13. Certificates Of Deposit

a. Are Special Deposits. Public deposits are in the nature of a special deposit on which banks usually pay interest. For such deposits, when made by individuals, banks give certificates of deposit which bear interest. A certificate may run for an indefinite time, or for two, four, six months, or longer period. If the certificate be given without stating any definite period, the bank is liable for the money at any time after demand until the statute of limitations, as it is called, has barred the claim This statute in most states covers the period of six years. In other words, when a deposit is thus made, the bank is liable for the amount, no matter how long may be the period before the owner or representative calls for it. Time does not bar his claim. But if he demands his money and it is not paid, then he must take steps within six years afterward to collect it. If he does not, he is cut off. In like manner, if his money is deposited for a fixed period, he must call for it within six years after it is due, otherwise he is cut off. In the old savings banks there are many unclaimed deposits, but these, it will be seen under the rule above explained, are not cut off by this statute because the owners have not demanded them. Sometimes a person appears who claims to be a depositor; he has, however, absented himself so long that the bank does not know him. It is not unusual in such cases to ask him to give the bank a bond of indemnity before paying his deposit in order to insure the bank against a mistake in paying him.

b. How issued to a Stranger. In effect, a certificate of deposit is a check by a bank on itself. In issuing one payable to a stranger, he should be requested to write his name on the margin, so that, when it is presented for redemption, the indorsement, if it has been transferred, can be compared with the depositor's signature, and its genuineness be assured. Again, before paying the certificate it should be compared with the original entry to be assured that the amount has not been raised.

c. Is a Certificate a Note or a Receipt? If a certificate of deposit be considered by a bank as a check on itself, it certainly is not a promissory note, but simply a receipt. "A promissory note, payable on demand," says Justice Colburn of the Supreme Court of Massachusetts, "is due as soon as it is given; an action may be brought upon it immediately without demand. ... A certificate of deposit is not due until a demand is made, and the certificate returned or tendered. . . . Such certificates are not commonly known in the community as promissory notes." l Many courts hold this view; on the other hand, there are many who think otherwise. Chief Justice Ryan of the Supreme Court of Wisconsin, after quoting Justice Story's definition of a promissory note, says, "The ordinary form of a certificate of deposit of money falls precisely within the definition."2 The states therefore are ranged on two sides, many on each. But in all of them, if proper negotiable words arc written in a certificate, it can be transferred like an ordinary note.

1 Burnham v. Allen, I Gray 146.

2 Klauber v. Biggerstaff, 47 Wis. 555.

d. Mode of suiing to recover the Amount. In many states a certificate of deposit is a continuing security, and no action can be maintained against it for the money until after a demand has been made for payment. For the same reason the statute of limitations 1 does not begin to run against it in favor of the bank until payment has been demanded. A bank which was sued by the holder of a certificate of deposit defended on the ground that as it was payable on demand and nothing had been heard of the holder for more than seven years, the certificate was presumed to be dishonored and paid. But the court thought otherwise. "The signature of the instrument and the ordinary modes of business show that a certificate of deposit, like a deposit credited in a pass book, is intended to represent moneys actually left with the bank for safe-keeping, which are to be retained until the depositor actually demands them. Such a certificate is not dishonored until presented." 2 c. Can a Bank receive its Own Certificate as Payment of a Debt? The well-known rule is that an agent, having a money demand for collection, can rightfully receive only money in payment, unless specially authorized by his principal to receive something else. Notwithstanding this rule, if the agent is a bank of deposit, it may receive its own certificate of deposit as money, in payment of a debt sent to it for collection, and its principal will be bound by its action. The debtor, therefore, will be discharged by paying the certificate to the bank, even though it should become bankrupt and never remit the money to the principal.

1 As we shall have occassion to refer to this statute frequently, it may be explained. The law presumes in many cases that a debt which has not been collected within a given time has been paid, Thus an ordinary promissory note runs six years, and if no interest has been paid during that time and no part of the principal, the law presumes it has been discharged. The statute of limitation fixes the time for declaring as paid or discharged all kinds of obligatons.

2 National Bank v. Washington County National Bank, 5 Hun 607

f. Return of a Certificate. When the owner of a certificate demands payment, the bank has a right to insist on its return as a voucher of payment and security. And a bank would clearly be entitled to receive a bond of indemnity from the holder of a lost certificate before paying the money. This is the only safe course, though it has been decided that a holder can demand his money as a strict right after making clear proof of the loss of his certificate without giving such a bond.