails to present a check within a rea-
sonable time after issue, the drawer will be discharged if he suffers
any loss by reason of the holder's failure promptly to present the
instrument for payment. Such loss arises when the bank upon
which the check is drawn becomes insolvent after the issuance of
the check, but before its presentment.
A check is presumed to have been made for immediate present-
ment, that is, within a reasonable time after its issue. A holder,
therefore, owes a duty to the drawer to present the check for pay-
ment at the earliest possible moment, and if the holder delays un-
reasonably he should suffer any loss occasioned by such delay.
A check is a demand bill of exchange drawn upon a bank. It
differs from other bills of exchange in that it is always supposed to
be drawn upon a fund which is in existence at the date the instru-
ment is created. Such fund is with the drawee and stands to the
credit of the drawer.
Sec. 128. A check is not an assignment of funds. A check of
itself is not an assignment of part of the depositor's account. 1 It
is merely an order upon the drawee bank directing the bank upon
presentation to pay to the holder the amount of the check. Such
an order may be countermanded at any time before it is acted upon.
A countermand of a check is called a "stop order." The order to
stop payment must be obeyed by the bank to the same extent as a
depositor's order to pay.
Since the check is not an assignment of funds, the bank is under
no legal duty to pay the holder. If the bank refuses to pay when
the depositor has sufficient funds in his account or has not recalled
1 Northern Trust Company v. Rogers et al., 1895, 60 Minn. 208, 62 N.W. 273; p.
210 NEGOTIABLE INSTRUMENTS
the instrument, the bank breaches a contract with the depositor
and is liable for any damages caused to the depositor by reason of
injury to his credit.
Sec. 129. Certification of checks. When the bank upon which
a check is drawn accepts or certifies it, such an act operates as an
appropriation of so much of the drawer's deposit as is required to
pay the instrument. Sufficient funds out of the drawer's account
are set aside for the purpose of paying the check when it is later
The certification of a check by the bank upon which it is drawn,
at the request of a holder, is equivalent to an acceptance. The
bank thereby becomes the principal debtor upon the instrument.
The liability of the bank is the same as the liability of an acceptor
of any other bill of exchange. The bank admits that the drawer's
signature is genuine; that the depositor's account contains suffi-
cient funds to pay the check ; and that the money will not be with-
The certification must be in writing and signed by the proper
officer of the bank. A certification adds much to the salability of
the paper, as it carries with it the strength and credit of the bank.
The certification may or may not change the legal liability of the
parties upon the instrument. When the drawer has a check certi-
fied, such a certification merely acts as additional security and does
not relieve the drawer of any liability. 2 The holder of such an in-
strument, if it is dishonored after presentment, is still under a legal
duty to satisfy the conditions precedent to charge the secondary
parties. On the other hand, when the holder of a check secures
certification by the drawee bank, he thereby accepts the bank as the
only party liable thereon. Such an act discharges the drawer and
all prior indorsers from liability. The effect of such certification is
similar to a payment by the bank and a redeposit by the holder.
The refusal of a bank to certify a check at the request of a holder
is held not to be a dishonor of the instrument. The bank owes the
depositor a duty to pay but not necessarily to certify checks which
are drawn on it.
Review Questions and Problems
1. A draws on D Bank a check for $150 in favor of P. P holds the
check for ninety days, and, when he presents it, he finds that A has no
money in his account. At the time the check was drawn, A had more
than sufficient funds there to meet it. May P recover from A on the
2. Would the result be the same in the previous case, if the bank had
become insolvent in the interim?
3. M drew a check on D Bank in favor of P. P presented the check
to the bank, but the bank refused to make payment, although they had
sufficient funds belonging to M to do so. Has P an action against the
4. P is the payee of a check drawn on D Bank. He takes the check to
the bank and has it certified. He then indorses it and mails it to H in
payment of an account. Before the check reaches D Bank, the bank
closes its doors. May H recover from P on his indorsement? May P
recover from the drawer of the check? Assume proper presentment and
notice in both instances.