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Yale Law School Faculty Scholarship
1-1-1931
Legal and Institutional Methods Applied to the
Debiting of Direct Discounts. I. Legal Method,
Banker's Set-Off
W. Underhill Moore
Yale Law School
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Moore, W. Underhill, "Legal and Institutional Methods Applied to the Debiting of Direct Discounts. I. Legal Method, Banker's SetOff " (1931). Faculty Scholarship Series. Paper 2886.
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JOURNAL
YALE LAW JOURNAL
VOL. XIII
XLII
APRIL,
1933
APRIL,1933
No. 6
No.6
INSTITUTIONAL l\IETHODS
IETHODS APPLIED TO
TO
LEGAL AND INSTITUTIONAL
ORDERS TO STOP PAYMENT
CHECKSORDERS
PAYMENT OF CHECKSI.
LEGAL
METHOD
I.
:METHOD '
UNDERHILL MOORE,:::
M00RE,* GILBERT SUSSMANt
SUSSMAN t and C. E. BRANDtt
BRANDtt
Ul\1])ERHILL
Steiner v. Germantozwn
Company 1I was an action brought by
Germa,ntown Tn:st
Trust Company
a customer to recover from his bank the amounts of two of his checks
checks
which he had requested
requested the bank not to honor. It appeared that
that
the customer
customer had a checking account at the defendant
defendant bank and that
he drew two checks on the defendant
defendant to the order of the same payee
payee
and delivered
delivered them to the payee. Shortly thereafter
thereafter the customer
customer
communicated over the telephone
telephone to the manager of one of the bank's
communicated
branch offices his order or request that the bank should not honor
honor
the checks. Almost immediately
immediately the branch manager
communicated
manager communicated
the request over the telephone to a teller at the main office who
promptly
relaying
promptly began and, without interruption, continued
continued the relaying
might
of the request to the employees of the bank to whom the checks might
be presented.
presented. The checks were presented to another teller
t~ller at the
main office who certified them after the order not to honor had been
received
received by the branch
branch manager but before it had been relayed to
that teller. It did not appear, however, whether
certification
whether the certification
preceded
to the first
preceded or followed the communication of the order t.o
first
certification did follow that comteller at the main office or, if the certification
munication, how long a period
communication
period elapsed between
between that communication
and the certification.
certification. Notwithstanding
evidence
Notwithstanding the hiatus in the evidence
for
the trial court, sitting without a jury, made a general finding for
the defendant
defendant and entered judgment
judgment for the defendant thereon. The
judgment was affirmed on an appeal in which
on
which the error relied on
was the trial court's denial of a motion for judgment non obstante
obstante
veredicto. The affirmance
customer
affirmance was on the ground that the customer
*Sterling Professor of Law, Yale University.
*Sterling
Professor of Law, Yale University.
TResearch Assistant, Yale School
tResearch
School of Law.
-Third year student, Yale
ttThird
Yale School of Law.
1.
(1931).
1. 104 Pa. Super. Ct. 38 (1931).
[817]
[817]
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[VoI.42
was not
not entitled
entitled to
to recover
recover the
the amount
amount of
of the
the checks
checks if
if the
the teller
teller
was
who certified
certified them
them did
did not
not have
have actual
actual notice
notice of
of the
the order
order not
not to
to
who
the certification
certification was
was after
after the
the order
order had
had been
been
honor even
even though
though the
honor
by the
the branch
branch officer.
officer. If
If the
the relaying
relaying of
of the
the order
order began
began
received by
received
promptly and
and continued
continued without
without interruption
interruption the
the bank
bank would
would not
not
promptly
the failure
failure to
to reach
reach the
the teller
teller who
who certified
certified prior
prior
be responsible
responsible for the
be
to the
the certification.
certification.
to
are the
t-he legal
legal requirements
requirements which
which an
an order
order or
or request
request not
not
What
What are
the
If
satisfy?
check-an
order
stop
payment-must
satisfy?
to
honor
a
payment-must
stop
to
to honor a check-an order
order does
does not satisfy
satisfy the
the legal
legal requirement
requirement of communication
communication to
to
order
receives
the employee
employee who
who first receives itit make
make a
the proper
proper person, does
does the
the
or undertaking,
unde~taking, for which
which the bank
bank is responsible,
responsible, to
to comcom~
promise or
promise
municate it to the proper
proper person?
person?
municate
II
the legal
legal requirements
requirements which
which an order
order to
to stop payment
payment
What are the
the law of concon~
satisfy? The answer
answer must
must be derived
derived from the
must satisfy?
tracts. Its derivation requires that
that the honoring
honoring of a check
check be
be
check
a
When
of
contracts.
check
is
honored
analyzed
and
restated
terms
in
restated
analyzed
extinguished? What
what contract or
or contracts are
are created
created or extinguished?
What are
the bargains,
bargains, the making and performance
performance of which
which create and exex~
which
of
acts
which
these contracts? What are the promises and
tinguish t~ese
compounded? An answer
answer to these questions will
these bargains are compounded?
these
disclose the nature of an order to stop payment.
When a checking
checking account
account is opened
opened and the initial deposit made
there is a bargain 22 and contract 33 between bank and customer. The
fact.'4
implied in fact.
bargain is not express but is one which must be implied
Signature card, check book, pass book and deposit slip, though they
to
contain the most elaborate stipulations, do not state or purport to
state the bargain between bank and customer. The terms of the
bargain are that the bank, in
in exchange for the deposit, will upon
deposit
actual demand of the customer repay the full amount of the deposit
customer
and that the bank will, by honoring his checks, lend to the customer
sums
amounts less than the amount owed but which
money in amounts
.of money
sums .of
an
bargain is an
"A bargain
4. uA
1932) §§ 4.
2.
Inst. 1932)
L. Inst.
(Am. L.
RESTATEMENT (Am.
CONTRACTS RESTATEMENT
2. CONTRACTS
exchange 1\a
agreement
more persons to exchange promises or to exchange
two or more
of two
agreement of
promise
performance."
for aa performance."
promise for
of
the breach of
for the
set of promises :for
3.
d. § 1.
or aa set
promise or
is aa promise
contract is
"A contract
1. "A
3. IId.
law in some
the lnw
which the
of which
which
the performance of
remedy, or the
gives aa remedy,
which the law gives
way
recognizes as aa duty."
way recognizes
words
in such
such worda
stated in
be stated
must be
4.
contract must
in aa contract
promise in
". .. .. aa promise
id. §§ 55 ".
See id.
4. See
conduct,
such conduct,
from such
partly from
or partly
either
wholly or
inferred wholly
be inferred
must be
or must
written, or
or written,
oral or
either oral
make
to mako
intended to
promisor intended
the promisor
that the
as
understanding that
in understanding
promisee in
the promisee
justifies the
as justifies
aa promise."
promise."
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PAYMENT ORDERS
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819
do not aggregate more than the deposit.r;
deposit. 5 When
"rhen a second deposit is
.do
tendered
distinct
tendered and accepted a new bargain
bargain is made, separate
separate and distinct
from that made upon the first deposit. This new bargain, like the
first, is implied-in-fact. If
If the terms of the new bargain
bargain included
a promise 66 on the part of the bank to repay the full amount of the
deposit or to lend up to its amount it
it would be clear that the second
deposit was a discrete bargain with its own ensuing obligations.
But in fact the promise and obligation of the bank is to repay the
sum of both deposits and to lend by honoring checks
that
checks up to that
amount. That this is the promise of the bank is accounted
accounted for b~T
by
the fact that the "opening"
"opening" of the account included, among other
other
understanding 77 that the tender and acceptance
things, a tacit understanding
acceptance of a
express agreement
agreement to
second deposit should, in the absence of an eA-press
the contrary, signify that the customer released the bank from performance of the first bargain and that the bank promised
promised to pay
and to lend in the sum of both deposits.$
deposits.s The fact that the promise
and obligation
obligation upon the second deposit is for the amount of both is
not explained
explained by the theory that the opening
opening of the account
account resulted
of
in a contract obligating the bank to pay and to lend in the sum of
accepted. It
all deposits which should thereafter
thereafter be tendered
tendered and accepted.
It
would be absurd to imply in fact a promise
on
the
part
of
the
bank
promise
to pay and to lend indeterminate
indeterminate sums totalling huge amounts in
return for a single deposit of a definite and perhaps insignificant
insignificant
sum. 99 Even if it
it be argued
sum.
argued that the bank, in exchange
exchange for the initial
exchange for deposits to be made subsequently, made
deposit and in exchange
implied-in-fact promise to pay and to lend up to the amount of
of
an implied-in-fact
that, the bank having
all the deposits then it
it is to be noted that,
having made
id. § 12. "A unilateral
is one in
receives
5. See id.
unilateral contract is
in which no promisor receives
a promise as consideration
consideration for his promise. A bilateral contrClct
contract is one in which
which
parties to the contractj
contract; each party
there are mutual promises between
between two po.rties
being
promisee." See note 15,
15, infra.
being both aa promisor and a promisee."
infra.
"A promise is an undertaking, however
6. Id.
ld. § 2 (1).
(1). "A
however expressed,
e."pressed. either
either
that something will happen, or that
tliat something
something shall not happen, in the future."
future!'
See also note 4, supra.
supra.
WILISTON, CONTRACTS
(1920) § 605. "In
informal contrccts
contracts
7. 2 WILLISTON,
CONTRACTS (1920)
"In such informal
any code of signals
signals which
which the parties may devise seems
seems permissible.
permissible. Not only
only
agreement to buy or
Or to
to
may A and B agree that holding up a hand means an agreement
it seems that in the code which
sell a hundred shares of a particular
particular stock, but it
which
they are using, though
it is a code peculiar
mean
though it
peculiar to themselves,
themselves, horse
horEe shall mean
cow, or that buy shall mean
mean sell."
sell."
8.
infra.
8. See note 17, infra.
it is said that the payment
o 9.
9. The case of an insurance policy as to which it
payment
of the first premium,
premium, however
however small, is consideration
consideration for the
t11e promise
promise of the
.-of
subsequent
company to pay the face of the policy
policy and that the payments
payments of subsequent
premiums
performances of conditions is quite different
premiums are merely performances
different because
because the
insurance case is one of express
e.'q)ress bargain. New York Life Insurance Co. v.
U. S.
(1876).
S. 24 (1876).
Statham, 93 U.
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offer,- susceptible of repeated acceptances
acceptances
aa continuing and paid-for offer,create a
by the making of successive deposits, each deposit would create
bargain.'100 Thus it appears that the making of the second denew bargain.
land indeed of every other subsequent
subsequent deposit, results in a new
posit, 'and
bargain between bank and customer which is wholly separate and
distinct in respect of terms and obligations from every other bargain previously made.
As in the case of a deposit, when a check is honored a new bargain
check contains
contains
is made. The new bargain
bargain is implied-in-fact. The check
no promise but at most an order or request that the bank make an
accompanied by words
advance. Nor is the making of the advance accompanied
amount
of bargain on the part of either bank or customer. If the amount
prior
of the check is less than the amount by which the sum of prior
11 exceeds the sum of prior checks then the honoring of the
deposits 11
the bank is the performance
performance of its pre-existing
pre-existing obligation
obligation
check by the'
performance of
of
to lend; and the presentment of the check is the performance
the condition
condition precedent to the bank's obligation. The obligation
obligation which
the bank is performing is its obligation
obligation to make loans, i.e., an obligation to advance
advance money in exchange
exchange for a promise and obligation
to repay. The proposition
proposition that the loan is a new bargain
bargain is in no
way inconsistent
inconsistent with the proposition that in making the loan the
inconsistent
it inconsistent
bank is performing a pre-existing obligation; 12 nor is it
condition
with the notion that the check is the performance of a condition
If one should choose
performance of the obligation. If
precedent to the performance
opening of the account the bank made a conto argue that upon the opening
tinuing
tinuing and paid-for offer to honor checks,
checks, then on this theory the
honoring of each check would create a new bargain. That the
honoring of the check is a new bargain, a loan, in which the customer promises to repay
repay the amount advanced
advanced against
against the check is
is
10. Offord v. Davies,
12 C.
10.
Davies, 12
C. B. (n.
(n. s.) 748 (1862);
(1862); Buick Motor
Motor Co. v.
& Wire Co. v.
Thompson, 138 Ga. 282, 75 S.
S. E.
E, 354
354 (1912); American
American Steel &
C. 556, 75 S. E. 1002 (1912).'
N. C.
(1912).'
Copeland, 159 N.
11.
It is unnecessary
11. It
unnecessary in this discussion to take up the case in which
which the
bank's obligation to honor checks
checks results
results not from a deposit but from a discount.
The analysis
the
transaction of honoring
honoring a check is the same
sV.me whether
whathOl' tho
analysis of the transaction
obligation
bank is performing
performing resulted
resulted from one
one or the
the other. See
Seo
obligation which the bank
note 17,
17, infra.
note
infra.
12. When a contract
obligates one of the parties to perform an
12.
contract obligates
an act or aa
series
party is conditioned
conditioned upon
upon the
the other
othor
series of acts and the obligation of that party
party
party making
making an
an offer
offer (a
(a request
request and a promise)
promise) for the act which the first
first
party
party is already
already obligated
obligated to perform, then notwithstanding
notwithstanding the obligation
obligation of
of
the
the act, his performance
sufficient consideration
the first
first party
party to perform the
performance is a sufficient
consideration
for the promise
884,
promise in the offer of the second
second party. Vickrey v. Maier,
Maier, 164
164 Cal. 384,
129
Pac. 273
129 Pac.
273 (1912);
(1912); Koehler &
& Hinrich's Mercantile
Mercantile Co.
Co. v. Illinois
Illinois Glass Co.,
143
W. 703
164
143 Minn.
Minn. 344,
344, 173
173 N.
N. W.
703 (1919);
(1919); Murphy
Murphy v. Hanna,
Hanna, 37 N. D. 156,
156, 164
N.
145.
N. W. 32
32 (1917);
(1917); ANSON,
ANSON, CONTRACTS
CONTRACTS (Corbin's
(Corbin's ed.
ed. 1930)
1930) § 145.
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821
especially clear
clear when the check which is honored is an overdraft,
especially
that is, for a sum which the bank is not obligated to lend. Here it
amount
is agreed that the obligation of the customer to repay the amount
from a new bargain made upon the honoring of the
lent arises from
check.'133 It
It is
is equally true though not equally plain that aa new barcheck.
gain is made when the check which is honored is not an overdraft.
It is not equally plain first, because the bank in
in making the loan is
It
also performing its pre-existing obligation to lend and secondly,
because
obligation
because the customer is not called upon to perform his obligation
to
unless there
there is an overdraft. If
If there is no overdraft the
to repay
repay unless
customer is not called upon to repay because, at the time the account
account
customer
"opened," it
it was tacitly understood 14
14 that performance
performance of obliwas "opened,"
reciprocal obligations would not be demanded when there were reciprocal
reciprocal obligations should be set off one
gations, that is, that reciprocal
against the other and the balance only demanded and paid.
compounded
The new bargain made upon the honoring of a check is compounded
of a promise on the part of the customer and of an act or promise
on the part of the bank.
bank.'ui5 The promise
promise of the customer
customer is to repay
the amount which he has requested the bank
It is true that
bank to lend. It
aa promise to this effect is not expressed. Its content is inferred
inferred
from the
circumstances existing at the moment
the circumstances
moment the advance is made.
from
The bank is obligated
presentment of the check is both
both
obligated to lend; the presentment
performance of the condition precedent
precedent to the bank's obligation
the performance
obligation
advance is
is the performand a request
request for a loan; the making of the advance
ance or satisfaction of the obligation to lend;
consequently there is
lend; consequently
an implied-in-fact
implied-in-fact promise
promise to repay
repay on the part of the customer,
customer, the
in reliance
upon
borrower. The act or promise
promise of the bank, made in
reliance upon
compliance with his request,t°
request, 0 is the
the customer's promise and in
in compliance
advance
advance of money or of some
some form of bank credit. The advance
which will comply
with
the
customer's request is an advance of
comply
customer's
of
money or of bank credit of the sort which is regularly made by banks
when called upon to make
an
make loans by honoring checks. ItIt may be an
13.
See Prowinsky
Prowinsky v.
v. Second
C.
13. See
Second National
National Bank, 265 Fed. 1003 (App.
(App. D.
D. C.
1920); Thomas
1920);
Thomas v. International
International Bank,
Bank, 46 Ill.
m. App. 461 (1892);
(1892); Franklin
Franklin Bank
Bank
v. Byram,
39 Ale.
(1855); Bank
C. 220,
Byram, 39
l\Ie. 489
489 (1855);
Bank of Proctorville
Proctorville v. West, 184
184 N. C.
114
(Tex. Civ.
Hull v. Guaranty
Guaranty State
State Bank,
Bank, 231 S.
S. W. 810
810 (Te.,,114 S.
S. E. 178 (1922); Hull
1921).
App. 1921).
supra.
14. Note 7, supra.
15. CoNmRAcTs
1932) §§ 75
15.
CONTRACTS RESTATEMENT
RESTATEMENT (Am.
(Am. L. Inst. 1932)
'15 (1).
(1). "Consideration
"Consideration
for a promise
is (a) an act other than a promise, or (b)
promise is
(b) a forbearance,
forbearance, or (c)
the creation,
destruction of a legal relation, or
creation, modification
modification or destruction
or (d)
(d) a return
bargained for and given in exchange
exchange for the promise."
promise, bargained
promise!'
16. ld.
Id. §§ 55. "If an act or forbearance
16.
forbearance is requested
requested by the offeror
offeror as the
the
consideration
consideration for a unilateral contract, the act or forbearance
forbearance must be given
given
with the intent of accepting the offer."
offer!'
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advance
advance of the sort which the bank is obligated to make or of the
usually
sort which, though the bank is not obligated to make it, is usually
accepted as compliance
compliance with the request. These advances include
the payment
payment of legal tender, the payment
payment of any other of the media
media
of exchange, particularly
particularly deposit currency, the certification of the
17
check and the issuance of a cashier's check.
checkP
It
It will be observed that the words of a check, in a context which
which
includes a dictionary and a grammar
grammar only, are not a request
request for a
payment of a debt, or for a gift, or for a loan. They are a request
request
for the payment of money which, however, are ambiguous
ambiguous in that
they do not disclose the obligation, if any, performed or the bargain,
if any, closed by the payment. Spoken
other
Spoken and written words, like other
interpreted in the light of the context
in
overt behavior, must be interpreted
context in
which
in
therefore be read in
which they actually happen.""
happen.18 The check must therefore
the context
context of the regular course of business between
between bank and
it is used. So read,
checking account
account customer, the context in which
which it
the check is a request
request for a loan to be made by an advance against
against
19
the check.19
Perhaps it
it would be more accurate
accurate to say that the
check
culminating in the presentcheck and its context, the whole situation culminating
ment of the check, is a request for a loan. Suppose the customer
customer
notifies the bank to stop payment. In that event the order to stop
payment
payment is part of the context in the light of which
which the check
check must
20
20
be read.
So read, the check, or more accurately
accurately the whole situation
situation
culminating
culminating in its presentment and including the order, is not a
request
request for a loan. The fact that the order to stop payment is
neither an actual striking
check
striking out of the words written on the check
or a physical destruction
destruction of it
it with the result that the check, apart
apart
between
17. For a more complete statement of the analysis of transactions
transactions betweon
bank and checking
LANGDELL, A BRIEF
BRiEr StRvuy
EQUiTY
checking account
account customer
customer see LANGDELL,
SURVEY OF
OF EQuITY
JURISDICTION
1908) 114-115; Moore and Shamos,
Shames, Interest
JURISDICTION (2d ed. 1908)
Inte1'cst on Balances
Balanoos
Checking Accounts (1927)
(1927) 27 COL.
COL. L. REV.
Rnv. 633-634; Moore and Sussman,
of Checking
Legal and
and Institutional
Institutional Methods Applied to the Debiting
Debiting of Direct
Direct Discounts
Discounts
(1931) 40 YALE
YAMn L. J.
J. 381; Moore and Sussman,
Current Account and Set(1931)
Sussman, The Current
SctOffs between an
an Insolvent
Insolvent Bank and
and Its
Its Customer
Customer (1932)
YALE L. J. 1109.
1109.
(1932) 41 YALE
RESTATEMENT (Am. L. Inst. 1(32)
1932) §§
§§ 233,
CONTRACTS RESTA-:rEMENT
233, 235.
18. CONTRACTS
19. There are doubtless contexts other than the regular
regular course of business
business
between
customer in which the check
check would be a request for a loan.
between bank and customer
For example, in a community in which the factual consequences
consequences between
betweon bank
and customer of drawing and paying checks are established and familiar, a
customer would be a request for a loan.
check drawn by one not a customer
20. It will be noted that the words in the order
order to stop payment must
must
themselves
themselves be read in the light of the context
context in which they are used. They
Thoy
may mean, notwithstanding
notwithstanding the precise
precise words used, that, under some circumstances
they
nevertheless be paid; or they might mean, as thoy
cumstances the check shall nevertheless
usually
circumstances shall the check be paid.
usually do, that under no circumstances
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823
from its context,
context, still
still appears
appears to
to contain
contain a request
request for payment,
payment, and
and
from
failure to
to note
note that
that the check
check by itself
itself is not
not a request
request for
for a loan
loan
the failure
in confusion
confusion of
of thought. The
The check
check itself,
itself, apart
apart from its
its
results in
results
context at
at the
the moment
moment of its
its presentment,
presentment, is thought
thought of
of as a request
request
context
for aa loan
loan and
and the
the order
order to
to stop
stop is
is thought
thought of
of as
as operating
operating by
by some
for
peculiar to the case
case to revoke
revoke the request for a loan;
loan;
rule of law peculiar
rule
but a single
single item in the
the situation
situation culminating
culminating in
whereas, each
each is but
whereas,
the presentment
presentment of the check
check from
from which
which itit must
must be
be inferred
inferred whether
whether
with
or
not
the
bank
in
making
advance,
if
it
does,
complying
with
is
complying
it
does,
if
the
advance,
making
bank
or not
that
therefore,
true,
the
customer's
request
for
a
loan.
It
is
therefore,
that
It
is
not
the customer's request
to stop
stop payment
payment a check
check is a request
request for a loan. Hence
Hence
after an order to
advance against
against it
it cannot
cannot be in compliance
compliance with the
the customer's
customer's
an advance
justify the implication
implication in fact of a promise
promise to
to
request and does
does not justify
request
it is not true that
that the making of an advance
advance
Furthermore it
repay. Furthermore
performance of the bank's obligation
obligation to lend
lend since
since the condition
condition
is a performance
making of a request
requeSt for a loan, has
precedent to that obligation, the making
precedent
implication of a promise
promise
not happened. Consequently there can be no implication
ground that the bank, by making
making an advance
advance against
against the check,
on the ground
performed its obligation
obligation to lend. It
It follows, therefore, that an
has performed
advance made against a stopped check is not the
the making of a bargain
bargain
advance
between bank and customer.2211
between
analysis 22
22 and restatement
restatement in terms of the law of contracts
This analysis
culminates in the
discloses that the problems in a situation which culminates
discloses
it includes
presentment of a check-whether
includes an order to stop
check-whether or not it
presentment
payment-are: Is there an implication
promise on the part of
of
implication of a promise
payment-are:
the customer to repay in reliance
reliance upon which the advance of the
of
bank is made? Is there an implication
implication of a request on the part of
an order to
21. As to the effect of statutes limiting the time during which on
infra.
stop payment shall be effective, see note 63, infra.
payment
What has been and will be said with respect to orders to stop poyment
presupposes that a check is not presented by the customer in person. The
effect of a presentment by the customer in
a check which he has
in person of n
infra p. 836.
stopped is indicated infra
orthodox theory
22.
analysis is in accord with the orthodox
that this analysis
noted that
will be noted
22. It
It will
Uxwont
balance. U:'lFon~t
'that
tanto of the customer's bolance.
pro tanto
an assignment
assignment pro
'that aa check is not an
LAW
INSTUmEmNTS
NEGOTIABLE
...TS LAw
BRANNAN, NEGOTIABLE INSTnUr.re.
INSTRUmENTS LAW § 189; BRANNAN,
NEGoTIABLE INSTRUMENTS
1065-1081. In jurisdictions in which before the
ANNOTATED
1932) 1065-1081.
ed. 1932)
ANNoTATED (5th ed.
was
check v:os
that na checl;:
obtained was that
Negotiable Instruments Law the doctrine that obtained
Union
an
was held that orders to stop payment were ineffective. Union
an assignment, it was
National
(1875); First Notionnl
National Bank v.
I. 212 (1876);
Bank, 80 m.
County Bank,
v. Oceana
Oceana County
and
179 (1900);
(1900); Loan ond
E. 179
Bank of Du Quoin v.
56 N. E.
IlM. 476,
475, 66
183 m.
v. Keith, 183
S. E.
E. 364
210, 64
54 S.
Savings
S. C. 210,
74 S.
Merchants Bank, 74
v. Farmers
Farmers and Merchants
Bank v.
Savings Bank
Rep. 900
Law Rep.
Ky. Low
Bank, 11 Ky.
v. Farmers'
Farmers' National Bank,
(1906).
Tramell v.
(1906). But see Tramell
783 (1912).
(1912).
W. 783
525, 138 N. W.
(1890); Taylor v.
Minn. 626,
National Bank, 119 Minn.
First National
v. First
.
,
HeinOnline -- 42 Yale L. J. 823 1932-1933
824
-!
YALE LAW
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LAW JOURNAL
[Vol. 42
[Vol.
42
the customer
customer so that a dishonor by the bank is a breach of its obligation to lend?
commonly
It
It should be pointed
pointed out that the first question
question is more commonly
formulated in terms of extinguishment
extinguishment of the bank's obligation and
creation of the customer's oblinot, as has been done, in terms of creation
implied-in-fact
gation. Since the obligation
obligation resulting from the implied-in-fact
in
pursuance
the
tacit underpromise
of
the
customer
to
repay
is,
pursuance
of
promise
off
standing made upon the opening of the account, forthwith set off
standing
against the obligation
obligation of the bank, thereby reducing the bank's
bank's oblialways is, such an obligation whenever there is, as there almost always
gation to be reduced, the problem is commonly
commonly stated as follows.
checkadvance against a checkWhen in a situation which includes an advance
whether or hot
not it includes an order
order to stop payment-is there a
whether
reduction
obligation? But this form of statement is
reduction of the bank's obligation?
It is not sufficiently
sufficiently inclusive
inclusive and will not serve if there
inaccurate. It
against which the customer's may be
is no obligation of the bank againf?t
set off. For23this reason the more familiar formulation of the problem
is rejected.23
In what has been
been said it
it has been assumed
assumed that, if an order to
stop payment is present
present in a situation culminating in the presentprevent the implication
implication in fact of a
ment of a check, the order will prevent
request to lend and of a promise to repay on the part of the customer. But there are events other than an order to stop payment
payment
which preclude
preclude the finding of a request to lend and a promise to
withholding of a check
check from
repay. Examples of such events are a withholding
24
after its
presentment for more than a reasonable
reasonable time after
its issuance
issuance 24
presentment
involuntary alienation of the account upon death 25
and a notice of an involuntary
2G
26
or bankruptcy.
bankruptcy.26
In Steiner
Steine1' v. Germantown
Germantown Trust Company, how23. If one not a customer drew a check against which an advance was made,
notwithstanding
notwithstanding an order to stop payment, doubtless the order would be one
of the factors which would appear to be important
important to the court or jury in
in
finding whether pr
or not there was an implied-in-fact request and promise to
repay. Very
if legal rules were formulated to apply to this situation
Very likely if
they would be similar
similar to those stated in this article.
24. Lancaster
Lancaster Bank
v. Woodward,
(1852). See Wine v. Bank
Bank v.
Woodward, 18 Pa. 357 (1852).
Bank
Planters' Bank v.
of New South Wales, 4 A. J. R. 78 (1873);
(1873); Merchants'
Merchants' and Planters'
Manufacturing Co., 56 S. C. 320,
(1899); 2 MOnsE,
MoRSE, BANKS
320, 33 S. E. 750 (1809);
BANKS
Clifton Manufacturing
AND
AND BANKING
BANKING (6th ed. 1928)
1928) §§ 443.
443.
1021 (1920);
Johnson
595, 194 Pac. 1021
(1920); Johnson
25. Sneider v. Bank of Italy, 184 Cal. 595,
v. Thomas,
111 So. 541 (1927);
BRANNAN, op. cit. mtpra
oupra noto
note 22, at
(1927); BRANNAN,
nt
Thomas, 93 Fla. 67, 111
Death of Drawer
Drawer of Check (1930)
(1930) 14 MINN.
MINN. L. Rnv.
825, 1073;
1073; Feezer,
Feezer, Death
REV. 124. See
See
Glennan v. Rochester
& Safe Deposit Company, 209 N. Y. 12, 102 N.
X. B.
GIennan
Rochester Trust &
E.
537 (1913)
of check
check without
without notice
of drawer's
drawer's death).
death).
537
(1913) (payment
(payment of
notice of
26. See
See Union
Union State
State Bank
Bank of
of Lancaster
State Bank
Bank of Lancaster,
26.
Lancaster v.
v. People's
People's State
Lnncmltor,
192 Wis. 28, 211 N. W. 931 (1927);
Citizens' Union Bank v. Johnson,
280 Fed.
Fed,
(1927); Citizens'
Johnson, 286
(C. C.
op. cit.
supra note
C. A.
A. 6th, 1923); 1 MORSE,
MORSE, op.
cit. supra
note 24,
24, §§ 400
400 A.
527 (C.
HeinOnline -- 42 Yale L. J. 824 1932-1933
19331
1933]
PAY1',[ENT ORDERS
ORDERS
STOP PAYMENT
825
the order
order to
to stop
stop payment
payment is the only
only event
event relied
relied upon
upon to
to
ever, the
negative the
the implication
implication of
of a promise
promise by
by the customer. In
In a disdisnegative
cussion of
of the
the Steiner
Steiner case
case itit is
is unnecessary,
unnecessary, therefore,
therefore, to
to do
do more
cussion
than to differentiate
differentiate an
an order
order to
to stop
stop payment
payment from
from other
other events
events
than
the implication
implication of
of aa promise
promise by the
the customer
customer and
and
which negative
negative the
which
to define
define the
the several
several qualities
qualities which
which an order
order must
must possess. The
The
to
differentiation is accomplished
accomplished by pointing
pointing out
out that an
an order
order to
to stop
stop
differentiation
payment is that
that part of the situation
situation culminating
culminating in
in the presentment
presentment
payment
check -which
which prevents
prevents the
the implication
implication of
of a request
request or
or a promise
promise
of a check
contains words
words or
or other
other behavior
behavior which
which symbolize
symbolize a rebecause itit contains
because
quest not
not to pay. The
The several
several qualities
qualities which
which an
an order
order to stop payexpressed
ment
must
possess
are:
(1)
it
be
consciously
ED..-pressed by
by the
consciously
must
be
(1)
it
are:
ment must
customer
or
by
his
agent;
(2)
it
must
appear
consciously
to
be
consciously
his agent; (2) it must
customer
expressed by the
the customer
customer or
or by his agent
agent and express a countercounterexpressed
mand of the check;
check; (3)
(3) itit must be
be one the communication
communication of which
which
mand
likely possibility;
possibility; (4)
(4) it
it must be communicated
communicated to
to
to the bank is a likely
the bank;
bank; (5)
precede and not follow the honoring
honoring of the
(5) it
it must precede
the
check; and (6)
(6) it
revoked. Unless the notice
notice possesses
possesses
it must not be revoked.
prevent the court or jury
jury -27 from finding
finding
it will not prevent
these qualities it
the situation
situation culminating
presentment of the
the check
check justiculminating in the presentment
that the
of
fied the bank in inferring a request and a promise on the part of
the customer.
REQUIREMENTS
REQUIREIIIENTS FOR AN ORDER TO STOP PAYMENT.
PAYMENT.
consciously expressed by the customer
must be consciously
order 1n'Ust
(1) The order
custome7
or
agent.
or by his agent.
expressed by the customer when a court or jury will
The order is expressed
find that it
it should have
-was spoken or written by him or that it
it was
281 The order is consciously expressed
been inferred from his conduct.28
29 when
-when a court or jury will find that he had a
by the customer 29
conscious will to express it. The order is consciously expressed by
of
sense of
throughout this article in the sense
27. "Court
jury" is used here and throughout
"Court or jury"
jury."
and/or jury."
"court and/or
"court
"The
id. § 21. "The
Inst. 1932) §§ 5; ide
L. Inst.
28. CONTRACTS
CONTRACTS RESTATEMENT (Am. L.
or
wholly or partly by written or
manifestation of mutual assent may
be made wholly
may be
spoken words
conduct."
or by other acts or conduct."
-words or
or
case of aa partnership or
29. If
is more than one customer, as in the case
If there is
or
other multi-party
in the joint name or
sign checks in
may sign
multi-party account, whether one may
chech
in his
to stop
stop payment of the check
an order to
must sign, an
all must
whether all
own or whether
his own
he ,....as
was
though he
whether signed
any one, even though
by or
or for anyone,
given by
or all,
all, given
signed by one or
not aa signer, is
v. Corn
is and appears to be the customer's order. See Ozburn v.
Schneider v.
Exchange National Bank of
(1917); Schneider
App. 155 (1917);
208 TIl.
Ill. App.
of Chicago,
Chicago, 208
(1865).
Pr. 190
190 (1865).
Irving Bank, 30
How. Pro
30 How.
HeinOnline -- 42 Yale L. J. 825 1932-1933
826
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[Vol. 42
conduct
the customer although he is not conscious that the words or conduct
consequences of an order to stop payment, or if he
will have the consequences
consequences.8ao0 Thus, an
is, does not desire that they have those consequences.
it is spoken
order is consciously expressed by the customer when it
spoken
order
or written to illustrate to a student the content of an order
order to stop
payment or when the order, if written, is carefully
carefully kept under lock
customer
expressed by the customer
and key. The order is not consciously expressed
when he does not have a conscious will to express it,
it, as for example,
example,
when an order
order is spoken
spoken or written
written by a somnambulist.
somnambulist.
expression for which the cusThe expression of the order is an expression
customer's
tomer is responsible when it is the conscious will of the customer's
agent
agent. The person
person who expressed the order is the customer's agent
jury will find that it was expressed
expressed by a third perwhen a court or jury
under
,power under
son in the customer's behalf and in pursuance of a legal power
the law of agency
agency to give an order to stop payment for the customer. a31! Thus, an order is one for the conscious
conscious expression
expression of which
which
by one who
or
written
customer is responsible if it
the customer
it is spoken
executed power
is the customer's attorney in fact under a sufficiently executed
power
32 whether it be a power of attorney to give orders to
of attorney 32
stop payment or a power
power to draw checks
checks in the customer's
customer's name
spoken
or a power to draw in the attorney's own name, or if it is spolmn
or written by one who had lost the check which had been entrusted
entrusted
to him, as a fiduciary, by the customer.8333 But an order is not one
for the conscious expression of
o~ which the customer
customer is responsible
30. It is not "essential
30.
"essential that the parties are conscious of the legal relations
relationu
acts
which their words or acts give rise to. It is essential, however, that the
tho actu
manifesting assent shall be done intentionally. That is, there must be IIa
conscious will to do those acts; but it is not material what induces the will.
conscious
Even insane persons may so act; but a somnambulist
somnambulist could not."
not." CONTRACTS
CONTRACTS
RESTATEMENT
RESTATEMENT (Am. L. Inst.
lnst. 1932) 25-26.
25-26.
"agent" refers to a person who, under the law of agency,
31.
31. The word "agent"
has a legal power, by giving an order to stop payment, to affect the legal
manner
relations
principal, the customer, and the bank in the same manner
relations of his principal,
customer in person given the
in which they would
would have been affected
affected had the customer
Inst. 1926)§
AGENCY IiESTATEMENT,
order. AGENCY
REsTATEMENT, Part 11 (Am. L. lnst.
1926) § 8,
8. An order to
to
stop payment
Kellogg v. Citizens
Citizens Bank of Ava,
Ava,
payment may be given by an agent. Kellogg
Sherman
176 Mo.
Mo. App. 288, 162 S. W. 643 (1914);
(1914); American Defense Society
Society v. Sherman
New York,
York, 225 N. Y. 506, 122 N. E. 695 (1919);
(1919); Cardo
National Bank of New
& Phenix
v. Chatham
Drug Co. v.
Chatham &
Phenix National Bank, 215 App. Div. 318, 213 N. Y.
Supp. 716 (1st Dep't 1926); Huffman
Huffman v. Farmers National Bank, 10 S.
S. W.
1II;
1914) c. III;
AGENCY (2d
MECHEM, AGENOY
(2d ed. 1914)
(2d) 753 (Tex. Civ. App. 1928); MECHEM,
17-20; id.
id. (1930)
Inst. 1926)
1926) Part 1,
AGENCY
AGENCY RESTATEMENT (Am. L. lnst.
1, §§ 17.20;
(1930) Part 5,
6,
(2).
§ 493 (2).
of New
York,
v. Sherman
Sherman National
32. See American
American Defense Society v.
National Bank
Bank of
New York,
supra note 31.
& Phenix National Bank, both 8upra
and Cardo Drug Co. v. Chatham
Chatham &
(1886).
Exchange v. Kune, 20 Ill. App. 137
33.
33. See Public Grain &
& Stock Exchange
137 (1886).
HeinOnline -- 42 Yale L. J. 826 1932-1933
1933]
1933]
PAYIt1ENT ORDERS
ORDERS
STOP PAYMENT
827
if itit is
is spoken
spoken or
or written
written by
by one
one who
who is
is not his
his agent, as for example,
e.'lffimple,
if
an order
order written
written by an
an overzealous,
overzealous, mischievous
mischievous or
or spiteful
spiteful person.
person.
an
(2) The order must
1nv.st (a)
(a) appear
appear to be
be conzsciously
conscioZlsly expressed
ezpressed by
by
(2)
rnand (c)
the customer
customer or by his
his agent
agc'l1.t and
a1u1 (b)
(b) express a counte
cozmterm.anil
(c) of
of
the check.
check.
An order
order appears
appears to
to be
be consciously
consciously expressed
eA-pressed by
by the-customer
the>customer or
or
An
by his
his agent 34
34 when
when aa court
court or
or jury
jury will
will find that
that he appeared
appeared to
to
by
have aa conscious
conscious will
will to express
eA-press it.:r
it.3u An
An order
order may appear
appear to
to be
be
have
eA-pressed though
though itit is not
not communicated
communicated to the bank.
consciously expressed
consciously
order appears
appears to
to be
be the customer's,
customer's, for example,
example, ifif the
the sigThe order
own
the
customer's
nature
to
a
letter
or
payment
in
customer's
O\'lD.
is
in
form
payment
stop
letter
nature
is
card
signature
hand
and
corresponds
to
the
signature
signature
card
or
is
on
the
signature
corresponds to
hand
3 or if a telegram conone which
which the
the bank
bank does or should recognize,2
recognize,30
telegram
or if
tains a code word which the
the bank has
has agreed
agreed shall
shall identify
identify the
tains
customer or which
which the bank
bank knows identifies him. An order
order also
appears to be the
the customer's
customer's if
if it
spoken by him
him in
in person or
or
it is spoken
over the telephone
telephone and he or his voice,
voice, as
as the case
case may
may be, is or
or
over
should be
be recognized.
recognized.37 But, for example,
e.~ample, if
if there
there are no unusual
over the telephone
telephone by a customer
customer
communication over
factors, an oral communication
who does not identify himself does not appear to be the customer's
customer's
order; nor does a communication
communication by mail which is not authenticated
authenticated
order;
statement to which this note is appended
appended it
it is assumed
a£sumed
34. In making the statement
that
that in giving the order to stop payment the agent acted in such a way that
his acts were an e....:ercise
srote
exercise of his legal power. No attempt is made to state
what acts under the law of agency constitute an exercise
e....:ercise of the power. AGENCY
1926) Part 1, § S.
L. Inst. 1926)
RESTATEMENT (Am. L.
RESTATElIIENT
RESTATEMENT (Am. L. Inst. 1932) § 20 and the
CONTRAGTS RESTATEMENT
35. Compare CO!'l'"TRACTS
comment thereon
thereon that "Mutual
contracts
assent to the formation of informal contracts
"illutual assent
comment
writers').
9nanifestcd." (Italics are the writers').
that it is manifested."
extent that
the eztent
is operative
operative only to the
268
36. Grisinger v. Golden State Bank of Long Beach,
Beach, 92 Cal. App. 443, 2G8
1932); j
(Ind. App. 1932)
E. 488 (Ind.
v. Fidelity Trust, 183 N. E.
Pae.
(1928); Hodnick v.
Pac. 425 (1928);
Gaita
782 (1920)
(1920);j Gaita
Tremont Trust Co. v. Burack, 235 Mass.
Bass. 398, 126 N. E. '182
Sarantopoulus
(1929). See Sarantopoulus
E. 203 (1929).
v. Windsor Bank, 251 N. Y.
Y. 152, 167 N. E.
(1921) in which aa typev. Mid-City
App. 24 (1921)
Mid-City Trust and Savings Bank, 222 Ill.
was held
signed in typewriting wos
written
written letter to which the customer's name was signed
to be aa sufficient order.
to
Hiroshima v.
124 (1926)
(192);j Hiroshima
R. 124
T. L. R.
v. Hilton,
Hilton, 43 T.
37. Westminster Bank v.
Citizens Bank
Bank of Italy, 78 Cal.
(1926);j Kellogg v. Citizens
248 Pac. 947 (1926)
Cal. App. 362, 248
N. Y.
Misc. 3GO,
360, 147 N.
of
v. Security Bank, 85 :Mise.
31; Mitchell v.
supra note 31;
Ava, S'l.tpra
of Ava,
179 Pac.
Bank, 91 Ore. 362, 179
Supp. 470 (Sup. Ct. 1914); Hunt v.
v. Security State BanI.,
252
Tex.
San Angelo,
Angelo, 113 Te.
of San
248 (1919);
.... 100, 252
v. First National Bank of
Hewitt v.
(1919); Hewitt
R.
L. R.
11 Scot. L.
S.
Bank, 11
Glasgow Bank,
City of
of Glasgow
v. City
(1923). See Waterston v.
161 (1923).
S. W.
W. 161
688, 40
146 Ala. 688,
Co. v.
v. Lacey, 146
Trust Co.
and Trust
Bank and
Savings Bank
Peoples Savings
236 (1874); Peoples
236
(1916).
718 (1916).
E. 718
S.E.
Ga. 96,
96, 90 S.
v. Williams 146 Ga.
So. 346
346 (1906); Bank of Hamilton v.
3265g.
1931) §§ 3265
(Deering, 1931)
CODE (Deering,
see CAL.
CAL. CIV. CODE
But see
g.
m.
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828
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[Vol.
[Vol. 42
42
as An order
signature which
which the bank does
does or should
should recognize.38
by a signature
order
payment'appears
to be
be consciously expressed by
by the
the customer,
to stop payment
appears to
customer,
matter how
h6w completely the
the particular
particular verbal communication or
or
no matter
other behavior specifically referred
referred to
to as
as "the order"
order" fails even
other
even to
intimate that
that the communication
communication is
is from the customer, if
if the situa~
situation which includes
includes the order
order also
also includes other behavior of
of the
the
customer from which aa court or
or jury will
will find
find that
that the
the order appeared
customer
to be the customer's.30
customer's. 30 Thus,
Thus, if
if after
after an unsigned letter
lefter stopping
a check or aa telephone message anonymously communicated, the
the bank
that the
the writer or speaker was
was the customer, the bank is
is not
learns that
justified in inferring aa request and a promise.
40
An order expresses a countermand
countermand 40
An
when a court or jury will
find that in the situation it expressed a request not to honor the
38. See Sarantopoulus
Sarantopoulus v.
v. Mid-City Trust
Trust and Savings Bank, sltprct
supra note
noto
36. As to the efficacy of an unauthenticated telegram see Curtice v. London
36.
City && Midland
Midland Bank,
K. B. 293 (1908); Reade v. Royal Bank of Ireland,
Bank, 11 K.
City
2
Ir.
Rep.
2 Ir. Rep. 22 (1922); Ozburn v. Corn Exchange
Exchan~e National Bank of Chicago,
supra note 29.
supra
"A telegram
telegram may, reasonably and in the ordinary course of business, be
"A
acted upon
by the
the bank,
the honoring
acted
upon by
bank, at least to the extent
extent of postponing tho
honoring of
of
the
cheque until further inquiry can be made. But I am not satisfied that
the cheque
the
bank is bound as a matter of law to accept
the bank
accept an unauthenticated
unauthenticated telegram
as sufficient
cheque." Curtico
as
sufficient authority for the serious step of refusing to pay a cheque."
Curtice
v.
& Midland Bank, supra,
supra, at 298-299.
v. London
London City &
. ....we
we are
are of the opinion that, as a matter of law, the payment
payment of a
"" .
check may
countermanded by means of telegraphic
check
may be
~e countermanded
telegraphic notice." Ozburn
Ozburn v.
Corn Exchange
supra, at 168.
158,
Chicago, supra,
Corn
Exchange National Bank of Chicago,
39.
" .. .. .. any
of aa check,
check, which
39. "
any act
act of
of the
the drawer
drawer of
which conveys to the bank
before
certification definite
definite instruction
check, would
before certification
instruction to stop payment of the check,
be sufficient
sufficient for
Sarantopoulus v. Mid-City
for the
the purpose."
purpose." Sarantopoulus
Mid-City Trust and Savings
be
Bank, supra
supra note 36,
36, at 29.
Of
Of course,
course, situations
situations of this kind should
should not be confounded
confounded with situations
situations
which
do not
symbolizing a direction
not include
include behavior
behavior symbolizing
direction not to pay but
but do include
include
which do
other behavior,
as, for
withholding of
other
behavior, as,
for example,
example, the
the withholding
of a check
check for an unreasonable
after its
its issuance,
issuance, which
which prevents
prevents the implication
implication of a request or a
able time
time after
promise.
Thus the
the bank's
the honoring
honoring of
of aa stale
stale check
check may
may not reduce tho
promise. Thus
obligation or
customer for
for the
overdraft, if
if any, though the
or obligate
obligate the
the customer
the overdraft,
tho situaobligation
tion
in the
the presentment
presentment of
of the
the check
check does
does not
not, include
include an order
ordor
tion culminating
culminating in
to
to stop payment.
40.
An order
order to
to stop
stop payment
payment which
which expresses
expresses aa conditional
conditional countermand
countormand
40. An
is
the happenhapponis aa possibility
possibility which
which is
is seldom
seldom actualized.
actualized. The condition
condition upon
upon the
ing
ing of
of which
which the
the bank
bank is
is instructed
instructed not
not to pay may
may be
be one
one the happening
happening of
of
which
which will
will inevitably
inevitably be
be within
within the
the knowledge
knowledge of
of the
the bank when
when the
the checl
check isis
presented
or itit may
may be
be one
one the happening
happening of
of which
which will
will become
become known
known to
to the
the
presented or
bank
bank only
only by
by accident
accident or
or as
as the
the result
result of investigation.
investigation. Examples
Examples of
of a concondition
dition of
of the
the first
first type
type are
are an
an order
order not
not to
to honor
honor if
if the
the check
check is
is presented
presented by
anyone
anyone other
other than
than the
the payee
payee or
or an
an order
order not
not to
to honor
honor if
if by
by the
the use
use of reasonrensonable
part, of the bank
bank the honoring
honoring can
can be
be avoided
avoided (see infra
injret
able care
care on
on the part
p.
p. 841).
841). An
An example
example of
of the second
second type would
would be
be one
one in
in which
which the bank
bank is
is
HeinOnline -- 42 Yale L. J. 828 1932-1933
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STOP PAY]fENT
PAYMENT ORDERS
STOP
829
829
if the
check. Thus, for example, an order expresses a countermand if
"do not pay check," "do
"do not honor check,"
check," "refuse to pay
words "do
check," "stop payment of check"
check' or words of similar import are
check,"
41 A card
form 42- provided by the bank, bearing its name
used. 41
A card or form
if X
X is dead when the check is presented. Since the
instructed not to honor if
question always is, is the bank upon the presentment of the check justified
justified
inferring a request and aa promise, the legal consequences of making or
or
in inferring
refusing to make an advance depend upon whether or not the condition has
Quaere whether the fact that an order containing a conditional
conditional
happened. Quaere
countermand of the second type might subject the bank to risk of loss should
be taken into account.
account.
supra note 38
38 ("stop my cheque")
cheque");j
41. Reade v. Royal Bank of Ireland, supra
Grisinger v. Golden State
State Bank of Long Beach, supra
supra note 36 ("stop payGrisinger
check");j Ozburn
Ozburn v.
v. Corn Exchange
Chicago, Gupra
supra
ment of check")
Exchange National
National Bank
Bank of Chicago,
check").
Sarantopoulus v. Mid-City Trust
Trust
note 29 ("suspend payment on check").
Sarantopoulus
and Savings Bank ("stop payment on checks");
checks") j Tremont Trust Co. v. Burack
Burack
("stop payment
v. Windsor Bank ("stop payment on
payment of check") and Gaita v.
on
check"),
supra note 36.
check"), all supra
examples of forms which are in me.
use.
42. The following are some e."amples
1.
STOP PAYMENT ORDER
ORDER
From ......................................................................
From
First National Bank
Bank
You
are hereby
hereby instructed
instructed not
me-us:
You are
not to pay the following
following check issued by me-us:
No ............. Date .............................. Amount $
~ .............
to ....••...•..................••.•.•......•.•••••..•••...•••.••••
...............................................................
Payable to
of
....................
of .............................. ....................
/" ..............••......................
reason:
...........................................................
reason: •.............................••.......••...................••...•
Duplicate
Duplicate issued
issued ............... .•
Date ...................
Hour
Hour ...................
2.
STOP PAYMENT
PAYMENT
FIRST
FIRST NATIONAL
NATIONAL BANK
BANK
19 ....•
.......................................
19'...
.............................................
Stop Payment
Payment on Original No
No.............................................•
For $ ....................................................•
................................................
D
ated .....................................................
Dated
...................................................•.
In Favor of ...................................
..........
.................................................•
,
{
Issued
Issued
Duplicate
Not
Not Issued
Issued
Duplicate
°.°............°°.
°.°.°......
3.
FIRST
FIRST NATIONAL
NATIONAL BANK
BANK
......................... Branch
Branch
STOP PAYMENT
PAYMENT
STOP
Check
Check of
of ..................................................................
N
Dated ..............................................
.............................•........••.••..•
Noo. ................. Dated
HeinOnline -- 42 Yale L. J. 829 1932-1933
830
[Vol. 42
YALE LAW
YALE
LAW JOURNAL
headed "Stop Payment
Payment Order,"
Payment Request" or
Order," "Stop Payment
or
and headed
counter"Stop Payment
"Stop
Payment Memorandum,"
Memorandum," when
when filled out, expresses a counter·
mand although it
it does not contain words in terms directing that
the check be not paid or honored.4433 But an order
order does not express
it states that the check should not be honored
countermand although it
honored
a countermand
if the order
if
order is spoken
spoken or exhibited
exhibited in jest; neither does a written
written'
"cancelled." If
If the
order upon which has been stamped the word "cancelled."
presented within
order directs the bank not to honor the check
check if
if presented
order
after that
that
express a countermand
countermand after
a limited period the order does not express
44
period has expired.44
or
An order describes the check countermanded
countermanded when a court or
cusjury will find from the description
description that the check
check which the cus·
tomer requested the bank not to honor was the check
check which was
of
the
number, date,
presented. In
In other words the designation
designation
payee and amount of the check must be such that itit is reasonably
reasonably
clear to which check the customer
customer referred. 44 1.i Thus, for example,
example,
Amount
Amount ............................................
..............................................•.......•
..... ...... ...........
Payable To ....................................
( ....•............•...••.••
R
eason .................................................•........•.......•
...................................................................
Reason
........................................................
Order Dated ............•......................................••...•••..
...o
.
.
° ° °
......
,
..........
........
Official Signature
Date .............................
19.
19
.
Hiroshima
Hiroshima v. Bank of Italy, supra
supra note 37.
37.
Examples
Example~ of clauses in orders to stop payment
payment limiting the period during
the order directs dishonor of the check
check are:
1.
date."
"This notice is to automatically
automatically cancel thirty days from date."
2.
"This request is effective
effective for 60 days, but renewals may be made from
time to time."
3.
"If I/We
do not
not renew
this notice
writing within
(90) days,
days, in
"If
IjWe do
renew this
notice in
in writing
within ninety
ninety (90)
Legislature of 1924, you are
accordance with Act. No.
accordance
No; 76 of the Louisiana Legislature
the meanI/We should, in tho
authorized to pay the said original check,
check, even if IjWe
moantime have issued a duplicate."
If an order does not contain a clause limiting the period during which the
the order
order
absence of statute, tho
bank is directed
directed to dishonor, then doubtless, in 'absence
It will be recalled,
remains
remains effective indefinitely. It
recalled, however, that an advance
obligatagainst
against a check which has become
become "stale" does not reduce the
tho bank's obliglltion nor is its dishonor a breach
breach of the bank's
bank's obligation
obligation to honor, see note 25,
check
supra. The existence of an order to stop payment
supra.
payment at the time a stale check
is presented
presented is another
another factor which prevents the bank from being justified
in inferring
inferring a request.
"Where aa drawer
45. "Where
drawer notifies a bank to stop payment on a check
check his notinotIaccuracy."
fication must be explicit and describe the check with reasonable
reasonable accuracy."
supra note 37, at 363.
Security Bank, supra
Mitchell v. Security
43.
44.
which
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PAYMENT ORDERS
STOP PAYMENT
831
an order to stop payment which states the correct number, date,
0 If there
check countermanded.
countermanded;HI
If
are
payee and amount describes the check
no unusual factors in the situation, an order describes
describes the check if
it
it states the correct
correct date, payee
payee and amount
amount but omits the number,
it omits the date but otherwise correctly
or if it
correctly describes the check.441T
But if there are no unusual
unusual factors in the situation
situation an order
order which
which
incorrectly the payee's
payee's name or the amount or which
which
omits or states incorrectly
incorrectly describes
incorrectly
describes the date and number does not describe the
48
check.48
(3) The order
order 1'1w.st
must be one the communication
which to the
(3)
communicat-ion of 'wIdelL
possibility.
bank is a likely possibility.
The communication
communication to the bank of the order is a likely possibility
circumstances there
when a court or jury will find that under the circumstances
was a likely possibility of its communication
to
the
bank. Thus, for
for
communication
example,
an
order
is
spoken
under
such
circumstances
that
its
comexample,
circumstances
munication to the bank is a likely possibility when it
it is spoken to
an officer or employee of the bank who in the regular
regular course of
of
receives orders
it is spoken
business l'eceives
orders to stop payment, or when it
spolien to
to
example,
a person
person who would ordinarily convey it to the bank, as for example,
communication when
a messenger. There is a likely possibility of communication
it is dispatched
dispatched
the order, if written, is mailed or telegraphed or when it
49
by messenger.49
But, if there are no unugual
unusual factors in the situapossibility when
tion, the communication
communication to the bank is not a likely possibility
the
are not
or when
is cm-ecarethe customer's
customer's words
words are
not heard
heard or
when aa written
written notice
notice is
46. Sarantopoulos
Sarantopoulos v. Mid-City
Mid-City Trust & Savings Bank, supra
supra note 36.
191?)
Atlantic National
National Bank, 164
164 N. Y. Supp. 136 (Sup. Ct. 191'1)
47. Friesner v. Atlantic
in which the description
description of the check
check was correct in all respects save that
that
the number
number was stated
stated to be 114 instead, of 115.
supra note 37 (order, communicated
48. Westminster Bank
Bank v. Hilton, supra
communicated on
on
August 1, stated wrong number
number and omitted date of check which
which was postsupra note 37 (amount, date and payee
dated); Mitchell v. Security
Security Bank, supra
incorrectly stated
$196.76, December
& Abel instead
stated as ~196.76,
December 21,
21, 1910 and Helfand &
instead
of $195.75,
~195.75, December
December 23 and bearer).
bearer). But see Reade v. Royal Bank of Ireland,
Ireland,
supra note 38
M'Entyre"
supra
38 (telegram reading "Stop
"Stop my cheque 50635 drawn for nPEntyre"
held sufficient);
v. Corn Exchange
supra note 29 (telesufficient); Ozburn
Ozburn v,
Exchange National Bank, supra
"Suspend payment on check issued
held
gram reading "Suspend
issued to Anson Brown"
Brown" held
customer's name spelled
sufficient though check drawn to Anson H. Brown and customer's
upon •
Osburn instead of Ozburn where is appeared that the bank had acted upon
a telegram);
telegram); Levine v. Bank of the United States, 132 Misc.
Mise. 130,
130, 229 N. Y.
Supp. 108 (Mun. Ct. 1928)
1928) (description of check correct
correct in all respects save
that payee's name given
given as "Harold
"Harold Orkand" instead
instead of H. Orkand).
Orkand).
49. Reade
supra note 38; Ozburn v. Corn ExExReade v. Royal
Royal Bank of Ireland, SlIpra
change
supra note 29; Sarantopoulus
Sarantopoulus v. Mid-City
change National
National Bank of Chicago, SlIpra
supra note 36. But see Curtice v. London City &
&
Trust and Savings Bank, SlIpra
Midland
supra note 38.
Midland Bank, supra
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It may be that
that there is a likely pos. fully kept under lock and key. It
sibility of communication
communication if
if the order is carelessly spoken in the
the
or, if ~he
the order is written, carelessly permitted to get
presence of or,
in the custody of an overzealous, mischievous or spiteful person.
(4)
bank.
bank.
order to
to stop
stop payment must be communioated
communicated to the
the
The order
If the bank is owned by one individual and operated
operated by him singleIf
handed the order is communicated
communicated to the bank when a court or jury
will
find that it
it was brought to his attention at the banking house
will :find
and within banking hours. Banking
Banking hours in this context are the
hours during which the banking house is open for the transaction
0
The order may
of business on the day the order is communicated.lio
rrhe
be called to the banker's attention at the banking house li1
61 because
that is the place at which he transacts his banking business including
including
the making of memoranda
and
at
which
the
memoranda
must be
memoranda
kept if they are to serve their purpose; and the order may be communicated during banking hours because it is during this period
that the banker actually does transact
transact his banking business. The
communicated to the bank, when it is brought to the
order is also communicated
attention of the sole proprietor
proprietor and operator out of banking hours
and outside of the banking
banking house if thereafter, but before
before the check
check
is
presented,
he
records
the
order
at
the
banking
house
in
the
reguis presented,
lar way. Thenceforth
Thenceforth the situation is like the one in which the
order is communicated
communicated at the proper time and place.
The order is not communicated
communicated to the bank when it
it is brought
brought
to the attention of the sole proprietor and operator
operator outside of the
banking house and out of banking
banking hours if he has not recorded the
presented, unless he recalls the order at
order before the check is presented:
the moment
moment of presentment. He is not justified
justified in inferring a request and a promise
promise by the customer if he recalls
recalls the order. But
But
if he does not, he is justified in inferring
inferring the request and promise
despite his forgetting since
the customer
since
customer departed
departed from the usual
52
li2
communication.
of
mode
mode of communication.
50.
50. Baines
Baines v.
v. National
National Provincial
Provincial Bank, 32 Com.
Com. Cas.
Cas. 216 (1927);
(1927); Butler
Butler
v.
157 N. Y. Supp. 532
v. Broadway
Broadway Savings
Savings Bank,
BanK, 171
171 App.
App. Div. 682,
682, 157
532 (2d
(2d Dep't
Dep't .
1916). . See Hewitt
1916)
Hewitt v. First National Bank
Bank of San
San Angelo,
Angelo, supra
mtpra note
noto 37;
37;
Scandinavian-American Bank,
Pac. 499
499 (1922).
(1922).
. Raynor v. Scandinavian-American
Bank, 122 Wash. 150,
150, 210 Pac.
51.
Hewitt v. First
51. See Kellogg
Kellogg v. Citizens
Citizens Bank
Bank of Ava,
Ava, supra
supra note 31; Howitt
First
National Bank of San Angelo,
Angelo, supra
supra note 37.
52.
52. It
It may
may be, however, that the
the banker agreed,
agreed, when the
the order
order was brought
brought
to
to his attention
attention out of banking
banking hours and outside
outside of the banking house, that
that
itit should
should have
have the consequences
consequences of an order
order communicated
communicated to the banl,
bnnk, and
nnd
that
that this agreement
agreement may make
make the bank responsible for his undertaking. Se
Seo
infra p.
p. 844.
844.
HeinOnline -- 42 Yale L. J. 832 1932-1933
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STOP PAYMENT
PAYMENT ORDERS
If
operated by a single individual then
If the bank is not owned and operated
the order
order is communicated
communicated to the bank when a court
court or jury will
:find
it was
was
find that, during banking hours and at the banking house, it
brought to the attention of the proper person, i.e., the person to
-whom
presented for honoring and whose function
whom the check was presented
communicated to that
it was to honor checks.5533 The order
it
order must be communicated
that
person because
because he is the only person whose inference, that the situaculminating in the presentment of the check
check is a request and
tion culminating
a promise, is taken into account in determining whether or not a
bargain has been
been made. This is true though there are other perbargain
check might have been presented and whose
sons to whom the check
been
inferences would have been taken into account had the check been
presented
presented to them.
He is the only person whose inference
inference is taken into account
account for
by
the bank
the
check
is
made
against
an
advance
If
advance
against
check
bank
two reasons. If
it is made by him. Since a bargain between
it
between bank and customer is
compounded of an advance
compounded
advance by the bank and a request
request and promise
aU between bank and
by the customer, if there be any bargain at all
it is made when he makes the advance. Similarly
customer it
Similarly if, notcustomer
withstanding
withstanding a request and promise
promise by the customer, there is no
is
it is because he does not make an advance. Secondly, he is
bargain it
to
the only person among those in whom is vested a legal power t-O
exercised
honor or dishonor
dishonor checks who, in respect
respect of the check, has exercised
result in legal conhis
IDS power and whose behavior, therefore, could l·esult
sequences for which the bank is responsible.
sequences
honor
Any of the bank's employees
employees may have a legal power to honor
a
stenchecks.
checks. Thus, for example, a loan and discount officer,
ographer in the trust department, the interest clerk in the savings
-ographer
is
janitor might be a person to whom is
department or even the janitor
checks. The allocation
allocated the function of honoring checks.
allocation of the
allocated
In
function is a matter of the actual internal operation
operation of a bank. In
most cases the allocation is not expressed
expressed but must be implied in
fact. The implied-in-fact
implied-in-fact allocation is to those employees of the
bank who regularly honor or dishonor checks. In a new bank
in which no one has regularly
regularly performed
performed this function the impliedin-fact
allocation is to those employees
employees who, in respect of their other
other
in-fact allocation
attributes, are like the employees in other banks to whom the funcpersons
dishonoring checks is allocated. The persons
tion of honoring or dishonoring
the
employees
are
ordinarily
allocated
is
the
function
to whom
ordinarily
employees in
bookkeepers' departments
the paying tellers'
tellers' and bookkeepers'
departments but do not include
include
among
officers to whom checks are referred in case of doubt. Even among
officers
specialization of function. Thus,
these employees there often is a specialization
1.
Co., supra
53. Steiner v. Germantown Trust Co.,
supra note 1.
supra note 37.
National Bank of San Angelo,
Angelo, supra
See Hewitt
See
He.....itt v. First
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42
example, some
some of the
the paying
paying tellers
tellers and the
the certification
certification teller
teller
for example,
checks presented
presented over
over the counter
counter whereas
whereas the other
other paying
paying
honor checks
the clearclearand bookkeepers
bookkeepers hionor
honor checks
checks presented
presented through
through the
tellers and
ing
or by mail.
mail.
ing house
house or
the case of the sole owner and
and operator
operator of a bank and
As in the
sa.me reasons,
reasons, the notice
notice must
must be given
given at the banking
banking house
for the same
54 But
But there is an additional reason why
why
and during banking hours. 54
and
or
necessary. The persons
persons with a legal
legal power to honor or
this is necessary.
dishonor checks also
also have
have a legal power
power to act
act upon
upon orders to stop
stop
are empowered
empowered to act only upon such orders
orders
payment, but they are
payment,
are brought to their attention
attention at the banking
banking house and during
during
as are
owner and operabanking hours. Again as in the case of the sole owner
employee
attention of the proper
proper employee
tor, an order though brought to the attention
banking house,
outside of banking hours and elsewhere
elsewhere than at the banking
outside
presented, he records
records the
is a sufficient
sufficient order if, before
before the check is presented,
banking house
house in the regular way or, if he does not
not
order at the banking
record the order, remembers it at the moment
moment the check
check is preorder is not sufficient and the bank
bank is jussented. Otherwise
Otherwise the order
inferring a request and promise.
tified in inferring
promise.5llll
and not follow
order to stop payment must precede
(5) The order
(5)
precede and
honoring of the check.
the honoring
The rule refers to an order to stop payment
payment of a check
check issued
it bears, i.e., a post-dated check, as well as to one
before the date it
51, supra.
supra.
54. See notes 50 and 51,
order
55. It may be, however, that the proper person agreed to act upon an ordor
which was communicated
communicated to him out of banking hours and outside of the
tho
banking house and that, because
because of the agreement, the bank may be responsible
responsiblo
for his undertaking.
undertaking. See p. 851, infra.
infra.
"Appellee, reasoning from analogy, says that as the cashier could not receive
receivo
other
place othor
pay or accept checks in behalf
behalf of the bank at any placo
deposits, or payor
books
than in the banking house, for the reason that the vaults, safes and bookf:l
keep
are kept there, so, as the evidence
evidence shows that the bank is compelled to keop
a stop-check register for the orderly conduct of its business, and that entries
cashier
therein must be made at the bank where the same is kept, notice to the cashier
of
to stop the payment of a check, given at a place other than at its place of
case,
business, is not binding on the bank. We concede that such would be the caso,
until the cashier, by the use of reasonable diligence, was able to communicate
absence,
such information to those in charge of the bank's business during his absence,
proper
whose
whose duty it would be, upon receiving such information, to make the proper
entry in such register.
knew that
that
"In the instant case, no reason is shown why the cashier, if he
ho know
he would not be at
.when it was opened Monday morning, should not
at the bank .when
teller."
the paying teller."
ha~e
communicated the information which he had received to tho
have communicated
supra note 37, at 106-107, 252
San Angelo, supra
Hewitt v. First National Bank of San
W. at 163.
S. W.
HeinOnline -- 42 Yale L. J. 834 1932-1933
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STOP PAYMENT
PAYMENT ORDERS
835
issued on or after the date it
it bears. In the case of a check issued
order precedes
on or after the date it
precedes and does not folit bears, the oi'der
honoring of a check
check when a court or jury will find that the
low the honoring
person before
order was brought to the attention of the proper person
56 In the case of a post-dated check the order
order
advance was made. 50
an advance
precedes and does not follow the honoring
honoring when a court or jury
precedes
brought to the attention of the proper
proper
will find that the order was brought
advance was made 57
tiT or if it
it was brought
brought to the
person before an advance
person
attention of the proper person before
before the date of the check though
attention
an advance had been made prior thereto. lls8 An advance may be made
it bears.
against a post-dated
post-dated check before
before as well as after the date it
compliance
But an advance
advance before
before the date of the check is not in compliance
request for a loan and therefore is not an
an
with the customer's request
2
check."Ill)
honoring
honoring of the check.
56. See Moravek v. First National Bank, 119 Kan. 84, 237 Pac. 921 (1925);
(1925) j
Johnson v. First State Bank, 144 Minn. 363, 175 N. W. 612 (1920); Albers v.
supra
Mo. 173
173 (1884);
(1884); Kellogg
Kellogg v. Citizens Bank of Ava,
Ava, Gupra.
Commercial Bank, 85 I1Io.
Atl. 435 (1924);
J. Eq. 644, 126 At!.
note 31; Suter
Sutter v. Security
Security Co.,
Co., 96 N. J.
(1924); Freund
V.
(1879);j Brandt v.
v. Importers and Traders National Bank, 76 N. Y. 352 (1879)
Public Bank, 139 App. Div. 173,
173, 123 N. Y. Supp. 807 (1910); Poess v. Twelfth
Ward Bank, 43 Misc. 45, 86 N. Y. Supp. 857 (Sup. Ct. 1904); First National
139, 120 Pac. 614 (1912);
Bank v. School District, 31 Okla. 139,
(1912) j Hunt v. Security
Security
supra note 37; Huffman v. Farmers National Bank, supra
State Bank, supra
supra note 31.
It
lt is customary
customary for the customer to inquire and for the bank to find
of
whether or not the customer has inquired,
inquired, if the check, the honoring
honoring of
out, whether
which he seeks to stop, has been honored. If the check
check has been honored
honored obcustomer
If the customer
viously, there is no point in giving the order to stop payment. If
is told at the time of giving the order that the check has not been honored
though in fact it has, should the bank's
bank's obligation, neverthelezs,
nevertheless, be reduced?
reduced?
consequence
It would seem that it should inasmuch as the events having the consequence
occurred and the erroneous
of reduction in the bank's obligation have already occurred
erroneous
suffered
which the customer
statement
contributed to any loss 'which
customer has suffered
statement in no way contributed
or has been unable to prevent because
because of the honoring of the check. However,
the bank,
statement of
the statement
the customer,
customer, relying
if the
relying on
on the
of the
bank, thereafter
thereafter issues
issues aa
his
duplicate check
check which is honored or issues a second check for more than his
but
"balance,"
"balance," i.e., the amount up to which the bank is obligated to honor, but
Eecond
for less than the balance plus the amount
amount of the first check, and the Eecond
check is dishonored
dishonored then he should be able to recover for any loss resulting
erroneous statement
statement of the
therefrom. The customer
customer has been misled by the erroneous
v.
bank and the ensuing loss is directly
directly attributable
attributable thereto. See Holland v.
(1909).
Manchester
& Liverpool Banking
Banking Co., 25 T. L. R. 386 (1909).
Manchester &
Schoen v. Security Bank
57. Hiroshima
Hiroshima v. Bank of Italy, supra note 37. See Schoen
173, 142 N.
of New York, 81 Misc. 173,142
N. Y. Supp. 309 (1913).
(1913).
Co.
upra note 37; Stag Co.
& Trust Co. v. Lacey, supra
58. Peoples Savings Bank &
II1. App. 510 (1916).
(1916). See Mitchell
I1UtcheU v. Security
v. Union Bank of Chicago, 201 m.
supra note 37.
Bank, supra
specified for
59. An advance
advance against aa post-dated check
check prior to the date specified
for
in
honoring is not made in compliance
compliance with the customer's
customer's request and in
its honoring
Hincheliffe v. Ballarat
implied-in-fact promise to repay. Hinchcliffe
reliance upon his implied-in-fact
Ballarat
reliance
HeinOnline -- 42 Yale L. J. 835 1932-1933
836
(6)
(6)
YALE
JOURNAL
YALE LAW
LAW JOURNAL
[Vol.
[Vol. 42
revoked.
The order
order to stop payment must not be revolced.
An order is revoked when a court or jury will find first, that
the revocation was consciously expressed by the customer or by his
his
agent, secondly, that it
it appeared to be consciously expressed by
the customer or by his agent and expressed a countermand of the
order to stop payment, thirdly, that there was a likely possibility
communiof its communication
communication to the bank, fourthly, that it was comimmi.
cated to the bank and fifthly, that it
it preceded
preceded the honoring
honoring of or
or
the refusal to honor the check. A revocation
revocation does satisfy the stated
countermand of the check instead of
of
requirements when, read as a countermand
requirements
countermand of the order to stop payment, it would satisfy
as a countermand
the rules determining the sufficiency of an order to stop payment.
is sufficient
sufficient if the customer, who
Thus, for example, the revocation ,is
notified the bank to stop payment
payment of a check issued to his own order
order
it himself at the
and lost by him, later finds it and presents
presents it
counter; 60
customer
counter;
60 or if the payee presents the check after the customer
notified the bank
bank to stop payment
payment and informed it that he was
proceeds
doing so solely because
because the payee
payee who was entitled to the proceeds
6
1
61
had lost the check.
And if a payee known to the bank to be in
possession
possession of the check as the customer's
customer's fiduciary loses it
it and
notifies the bank to stop payment, upon his finding the check, if
if
custothe 'bank
bank knows he is still entitled to use the check for the custo·
mer's benefit, his request that the bank disregard
disregard the order but
not the check, is a sufficient revocation if the request is brought
brought
presentment by an
to the attention of the proper
proper person
person before
before presentment
indorsee. Conversely
Conversely the revocation is not sufficient if, read as a
detercountermand of the check, it would not satisfy the rules deter·
countermand
Now Zel\land,
Zealand,
Banking Co.,
(1870); Pollock v. Bank
Banking
Co., 1 Vict.
Viet. (Law) 229 (1870);
Bank of New
(1901); Schoen
S~hoen v. Security Bank
20 N. Z. L. R. 174 (1901);
Bank of New York, supra
supr"
Q. L. J.
J. R. 262 (1895).
note 57. But see Magill v. Bank
Bank of North Queensland, 6 Q.
(1805).
the cuuSuch advance,
bank's obligation or obligates tho
Cl}Sadvance, however, reduces the bank's
tomer from and after the date specified for honoring, if in the meantime there
thore
Mitchell v. Security Bank, supra
has been no sufficient order to stop payment. Mitchell
supra
I. 30 (1856).
(1856). The advance
advance is
note 37; Westminster Bank v. Wheaton,
Wheaton, 4 R. T.
not a loan and the obligation of the customer cannot be derived
derived from the
customer
propositions
propositions of the law of contracts. If the advance
advance benefits
benefits the customer
and is not made officiously
officiously or is made under mistake an obligation
obligation of the
customer to reimburse the bank upon the day specified
specified in the check for the
amount prepaid
prepaid against the check may be derived, however, from the law of
of
quasi-contracts.
quasi-contracts. A possible explanation
explanation of the reduction in the bank's obligaset-off
understanding for the sot-oft'
tion after the date of the check is that the tacit understanding
may be broad enough
of reciprocal obligations upon the opening of the account ma~'
banking
to cover
cover any obligations
obligations of the customer
customer incurred
incurred in the course
course of banking
transactions.
& Phenix National Bank, supra
supra note 31.
60. See Cardo Drug Co. v. Chatham
Chatham &
31.
61. Cohen v.
v. State Bank of Philadelphia,
Philadelphia, 69 Pa. Super. Ct. 40 (1918).
(1918).
HeinOnline -- 42 Yale L. J. 836 1932-1933
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STOP PAYMENT
PAYMENT ORDERS
ORDERS
STOP
837
order. 62
mining
mining the
the sufficiency
sufficiency of
of an
an order};:! Thus,
Thus, for example,
e."mmple, a3. request
request
to
to pay
pay the
the stopped
stopped check
check is
is not
not sufficient
sufficient if
if itit is
is given
given after
after the
presentment of
of the
the check, or
or if
if itit is
is not
not brought
brought to
to the
the attention
attention
presentment
of the
the proper
proper person
person at the
the banking
banking house
house and
and during
during banking
banking
of
hours, or
or ifif itit does
does not
not sufficiently
sufficiently describe
describe the
the order
order to stop
stop payhours,
63
ment. 63
CONSEQUENCES OF
OF COMPLIANCE
COMPLIANCE OR NON-COMPLIANCE
NON-COMPLIANCE WITH
WITH THE
THE
CONSEQUENCES
REQUIREIENTS
REQUIREr.1ENTS
to stop
stop payment
payment to be
be effective
effective must
must comply
comply with all of
of
An order to
the rules which
which have
have been stated. Thus, if the order
order was
was not conconcustomer or his agent
agent or, if itit was consciousconscioussciously expressed
expressed by the customer
the
expressed,
ly expressed,
expressed, did not appear
appear to be consciously
consciously expressed, the order
order is
is
ly
sufficient though
though itit expressed
expressed a countermand
countermand of the check, was
was
not sufficient
be and was
was communicated
communicated to the bank
bank before
before the advance
advance
likely to be
was made
made and
and was
was not revoked.
revoked. Similarly, if
if the order was complete
complete
was
in every
every respect save
save that itit failed adequately
adequately to describe the
the check
check
in
sufficient
insufficient. If
If the order
order is a3. sufficient
countermanded the order is insufficient.
countermanded
rules defined
defined above and the bank
bank nevertheless
nevertheless makes
order within the rules
an advance against the check, the bank's obligation
obligation is not reduced nor
nor
is the customer
customer obligated if the check is an overdraft.64
overdraft:}! But the
American Defense
Defense Society v. Sherman
Sherman National Bank
Bank of New
62. But see American
supra note 31.
York, supra
draft recommended
after the drnit
statutes (modelled niter
recommended
63. In some states there are statutes
Association) providing that an order to stop payby the American Bankers Association)
it is not in terms limited in point of time, shall not "remain in
ment, though it
on
after the service thereof on
effect for more than six
sL...: months [ninety
[ninety days] niter
CODE
. " See for example IDAHO CODE
the bank unless the same be renewed •. .• ."
AN.
1932) § 032; Mo. STAT. AIm.
LA. GEN. STAT. (Dart, 1932)
ANN. (1932)
(1932) § 25-1005; LA.
ANN.
(1930)
OR. CoDE
CODE ANN. (1930)
(1929) §§ 12075; ORE.
(1932)
C0AP. LAws (1929)
Mlicn. COMPo
(1932) § 5385; :MICH.
(1931)
REv. STAT. (1931)
8,§§ 26; Wyo. REV.
c. 31, art. 8,
(1931) C.
§ 22-1412; W. VA. CODE (1931)
(1926) 2308.
PAToN, DIGEST (1926)
See also 2 PATON,
§ 10-154. See
As to clauses or stipulations limiting the period of time during which an
order to stop payment shall be effective see note 44, supra.
supra.
64. Reade v. Royal Bank of Ireland, supioa
38; Baines v. National
supra note 38;
Provincial
v. Canadian Bank of Commerce,
supra note 50; Garrioch v.
Provincial Bank, supra
vupra
v. Lacey, supra
and Trust
Trust Co. v.
3 W. W. Ro
R. 185 (1919); Peoples Savings Bank and
& Stock
note 37; Hiroshima v.
sztpra note 37; Public Grain &.
Italy, supra
v. Bank of Italy,
aupra
Chicago, :mpm
Exchange
Stag Co. v. Union Bank of Chicago,
83; Srog
supra note 33;
v. Kune, supra
Exchange v.
note 29;
29;
szpra note
note 58; Ozburn v. Corn Exchange
Exchange National Bank of Chicago, supra
36; Kellogg
upra note 36;
Savings Bank, SUpiU
Trust and Savings
Sarantopoulus
Mid-City Trust
Sarantopoulus v. Mid-City
of
Bank of
National Bank
Atlantic National
v. Atlantic
note 31;
31; Friesner v.
Ava, supia
supra note
v.
of Ava,
Citizens' Bank of
v. Citizens'
Bank
New York,
Sherman National BanI:
American Defense Society v. Sherman
47; American
supra note 47;
York, supia
29; POCES
Poess
supra note 29;
of
31; Schneider
Schneider v. Irving Bank, supia
supra note 31;
of New York, supia
York,
Schoen v. Security Bank of New Yorl.,
supra note
note 56; Schoen
v.
v. Twelfth
Twelfth Ward Bank, supm
Hunt v.
50; Hunt
supra note
note 56;
v. School
School District, supra
supra
Bank v.
note 57; First National Bank
supra note
HeinOnline -- 42 Yale L. J. 837 1932-1933
838
YALE LAW
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LAW JOURNAL
[Vol. 42
advance does reduce the bank's
bank's obligation or obligate
obligate the customer
customer
order is insufficient
insufficient in respect to any
for an overdraft, if any, if the order
it be sufficient in respect of all others. oli5 If,
one requirement
requirement though it
whether or not
not
however, the bank does not make an advance, then, whether
bank's
the order is sufficient, there is no change in the amount of the bank's
obligation to honor.
obligation
the
If
If the bank does not make an advance
advance against the check, does the
damage resulting from the failure
customer have an action for the damage
customer
pre-existing obligation to honor his checks?
checks?
of the bank to perform its pre-existing
condition
customer of a request for a loan is a condition
The making by the customer
requested
precedent to that obligation. Whether or not a loan is requested
precedent
situation culminating
culminating in the presentment of the
depends upon the situation
check and upon whether or not that situation includes a sufficient
sufficient
sufficient
order
order to stop payment. Thus, if the situation includes a sufficient
to stop payment there is no request for a loan and a dishonor
dishonor
order t.o
of, the bank's obligation
breach of,
obligation to lend. But if
if
of the check is not a breach
the order does not comply with all the requirements, the situation
situation
constitutes a request
request
culminating
presentment of the check constitutes
culminating in the presentment
for a loan and the bank
bank is liable for the damage resulting from the
payment does not
not
customer's attempt to stop payment
dishonor. Though the customer's
which led him to
deprive him of an action for dishonor, the facts which
attempt to do so may
attempt to stop payment
payment and his unsuccessful
unsuccessful attemp.t
mitigation of damage.
be shown by the bank in mitigation
regard as
The, situation may be such that a court or jury will regard
complied with the rere~
doubtful either a conclusion
conclusion that the order complied
it did
quirements
quirements for a sufficient
sufficient order to stop payment or one that it
b4
It may be argued
argued that for this class of cases there should b~
not. It
a special
special rule permitting
permitting the bank either to pay
payor
or not to pay and
howprotecting it in whichever course it pursued. This argument, how~
by
these
cases
ever, overlooks
overlooks the point that the problems raised
cases are
already
already covered by the rules as to burden of proof. If the bank
against
claims a reduction
obligation by virtue of an advance against
reduction in its obligation
Security
Security State Bank, supra
supra note 37; Wall v. Franklin Trust Co., 84 Pa. Super.
(1925); Pease &
& Dwyer v. State National
National Bank, 114 Tenn.
Tonn. 693, 88 So.
Ct. 392 (1925);
31.
172 (1905); Huffman v. Farmer's National Bank, supra
supra note 31.
Westminster
supra note 38; Westminster
65.
65. Curtice v. London City &
& Midland Bank, supra
supra note
supra note 37; Baines v. National
Bank v. Hilton, supra
National Provincial
Provincial Bank, sup)'a
50; Merchants and Planters Bank v. New First National Bank, 116 Ark. 1,
(1875);
(1914); Frankenberg
170 S. W. 852 (1914);
Frankenberg v. First National Bank, 33 Mich. 46 (1875);
Sutter
Johnson
supra note 56; Albers v. Commercial Bank, Sutter
Johnson v. First State Bank, supra
v. Security
Security Co., Freund v. Importers and Traders National Bank, Brandt v.
note
Broadway Savings Bank, supra
Public Bank, all supra
supra note 56; Butler v. Broadway
supra noto
supra note 31;
Chatham & Phenix National Bank, su.pru
31;
50; Cardo Drug Co. v. Chatham
supra note 37; Steiner v. Germantown Trust ComMitchell v. Security
Security Bank, supra
Com~
50.
supra noto
note 50.
Scandinavian American
pany, supra
'pany,
supra note 1; Raynor v. Scandinavian
American Bank, supru
HeinOnline -- 42 Yale L. J. 838 1932-1933
1933]
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STOP PAYMENT
PAYMENT ORDERS
839
advance
the check the burden
burden is upon the bank to establish that the advance
was in compliance with the customer's
customer's request and in reliance upon
66 This burden
burden includes
includes establishing
establishing that the order is not
not
his promise.60
sufficient, that is, that despite the behavior referred to as an order the
bank was justified in inferring from the entire situation both the redamages
quest and promise. If on the other hand the customer seeks damages
for the dishonor of the check he must establish
establish that the order was
was
insufficient and, therefore, did not justify the inference
inference that there
67
it appears
was not a request and a promise.67
Thus, it
appears that if the
situation is one in which the bank must honor it
it also is one in which
which
the advance, if one be made, will reduce the bank's obligation, and
advance will not reduce
conversely, if the situation is one in which an advance
the bank's obligation
obligation it
it also is one in which the bank need not honor.
It
It may be argued
argued that the rules as to burden of proof do not afford
decision
a satisfactory
satisfactory solution of the problem, since in making its decision
at the moment the check is presented
present.ed the bank is faced with the risk
conclusion as to the
that a court or jury may come to a different conclusion
court
sufficiency of the order. Thus, if the bank
bank decides to honor, the court
or jury may, nevertheless,
nevertheless, decide that the bank has not sustained
court
its burden
burden of proof; and if the bank decides not to pay, the court
decide that the customer has sustained
or jury may, nevertheless, decide
It simply points out that
his. However, the argument goes too far. It
every transaction involves the risk of subsequent litigation in which
which
the court or jury may resolve doubtful
doubtful points in a prejudicial way.
But the chance of an adverse
adverse finding is necessarily involved in
68 Moreover
argument
judicial decisions upon past transactions.6S
Moreover the argument
judicial
most
has peculiarly little force in the cases under discussion. In
In most
bank may limit the risk to a negligible amount. By
situations the bank
amount
refusing to honor the bank can avoid the risk of losing the amount
of the check
check and by assigning, at the time of its refusal to honor,
sufficiency of the order to stop payment as its
the doubt as to the sufficiency
reason for dishonoring
dishonoring the bank may in most situations limit its
liability to nominal damages. 6o9
(1906); Patnl. App. 128 (1906);
66. See Chicago Savings Bank
Bank v. Block, 126 1lI.
765 (1905);
73 Neb.
terson
terson v. First National Bank of
(If Humboldt, '13
Neb. 384,
384, 102 N. W. '165
(1905);
1898).
Wiggins
Wiggins v. Stevens, 33 App. Div. 83, 53 N. Y. Supp. 90 (4th Dep't 1898).
Mo. App.
Merchants' Bank of Hunnewell,
67. See Mudd
Mudd v. Farmers'
Farmers' & Merchants'
Hunnewell, 175
175 :nro.
46,
Misc. 413,
Newburger v. State
State Bank, 70
'10 ~riSc.
398, 406, 162
162 S. W. 314, 318 (1914); Newburger
127 N.
N. Y. Supp. 956 (Sup. Ct. 1910).
1910).
Commercial
the Lam
Law of Commercial
68. Moore
Moore and Hope, An
An Institutional
Institutional Approach to tllo
J. 703,
Banking (1929)
(1929) 38 YALE
YALE L. J.
'103, 719; Moore and Sussman, Legal and InInDirect Discounts
the Debitinzg
Methods Applied to tlle
stitutional
stitutional Methods
Debiting of Direct
Discounts (1931)
(1931) 40
1240, 1246.
L. J.
1219, 1230, 1240,
YALE L.
J. 1219,
supra note 24, at 839-840.
69. 1 MORSE,
6.9.
MORSE, op. cit. supra
839-840.
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840
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[Vol. 42
out
Perhaps, for the sake of completeness,
completeness, it is desirable to point out
some of the other legal consequences
consequences which follow if an advance
against a check is made after a sufficient
sufficient order to stop payment.
First, the customer may not recover from'
from the holder the amount
amount
of the advance against the check even though the customer has,
which
and has exercised,
exercised, his power
power to rescind the transaction
transaction in which
the check
check was given. Since the bank's obligation
obligation to the customer
customer
amount
is not reduced, even
even if the holder is unjustly enriched in the amount
expense7700
of the advance, the enrichment is not at the customer's expense.
Secondly, the particular
particular circumstances
circumstances surrounding the advance
entitle the bank to
against the check may, in some jurisdictions, entitle
recover from the holder the amount advanced
advanced on the ground the
advance was made under mistake of fact. 711 Thirdly, the bank may,
in some jurisdictions,
jurisdictions, be entitled to recover from the customer the
amount advanced against
advance benefited
benefited the
against the check if the advance
customer, e.g., paid his debt, and the case satisfies the requirements
doctrines permitting recovery
recovery of benefits
benefits conferred without
without
of the doctrines
72 But the bank's obligation to the customer to pay and to
request. 72
customer
checks is not reduced by the amount it
it may be
be
lend by honoring checks
72a
a Fourthly, if the situation
such
situation is such
entitled to recover from him.72
that the bank may recover from either the holder or the customer
customer
it may not recover
it
recover from both.
PRINTED
STIPULATIONS RELATING TO ORDERS
PAYMENT
PRINTED STIPULATIONS
ORDERS TO STOP PAYMENT
Sometimes the signature card
card which is signed by the customer or
or
the pass book which is issued when an account is opened
contains
opened contains
customer asstipulations relating to orders
orders to stop payment. If the customer
enforceable,
it may be that a bargain is made, which, if enforceable,
sents to them it
might result in legal consequences
consequences different
different from those which have
been
stipulation may be part of a bargain in which,
been stated. Such a stipulation
70.
Moulton
70. See Reade v. Royal Bank
Bank of Ireland, supra
supra. note 38; Bank
Bank of Moulton
v. Rankin, 24 Ala. App. 110,
110, 131 So. 450 (1930).
(1930).
71. See National Loan &
& Exchange
Exchange Bank v. Lachovitz,
Lachovitz, 131 S.
S. C. 432, 128
S.
of
S. E. 10 (1925)
(1925) in which the bank was allowed to recover, and Bank of
Moulton v. Rankin, supra
supra note
supra note 70; Hiroshima
Hiroshima v. Bank
Bank of Italy, supra
noto
37; National Bank
Atl. 189
Bank of New Jersey
Jersey v. Berrall, 70 N. J. Law 757, 58 At!.
(1904; and Huffman v. Farmers'
supra note 31, in all of
of
(19041;
Farmers' National Bank, supra
which the bank was not allowed to recover.
supra note 64; Usher
Usher
72. See Garrioch v. Canadian
Canadian Bank
Bank of Commerce,
Commerce, supra.
v. Tucker Co., 217 Mass.
Mass. 441,
441, 105 N. E. 360 (1914);
(1914); Schneider
Schneider v. Irving Bank,
supra note 29. But see Hiroshima
supra
Hiroshima v. Bank
Bank of Italy, supra
supra note 37; Stag Co.
v. Union Bank of Chicago,
supra note 58; American
American Defense Society v. Sherman
Sherman
Chicago, supra
National
supra
supra note 31; Schoen v. Security
Security Bank of New
New York,
York, Bttpra
National Bank, supra
note 57; Wall v. Franklin
supra note 64.
Franklin Trust
Trust Co.,
Co., s~tpra
64.
72A. But see note 59, supra.
supra.
HeinOnline -- 42 Yale L. J. 840 1932-1933
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PAYMENT ORDERS
STOP PAYMENT
841
in exchange
exchange for a sufficient
sufficient consideration,
consideration, the customer
customer promises
the bank
bank to indemnify it
it and save it harmless
harmless from advances made,
inadvertently
inadvertently and in the exercise
exercise of due care, against checks as to
which a sufficient
sufficient order of the customer
customer to stop payment
payment has been
inadvertently
given. Doubtless,
Doubtless, if there is such a bargain, an advance inadvertently
bookkeeper who knew
"stopped" check by a teller or bookkeeper
made against a "stopped"
of the order to stop payment
payment would reduce the banks
bank's obligation or,
if the check were an overdraft, would obligate the customer for the
If the stipulation
amount of the overdraft. If
stipulation were
were part of a bargain
bargain
in which the customer
customer promises
promises to repay the amount of unrequested
unrequested
against
exercise of due care
advances made inadvertently and in the e.~ercise
care against
advances
"stopped"
checks
or,
in
which
the
customer
agrees
that
the
bank
"stopped" checks or, in which the customer agrees
shall not be obligated or liable in the event an advance
advance is so made,
inadvertent' payment
payment would doubtless
doubtless reduce the
then, here too, an inadvertent
bank's obligation or obligate the customer. These consequences
consequences may
be explained
explained on the ground that the bargains which cover the inadvertent advances,
advances, which in themselves neither reduce the banks
bank's
obligation nor obligated the customer, but give the bank a right to
specifically
indemnity, to repayment, or to release from liability, are specifically
bank the same reduction in its obligation
obligation that
enforced by giving the bank
it
it would have had, had there been no order to stop 'payment. The
banks obligaconsequence
inadvertent advance
advance reduces the bank's
consequence that the inadvertent
tion may also be explained
explained on the ground that the bargain becomes
becomes
presentment of the check
situation culminating
culminating in the presentment
check
part of the situation
of
and so qualifies
qualifies the order that it does not prevent the inference
inference of
presentment of the check but does prevent an
a request upon the presentment
inference of a request if the bank could, in the exercise
exercise of reasonable
reasonable
Consequently an inadvertcare, have
have avoided making the advance. Consequently
request
customer upon his request
ent advance is actually an advance
advance to the customer
and in exchange
exchange for his promise.
signature card or in the pass book, to which
which
The stipulation on the signature
anyone
promises on the part
part
one of the promises
the customer assents, may state any
preceding paragraph
of the customer
customer which have been supposed in the preceding
paragraph
not
but did not result in a contract either because the parties
parties did not
attempt to make a bargain
bargain or because, if they did, the bargain
bargain failed
absence
for want of consideration.
consideration. In such a case, notwithstanding
notwithstanding the absence
promise of the customer
customer nevertheless becomes part
part
of a contract, the promise
of the context and so qualifies the order that a court or jury will find
:find
includes the order, the promise in the stiputhat the situation, which includes
inadvertent payment, is a request for a loan
lation, the check
check and the inadvertent
loan
7 3 Similarly
and a promise to repay.
repay.73
Similarly if the stipulation
stipulation is no more than a
". .. if the drawer serves a qualified or limited notice like the one in
73. "...
question, the obligation of the bank is thereby limited, and it will
'will not be liable
paid." Gaita v. Windsor Bank,
check is inadvertently paid."
to the drawer if the check
HeinOnline -- 42 Yale L. J. 841 1932-1933
842
YALE LAW
LAW JOURNAL
YALE
[Vol. 42
42
statement that the bank is not to be liable for advances made inadinad..
statement
that
despite
vertently against stopped checks, the order is so qualified
the "stop,"
request and a promise would be inferred
inferred in the situation
situation
"stop," a request
it appears that the
culminating
culminating in the inadvertent payment. Thus, it
promise
effective for the
promise or statement
statement though not part of a bargain is effective
it would
Wvould be were it part of a bargain.
same reason that it
Since it
it is immaterial
immaterial whether
whether the stipulation is a promise
promise by the
Since
it be a promise, whether it is or
or
customer or a mere statement
statement and, if it
customer
is not part of a bargain, questions of consideration,
consideration, illegality or any
related to
the formation and validity of contracts
other matter related
74
need not be considered.74
Sometimes a stipulation relating to orders to stop payment, to
which
which the customer assents, appears in a pass book issued to the
customer
customer after the account is opened but before an order is given.
In such a case it
it may be more difficult to find a consideration on the
part of the bank sufficient to support a promise. But since the
effectiveness
effectiveness of the stipulation
stipulation does not depend upon its being a
promise
promise which
which is part of a bargain,
bargain, no material difficulty is presented.
presented.
consequence
The consequence
consequence of such a stipulation is the same as the consequence
card or in a pass book
book
of a stipulation
stipulation appearing
appearing on a signature
75
account. 7G
issued at the opening of the account.
contain
Sometimes
Sometimes the stop payment
payment forms provided by banks contain
which
the
customer
to
to
orders
to
stop
payment
stipulations relating
relating
customer
76
consequence of such a stipulation, whether
it be a
The consequence
whether it
assents. 76
supre.
See Brandt v. Public Bank, supru,
supra note 57.
note 56; Schoen
Schoen v. Security
Security Bank of New York, supra
Golden
supra note 37; Grisinger
74. See Hiroshima v. Bank
Bank of Italy, supra
Grisinger v. Golden
all supra
supra
State Bank, Tremont Trust Co.
Co. v. Burack,
Burack, Gaita
Gaita v. Windsor Bank, nIl
716,
note 36; Elder v. Franklin National
National Bank of the City of New York, 25 Misc.
Misc. '116,
Philadelphia,
55 N. Y. Supp. 576 (Sup.
(Sup. Ct. 1899); Cohen
Cohen v. State Bank of Philadelphia,
supra note 6161.
supra
75. But see Elder v. Franklin
Franklin National Bank of the City of New
New York,
supra note 74.
74.
supra
stipulations:
76. The following are examples
examples of such stipulations:
1.
1and
"The undersigned
"The
undersigned hereby
hereby agrees to reimburse you for all damages,
damages, cost nnd
subjected by reason of refusal to honor said
which you may be subjected
!mid
expenses to which
demanded.
check, and to furnish due and sufficient security
security therefor whenever
whenever demnndod.
If duplicate of above
If
above is presented,
presented, please pay and charge
charge to our account.
We understand
understand that you will use your best efforts to avoid payment of the
payment
item mentioned above, but agree not to hold you liable on account of payment
inadvertence, mistake
it be occasioned
contrary to this request should it
occasioned through inadvertence,
accident."
or accident."
2.
"The undersigned agrees to hold said Bank harmless for said amount, and
"The
it on account of refusing
for all damages, expenses and costs incurred
incurred by it
on
check, and further agrees not to hold said Bank
Bank liable on
payment of said check,
supra note 36, at 155, 167
supra
167 N. E., at 204.
HeinOnline -- 42 Yale L. J. 842 1932-1933
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STOP PAYMENT
PAYMENT ORDERS
843
consequence of a stipulapromise or a statement, is the same as the consequence
in a pass bookP
book.77
tion appearing on a signature card or in
It may be that the customer, prior to filling out and signing
It
signing the
stop payment
payment form, had assented to a stipulation
stipulation on a signature
signature
card or pass book. Since the consequences
consequences of both stipulations are
the same, the fact that there are two stipulations in any particular
particular
78
situation would not be materia1.
material.78
Thus, it
it appears that whenever a paying
paying teller or bookkeeper,
bookkeeper, to
whose attention an order to stop payment
payment has been brought, inadexercise of due care makes an advance
advance against
vertently but in the exercise
against
payment
a check drawn by a customer
customer who has assented
assented to a stop payment
payment
stipulation appearing on signature card, passbook
passbook or stop payment
blank, the advance reduces the bank's obligation
obligation or obligates
obligates the
0
if the check is an overdraft.70
customer if
But, despite the stipulation
to which the customer has assented, an advance
advance which could have
been avoided
had
the
teller
or
bookkeeper
it exercised due
avoided
teller
bookkeeper making it
care, neither reduces the bank's
bank's obligation nor obligates
obligates the customer
customer
for the amount of an overdraft; 80
SO in other words, the result is
the
is the
it would have been
same as it
been had there been
been no stipulation.
In addition to the clauses relating
In
relating to inadvertent
inadvertent payments,
payments, there
is sometimes inserted in
payin the passbook, signature
signature card or stop pa~?account
if same occur through inadaccount of payment
payment contrary
contrary to this request, if
vertence or accident. The First National
National Bank receives above request
request with
understanding and upon the e."press
express condition that it
the understanding
it will use its usual
prevent oversight
oversight and accident, but that it
it shall not be in any
methods to prevent
way liable for its act should said check be paid by it
it in the course
course of its
business."
3.
" . ..........
. . . . . . . . . .. hereby agreeing to hold you harmless for said amount, and
all expenses and costs
costs incurred by you on account of your refusing
refusing payment
payment
of said check, and agreeing
agreeing further not to hold you liable on account of payinadvertence or acciment contrary to this request if
if same occur
occur through inadvertence
accident only."
77. See Grocott &
& Sherry v. African Banking Corporation,
Corporation, 18
18 E. D. C.
(1904); Hodnick v.
v. Fidelity
267 (1904);
Fidelity Trust, Tremont Trust Co. v. Burack, Gaita
Gaita
v. Windsor Bank, all supra
supra note 50j
56;
supra note 36; Brandt v. Public Bank, supra
Cohen
Bank of Philadelphia,
supra note 61. But see Hiroshima
Philadelphia, supra
Hiroshima v.
Cohen v. State :Bank
36;
Bank of Italy, supra note 37; Grisinger v. Golden State Bank,
Bank, supra
supra note SOj
and Levine v. Bank of United States, supra
supra note 48.
supra note 56; Levine v. Bank of United
78. Brandt v. Public Bank, supra
United States,
supra note 48.
supra,
& Sherry v. African Banking Corporation,
Corporation, supra note 77;
77j
79. Grocott &
Windsor
Hodnick v. Fidelity Trust, Tremont
Tremont Trust Co.
Co. v. Burack, Gaita v. Windsor
Bank, all supra
Philadelphia, supra note 61.
supra note 36; Cohen v. State Bank
Bank of Philadelphia,
01.
80. Hiroshima v. Bank of Italy, supra note 37; Grisinger
Grisinger v. Golden State
Bank
Bank of Long
Long Beach, supra note 36; Levine v. Bank of United
United States, supra
supra
-upra note 74.
. note 48; Elder v. Franklin National
National Bank of City of New York, supra
HeinOnline -- 42 Yale L. J. 843 1932-1933
844
YALE
YALE LAW
LAW JOURNAL
JOURNAL
[Vol. 42
42
[Vol.
ment blank
blank a promise
promise to
to indemnify
indemnify the
the bank,
bank, or
or aa promise
promise not
not to
to
ment
sue or
or a statement
statement that
that the
the bank
bank shall
shall not
not be
be held
held responsible,
responsible, in
in
sue
the event
event the
the check
check is
is dishonored."'
dishonored.s1 If
If the
the order
order to stop payment
payment
the
has been
been brought
brought to the
the attention
attention of
of the
the proper
proper person,
person, the situation
situation
has
culminating in the
the presentment
presentment of
of the check
check does not
not justify
justify the
culminating
breach
a
is
not
dishonor
implication
of
a
request
to
and
the
dishonor
is
not
breach of
of
the
and
to
lend,
request
implication
the
dishonor
of
the
bank's
obligation
to
honor.
The
consequences
dishonor
consequences
The
the bank's obligation to
if there
there is no stipulation
stipulation are, therefore,
therefore, precisely
precisely the same as
as the
if
consequences which
which would
would follow
follow were
were the stipulation
stipulation to be given
given
consequences
effect according
according to its
its terms. The
The clause
clause is dictated by caution
caution rather
rather
effect
than by
by need.82
S2
than
II
II
PROMISES OR
OR UNDERTAKINGS
UNDERTAKINGS TO COMMUNICATE
COMMUNICATE ORDERS
ORDERS
PROMISES
TO STOP
STOP PAYMENT
PAYMENT
question-What are
are the
the legal requirements
requirements which an
an
The first question-What
If
answered.
been
order
stop
payment
satisfy?-has
now
answered.
If
satisfy?-has
must
payment
to
order
the order
order does not satisfy the legal requirement
requirement of communication
communication
who first receives it make
to the proper person, does the employee
employee 'who
a promise or undertaking, upon which the bank
bank is responsible,
responsible, to
communicate
it to the proper person? This question arises only
communicate it
when the order, sufficient
other respect, is not given to the
sufficient in every other
proper person but is given to an officer or employee
employee for communiproper
cation to the proper person. It
It is possible, of course, that the
answer to this question may be found in the terms of an express
bargain between
between bank and customer. The bank may have agreed
bargain
payment
that an advance
advance against a check made after an order to stop payment
the
reduce
not
would
had been given to any officer or employee
amount of its obligation, or the bank may have promised to insure
the communication
communication of the order to the proper person before an
advance against the check is made or may have promised to exercise
stipulations:
such stipulations:
81. The following are examples of such
81.
1.
1.
amount and all expenses and
"I hereby agree to hold you harmless
harmless for said amount.
or
said draft or
payment of said
costs incurred
on account of your refusing paymenb
incurred by you on
check."
2.
2.
and
cost and
damages, cost
all damages,
for aU
"The undersigned hereby agree to reimburse you for
check."
to honor this check."
refusal to
expense
reason of refusal
subject by rev.son
be subject
to which you may be
expense to
See
supra.
76, supra.
also note 76,
See a1so
which
during which
82. As to clauses
time dul'ing
period of bimo
limiting the period
clauses or stipulations limiting
supra.
note 44,
44, supra.
be effective, see note
an order to
payment shall be
stop payment
to stop
HeinOnline -- 42 Yale L. J. 844 1932-1933
19331
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STOP
PAYMENT ORDERS
STOP PAY1JIENT
845
it.s533
reasonable care to communicate
communicate it. Usually there is no such express
e.'\."press
be
distinguished.
bargain. If
If there is none, three situations must
In the first, the officer or employee
employee to whom the order
order is communicated
communicat~d
either by words or conduct, to bring
does not promise or undertake, either
the order to the attention of the proper
proper person; for example, he
successfully pretends
expressly
pret~nds not to
to
expressly refuses to receive the order or successfully
s In such a case
communicate
it.84
case if the officer or employee
employee does communicate
hear it.
it is,
the order to the proper person
person before the check is honored,
honored, it
thereafter, a sufficient
sufficient order to stop paymentSS
payment.S:i If
If he does not, the
legal relations between
between bank and customer are not affected, and
check
subsequent honor or dishonor of the check
the consequences
consequences of the subsequent
no
atcustomer
made
are those which would have ensued had the
or
tempt whatever to give an order. In the second,
second, the officer
officer or
on
employee does promise or undertake on his own behalf but not on
employee
behalf of the bank to relay the order to the proper
proper person. Here
affected,
between bank and customer are not affected.
again the legal relations between
if the customer relies
himself, if
though the officer or employee may himself.
become obligated
obligat~d to make reasonable
on the promise or undertaking, become
efforts to bring
bring- the order within a reasonable time to the attention
undertaking of
of
of the proper person. In the third, the promise or undertaking
the officer or employee is made on behalf of the bank. In this situasubjected to a liability? The bank is
is liable
liable to
tion is the bank subjected
reasonuse reasonits failure
resulting from
from, it.s
failure to 'use
the customer for damage result-ing
order to the proper
able efforts to communicate the order
proper person
pm'son within a
able
order
received the order
who received
reasonable
reasonable time ifif the officer or employee 'who
bank had
had allocated
it and
and was one to whom the banl~
communicate it
agreed
agreed to communicate
allocated
communicate orders
undertaking to comm~unicate
promising or 'ltnclertal.:ing
01'ders
the function
function of promising
to stop payment.
The subjection of the bank to an obligation to reimburse the
customer for the damage
damage resulting from its failure to make reason83.
Citizens' Bank
of Ava,
Ava, S'ltpl'a
supra not.e
note 31,
31, and Hewitt v.
v. First
- 83. Kellogg
Kellogg v.
v. Citizens'
Bank of
First
supra note 37, are not to be taken to be cases
National
National Bank of San Angelo,
Angelo, mpra
cnses
of this sort.
stipra note 37.
84. See Hewitt v. First National Bank of San Angelo,
Angelo, supra
stop payment form expressly
It may be that the order to st.op
It
e.'\."pressly provides that its
It
undertaking to communicate
receipt shall not amount to a promise or undertaking
communicnte it. It
claue or stipulais believed, however, that courts will hesitate
hesitate to interpret a clc.m:e
undertahing to
tion in such aa way as to relieve the bank from aa promise
promise or undertaldng
supra note 37, at 373, 248
communicate. Hiroshima v. Bank of Italy, supra
~48 Pac.
opra note 74,
Franklin National
at 951; Elder v. Franklin
National Bank of City of New
New York, Irl!pl'a
74,
at 719, 55 N. Y.
Y. Supp. at 578.
The following
following clause taken from a form in use apparently attempts to preclude
clude the finding of a promise or undertaking:
"I ask this as an act of courtesy
"1
courtesy only and hereby
hereby release you from any
any
liability in case of payment or non-payment."
non-payment."
supra note 31.
85.
85. Kellogg
Kellogg v. Citizens' Bank of Ava, mpra
HeinOnline -- 42 Yale L. J. 845 1932-1933
846
LAW JOURNAL
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YALE
[Vol. 42
42
[Vol.
able efforts to bring the order within a reasonable time to the attention of the proper person depends upon the applicability
applicability of one
80
or more of three legal
legal doctrines. First, if there is a consideration 80
for the bank's promise there can be no question of its obligation.
Second, if there is no consideration
consideration and therefore
therefore no contract, the
promises
bank may be obligated under the doctrine
doctrine of gratuitous promisea
upon which the promisee has in fact relied. "A
"A promise
promise which the
promisor should reasonably
reasonably expect to induce action
action or forbearance
forbearanco
of a definite and substantial
substantial character
character on the part of the promisee
and which does induce such action or forbearance is binding
binding if
87
promise." 81
enforcement of the promise."
injustice can be avoided only by enforcement
Third, the acceptance
acceptance of the order may make the bank liable under
under
undertakings. One who undertakes with
the doctrine of gratuitous undertakings.
which he should recognize as necessary to
another to do an act which
prevent
prevent damage to the other who reasonably
reasonably refrains from himself
himself
damage
for
the
the
other
taking
taking the necessary steps is liable
liable to
resulting from his failure to exercise reasonable
reasonable qare to carry out
out
"One
his undertaking;
undertaking; 88 or, as the doctrine is sometimes stated: "One
another
conduct which
which he should realize
realize will cause another
who by . .. .. conduct
performance of definite acts of service
reasonably to rely upon the performance
reasonably
by him as the other's agent, causes the other to refrain from having
available means, is subject to a duty to use
such acts done by other available
service or, while other means are available,
care to perform such service
89
perform." 89
to give notice that he will not perform."
refrain
86. The customer, at the bank's request, may refrain or promise to reft'ain
from bothering any other person with the order or promise to indemnify
indemnify the
bank in the event
event of the dishonor of the check before
before the order has boon
been given
Inst. 1932)
(Am. L. lnst.
1932) § 75.
to the proper person. CONTRACTS RESTATEMENT (Am,
87. Id.
[d. § 90.
90.
Inst. 1928)
1928) Part 3, § 303.
ToRTs RESTATEMENT
RESTATEMENT (Am. L. lnst.
88. See TORTS
AGENC1' RESTATEMENT (Am. L. lnst.
1931) Part 6,
6, § 599.
599.
89. AGENCv
Inst. 1931)
89.
countermand in a commercial
"There is no such thing as a constructive
"There
constructive countermand
commercial transaction of this kind."
counter"In my opinion,
opinion, on the admitted facts of this case, the cheque was not counter..
it was due to the negligence of the bank
it may well be that it
bank
manded, although it
For
stOll the cheque. For
that they did not receive notice of the customer's desire to stop
would
such negligence the bank might be liable, but the measure of damage would
Curtice
be by no means the same as in an action for money had and received." Curtlco
v. London City and Midland Bank, supra
supra note 38,
38, at 298.
"There is an equitable phase
"There
phase to this case
case which appeals
appeals to us most strongly,
and we think to hold this notice ineffectual would work grave
grave injustice. When
Whim
objection to talking this
cashier was called over the telephone,
telephone, he made
made no objection
the cashier
much
much bank business on Sunday, or when away from the bank. On the conpromising
trary, he seems
seems to have accepted the notice without any protest, pt'omising
It was natural,
it next morning. It
memorandum and attend to it
to make a written memorandum
the
therefore, for Hewitt
Hewitt to conclude that he could rely upon this promise of the
therefore,
cashier and make
make no further efforts himself
himself to save his money. Had the
cashier
HeinOnline -- 42 Yale L. J. 846 1932-1933
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STOP PAYMENT
PAYMENT ORDERS
847
If the bank is obligated
If
obligated by virtue of a promise or undertaking
undertaking the
scope of its obligation
obligation will depend upon the terms of the promise or
or
undertaking. If there is an e.~press
express promise the scope of the obligation
obligation
is clear. But usually
usually the promise must be implied in fact from the
acceptance
acceptance of the order. The promise which
which a court or jury will
find from the acceptance
of
the
order
is
a
promise to make reasonable
acceptance
efforts
efforts to bring the order within a reasonable
reasonable time to the attention
attention
"reasonof the proper person. The phrases
efforts" and "reasonphrases "reasonable
"reasonable efforts"
able time" refer to the efforts
efforts usually made by bank officers
officers and
employees
communicate the order and the time usually taken to
employees to communicate
complete
complete the communication.
communication. The implied-in-fact
implied-in-fact promise
promise is to make
the usual efforts made by bank officers
officers and employees
employees to bring the
order to the proper person within the time usually taken to complete
complete
plain.
the transmission. The reason
this
is
the
promise
now
becomes
reason
that
the
bank
The acceptance
acceptance of the order, without more, signifies
signifies
will do what is usually done in the premises, and consequently the
usually
customer
customer is justified in inferring that the bank will do what is usually
conduct
done and only that. Similarly the bank must infer that the conduct
of the customer
customer in delivering the order means that he expects
e.'\.-pects the
usual behavior
behavior from the bank and relies upon that behavior
behavior and
that behavior
behavior only taking place. For this reason a promise
promise that the
order will be communicated
communicated to the proper
check
proper person before the check
is presented
presented can not be inferred;
inferred; neither can a statement
statement that the
order shall be effective
effective forthwith be inferred.
If the obligation of the bank is derived from the doctrine of underIf
takings and not from the doctrine
doctrine of gratuitous promises, the scope
scope
expressed-will
undertaking-since the undertaking
undertaking is not eA-pressed-will
of the undertaking-since
Since
depend upon what a court or jury will find its terms to be. Since
the terms of the undertaking depend, just as the terms of the
gratuitous
acceptance of the
gratuitous promise do, upon the meaning
meaning of the acceptance
order, they will be found to be identical with the terms of the promise.
of
If,
If, however, the obligation of the bank be derived from the doctrine of
undertaking is not
not
undertakings, the question of the terms of the undertaking
unqualifiedly requires
requires
important. Even if the undertaking in terms unqualifiedly
the bank to communicate
communicate the order to the proper person
person before the
cashier
cashier objected to the notice for any reason and refused to accept it, the
drawer of the check would, at least, have had an opportunity
opportunity to go to the
bank in person by the time it opened on Monday morning and served the
law, a cashier
cashier
notice there. We do not say whether or not, as a matter of la'w,
could refuse to receive this notice over the telephone
telephone at his home on Sunday.
cashier
That question is not before us. But, we do say that the action of the cashier
in the case at bar, in receiving
receiving the notice as he did, very naturally
naturally lulled
Hewitt into a sense of security and kept him from acting further in his own
behalf
person." Hewitt v. First National Bank of San Angelo, supra.
supra note 37,
behalf in person."
at 108,
108, 252
.252 S. W. at 163.
163.
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42
check is presented, yet the bank is liable only in the amount of damages
damages
communicate the
reasonable efforts to communicate
resulting from its failure to use reasonable
person within a reasonable
reasonable timeY'
time. oo Were there a
notice to the proper person
the proper
the
order
to
communicate
promise
to
gratuitous
proper person at
gratuitous promise communicate
between the right of action arising upon the
all events the distinction between
breach of such a promise
promise and the right of action arising upon the
breach
having identical
breach
undertaking hav:ing
identical terms must be noted.
breach of an undertaking
would
"The former right of action would include the benefit which would
performance of the undertaking
have resulted from the full performance
undertaking and
contractual
obligations can normally be satisfied only by full percontractual obligations
reasonable care to carry out the
formance and not by the exercise of reasonable
the
right of action stated in this
undertaking. On the other hand,
other's action or
or
Section is only for such harm as results from the other's
performance of the undertaking
inaction
inaction in reliance upon the performance
undertaking and
the obligation imposed upon the actor goes no further than to require
reasonable care to the end that the undertaking
undertaking may
him to exercise reasonable
It should
01
It
should be remembered, however, that the
be carried out."
out." 91
promise inferred
inferred from the acceptance of the order to stop payment is
to
not to communicate
communicate the order but only to use reasonable efforts to
it to the proper person within a reasonable
reasonable time.
communicate
communicate it
Notwithstanding
between the theories of recovery
Notwithstanding the distinction between
of
scope of
which is suggested by the language quoted, not only is the scope
which
the bank's obligation the same, but also the amount of the customer's
customer's
customer
recovery in the event of a breach is the same whether the customer
recovery
attempts to recover on the theory of a bargain, on the theory of a
gratuitous
if
gratuitous promise, or on the theory of an undertaking. First, if
unsuccessfully atthe check, the honoring
honoring of which the customer unsuccessfully
check
tempted to stop, is paid he may recover the amount of the check
tempted
measuring damages
damages for
plus interest and no more. If the rules for measuring
breach of a promise
promise be applied, the prevention of a reduction in the
bank's
bank's obligation
obligation in the amount of the check
check is the full benefit
benefit which
the customer
customer would have received had the promise been
been performed.
If the rules for measuring damages for a tort be applied the harm
If
the
resulting from a breach of the undertaking is the reduction in the
because
bank's obligation in the amount of the check. Secondly, if because
subsequent check of the customer is
of the honoring of the check a subsequent
customer may recover,
dishonored
dishonored for want of sufficient funds, the customer
honored
and interest, not
the
check
amount
of
to
the
in addition
addition
not
his credit but also the consequential
only the damage to
to-his
consequential damage
dishonor
within the contemplation of the parties resulting from the dishonor
6f the subsequent
subsequent check. Viewing the case as an action for breach
breach
of
of the bank's promise, all the damage caused
caused by the dishonor of the
tho
supra.
90. Note
Note 88, supra.
18-19.
RESTATESMENT, supra
91. TORTS
TORTS RESTATEMENT,
supra note 88, pp. 18-19.
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PAYMENT ORDERS
STOP PAYJIENT
849
recoverable under
subsequent check, whatever
whatever it may be, is recoverable
under the rule
allowing consequential damages within the contemplation of the
parties. Viewing the case as one in tort upon an undertaking, the
damage
damage caused by the dishonor is the proximate
proximate consequence
consequence of the
failure of the bank to e."'Cercise
exercise reasonable
its
failm-e
reasonable care to carry out its
undertaking. Thirdly, if the check is not honored
honored the plaintiff
plaintiff may
not recover except in the event that the promise of the bank is made
customer
for a consideration
consideration as part of a bargain. In that case the customer
may perhaps
perhaps recover nominal damages but no more. He can not
not
recover
performance because the ver.r
very fact
fact
recover the value of the promised
promised performance
that the bargain, though
though not in terms a risk bargain,
bargain, is a binding
binding
contract, effectively shifts from him to the bank the risk of loss
resulting from the honoring of the check which
which could be avoided by
the exercise
exercise of reasonable care on the part of the bank. If
If the
promise
enforceable only if injustice can
promise is gratuitous, either it is enforceable
can
it is binding but actionable
be avoided
avoided in no other way or it
actionable only
onh' if
it results in damage. If
If the measure
it
measure of damages recoverable in a
non-performance of an undertaking
tort action
action for non-performance
undertaking be applied the
customer
customer may not recover since no harm has resulted.
From the above discussion of the theories of recovery
it appears
appears
recovery it
that, in the absence of an express bargain, if an order to stop payment is not brought
brought to the attention
attention of the proper person, it
it has no
(1) a gratuitous
gratuitous promise or underlegal consequences
consequences unless there is (1)
(3) for which the bank is
taking (2) made on behalf of the bank (3)
responsible and (4) upon which the customer
customer relied, and (5)
(5) a
communicate the
failure, thereafter, to make reasonable
reasonable efforts
efforts to communicate
(6) as a result
result
order to the proper person
person within a reasonable
reasonable time (6)
order
of which he makes an advance against the check before the order
order
is brought to his attention.
There
There is a promise
promise or undertaking
undertaking when a court or jury will find
that the order was brought to the attention of a person other than
ensuing
the one to whom the check is presented and that from his ensuing
verbal or other behavior the customer was justified
justified in inferring that
that
reasonable efforts would be made to communicate
reasonable
communicate the order to the
if
proper person. For example, there is a promise
promise or undertaking
undertaking if
the officer or employee to whom an order is exhibited and delivered
delivered
at the banking house receives the writing
writing without expressing
e......-pressing his
refusal to comply with the implied request to forward it
it or if the
officer or employee to whom the order is spoken at the banking
banking
it and knowing that he is the person addressed does not
not
house hears it
proper
express his denial
denial of the request to communicate it
it to the proper
92 There
reasonable
person.92
There is not a promise
promise or undertaking
undertaking to use reasonable
92. Ozburn v. Corn Exchange National Bank of Chicago, supra
note 29.
Sllpra. note
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[Vol. 42
efforts
efforts to communicate
communicate the notice to the proper person within a
banking
reasonable time when the presence of a written order in the banking
reasonable
unknown to
house within the control of officers or employees
employees is unknown
93 Nor
undertaking when a secreis there such a promise
promise or undertaking
them. 93
stenographer agrees expressly to hand the order to the officer
officer
tary or stenographer
for whom she works. In such a case a promise or undertaking
undertaking of an
entirely different character
character may result.
undertaking is made on behalf of the bank when
The promise or undertaking
a court or jury will find that the behavior which justified the
reasonable care would be
assurance that reasonable
customer in inferring
inferring the assurance
used to forward the order also justified
justified him in inferring
inferring that the
assurance
assurance was the bank's. For example,
example, the promise or undertaking
undertaking'
is made on behalf of the bank if the order is accepted in the banking
house by an officer, but it is not if the order is accepted
accepted in the banking
house by a charwoman. The promise
or
undertaking
undertaking may be made
promise
the golf course by
accepted on the.
on behalf
behalf of the bank if the order is accepted
the bank
executive known to be in charge of the paying and bookbank executive
94
keeping departments.
departments. 94
The promise
promise or undertaking on behalf
behalf of the bank is one for which
which
the bank is responsible
responsible when a court or jury will find that the person
person
making the promise or undertaking
undertaking had and was exercising his
legal power to promise or undertake on behalf of the bank to communicate orders. 9195; Such a person has a legal power when he is one
of the persons to whom the function of receiving and agreeing to
forward orders to stop payment has been allocated.
allocation
allocated. The allocation
may be by express
express instructions
instructions to a particular
particular officer or employee to
to
promise
communicate the
undertake, at any time and place, to communicate
promise or undertake,
order and to all others never to do so. For example,
example, express
express instructions
president's understructions may make the bank responsible for the president's
taking
ordinarily there is
taking made at the golf course on Sunday. But ordinarily
no express allocation, or if there has been, the allocation has in fact
been modified by practice and acquiescence. In such cases the allocation must be implied in fact. Hence the allocation will be found to
be to those persons who in the regular course of the business of the
bank
bank and of other banks in the vicinity usually receive for communication
course
munication orders to stop payment. For example, the regular course
of business may result in the bank's responsibility
responsibility for the promise
or undertaking of any person engaged in the work of the commercial
department who receives the order at the banking house during
during
department
banking
cashier of a small bank
promise of the cashier
bank
banking hours. Again, the promise
93.
supra note 38.
93. Curtice v. London City and Midland Bank, supra
Citizens' Bank of Ava, supra
94. Kellogg
Kellogg v. Citizens'
supra note 31; Hewitt v. First
National- Bank of
National'
of San Angelo,
Angelo, supra
supra note 37.
95.
supra note 37.
95. Hewitt v. First National Bank of San Angelo, supra
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.1STOP PAYMENT
PArilfENT ORDERS
851
whenever and
in a country town may make the bank responsible
responsible whenever
wherever
wherever the order is spoken
spoken to him and the promise given.""
given.o o It
It
will be recalled that an order to stop payment
payment is not effective
effective even
it is given
if brought
brought to the attention
attention of the proper
proper person unless it
to him during banking hours at the banking house or unless he
records the order at the banking
banking house in the regular way before the
check is presented or, if he does not record it, unless he remembers
check
the order at the moment the check is presented.
presented. Of course, if, in a
not
case in which the order, though given to the proper person, is not
it, the bank may be responcommunicate it,
effective he undertakes
undertakes to communicate
Whether the bank is responsible
responsible depends
depends
sible for the undertaking. Whether
upon precisely the same considerations
considerations which determine
determine its responsibility when an order is given to an officer or employee
employee of the bank
other than the proper person.
The customer relies upon the promise or undertaking
undertaking when a
court or jury will find that, after the promise or undertaking, the
customer refrained from himself taking the necessary
necessary steps to comcustomer
municate the order to the proper person. Thus, for example, the cusmunicate
significant
tomer relies upon the promise or undertaking
undertaking when, for a significant
period
period of time after the order is given to an officer who agrees to
attend to it,
it, he does not make any further effort
effort to stop payment9
payment.OTT
attend
communicate the
There
There is a failure to make reasonable
reasonable efforts to communicate
or
order to the proper
proper person within
within a reasonable time when a court or
order
handling
jury will find that the behavior of the officers and employees handling
communication to the proper
proper person
person
the order did not result in its communication
circumstances. 3s
within a sufficiently short period of time under the circumstances.o
No behavior
behavior of the officers
officers and employees
emploJTees of the bank
bank will be found
to be reasonable efforts unless the behavior results in bringing the
short
order to the attention of the proper person within a sufficiently short
circumstances. Thus, if an order to stop
period of time under the circumstances.
payment of a check issued after banking hours on the 14th is given
customer
at 9:15
9 :15 A. M. on the 15th to an officer who is told by the customer
communicated to
that the payee is a swindler, and the order is not communicated
the proper
proper person
person until after banking
banking hours, there would be, in most
most
sufficiently
communities, a failure to communicate
communicate the order within a sufficiently
96. See ibid.
ibid.
at bar, in receiving
. . the action of the cashier in the case ut
97. ".
"•••
receiving the notice
kept him
naturally lulled Hewitt
as he did, very naturally
Hewitt into a sense of security
security and I,ept
from acting
acting further in his own behalf in person."
person." Hewitt
Hewitt v. First
Fir.>t National
163. And see
108, 252 S.
Bank of San Angelo, supra
supra note 37, at 108,
S. W. at 163.
American Defense Society v. Sherman National Bank of New
New York, aupra
supra.
note
31.
note 3l.
Exchange National Bank of Chicago, supra note 29;
98. Ozburn
Ozburn v. Corn Exchange
29j
aipra note 37.
Hewitt v. First National Bank of San Angelo,
Angelo, supra
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42
[Vol.
short period
period of time.
time. But
But the
the order
order may
may be
be communicated
communicated within
within a
short
notified
were
person
short
period
of
time
if
proper
person
were
notified
sufficiently
the
proper
time
if
of
period
sufficiently short
against
at 9:25
9 :25 A.
A. M.
M. even
even though
though itit appeared
appeared that
that an
an advance
advance against the
the
at
09
at 9:20
9 :20 A.
A. M.
M.oO
check were
were made
made at
check
There is
is an advance
advance against
against the check
check as a result
result of the
the failure
failure to
to
There
make reasonable
reasonable efforts
efforts to communicate
communicate the order
order to the
the proper
proper
make
or jury
jury will
will find that,
person within
within a reasonable
reasonable time
time when
when a court
court or
person
the bank
bank used
used reasonable
reasonable efforts
efforts to notify
notify the
the proper
proper person,
person, the
the
had the
had
order to stop
stop payment
payment would
would have
have reached
reached him before
before the
the advance
advance
order
0 0 Thus in the
the preceding
preceding example,
example, the advance
advance would
would
was made. loo
was
to
communicate
efforts
reasonable
of the failure
failure to use reasonable
communicate
be the result of
be
the order
order if
if the
the advance
advance were made
made at 1:00
1 :00 P. M. and by
by the exercise
exercise
the
order would
would have
have reached
reached the proper person
person
reasonable efforts
efforts the order
of reasonable
10 :00 A. M. or at any
any time
time prior
prior to 11:00
:00 P. M. But
But if the advance
at 10:00
were made
:30 A. M. and
and by the exercise
exercise of reasonable efforts
efforts
made at 99:30
proper person
person prior
prior to 10:00
10 :00
the order
order would not have reached
reached the proper
the
the advance
be the result
result of the bank's breach.
breach.
advance would not be
A. M. the
advance is made
made against
against a check as a result of the
Thus, if an advance
reasonundertaking to use
use reason
bank's failure
failure to perform
perform its promise
promise or undertaking
propel'
communicate an order to stop payment to the proper
able efforts to communicate
reasonable time, the customer may recover the
person within a reasonable
amount of the check
check plus interest;
interest; and if a second check of the
amount
customer is dishonored
dishonored for want
want of sufficient funds because
because of the
customer
recover for
honoring of the first check, the customer may in addition recover
honoring
consequential damages
damages resulting
the injury to his credit and for consequential
consefrom the dishonor of the second check. The amount of the conse
amount
quential damages so recoverable
recoverable might be far in excess of the amount
of the check which had been honored. But if the advance is made
against the first check despite the exercise by the bank of reasonable
efforts promptly to notify the proper person, the customer may
recover neither the amount of the first check nor the damage, if
10 1
any, which results from the dishonor of the second check.10l
If
If no advance has been made against the first check, then with
one exception, the customer may not recover upon the bank's promise
or undertaking
undertaking even though the bank has not used reasonable efforts
exception
to communicate
communicate the order within a reasonable time. The exception
consideration
is aa case in which the bank's promise is made for a consideration
recover
customer may recover
as part of a bargain and in that case the customer
nominal damages for the bank's breach.
N
N
note
supra nato
99. See
Exchange National Bank of Chicago, supm.
v. Corn
Corn Exchange
See Ozburn v.
National
v. First
First National
note 1;
1; Hewitt v.
supra note
Co., supra
Trust Co.,
Germantown Trust
29; Steiner v. Germantown
37.
supra note 37.
Bank of San
San Angelo,
Angelo, supra
supra.
note 98,
98, supra.
100. See note
1.
supra note 1.
Co., supra
Trust Co.,
v. Germantown Trust
101.
101. Steiner v.
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STOP
PAYMENT ORDERS
853
It will be remembered,
It
remembered, however, that if the check is honored before
the order reaches the proper person
person the amount of the bank's
if the check
customer becomes
becomes obligated
obligated if
check
obligation is reduced or the customer
102
is an overdraft.102
This result follows whether or not the bank is
If the
responsible
responsible to the customer on its promise or undertaking. If
bank is liable for a breach of the promise or undertaking, that
liability is distinct from its obligation to pay the balance
balance and to
bargain made when
honor checks.
checks. The obligation arises out of the bargain
the last deposit was made; whereas, the liability results from the
breach of the promise
promise or undertaking made when the order to stop
payment
amount of the banks
bank's
payment was accepted. Consequently the amount
obligation
its
increased by the amount of its
obligation to pay and to honor is not increased
liability upon the promise or undertaking. For example,
example, if the
bank, because
because of a breach of its promise
promise or undertaking, were liable
in the amount
amount of $5,000
$5,000 for both the honoring of a check for $100,
$100,
the payment of which the customer attempted
attempted to stop, and the injury
to credit
credit resulting
resulting from the dishonor of a second check for $75 on
on
the ground of insufficient funds, it
it would not be contended
contended that
that
to pay the balance
thereafter the amount of the bank's obligation
obligation t<>
$5,000.
or to honor checks was increased
increased by ljl5,000.
Thus, though the bank were liable on its promise or undertaking,
if the customer sought to recover $75, which was his balance
balance prior
prior
customer
to the honoring of a $25 check, the payment
payment of which the customer
recovery would be the amount
amount
attempted to stop, the amount of his recovery
of his balance, $50, although
although he might also recover the $25
$25 plus
interest
either in a separate
interest upon the bank's promise or undertaking either
separate count in the action for the balance. The
action or on a separate
dishonor
$60 after the honoring of the $25 check
check
dishonor of a check for $60
would not be a breach
breach of the bank's obligation to honor checks, and
if the customer is to recover for the dishonor
dishonor it
it must be upon the
bank's promise or undertaking. If
If the amount of the check which
the customer
unsuccessfully attempted to stop were $100 instead of
of
customer unsuccessfully
$25, the bank would have an action against
customer upon his
against the customer
promise
promise to repay. The customer, however, might counterclaim
counterclaim for
the amount of the check because of the bank's breach
breach of its promise
promise
or undertaking
unless
the
statutes
with
respect"
undertaking
respect" to counterclaims
counterclaims
prevented
of
customer from pleading as a counterclaim
counterclaim a cause of
prevented the customer
action upon an undertaking. In that event the customer would be
be
compelled
amount which
which
compelled to bring a separate
separate action. In stating the amount
the customer
customer may recover from the bank upon a breach
breach of its promise
undertaking to communicate
communicate the order, as a result of which
or undertaking
which an
advance was made against
against the check and the bank's obligation to
to
102. See p. 837, supra.
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42
the customer
customer to pay
payor
lend by
by honoring
honoring checks
checks was
was reduced,
reduced, itit
or to lend
resulting
been assumed
assumed that
that the
the harm
harm or
or injustice
injustice resulting from the
the
has been
it may
may be
be that the
breach was
was the
the full
full amount
amount of
of the check.
check. But
But it
breach
bank might
might show
show in
in mitigation
mitigation of
of damages
damages that
that the
the advance
advance benefitted
benefitted
bank
10 33 If
e.g., paid
paid his debt.
debt.l°
If this
this were
were true,
true, the
the amount
amount of
of
the customer, e.g.,
recovery would
would be
be less
less than
than the
the amount
amount of
of the check
check plus
plus interest
interest
the recovery
is likely
likely that
that in some
by the amount
amount of the
the benefit
benefit conferred;
conferred; and
and itit is
by
instances there
there would
would be no harm
harm or
or injustice,
injustice, i.e.,
i.e., the benefit
benefit would
would
instances
be
be equal
equal to the
the amount
amount of the check
check plus interest.
interest.
PRINTED STIPULATIONS
STIPULATIONS RELATING
RELATING TO THE
THE COMMUNICATION
COMMUNICATION OF
PRINTED
ORDERS
ORDERS TO
TO STOP
STOP PAYMENT
PAYMENT
It will be
be recalled
recalled that
that sometimes
sometimes there
there appear
appear on signature
signature cards,
It
pass books and stop
stop payment forms, clauses
clauses or stipulations
stipulations providing
providing
that notwithstanding
notwithstanding an order to stop payment
payment the
the bank
bank shall not
not
be liable if the check
check is inadvertently
inadvertently honored.
honored. The theories
theories upon
upon
:which
stipulations may have legal consequences
consequences have already
which such stipulations
been stated. But it is important at this point to observe what consequences
situation under discussion. The words
words
sequences they have in the situation
carelessness not only on
"inadvertently
on
"inadvertently paid" mean paid without carelessness
but
the part of the person making the advance against the check but
also on the part of any person acting for the bank. A stipulation
containing these words, therefore, addresses
addresses itself to the case in
communicated
which the check is honored before an order has been communicated
check is
to the proper
proper person as well as to the case in which the check
inadvertently
inadvertently honored after the order has been brought to the attention of the person making the advance. But there are two classes
of cases in which the check is honored before the order has been
been
first, the check is
communicated
communicated to the proper person. In the first,
communication has elapsed and
honored after a reasonable
reasonable time for communication
the payment or honoring is, therefore, not inadvertent but careless.
For this class, the stipulation
stipulation which refers to payments made inadvertently and not carelessly makes no provision. In the second,
has
the check is honored before a reasonable time for communication has
inadvertent and
elapsed and the payment or honoring is, therefore, inadvertent
is covered by the stipulation, but the connot careless. This class is
inadvertently but not
sequence which it provides for payments inadvertently
the
follow from the terms of the
carelessly made are
are those that would follow
promise or undertaking
which would be implied in fact were there
undertaking which
more than aa cautious
nothing more
no stipulation.
Thus, the stipulation is nothing
stipulation. Thus,
103.
103. See
See p. 840, 8upra.
supra.
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STOP
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PAYMENT ORDERS
855
bank's
unnecessary attempt to outline the scope of the banlCs
though unnecessary
promise or undertaking.
stipulation contains a promise to inSometimes the clause or stipulation
Sometimes
a
demnify the bank or not to sue it
it in the event of its dishonoring 3.
to
stop.
attempting
is
check the honoring of which the customer
cust.omer
check
it creates
Assuming
promise is part of a bargain and that it
Assuming that such a promise
corresponding to its terms, it
it seems clear
clear that it
it should
an obligation corresponding
it applicable to the
interpreted in such a way as to make it
not be interpreted
situation in which the check is dishonored before
before the order is brought
brought
situation
whom-the
attention of the person to whom·
the check is presented. A
to the attention
check was dishonored
dishonored before an
case in which, by happy accident, a check
order to stop payment was received
received by the person to whom the
check was presented
presented but while the order was on its way to him is
check
so unlikely to happen that it
it seems absurd to suppose that the parties
such an unusual contingency. Furtherfor
to
provide
made a bargain
bargain
more, such an interpretation appears
appears to be even more absurd if it
it
consequence would be to protect
be remembered
remembered that its only consequence
protect the
bank from a claim for nominal
nominal damages and then only in the preobligation of the bank to communicommunisumably rare case in which the obligation
cate the order within a reasonable time is founded upon a bargain.
bargain.
its
It affords no protection
It
protection to the bank
bank in those cases
cases in which its
predicated upon a gratuitous
obligation is predicated
gratuitous promise
promise or upon an
undertaking. For a breach
breach of such a promise or undertaking
undertaking does
or harm and
injustice
in
result
be
dishonored,
check
if
the
check
and
not,
nothing.
to
recover
therefore
therefore entitles
entitles the customer
III
With the system of propositions
propositions relating to orders
orders to stop payment
payment
relations
elaborated, it
it is at last possible to observe some of the relations
elaborated,
Co.
Steiner v. Germantown
between them and the case of Steiner
Trust Vo.
Gernaztown Trust
between
First, is the case in accord
accord with them? Suppose
Suppose a syllogism be
constructed whose major premise-the
propositions repremise-the system of propositions
constructed
which have been stated-asserts
stated-asserts
lating to orders to stop payment which
associated with certain
that certain behavior of parties is associated
certain behavior
behavior
whose minor premise asserts
asserts that the facts in the
of courts and whose
behavior of parties, does a
Steiner case belong to that class of behavior
Steiner
Steiner case
case are associated
proposition asserting that the facts in the Steiner
proposition
with the behavior of the courts in that case in granting
granting judgment
judgment
for the defendant constitute a logically valid conclusion
conclusion to this
If the model of judicial behavior in the major premise
syllogism? If
the
commanded by the sovereign
to
be
is taken
commanded
sovereign did the behavior
behavior of the
the
model
with
point
point
for
trial and appellate
appellate courts correspond
commanded? There was and can be no question that the order was
commanded?
HeinOnline -- 42 Yale L. J. 855 1932-1933
856
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[VoI.42
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consciously expressed by the customer, that it appeared to be
consciously expressed by him and expressed a countermand of the
consciously
communication to
checks, that there was a likely possibility of its communication
the bank, that it was communicated to the person to whom the
the
checks were presented and that it was not revoked. It
It is equally
undisputed and indisputable that the checks were honored by the
the
proper teller to whom they were presented before the order was
brought to his attention. The decision for the defendant bank is
therefore in accord with the proposition that an advance against the
customer's check reduces the bank's obligation unless the order to
the
stop payment precedes
precedes and does not follow the honoring
honoring of the
manager
check. However, there was and can be no question that the manager
of the branch of the defendant bank to whom the customer telephoned
telephoned
the order did in fact assume to undertake or promise on behalf of
of
the bank and that the undertaking
undertaking or promise was to use reasonable
reasonable
efforts to bring the order within a reasonable time to the attention
attention
6 per
of the pr
proper
person. The trial court's general finding for the
defendant
defendant establishes that the manager of the branch was one to
whom the function of receiving
receiving and agreeing to forward orders
orders to
ensuing behavior
behavior and
stop payment had been allocated, and that his ensuing
employees handling
that of the other employees
handling the order resulted in its communication to the proper person within a sufficiently short time.
The judgment
judgment on this finding for the defendant
defendant bank and the appellate court's denial of a motion for judgment non obstante
obstante veredioto
veredioto
are in accord with the proposition that the bank is not responsible
responsible
communicate an order unless
upon a promise or undertaking
undertaking to communicate
the person promising or unde~taking
undertaking on its behalf
behalf had and was
waS
exercising his legal power to promise or undertake
undertake on behalf of the
bank
bank to communicate
communicate orders received by him. They are also in
in
accord with the proposition
proposition that the bank is not liable upon a
bargained
for
bargained for promise, a gratuitous promise,
promise, or an undertaking
undertaking for
which
it
is
responsible
unless
it
fails
to
make
reasonable
efforts
to
it
reasonable
which it responsible
communicate
the
order
to
the
attention
of
the
proper
communicate
attention
proper person
person within
within
a reasonable
reasonable time, as a result of which
which he makes an advance against
against
the check before
before the order
order comes to his attention. That
That is to say,
sny,
a proposition
that the facts in the Steiner case
case are associated
proposition asserting
asserting that
with the behavior of the courts in granting judgment
judgment for the defendant is a logical
logical conclusion to the
the syllogism
syllogism stated above. The
behavior
behavior of the courts did correspond
correspond point
point for point with the
the models
models
of behavior
conformity to which
commanded by the
behavior conformity
which is said to be
be commanded
sovereign
sovereign in
in the major
major premise.
Secondly, in the verbal rationalizations
rationalizations of the trial and appellate
appellate
courts, as expressed in their written opinions, are the
the syllogisms,
explicit
which the
the major
major premises
premises are,
are, first,
first,
explicit or
or implicit,
implicit, syllogisms
syllogisms in which
HeinOnline -- 42 Yale L. J. 856 1932-1933
i[933]
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STOP PAYMENT
PAYMENT ORDERS
857
the proposition
proposition that
that an advance
advance against
against the customer's
customer's check
check reduces
reduces
the
bank's obligation unless
unless the
the order
order to stop
stop payment
payment precedes
precedes
the bank's
the honoring
honoring of
of the check
check and second,
second, the
and does not follow
follow the
and
bank is
is not liable
liable upon
upon its promise
promise or undertaking
undertaking
proposition that a bank
proposition
it fails to make reasonable
reasonable efforts
efforts to communicate
communicate the order
unless it
unless
person within
within a reasonable
reasonable time?
time?
to the proper person
Yes: The trial courf
court· said:
said:
"This controversy
controversy arises out of a check which plaintiff
plaintiff issued and then
"This
Company
subsequently directed
directed a branch cashier of the Germantown
Germantown Trust Company
subsequently
There is no question that notice was given
given in time,
to stop payment. There
matter of good business and
and common
common sense,
sense, when people issue
but as a matter
checks they have
have not the right to hold the bank to anything except
e....cept an
an
checks
explicit and competent
competent notice to stop payment."
payment."
"The
entitled to such notice
notice as will enable
enable
"The Court feels that the bank is entitled
'no special
different branches.
branches. There is no
special responsbility
responsibility
it to notify their different
obligations issued
exercise extraordinary
the'rtt to exerci.se
ext'raordinary methods to dishonor
dishonor obligations
on them
104
therefore finds
depositors and the Court
Court therefore
finds for the defendant."
defendant!' 10~
by their
their depositors
(Italics are the writers'.)
(Italics
Cunningham, J., for the Superior Court, wrote:
wrote:
Cunningham,
it was
payments of his checks and it
right to stop payments
"Plaintiff
10a.s the
"Plaintiff had a right
was receivecl
received
defendant to comply with his notice, provided it
duty of defendant
it 1Uas
." (Italics are the writers'.)
paid or certified
cert'ified •. . ."
before the checks were paid
"The entire
entire argument
argument of counsel
counsel for appellant
appellant is based upon a .
• .
• .
•
"The
statement in the opinion of the trial judge, reading:
reading: 'There
'There is no question
statement
time.' If the trial judge intended to say that the
that notice was given in time!
prior
office of defendant to which the checks were presented
presented had notice prior
to their certification,
certification, such statement is without the slightest support in
Branch
the evidence. It is more probable he merely meant to say the Logan Branch
office, as, in a subsequent
subsequent portion
acceptance by the main office,
had notice before acceptance
of his opinion, he said he thought defendant was entitled to such notice,
'as will enable it to notify [its] different branches.'
branches! "105
" 10::;
It
It will, of course, be noted that, even though the decision in the
Steiner case is in such a logical relation with the propositions
propositions
Steiner
relating to orders to stop payment which have been stated, that the
decision may be stated as the conclusion of syllogisms in which those
decision
it does not follow that the decision
propositions are major premises, it
It is true
could have been predicted if the facts had been known. It
that in a realm of discourse in which the major premise is granted
and the minor premise assumed to be known, the conclusion must
if the
necessarily
necessarily follow, i.e., the conclusion can be predicted. But if
104. Steiner v. Germantown Trust Co., Sllpra
supra note 1; see Brief for Appellant and Record, p. 35a.
105. Steiner v.
supra note 1,
1, at 40.
Co., supra
v. Germantown Trust Co.,
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YALE
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LAW JOURNAL
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858
[Vol.
[Vol. 42
42
conclusion describes
describes the decision
decision of
of a court
court such
such aa prediction
prediction would
would
conclusion
of that
that decision,
decision, the
the worth
worth of
of which
which would
would depend
depend upon
upon
be aa forecast
forecast of
be
degree of
of probability
probability of
of the
the association,
association, already
already ascertained
ltscertained in
in
the degree
manner satisfactory
satisfactory in
in empirical
empirical science,
science, between
between the
the facts
facts and
and
aa manner
decision stated
stated in
in the major premise.
premise. Obviously
Obviously the
the propositions
propositions
the decision
in this
this article
article which
which state
state that
that certain
certain facts
facts are
are associated
associated with
with
worth
little
of
alone
for this reason
reason alone of
worth in
in
certain decisions
decisions are for
certain
observed
predicting decisions.
decisions. At
At best
best they
they state
state the
the decisions
decisions observed to
predicting
"the facts"
facts" in 54
54 cases
cases decided
decided between
between 1865
1865
associated with
with "the
be associated
in the courts
courts of 25 jurisdictions
jurisdictions scattered
scattered from California
California
1932 in
and 1932
if the propositions
propositions relating
relating
South Africa. And, even
even if
to Ireland and South
in the cases and in this
this article, are
orders to stop payment, stated in
to orders
commands and arouse in judges, lawyers
lawyers and others
others who read them
commands
the attitude
attitude of one who hears
hears his sovereign's voice, nevertheless
nevertheless their
their
the
such
which
with
frequency
value
for
prediction
depends
upon
with
such
the
depends
prediction
value
behavior commanded.
commanded.
attitudes are followed by the behavior
The reader, however, should not take these
these comments
comments to suggest
suggest
that the methods of empirical
empirical science
science be applied
applied to these
these and like
that
of the associations
associations
propositions of law to ascertain the frequency of
propositions
commanded in them. The
between facts and decisions
decisions asserted or commanded
for
hypotheses for
propositions makes them unlikely hypotheses
quality of such propositions
statements without sufverification. They are highly
highly generalized
generalized statements
command are
ficient specificity. "The facts" which they assert or command
or shall be associated
associated with a decision are described
described by reference
reference to
to
that
significantly
dissimilar
fact
situations
are
categories
so
gross
significantly
categories
investigation
It is not profitable
not distinguished. It
profitable for the purpose of investigation
to break them down into more precise propositions because it is
sufficient number of litigated
improbable that there will be found a suffici.ent
cases to test the empirical validity of these more precise hypotheses.
The common quality of cases which reach the appellate courts and
matter
Elsewhere the matter
are reported is peculiarity and not similarity. Elsewhere
"'The facts' of the recorded cases classihas been put as follo'''s:
follows: "'The
fied in the traditional 'legal' categories are a small, and very
probably non-representative, sample of all behavior, atypical as well
as typical. The cases are distinguished by dissimilarity rather than
'legal' categories
similarity
similarity one to another. Thus in order that the 'legal'
might be multitudinous of individual cases, it was necessary that
their differentiating concepts be exclusive
of few individual cases.
exclusive of
inadequate for classification,
In consequence, the 'legal' categories are inadequate
with reference
formulated with
were formulated
and the 'legal' abstractions
abstractions (which were
conduct
to those
inadequate for manipulation of conduct
are inadequate
categories) are
those categories)
typical and
106
and atypical." 106
I
705.
at 705.
note 68, at
supra note
106.
Hope, supra
Moore and Hope,
106. Moore
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STOP
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859
Steiner case was said
It
It will
will be recalled that the decision in the Steiner
to be in accord with three propositions. For reasons already given,
advance against the customer's check reduces
the proposition that an advance
precedes and
obligation unless the order to stop payment precedes
the bank's obligation
does not follow the honoring
honoring of the check is a proposition
proposition which is
obviously true of the
of little or no value for prediction. This is obviously
other two. The first of these states that the bank is not responsible
communicate an order unless the
-upon a promise or undertaking
'Upon
undertaking to communicate
exercising
undertaking on its behalf
behalf had and was exercising
person promising
promising or undertaking
undertake on behalf
his legal power
behalf of the bank to
power to promise or undertake
communicate
received by him. But whether or not the
communicate orders received
person
exhibited had a legal
person to whom the order was spoken or exhibited
power
undertake on behalf
behalf of the bank is deterpower to promise or undertake
whether he was
mined by a finding of a court or jury as to whether
one of the persons to whom the bank had allocated the function
function
of receiving and agreeing
agreeing to forward orders. In the Steiner
case, for example, under all the circumstances
circumstances was the manager
manager of
of
the Logan branch authorized
authorized to promise or undertake to communicate
communicate
an order to stop payment of a check
check which was addressed to the
particular office? Certainly
Certainly the
bank generally
generally and not to any particular
proposition does no more than present an issue. The second propopromise or undertaking
undertaking
sition is that the bank is not liable upon a promise
reasonable efforts
it fails to make reasonable
for which it
it is responsible unless it
proper person within a reasonable
to communicate
communicate the order to the proper
check
advance against the check
time as a result of which he makes an advance
what
before the order comes to his attention. But what efforts and what
or
time are reasonable
reasonable is a question answered by a finding of court or
within
to
the
proper
person
jury that the order was communicated
communicated
proper
Steiner case, under
a sufficiently
under
sufficiently short time. For example, in the Steiner
teller
all the circumstances, if there were any need to notify the teller
at the main office who certified the check, was the time which elapsed
elapsed
by the branch manager
manager and its
between the receipt of the order b:y
communication
communication to the teller too long?
long? How numerous was the class
of persons who should have been notified? Did the class include
been
employees at all offices? In what order should they have been
order
notified? What business, if any, should have been deferred in order
offices
Where were the offices
to hasten
hasten the forwarding of the order? Where
located?
located? What means
means of communication should have been employed
employed
between
office? The second
second proposition then,
between offices and within each office?
does
not
resolve
the
issue
which
it presents. Hence
like the first,
resolve
Hence
the relevant propositions
propositions of law do not enable counsel
counsel to predict.
Steiner case, counsel had
If, then, before the litigation in the Steiner
If,
been
been called upon to give his opinion, i.e., to forecast the decision,
judgment
his opinion would have been an intuition of experience, a judgment
HeinOnline -- 42 Yale L. J. 859 1932-1933
860
860
YALE LAW
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[Vol. 42
upon the innumerable
innumerable factors in the complex situation
situation about to
culminate in the trial or the argument and to impinge upon court
07
The character
character of these factors is indicated
indicated by describing
or jury.
jury.107
describing
categories under which the more important of them may be classified.
classified.
First, economic institutions, i.e., the usual forms of the business
First,
aspects of overt behavior: for example, the institutions of transpayment
ferring deposit currency by means of checks,
checks, of stopping payment
of checks and of handling
handling orders to stop payment
payment after they are
received. Second, common ideas and theories
theories in respect of economic
institutions: for example,
example, ideas and theories
theories as to commercial bankThird, other institutions, or the usual forms of the aspects of
of
ing. Third,
Fourth, common
common ethical
overt behavior
behavior other than business aspects. Fourth,
ideas and theories and social philosophies in respect
respect of economic and
other institutions: for example, theories as to the degree
degree of control
over his property,
property, e.g., his bank account, which should be accorded
accorded
the owner;
owner; the fair allocation of loss if a stopped
check
is
paid
in a
stopped check
the
situation in which one of the parties might easily have prevented the
risk arising;
arising; ideas as to the propriety of the end or purpose of the
transaction
transaction in which a check is given. Fifth,
Fifth, "the
"the facts" and the
literatureensuing judgments in reported cases. Sixth, the legal literature-judicial
commentaries. Seventh, common
judicial opinions, statutes
statutes and the commentaries.
ideas and theories as to legal precedents and legal literature. Eighth,
Eiuhth,
the common attitudes towards the economic and other institutions,
towards
towards economic, ethical and legal ideas and theories
theories and towards
legal precedents
and
legal
literature;
and
the
common attitudes
precedents
toward minor and major departures
departures from the institutions and from
the precepts
precepts of the economic
economic and ethical theories and of the legal
literature. Ninth,
Ninth, the conformity
of
conformity to, or the departure
departure and degree of
their
departure of the behavior
behavior of the parties, their attorneys and their
other
behavior in the economic
economic and other
witnesses from the models of behavior
institutions and from the models in the legal literature;
literature; and the
of
similarity between the behavior of the parties and the behavior of
the litigants in reported cases.
Counsel's process of forming a judgment
judgment upon the factors suggested
categories enumerated
enumerated would have been, first, to focus attenby the categories
tion on the several aspects
of
aspects of the past and prospective
prospective behavior of
the parties, their attorneys and their witnesses,
witnesses, secondly, to compare
that behavior with the institutions
economic
institutions and with the precepts of economic
and ethical
ethical theories
theories and of legal
legal literature, thirdly, to observe its
conformity to or departure
conformity
departure from them, fourthly, to measure
measure the
(1932) 41 YALE
YALm L. J. 566;
107. Moore and Sussman,
Sussman, The Lawyer's Law (1932)
560;
Legal and Institutional
Institutional Methods
Methods Applied to the
Debiting
tho Dcbitinu
Moore and Sussman, Legal
of Direct
Direct Discounts
Discounts (1931)
(1931) 40 YALE L. J. 555,
555, 560-564.
560-564.
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STOP
861
degree of
of its
its departure
departure by
by reference
reference to
to the
the ideas
ideas of
of economic,
economic, ethical
ethical
degree
the attitudes
attitudes towards
towards them
them and
and finally, to
to
and legal
legal theories
theories and to
to the
and
likely legal
legal consequences
consequenees of
of the
the conformity
conformity or
or departure
departure
predict the likely
predict
the basis
basis of
of the
the estimated
estimated importance
importance of
of the
the degree
degree of departure.
departure.
on the
on
will be
be noted,
noted, are
are elements
elements in
in a culture
culture or
or
All of the factors, itit will
All
civilization. Since
Since counsel
counsel is
is himself
himself a product,
product, aa mosaic,
mosaic, a reflection
reflection
civilization.
very culture
culture by
by which
which he
he is
is judging,
judging, and since, in
in a sense,
sense,
of the very
of
the culture
culture itself is judging,
judging, the cultural
cultural factors
fact~rs do
do not
not rise to
to the
the
conintuitive
an
to
be
conscious
level,
and
his
judgment
appears
to
be
an
intuitive
conappears
judgment
conscious level,
the particular
particular situation
situation held
held before
before his
his mind. It
It is
is
clusion upon the
clusion
that the legal
legal precedents
precedents and literature
literature receive
receive conscious
conscious
true that
But they
they do no more
more than
than pose
pose for him the
the questions.
questions.
consideration. But
consideration.
acceptance of
of the
the order
order by the
the branch
branch manager
manager a promise
promise
Was the acceptance
or undertaking
undertaking to
to communicate
communicate it? Did
Did the branch
branch manager
manager have
or
undertake on behalf
behalf of the bank?
bank? Was
Was
power to promise
promise or undertake
a legal power
even
the notice
notice communicated
communicated within a sufficiently
sufficiently short time? And even
consciousness
the pondering
brin'g to consciousness
pondering of these questions might not bring
reflections of them in counsel's
the relevant
relevant institutions though the reflections
counsel's
questions.
mind would likely control
control his answers to the
mind
litigation was in the courts
courts of PennThe prospective
prospective or pending litigation
sylvania. The personnel
personnel of the court or jury was chosen from the
residents of that state. Hence, all of the factors suggested
suggested by the
residents
categories enumerated,
enumerated, except the behavior of the parties, were
culture of that jurisdiction. The values, therefore,
therefore,
elements in the culture
elements
litigation
in
counsel's
process
judgment
th~
Steiner
litigation
assigned
Steiner
in
the
judgment
of
process
assigned
would be found in the contemporary culture
culture of Pennsylvania. Cerof
tainly, the variable whose Pennsylvania value would likely be of
great weight in counsel's
counsel's calculus
calculus would be the institutions or usual
their
forms of overt behavior of banks with branch offices and of their
customers in drawing, presenting and stopping checks. Are checks
customers
office
drawn on the bank at large? Are they addressed to the main office
though the customer regularly does business at a branch office? At
what office is the check regularly presented for payment?
payment? Are
orders to stop payment
payment commonly given and received at offices at
which the check is not regularly presented for payment?
payment? If
If they
are, in how short a time are they usually communicated
communicated to the tellers
and bookkeepers
at the office at which the check is regularly prebookkeepers at
sented? The likely importance of Pennsylvania's
Pennsylvania's answers to these
Steiner case arose and
questions is illustrated by suppol?ing
supposing that the Steiner
were being litigated in New York. According to what are believed
to be the
state, the customer of aa bank with
thht state,
institutions of that
the institutions
he does
office at which he
checks to the office
branches always addresses his checks
and orders
not elsewhere; and
business; they are
are presented there and not
York
only. New York
to stop payment are given
given and received there only.
HeinOnline -- 42 Yale L. J. 861 1932-1933
862
LAW JOURNAL
YALE LAW
YALE
[Vol. 42
counsel would doubtless
doubtless conclude
conclude that the bank is not liable for the
breach
breach of a promise or undertaking
undertaking by a manager
manager of one office to
communicate
communicate to another office an order to stop payment of a check
check
addressed to the latter and that, unless the order by good fortune or
or
happy accident
accident happened
happened to be brought to the attention
attention of the
person to whom the check was presented
presented before
before its payment, the
balance
balance of the customer
customer would be reduced by the amount
amount of the
advance.
advance.
HeinOnline -- 42 Yale L. J. 862 1932-1933