28. Pass Books

A depositor should present his pass book at regular intervals and have his checks entered and his account balanced. As soon as it is returned to him, he should at the earliest opportunity examine his checks for the purpose of learning whether they are all genuine or not; or, in a more general way, whether the bank has made any mistake in dealing with him.

When a depositor's book is returned to him, it may contain erroneous entries. What is the effect of them ? They may be attacked. Unless they are, the legal presumption is they are correct, but nothing more. A depositor, however, as soon as he has discovered an error, should lose no time in reporting it to the bank.

Should he find on examining his checks that the signatures and amounts are correct, is that the end? It ought to be, but in some states, notably in New York, it is not. The maker of a check who examines it after it has been paid and passes it, and discovers months or even years afterward, before the statute of limitations cuts off further action, that the check is a forgery either in name or amount, can recover the money. The bank is liable in any event; it must be able to detect the falsifying of a depositor's name even if he can not do this himself.

In one of the New York cases Welsh, a commission merchant, employed a bookkeeper who had charge of his bank book. The bookkeeper presented fictitious accounts of the sale of produce to his employer and also checks for him to sign in payment. These were payable to the order of the customer and were delivered to the bookkeeper. He forged the customers' indorsement, put them in train to reach the bank, and in due time they were paid. They were charged to Welsh in his pass book and returned with other vouchers to the bookkeeper, who always examined the account. The fraud was not discovered for several months, but as soon as it was, Welsh notified the bank and sued it to recover the amount of the forged checks. The court declared that the bank must pay.1

This is a very harsh rule, and a much more reasonable one has been established by most of the states as well as by the federal tribunals. The United States Supreme Court has declared that a depositor has a reasonable time after his checks have been returned to examine them; this is a personal duty that can be done by no other person for him, and if he neglects to make such an examination within a reasonable time, unless he has good reason for doing so, - sickness, absence, or other equally valid reason, - it is unreasonable to visit on the bank the consequences of his neglect. This rule must commend itself to every reasonable depositor. Even though he has a confidential secretary, as in Welsh's case, this is a plain duty that under all ordinary circumstances should not be confided to any one. Furthermore, this examination should be made at the earliest opportunity after receiving his book; and after doing so, if no errors are discovered, the bank should be discharged, except for fraud that possibly may have been committed by their own officers. This is a reasonable rule. Some banks relieve themselves from responsibility by sending a postal card to their depositors requesting them l Welsh v, German American Bank, 73 N. Y. 424 to make such an examination and report the result. The answer is in the nature of a receipt. This is an excellent practice and worthy of universal adoption.