A check may be denned as the written or printed order of a depositor to have a portion or the whole of his credit balance transferred to another person. It is addressed to the bank, and contains the date of the order, the amount to be transferred, usually expressed both in figures and in letters, the name of the person in whose favour and to whose order the transfer is to be made, the signature of the depositor or drawer, and usually a number corresponding to one written on the stub or portion of the check retained by the drawer and containing a record of all the essential features of the transaction. Forms are furnished by banks on which is printed everything except the date, amount, names of drawee and drawer, and the number, spaces being left in which these items are to be entered by the drawer. The following is typical of the usual form: -
First National Bank Of Pittsburg.
$100000 Pittsburg, Pa., June 25, 1902.
Pay to the order of John Doe One Thousand Dollars.
(125) Richard Roe.
Being simply an order to pay, the check is not binding upon the bank to which it is addressed until it has been presented and accepted. The latter process may be accomplished by writing or printing the word Accepted across the face of the check over the signature of a duly authorized officer of the bank. It then becomes an obligation of the bank in some respects similar to a bank-note. A bank is bound either to accept or to pay a check drawn by a depositor whose credit balance is equal to the amount ordered paid. Before acceptance a check represents simply the credit of the drawer. Inasmuch, however, as people are not in the habit of drawing checks unless they have balances in their favour or credit at the bank, the check of a person of integrity and recognized financial soundness will ordinarily be accepted, and, by the process of endorsement, may pass through many hands before it reaches the bank. This process consists in writing the drawee's name across the back of the check over the phrase "Pay to the order of," followed by the name of the person to whom it is desired that it shall be paid. This person then becomes the payee, and by the same process may order the check paid to another person. Instead of being made payable to the order of the drawee, checks are sometimes drawn payable to bearer, in which case they read "Pay to John Doe or bearer," instead of "Pay to the order of John Doe" or "Pay to John Doe or order." They are then transferable without endorsement, and the bank is authorized to pay the amount named therein to whoever presents them. A check payable to order is not honoured by a bank until it has been endorsed by the payee. A check may be honoured either by being paid in legal-tender money or bank-notes, or by placing the amount named to the credit of the payee. In either of these cases it is withdrawn from circulation, and, after the proper entries have been made in the bank's books, it is usually returned to the drawer.
On account of its peculiarities the life of a check is usually short and the area of its circulation confined to the immediate locality of the bank upon which it is drawn and to the people who have bank accounts or at least have easy access to banks and are familiar with their methods. Occasionally checks are sent long distances by mail, and return to the drawer covered with endorsements, indicating that they have been the means of making many payments; but this must be regarded as exceptional, other forms of bank currency being more commonly used for payments at a distance. Even in these cases, however, the length of time between the drawing of a check and its disappearance from circulation is very short as compared with the life of a bank-note. Within the area of their circulation checks are very extensively used, constituting in fact the chief medium of exchange. Statistical investigations have several times been made for the purpose of measuring the extent of their use, and, while such investigations are necessarily imperfect and have rarely distinguished between checks in the limited sense in which we are using the term and some other forms of bank currency, they prove beyond the possibility of doubt that in commercial centres, especially those in which wholesale trade and business on a large scale are dominant, checks are more extensively used than all other forms of currency combined. This is explained by their superior convenience, economy, and safety in large payments, and by the easy access to and familiarity with banks possessed by business men in large cities. For retail centres, small towns, and country districts this form of currency is not so well adapted, although its use here is growing. It is also noteworthy that nowhere on the continent of Europe are checks so extensively used as in the United States and England. This fact must not be regarded, however, as indicative of any essential difference in the monetary needs of these two groups of countries, but rather as evidence of the less rapid and complete development of the banking business on the continent of Europe, due in part to conservatism and in part to the obstacles there placed in the way of the free development of these institutions. Even there, however, a rapid increase in the use of checks is observable, and already this form of currency occupies an important place in the exchanges of every large city.