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which to pay it. He may—even honestly, for many individuals keep no record of balances withdraw those funds and make the check worthless. He may die, or become bankrupt, causing the check automatically to become revoked. The holder must then wait to get settlement from an estate which might be insufficient to satisfy all claims. Maybe nothing happens to the drawer, but the bank fails. Can the holder fall back on the drawer for payment? The drawer cannot be held responsible for the holder's negligence. He is responsible only for the difference between what he owes and any damage the negligence may have caused him. If the bank failure causes a loss of 40% in the drawer's account, he can be held for only 60% of his debt. If the drawer takes back the check, he owes only what he himself can receive from the bank.

65. Stopping payment on a check. Unless a check has been certified it is revocable. A bank cannot legally pay a check which it has been ordered not to pay. If

Coleman writes a check payable to Wright and Wright loses it, he immediately inquires of the bank upon which it was drawn if it has been paid. If not, he warns the bank and asks Coleman by telegraph, telephone, or messenger to stop payment. Coleman telephones the stop

order, and immediately mails, or takes a written order to the bank describing the check and ordering that it be not paid. Suppose the check payable to bearer was paid before payment was stopped. It is Wright's loss, if he had received it. If the check were lost before Wright got it, it is Coleman's loss; he still owes Wright. If the check payable to bearer is effectually stopped, but gets into the hands of a holder in due course (see 28-29), Coleman is liable and Wright, also, if he indorsed it. In England and France the loser of a check must hurry to get it stopped, as a bank is not responsible to whom it pays a check drawn upon itself (see 147).

66. Duplicate checks. When Coleman sends a check to Wright and it is lost en route, he cannot claim to have paid Wright. He must send him a new check. If Wright gets the check and loses it, he is entitled to a new check from Coleman only in case it has not been paid and Coleman is guaranteed against loss. Coleman is safe if the check has been destroyed, if it was payable to Wright's order and has not been indorsed by Wright, or if Wright has indorsed it payable to his bank, provided Wright's word can be relied on, and he can be trusted to destroy the check if it is ever found. Unless Coleman can rely on Wright's word and credit to make good to him any loss, if an innocent purchaser (see 28-29) ever gets the check, Coleman should demand an indemnity bond before he writes a check to make good Wright's loss. A new check like the old one same date and number — is a "duplicate check." It should be marked "duplicate " transversely across the face in red ink.

Each person who indorses a check should keep a record of how and from whom he received it, so that in case of loss he will know of whom to ask a duplicate. Many business houses do not do this on account of the expense. It may be preferable to take an occasional loss.

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67. Overdrafts. · - No one in the United States should overdraw his account. In England a depositor arranges to overdraw up to a certain amount and pays interest upon his overdrafts as U. S. Americans do upon loans. Scotch credits are arranged in a similar way. A customer of the Banco de Chile may arrange an open account for as much as he is responsible, say $20,000, for which he pays 1% commission every six months. The customer can then check against his limit and pay 9% interest on whatever he draws.2 In Germany before the Great War a customer could arrange a maximum limit of overdraft by checks. On his overdrafts he paid 1% above the Reichsbank rate plus a commission of 1% a month, while on his balances he received 1% to 2% under the Reichsbank rate. On the contrary in the United States an overdraft is a forced loan without interest and a bank officer has no right to permit it. If he does it is "at his own peril and upon the responsibility of himself and sureties." An overdraft may occur by mistake. It ought not to happen intentionally, when a person can go to his bank and arrange a demand loan for fifty cents or one dollar and upward.

68. Checking of pass book and statement. Every depositor should at regular intervals, depending upon the activity of the account, compare his account with the bank's. Business accounts should be reconciled monthly. It is a growing custom for the pass book to be used as a record only of the deposits, and for the depositor always to keep it. He then gets a statement each month or any time he desires, showing the last balance, the deposits, the checks paid, and the present balance. With the state

2 U. S. Dept. of Commerce, Special Agents Series No. 90, p. 55. 3 A. J. Wolfe, Foreign Credits, p. 38. (U. S. Bureau of Foreign and Domestic Commerce, Special Agent Series No. 62.)

4 Minor v. Mechanics Bank of Alexandria, 1 Peters 71.

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ment the bank surrenders the canceled checks which have accumulated. The bank secures a receipt for the statement and the canceled checks. If the depositor wants to make the bank and not himself responsible for forged, or altered, checks, he must now compare the statement with his own account and report at once any discrepancies. (1) Compare the canceled checks with the amounts listed on the statement in the checks" column. (2) Compare the checks with the check record to see that the amounts charged on the statement agree with the amounts for which checks were drawn. (3) Compile a list of checks unpaid, if any, and which have not been returned with the statement. Subtract the total of these checks from the balance shown on the bottom of the statement. The remainder should agree with the balance shown by the depositor's record. The bank may ask for a statement that the account is correct.

If the bank writes up the pass book, the statement totals appear in the pass book. In that case the pass book is surrendered to the bank while the bookkeeper is writing up the account.

69. Should checking deposits receive interest? - The practice in many banks of paying a small rate of interest on all balances in excess of an agreed minimum, has grown out of the competition of banks to get the accounts of concerns with large balances, in order to lend those balances at a profitable rate of interest. A bank may pay 2% upon balances in excess of $500. It may lend all of it except what it needs for reserve for a good deal more.

In favor of all banks paying interest on minimum balances it is argued: (1) Trust companies and foreign banks pay interest, and banks usually get interest when they deposit in other banks; (2) governmental bodies exact interest, and usually special security, upon their deposits;

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(3) the depositor should share in the profits which the bank makes from loans of his money.5

On the other hand the practice of banks not paying interest can be defended because (1) the payment of interest may lead a bank to take more risk with its funds, (2) the depositor expects the bank to accommodate him with credit, and (3) the bank gives the depositor many free services which are invaluable.

If a depositor carries a good balance in his checking account and does not receive free services like the payment of a considerable number of his own checks, the collection of a large amount of paper, and the granting of loans in proportion to his balance, as are given to other customers, he wants interest. He can get it from the strongest, most careful banks. One bank has paid an individual 3.2% upon his checking balance of $800,000. The rule may be said to be for all banks to pay interest on very large balances. On the other hand when the depositor gets free services in abundance and expects to be taken care of in the way of loans at a reasonably low rate of interest, he may feel sufficiently repaid without any interest. Some banks will not pay interest on a borrowing account when they do on others. Many large concerns get interest on their balances and ask no favors of the banks. They make their loans through note brokOther houses are dependent for loan capital upon

ers.

the assistance of their bankers.

Interest upon checking accounts is credited as a deposit each half year. It is found by taking the sum of the interest bearing amounts of each day for the period, and finding the interest thereon at the agreed rate for one day. 70. Compensating balances. The bank performs

services without which a modern business house would

5 Albert S. Bolles, Money, Banking, and Finance, p. 69. (American Book Co. New York, 1903.)