The bank's undertaking with a general depositor, that is, one having a general checking account, is to pay the depositor or his order on demand; to return cancelled checks as vouchers; and to render periodic statements. It may also agree to pay him a rate of interest on his deposit or on his daily balance.
When one opens up a checking deposit with a bank, the contract of the bank with the depositor is to keep the account in accordance with general banking customs, to honor the checks of the depositor when there are funds sufficient to meet the same, in the order in which they are received, to return cancelled checks as vouchers and to render periodic statements; perhaps, also, to pay a certain rate of interest on daily balances.
(1) To pay the depositor or his order on demand.
The bank agrees with the depositor that it will repay him the amount of his deposit on demand and will also honor his properly drawn checks and drafts, so long as when the same are presented, there is a sufficient amount to his credit on which the bank has no valid lien.
If he draws more checks for larger amounts than he has to his credit, the bank need not honor them.
The bank's obligation being to pay the checks of the drawer, it is responsible to him in damages if it improperly refuses payment upon such checks. It has been held in a New York case,168 that the depositor cannot recover any substantial damages, unless he shows substantial loss, but it was decided in an Illinois case169 that a depositor, whose check has been improperly dishonored, may recover substantial damages for the dishonor, even though the dishonor was on account of an honest mistake on the part of a bank clerk.
168. Clarke v. Bank, 83 N. Y. S. 447.
(2) To return cancelled check as vouchers.
The depositor is entitled to have his cancelled checks, delivered to him as vouchers, whereby to preserve the evidence of his check payments. This is a universal banking custom. Cancelled checks are returned on the first day of every calendar month.
(3) To render periodic statements.
The bank renders monthly statements showing the credits and debits, and the balance due the depositor.
The depositor undertakes that he will not overdraw his account and that he will promptly examine the cancelled checks and report errors and wrongful payments.
169. Shaffner v. Ehrman, 139 111. 109.
170. 117 U. S. 96
It is the depositor's duty to examine vouchers and statements within a reasonable time after they are returned to him, that he may report to the bank if anything wrong appears. In Leather Mfgrs. Bank v. Morgan,170 the Court held: (1) That if a bank pays forged checks not negligently drawn, it commits the first fault and pays them at its peril. (2) That the depositor, however, is under a duty to exercise diligence and care to examine his returned statements and vouchers. (3) That this is a duty he may, in the due course of business, delegate to agents, provided he uses due care and diligence. (4) That if the forgeries are so skilfully done that such careful examination being made, they are not thereby reasonably discovered, the depositor does not thereby lose his rights against the bank. (5) That if the forgery is by the agent of the depositor, the depositor is chargeable with the fault of his agent, at least if he does not show that he exercised reasonable diligence in supervising the conduct of the agent. "In the absence of such supervision, the mere designation of an agent to discharge a duty resting primarily upon the principal, cannot be deemed the equivalent of performance by the latter." (6) That whether the depositor is negligent so that he is estopped to charge the bank, is a question of fact for the jury.
From this case, we find that there is a duty on the depositor to examine his account with the bank from time to time, and that while the bank is liable for paying forged checks, whenever from the failure to give due examination such forgeries are permitted to continue, the depositor is responsible for those particular forgeries so committed; that while the duty of examination may be entrusted to agents, still the depositor is bound to use due diligence in that respect, and if the forgeries are by the agent himself, the principal must show that he is in no way chargeable with diligence in discovering the errors, or in suspecting their existence.