Check (finance)

“ A business firm would hardly pay car fares with checks and liquidate its large liabilities with cash. Each person strikes an equilibrium between his use of the two methods of payment, and does not greatly disturb it except for short periods of time. He keeps his stock of money or his bank balance in constant adjustment to the payments he makes in money or by check. Whenever his stock of money becomes relatively small and his bank balance relatively large, he cashes a check. In the opposite event, he deposits cash. ”

“ The habit of using checks rather than money will also affect the velocity of circulation; because a depositor's surplus money will immediately be put into the bank in return for a right to draw by check. ”

“ On the contrary, the holder in such a case takes it subject to no equities of which he has not, at the time, notice; for a check is not treated as overdue merely because it has not been presented as early as it might be, or as a bill of exchange is required to be, to charge the drawer or indorser or transferrer. ”

“ But in connection with banking and in ordinary commercial parlance it means money taken to a bank, left there, and understood to be subject to check or draft. [2] Money thus deposited and drawn on enters largely into the commerce of the country: checks and drafts are mercantile instruments, part of the machinery of trade, having commercial value and bearing no resemblance to the 'pass-book' held by the poor seamstress, or washerwoman, or cook, who can go but four times a year and after notice to have a debit entered in it. ”

“ My illustration is this: if there were but one bank in a town, and all the people did their business through this single bank, by depositing their money and checks, and then paid all their bills, with checks on the bank, apart from any outside business, every debt in the town would be paid by check, and there would be no need of any money at all as the claims and debts would be exactly equal, and would always cancel each other to a cent. ”

“ There are just two ways to collect money on checks, one by presenting them at the counter of the bank on which they are drawn and getting the cash and the other by sending them through the mail for remittance by draft drawn on some large city depository. The latter method obtains in 99 per cent of the hundreds of millions of checks drawn. The bank upon which the check is drawn makes a small charge of one tenth of one per cent to compensate for clerk hire, postage, stationery and the like. It is a perfectly legitimate charge in vogue and practiced for generations in banking circles. ”

“ All debit balances therefore that are not assets are losses, and per contra all credit balances that are not liabilities are profits. So that, inasmuch as double-entry provides inter alia a complete statement under suitable headings of all profits and all losses, it is possible by aggregating these results to deduce therefrom the net profit or loss of carrying on the business—and that by a method entirely distinct from that previously described in connexion with single-entry, thus constituting a valuable additional check. ”

“ As checks on bankers are in constant use, and have been adopted by the commercial world generally as a substitute for other modes of payment, it is important, for the security of all parties concerned, that there should be no mistake about the status, which the holder of a check sustains towards the bank on which it is drawn. ”

“ Again, the more concentrated the population, the more prevalent the use of checks. In cities it is more convenient both for the payer and the payee to make large payments by check; whereas, in the country, trips to a bank are too expensive in time and effort to be convenient, and therefore more money is used in proportion to the amount of business done. Again, the wealthier the members of the community, the more largely will they use checks. Laborers seldom use them; but capitalists, professional and salaried men use them habitually, for personal as well as business transactions. ”

“ In the ultimate analysis the best safeguard is the integrity of the employee; still the employer should not tempt the employee by making the abstraction of his cash an easy performance.
Principle of the Double Record.—A fundamental principle in the handling of cash is to secure a double—not a duplicate—record of its receipt and disbursement. The practice of depositing in a bank all cash receipts and making disbursements only by check should be followed invariably, because it secures this double record—the bank’s record and the cashier’s record. ”

“ But when the instrument is drawn upon a bank, or a person engaged in banking business, and simply directs the payment to a party named of a specified sum of money, which is at the time on deposit with the drawee, without designating a future day of payment, the instrument is to be treated as a check rather than as a bill of exchange, and the liability of parties thereto is to be determined accordingly. ”

“ Bank business.—Whatever the organization of a bank, its business must be essentially the same. It receives deposits from its customers for safe keeping and for convenience in use by means of checks. A check is simply an order to pay, and, if the receiver is a customer of the bank, amounts to merely a transfer of deposits from one owner to another on the books of the bank. A thousand dollars safely kept in the bank vault may thus change owners a hundred times by means of checks properly recorded. In large transactions the check, because of its economy, takes place of any other form of currency. ”

“ A check is a written order on a bank to pay money on demand. It may be drawn to cash, or it may be drawn to bearer, or it may be drawn to the order of some one. If A owes B $1,000 and A has a deposit at a bank for that amount, A can cancel his debt to B by giving him a check on the bank for $1,000. The check is exchange, though not in the usual form of what is known as exchange, for A has canceled his debt to B by giving B the bank's debt to him. ”

“ The paying teller must watch for raised or altered checks. The law holds that any legal instrument is void if altered in any material way.
So many people, if they make a mistake in writing a check, will erase or alter the amount or the name, instead of taking a little more time and making out a new one. The banks have to be very cautious and particular about paying such checks, for they are paying out actual cash on doubtful orders. According to law, they must suffer the consequences if they pay to the wrong person or pay the wrong amount. ”

“ If a check is not protested, the maker of the check must prove that he has suffered loss by not receiving notice of non-payment. But the drawer of a draft, or the endorsers on any check, draft, or note are released, whether they suffer damage or not. Generally speaking, a check is a written request of a depositor to his bank to pay a certain sum to a certain party; whereas a draft is a written request of any one to a firm or individual, to pay a certain sum to a certain party. ”

“ The truth is, that a check is properly neither a bond, bill, or note, with regard to the bank drawn upon, but an acquittance. And the contract arising out of a payment upon it, is a contract for money advanced, and must be so declared upon. It is true that checks are generally made payable to bearer, and this was made payable to order; but it is in evidence that it was drawn as a check, and paid as a check, and the declaration contains only the common money counts. ”

“ Where a bank was entitled to a credit or payment corresponding to the excess which the sum of the checks presented by it exceeded the sum of the checks against it, the clearing house paid that bank the difference by drawing its check upon one or more of the debtor banks; and each member constituted the manager of the association its agent to draw a check or checks upon such member for any balance found to be due by that member. ”

“ Though a man keep a balance of £10,000 to his credit, he will not receive one penny in the shape of interest unless he ask for it, and, even after having arranged a rate, it is advisable to check the banker’s figures and ascertain that you are getting it, as, sometimes, they are apt to err in his favour, through small debits that have been deducted from the interest, and which, consequently, do not appear in your pass-book. ”

“ By way of example, let it be supposed that a tailor sells a suit of clothes and receives in payment therefor a check for, say, fifty dollars. He deposits that check in a bank in the belief that he can obtain a definite worth for it in whatever commodities or services he may choose to invest it, and the bank likewise accepts and places it to his credit, in the belief in the ability of the signer and indorser to produce commodities or services of the value for which it calls. ”

“ The signature, after being photographed, is carefully traced over with ink, and the body of the check is filled up for whatever amount is desired. The maker of the check is requested to identify the person who holds it, and as a general thing he does not wait to see the money paid. The moment his back is turned, the layer-down palms the small check and presents the large one. This way of obtaining money is without the assistance of a middleman. ”

“ If I should deliver to the American jobber my check today, and he should send his check to the American importer and the American importer should send a draft to the English exporter, and the English exporter should deliver his check to the wholesaler, and the wholesaler should send his check to the manufacturer, debts amounting to $88,000 would have been paid and credit amounting to $88,000 would have been canceled; and yet not a single cent of cash in the form of coin or currency has been used. ”

“ If the maker of a check has his check certified, he is jointly responsible with the bank for its payment, but if the receiver of the check has it certified, the maker of the check is released from all responsibility. ”

“ We have called the instrument under which the respondent claims as assignee, a draft. But on its face it is called 'check.' The form was a general form furnished by the bankrupts and the purpose is said to have been that in continental Europe or some parts of it checks are not subject to the same stamp tax as drafts. It is said in a reputable work that the fact that the instrument purports to be drawn upon a deposit is what constitutes it a check. ”

“ So when, without more, a bank receives upon deposit a check indorsed without restriction, and gives credit for it to the depositor as cash in a drawing account, the form of the transaction is consistent with and indicates a sale, in which, as with money so deposited, the check becomes the absolute property of the banker. ”

“ The assumption that the total check circulation is the same as the volume of checks actually used in trade is a violent one. Payments may be tax payments, loans and repayments, [Pg 340] gifts, what not. Many checks may be used in a single transaction. Surely not all of this is properly to be counted in the M ́V ́ of the equation of exchange. But this topic is better discussed in connection with the estimate for T, and I reserve its fuller discussion till then. ”

“ I say approximately because M ́ (defined by Professor Fisher as "bank deposits subject to check") , if it be made to express an accurate measure of circulating credit, should include not only open bank accounts, but certain other values which constitute current means of payment, such as bankers' bills, trade bills, cashiers' checks, and certified checks....
The relation which Professor Taussig has pointed out between M ́ and T (the value of negotiable credit and the contemporary volume of trade) is not only possible, but, in any community of modernized commerce, is actual. ”

“ Where several bank accounts are kept and a check register—in addition to the cash book—is used to keep record of the accounts with the various banks, it may happen that checks drawn on one bank are wrongly charged to another; that checks drawn, or deposits made one day, are not credited until the next; that certain drafts deposited with the bank for collection are not credited to the depositor’s account until collection is made, whereas the depositor debited the bank at the time of the deposit ”

“ If you make your check payable say, to William Armstrong or order,
nobody but William Armstrong, or some one to whom he indorses the check,
can collect the amount, and if through fraud or otherwise some one not
entitled to it gets the money which the check calls for, the
responsibility is not yours, but the bank's. It is for that reason that
bankers and business men use such great care in accepting checks. ”

“ The banks always respect the man who has his check certified, if tendered after the clearing hour.
For these same reasons you can see why a bank can not take a check on a bank in some other town in payment of a collection. It then would be several days before the bank would know whether the check was good or not. Also the bank would be out that amount of money for the length of time it takes to collect that check; for every bank must remit to the sender on the very day it puts its "Paid" stamp on a collection and delivers it to the payer. ”

“ In a larger concern or one in which a more detailed distribution is desirable in order to secure definite and accurate costs on a diversified product, distribution on the face of the voucher register might not be feasible. Here, the pay-roll check will be run through the register as a charge to pay-roll. When the desired analysis is made in accordance with workmen’s time cards or other sources of information, a general or cost journal entry is made, charging the proper accounts and crediting Pay-Roll. ”