Irving Bank v. Wetherald — 36 N.Y. 335

Majority

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The Irving Bank, in the city of New York, v. James Wetherald and others.

Headnote

The customary certificate “good ” by a bank at whose place of business a note is made payable, is information merely, that the maker has funds to meet the note.

This information may be furnished verbally, by letter or by a memorandum upon the nolo. The effect in each case is the same.

The bank making the certificate, has the means of accurate knowledge, and is bound to state the fact correctly. It is estopped from denying the truth of its statement where the presenting bank relies upon its accurracy and fails to protest the note for non-payment.

Where, however, a certificate of the goodness of a note is erroneously made, and the error is discovered and notice given to the presenting bank, in time for it to make a re-presentment and charge the indorsers, the certifying bank is discharged from further liability.

And where in such case, the certifying bank, to relieve itself from supposed liability on such a certificate, paid to the other bank the amount of the note, received it back with the mark “paid” stamped upon it, presented it for payment and gave notice of non-payment to the indorsers bn the day of its maturity. Held, that the bank took the note as purchaser and acquired the rights of a holder of the same, and could maintain their action against the indorsers of the note.

The questions in this case arise upon the following facts, which were found by the judge who tried the cause without a jury:

On the 7th day of December, 1858, one Morris Wilson made his note for $301.30 at eight months, payable at the Irving Bank to his own order; he indorsed the same, and it was also indorsed by Wetherald & Young, the defendants.

Said note, before maturity, was duly discounted by the Seventh Ward Bank for the defendants.

On the day the aforesaid note matured, the Seventh Ward Bank, as the owner thereof, presented it to the paying teller of the Irving Bank,' who certified it in the usual manner as good, and charged the same to Morris Wilson in the books of the Irving Bank. At this time Morris Wilson had no funds in the bank. '

Immediately upon said note being returned to the Seventh Ward Bank certified, that bank caused the same to be stamped “ paid.”

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Upon the discovery by the officers of the Irving Bank of the mistake of their paying teller in certifying said note, and before three o’clock of the same day, the said Irving Bank notified the said Seventh Ward Bank of the mistake, and requested the said certificate to be canceled, which the said Seventh Ward Bank refused.

Upon the refusal of the said Seventh Ward Bank to cancel said certificate, the said Irving Bank paid to the said Seventh Ward Bank the full amount of said note and received the same into their possession stamped “paid,” as aforesaid; and thereupon, on the same day of its maturity, and before three o’clock p. m., the same was again presented at the counter of the Irving Bank for payment, payment demanded, and the same duly protested for' non-payment, and notice thereof given to the defendants.

The court directed judgment in favor of the' defendants. The General Term of the first district reversed this judgment and ordered a new trial. The defendants appeal to this court, stipulating that 'if the order granting a new trial be affirmed, judgment absolute may be entered against them.

Mr. Tyler, for the appellants.

Mr. E. Fitch, for the respondents.

Both the judge at the circuit, and the General Term, were of the opinion, that the notice by the plaintiffs to the Seventh Ward Bank, of the mistake in certifying Wilson’s check to be good, before any steps had been taken, or any measures omitted by the Seventh Ward Bank, and while there was still time to fix all the parties upon the note, relieved the plaintiffs from their liability on the certificate. In this opinion I concur. Such a certificate possesses no extraordinary or hidden power. It should impose no greater liability than its terms fairly require. Divested of all technical terms, the transaction in question was simply this: The Seventh Ward Bank present for payment at the Irving Bank, where it is made payable, the note of Morris Wilson. The making the note payable there, was a warrant from the

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maker to the latter bank, to pay it from his -funds and charge it to him. When the note is presented, the teller of the paying bank informs the presenter that the note is good, in other words, that the maker has the funds in the bank to meet it. This information may be communicated verbally, by letter or by a memorandum on the note, ordinarily called a certificate. If the note were presented by an individual, the money would ordinarily be paid to him in satisfaction, and the note left with the paying bank. In the case of a bank, the note is taken back by the party owning it, to be returned the next day in the settlement of exchanges, as an item of credit in its favor, and against the certifying bank. This is the usual course of business in the city of New York. The correctness of this. certificate is a matter which the certifying bank has the means .of knowing, and is bound to state correctly.* If the presenting bank relies upon its accuracy, and fails to charge the indorsers as upon non-payment on presentation, the certifying bank is estopped from denying the truth of its statement. Having asserted, of its own knowledge, that the maker had funds in its bank to meet the, note, and the presenting bank, having omitted, to charge its indorsers in reliance upon such statement, the certifying bank will not be permitted to go behind its own statements: The teller of the bank is the proper officer to make this statement, and his statement binds the bank,whether accurate or erroneous. These principles are established in Mead v. The Merchants' Bank of Albany ( 25 N. Y., 143 ), and in Farmers' and Mechanics' Bank of Kent County v. Butchers' and Drovers' Bank (16 id., 125).

In the present case the Irving Bank discovered its error, in stating that it had funds for the payment of Wilson’s note, in sufficient time to prevent any loss in consequence of the error. It immediately notified the Seventh Ward Bank of the error, and in time to enable it to make a re-presentment, if necessary, and to charge the indorsers. Ho damage,.therefore, could accrue to the latter bank from the erroneous information. They were bound to accept and to act upon the corrected information, if there were time and

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opportunity so to do. I agree with the courts below that the plaintiffs might have stopped at that point, and there' would have been no liability on their part to the Seventh Ward Bank.

That bank went farther, however, and, upon the refusal of the Seventh Ward Bank to cancel their certificate, paid to that bank the amount of the note, re-presented it at their own counter, and gave notice of non-payment to the defendants as indorsers thereof. This the judge, at Special Term, held to amount, in law, to a payment of the note. The General Term held otherwise, and reversed his judgment. It was agreed, by the judge at Special Term, that the certificate of the paying teller was not a payment of thp note. In this he was no doubt correct. It has also been held, and correctly, that the stamping a note as “ paid,” or marking it with a canceling hammer, does not constitute a payment. (Scott v. Betts, Lalor Sup., 363 and note; Watervliet Bank v. White, 1 Denio, 608 .)

That the advance of the amount of the note, by the plaintiff, to the' Seventh Ward Bank, was made to relieve them from an apprehended liability on their certificate,, and was not intended by them to be in discharge of the note, is obvious from the immediate re-presentment of the note for payment, and notice to the indorsers that the same had not been paid. There could have been no other purpose in this than to charge the parties to' an existing note. So, if they had intended a payment and discharge of the note, they would have allowed its return in the exchanges of the day following, in the usual course of business, instead of making a special payment of the same. The judge has not found, as a fact, that the note was intended to be paid by the Irving Bank, or that it was paid by them. Ho could not have so found upon the testimony, with propriety. He simply finds that the plaintiff paid “the amount of the note” to the Seventh Ward Bank, and he holds, as a legal result, that the advance of the money, under the circumstances stated, operated to discharge and cancel the note. In this conclusion I think he erred. The plaintiffs took the note as a purchaser,

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and acquired the rights of a holder. (See Watervliet Bank v. White, 1 Denio, 608 .) In that case the Watervliet Bank, at whose counter the note was made payable, received it from the holder for collection, and, having an account with the maker, which, however, was not good for' the amount, charged it to him and paid it to the holder, at the same time placing up to it a canceling mark. *By the practice of the bank this mark only denoted that the note was charged. In a suit on the note by the bank, as indorsee against the maker, it was held that the bank held it with the rights of a purchaser, and could maintain the action.

In the present ease the plaintiffs feared a liability-to the Seventh Ward Bank, by reason of their mistaken certificate of the goodness of the note. They advanced to that bank its amount, for the purpose of re-presenting it for payment, notifying the indorsers, and holding it as an existing security. The defendants are indorsers duly charged. They received, themselves, the amount of the note upon its discount. It has never been paid, and is now an available security in the hands of the plaintiffs.

The order of the General Term should be affirmed, and judgment absolute ordered in favor of the plaintiffs for the amount of the note and interest.

All concur.

Judgment absolute.