28. Payment Of Notes Made Payable To A Bank

Lastly, may be considered the more important principles relating to the payment of notes that are payable at the bank where the maker keeps his deposit When his note matures and no other party is liable thereon, the institution may exercise its discretion in applying them in this manner. When a deposit is trust money, though deposited in an individual name, and this is known by the bank, it can not be applied to the payment of a depositor's obligation.

If his note has been indorsed or guaranteed, the bank has no discretion, and must apply the maker's deposit on bis obligation, though a neglect or mistake to do so does not relieve the maker from payment. This is quite similar to the rule that requires a creditor who has the means for paving his debt to apply it in this manner. The note is in effect a draft or order on the bank in favor of the holder and discharging the indorser. This rule, however, does not apply to a bank when a note payable there is presented after its maturity. Its payment is not required for the protection of the indorser. If, therefore, no application of the depositor's money is made, the indorser is not discharged. Generally a bank declines to pay a note that is presented overdue, but no prohibitory rule against doing so has been established, except in those states where a bank is forbidden from paying the notes of its depositors without specific direction.1

When a depositor has made a special application or appropriation of his deposit and has notified the bank of his action, it can not charge off a note against his deposit.

Again, if a maker's deposit is insufficient for this purpose, must the bank apply what it has in part payment of his obligation? Perhaps the same rule should be applied to a note that is applied to a check, the deposit can be paid whenever the holder is willing to receive the same.

The question is hardly less important, where shall payment be made? In promissory notes the place of payment is often mentioned. If the maker of the note is at the place mentioned during business hours of the day of payment and the creditor is not present, all persons who have indorsed it are discharged, but the maker will remain liable. Thereafter the debt will be regarded as payable at the payee's residence, or wherever he may be found by the maker. The maker's liability is the same as it would be on a note payable on demand, having no place of payment specified. If no place of payment is mentioned, payment must be made at the residence or place of business of the creditor. It is not the creditor's duty to find his debtor and demand payment; on the other hand, the debtor must find the creditor and pay him.

1 See I Daniel on Negotiable Instruments, Section 326 />, for authorities.

29. Payment By A Bank Of Forged Paper

One other question relating to the payment of money by a bank may be answered. Suppose it pays a forged cheek, can it follow the money into the hands of another person who, without any knowledge of the fraud, has received it in payment of a debt? Of course the bank can recover the money of the rogue; but this is not the question. He pays the money over to another who receives it without any knowledge of the payer's manner of acquisition ; can the receiver retain it alter learning the truth, or can the bank compel him to refund ? The bank has no claim against the innocent payee.1

In like manner, money, although procured by fraud or felony, can not be followed into the hands of a person who has received it innocently in payment of an existing debt. This rule is enforced for the prevention of the confusion and uncertainty which would inevitably result i! a creditor who received money in payment of a debt in due course of business and without notice was subject to the risk of accounting therefor to a third person who might be able to show that the money was obtained from him by felony or fraud.2