This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
By the terms of the definition of payment,1 delivery of money is an essential element of payment; and unless there is such delivery of money or its agreed equivalent, there can be no payment.2 The fact that an order or check is stamped "Paid" is not sufficient to constitute payment unless money or its agreed equivalent has been delivered.3 The reservation of usury from a loan is accordingly not payment of usury,4 while a note may be payment of a pre-existing debt if so agreed.5
3 Campbell v. Cove Ranch Land & Livestock Co., 28 Ida. 445, 155 Pac. 662.
4 Bell v. Southern Home Bldg. & Loan Assn., 140 Ala. 371, 103 Am. St. Rep. 41, 37 So. 237.
5 Drake v. Harrison, 69 Wis. 99, 2 Am. St. Rep. 717, 33 N. W. 81.
6 Crumlish v. Improvement Co., 38 W. Va. 390, 45 Am. St. Rep. 872, 23 L. R. A. 120, 18 S. E. 456; Gray v. Herman, 75 Wis. 453, 6 L. R. A. 691, 44 N. W. 248.
1 See Sec. 2802.
2 McCarthy v. First National Bank, 223 U. S. 493, 56 L. ed. 523; Holtz v. Peterson, 98 Ia. 741, 62 N. W. 19; Hanna v. McCrory, 19 N. M. 183, 141 Pac. 996; Baker v. Lynchburg National Bank, 120 Va. 208, 91 S. E. 157.
3 "As to the first proposition, it must be apparent that the mere stamping of the word 'paid' on said orders or checks in and of itself amounted to nothing, and did not constitute payment. The payment could only be made by delivery of the actual cash, or an adjustment of accounts by agreement of the parties, so that the bank would be obligated to the holders of the checks." Hanna v. McCrory, 19 N. M. 183, 141 Pac. 996.
4 McCarthy v. First National Bank, 223 U. S. 493,. 56 L. ed. 523; Baker v. Lynchburg Nat. Bank, 120 Va. 208, 91 S. E. 157.
5 See Sec. 2811 et seq.
A set-off or counterclaim does not amount to payment, since there has been no delivery of money by the debtor to the creditor.6 An additional reason for holding that a set-off or counterclaim is not payment is that the parties did not intend that it should be payment when the transaction out of which the set-off or counterclaim arises was entered into.7
Since payment may be made to anyone whom the creditor designates to receive payment,8 and since the creditor may accept in payment whatever is agreed upon between himself and the debtor,9 the physical possession of money by the creditor is not an essential element of payment.10 If the creditor presents a check or note at the bank on which it is drawn, and expressly or impliedly authorizes such bank to receive payment on his behalf, such obligation is paid if the bank charges the amount against the debtor and credits it to the creditor, although the creditor may never in fact receive the payment.11