Story Case

As treasurer of a newly organized country club, Stanley Ward deposited $300 in the National City Bank. As this was in autumn season, and he did not anticipate any need for disbursements for some time, he did not open a checking account, but took a certificate of deposit, bearing interest at five per cent, and payable in six months. After the six months had elapsed, he did not present the certificate for payment. The country club had now bought a small tract for the club grounds, and desired to make as the first payment, the $300 which their treasurer held. Ward, therefore, drew a draft or bill of exchange upon the National City Bank, directing it to pay $300 to the seller of the land. Payment of this draft was refused by the bank, and Ward was called upon to make good the payment upon the contract for the land. He paid the amount, and then brought suit against the bank for refusing to pay out the $300 upon his order. The bank contended that its only liability was to pay the money upon presentation of the certificate, which Ward had neither presented himself nor assigned to the seller of the land. Is this a valid defense, or should Ward recover in this action?

Ruling Court Case. First National Bank Vs. Stapf, Volume 165 Indiana Reports, Page 162; Volume 112 American State Reports, Page 214

The Indiana National Bank issued to Stapf the following instrument: "George Stapf has deposited in this bank $600, payable to order of self, in current funds, on return of this certificate properly indorsed. W. C. Collins, Cashier." Stapf indorsed this to the First National Bank. Unable to collect it from the Indiana National Bank, the First National Bank brought suit and recovered judgment. Execution was issued upon the judgment, but the Indiana National Bank had no property which could be levied upon in satisfaction of the judgment. The First National Bank then sued Stapf as indorser, claiming that this instrument was a negotiable instrument.

Mr. Justice Montgomery said: "The certificate of deposit above set out, is in legal effect a promissory note, and transferable by indorsement under the statute of this state. The indorsee of such an instrument, having used due diligence to collect, has a right of action against his immediate or any remote indorser." The court was of the opinion that due diligence was used by the holder of the instrument in this case, and judgment was, accordingly, given for the First National Bank.

Ruling Law. Story Case Answer

Frequently a written statement, called a certificate of deposit, is given by the bank, acknowledging receipt of a certain amount deposited. In legal effect, such an instrument is a promissory note, and if it is payable to order or bearer, it becomes negotiable. In such case, the general rules governing other negotiable instruments will apply. If it is not made payable at any definite time, it is then payable upon demand; that is, it becomes payable whenever the holder demands payment.

The certificate of deposit does not mean that the amount stated is held by the bank as an ordinary deposit, which can be drawn out in the ordinary ways. Since there was no agreement to honor checks or drafts, there is no liability upon the National City Bank for its refusal to pay Ward's draft. The certificate is a negotiable obligation of the bank, which it is required to pay, only in accordance with the laws of negotiable instruments. Therefore, it is liable only after the maturity of the certificate, and upon a presentation of the instrument to be cancelled. Ward has not sued on the certificate as upon an instrument, but upon a deposit. Judgment should, therefore, be given for the bank.