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.
Payment in counterfeit money is no payment in law and the debtor is not thereby discharged from his indebtedness though he pays it in good faith.1 The same principle applies to payment in canceled United States Treasury notes.2 The exception to this rule is the case where a bank receives counterfeit notes which purport to be its own issue. As it is bound to know its own currency, it is bound by such payment.3 While this principle is recognized in all the books, the cases cited in its support are those in which, as indicated below, the same result might have been reached had the notes been those of another bank. In any event the creditor must give notice to the debtor within a reasonable time that the money was counterfeit, to prevent the payment from binding him.4 Even under an agreement to receive a note 5 as payment, delivery of a forged instrument is no payment. The surety on the original instrument is therefore not discharged.6
2 Corbit v. Bank, 2 Harr. (Del) 235, 30 Am. Dec. 635; Magee v. Carmack, 13 III 289.
3 Lowrey v. Murrell, 2 Port. (Ala) 280, 27 Am. Dec. 651; Bayard v. Shunk, 1 W. & S. (Pa.) 02, 37 Am. Dec. 441; Scruggs v. Gass, 14 Tenn. (8 Yerg.) 175, 20 Am. Dec. 114; Ware v. Street, 30 Tenn. (2 Head.) 600, 75 Am. Dec. 755.
See obiter, Young v. Adams, 6 Mass. 182.
4 Commonwealth v. Stone, 45 Mass. (4 Met.) 45; Hellings v. Hamilton, 4 W. & S. (Pa.) 462.
1 England. Jones v. Ryde, 5 Taunt. 488.
Kentucky. Watson v. Cresap, 40 Ky. (1 B. Mon ) 105, 36 Am. Dec 572.
Maryland. Rasst v. Morris, 133 Md. 187, 108 Atl. 787 (payment in foreign money).
Michigan. A (wood v. Cornwall, 28 Mich. 336, 15 Am. Rep. 219 [s. c, 25 Mich. 142].
New York. Markle v. Hatfield, 2 Johns. (X. Y.) 455, 3 Am. Dec. 446.
Tennessee. Ware v. Street, 30 Tenn. (2 Head.) 600, 75 Am. Dec. 755.
The fact that the contract provides that the debtor does not guarantee the value in United States money, of foreign money in which payment is to be made, does not entitle him to make payment in counterfeit money. Rasst v. Morris, 133 Md. 187, 108 Atl. 787.
2 United States v. Morgan, 52 U. S. (11 How.) 154, 13 L. ed. 643. (The customs collector was here held liable to the United States for such payments received by him.)
3 United States Bank v. Bank; 23 U. S. (10 Wheat.) 333, 6 L. ed. 334. In this case there is the complicating fact that the receiving bank was negligent, as examination of the notes would have shown that they bore serial numbers different from any of that denomination issued by that bank. In Gloucester Bank v. Bank, 17 Mass. 33, the additional fact existed that no notice was given of the doubtful character of the notes for fifteen days and no actual averment of forgery for fifty days.