Story Case

In order to comply with the conditions printed on his tax notice, John Fitzpatrick took the check with which he intended to pay his taxes, to his bank, and had it certified. It was of course, according to the general banking practice, at once charged against his account. The check was accepted by the county collector, but the next day, the doors of Fitzpatrick's bank bore a notice that the bank was in the hands of a receiver and would not open. It was entirely insolvent, and the county collector was unable to realize anything on the certified check. He demanded payment from Fitzpatrick, but he had also lost by the bank failure and was unable to pay. Suit was brought by the collector, not for the taxes, as such, but upon the check. Fitzpatrick maintained that he had been wholly discharged on the check by the certification. Is this true, or is the county collector still entitled to recover?

Ruling Court Case. The First National Bank Of Jersey City Vs. Leach, Volume 52 New York Reports, Page 350; Volume 52 American State Reports, Page 708

Leach drew a check upon the Ocean Bank, of which he was a depositor, to his own order. This check he indorsed to the plaintiff bank herein. The bank sent the check for and received certification from the Ocean Bank. On the same day, the check was presented for payment, but payment was refused, because the bank had become insolvent in the meantime. The bank then proceeded to sue Leach.

Leach contended that the certification of this check amounted to an assignment of so much of his funds by the bank, which relieved him of any further liability upon the check.

Mr. Justice Peckham said: "The theory of the law is, that where a check is certified to be good by a bank, the amount thereof is then charged to the account of the drawer in the bank certificate account. It follows that, after a check is certified, the drawer of the check cannot draw the funds then in the bank necessary to meet the certified check. That money is no longer his." Judgment was given for Leach.

Ruling Law. Story Case Answer

Certification of a check is the acknowledgment upon the part of a bank that the drawer thereof has funds sufficient to cover it. By this act of certification, the bank promises that it will not permit this money to be drawn from the bank, but that it will be kept for the purpose of paying that check when it is returned. In other words, the transaction amounts to an assignment of funds sufficient to cover the check. This fund no longer belongs to the depositor, and he is relieved from all future liability in respect to that check.

But, this rule applies only where the certification was given at the request of the payee of the check, or some subsequent holder of it. Since the check is presented at the bank by one who is entitled to payment, and since a check is intended to circulate no longer than is necessary, the depositor should not be expected to take any risks because the holder chooses not to take the money. But where the drawer himself has a check certified, he has himself secured it as an aid to circulating the check. The person taking it has not elected to rely on the bank, and so is not deprived of the ordinary remedy against the drawer. The collector should recover in the Story Case.