John Hancock Mutual Life Insurance v. Fidelity-Baltimore National Bank & Trust Co.

Prescott, J., delivered the opinion of the Court. Three judgments were entered in the Superior Court of Baltimore City, after the court had sustained demurrers of the several defendants to three separate amended declarations as particularized, without leave to the plaintiff to amend. The three appeals are taken therefrom and are joined because all three cases involve substantially the same or similar facts and substantially the same questions of law. The several amended declarations show that John Hancock Mutual' Life Insurance Company, (Hancock) the appellant (legal plaintiff), has its principal office in Boston, Massachusetts, and maintained a branch office in Baltimore, Maryland, which was managed by a then trusted employee, one Robert J. Wright.

Hancock had outstanding a fidelity bond or policy with The Employers’ Liability Assurance Corporation, Ltd. (the “use” plaintiff), hereinafter referred to as “Employers’ ”, insuring it against loss sustained by reason of the defalcation or dishonesty of trusted employees. At that time, Hancock maintained three separate checking accounts, one in Baltimore, with the then Fidelity Trust Company, and two in Boston, one with the Second National Bank of Boston, and the other with the First National Bank of Boston. Beginning with July, 1949, Wright, in his capacity as manager of its Baltimore office, began to present to Hancock a series of fictitious claims on behalf of supposed Maryland claimants. On receiving these claims in Massachusetts, Hancock, acting in the belief that the claims were genuine, drew its checks in payment and mailed them to its Baltimore office, to be from there delivered to the purported claimants, the payees named in the checks.

On reaching Hancock’s Baltimore office, the checks were taken possession of by Wright, who indorsed them with the names of the fictitious payees, and then deposited or cashed the checks with either the Calvert Bank or the Equitable Trust Company. These two banks, in turn, ⁵⁰⁹ would then indorse the checks with their own names, specifically guarantee the prior indorsements, and collect the proceeds from the several drawee banks, one in Baltimore and two in Boston. Hancock discovered the fraud sometime in the year 1952, and immediately notified or caused to be notified all concerned, including the appellees in these cases. On ascertaining the full amount of its loss occasioned by the payment of the checks, Hancock made claim under its policy of fidelity insurance on Employers’, the “use” plaintiff below.

Following this, Hancock made a written assignment of its claims on the checks to Employers’ and received $38,185.61 payment in full of all the checks involved in these cases. A brief summary of the three cases shows the following pertinent facts: CASE NO. 1. — Superior Court File No. 30123 — This case, against Fidelity-Baltimore National Bank & Trust Company, as successor to the Fidelity Trust Company, and to the Calvert Bank, involves fourteen (14) checks, totaling $30,303.05. Eight of the checks, totaling $5,506.80, were drawn on the Fidelity Trust Company, and cashed at the Calvert Bank. Five (5) of the checks, totaling $24,293.91, were drawn on the Second National Bank of Boston, and cashed at the Calvert Bank.

One (1) check, for $502.34, was drawn on The First National Bank of Boston, and cashed at the Calvert Bank. CASE NO. 2. — Superior Court File No. 30404 — This case, against both Fidelity-Baltimore National Bank & Trust Company and The Equitable Trust Company, involves three (3) checks, totaling $2,219.00. These checks were all drawn on the Fidelity Trust Company and cashed at The Equitable Trust Company. CASE NO. 3. — Superior Court File No. 30405 — This case, against The Equitable Trust Company alone, involves three (3) checks, totaling $5,663.56.

Two (2) of the checks, totaling $5,118.56, were drawn on The Second National Bank of Boston. One (1) of the checks, for $545.00, was drawn on The First National Bank of Boston. As to all of these checks, the appellee, The Equitable Trust Company, is a collecting or intermediary bank. ⁵¹⁰ Following the filing of the three amended declarations in these cases, the several defendants filed demands for particulars in each of which the sole question asked was — “Under what jurisdiction did the plaintiff issue the checks referred to in the amended declaration?” To each of the demands the plaintiff filed a bill of particulars, giving as the one answer, that “The checks referred to in the amended declaration were drawn in the plaintiff’s home office in Boston, Massachusetts. They were then mailed to the plaintiff’s branch office in Baltimore, Maryland, to be there issued and from there delivered to the payees named on the checks.” The several appellees, each, then filed demurrers to the respective amended declarations as particularized, and the trial court sustained the demurrers, without leave to amend.

The question presented for our decision is: Was this ruling of the trial court correct? It is conceded by the appellees the ¿ases turn upon whether the law of Massachusetts or the law of Maryland applies to checks drawn as above, so as to render them payable to „ bearer or not payable to bearer. Without setting forth in detail the statutes involved, it is conceded by both sides that the Massachusetts statute, Ann. Laws of Mass. (1941) Ch. 107, Sec. 31, makes checks payable to the order of fictitious or non-existing persons, under the circumstances mentioned above, payable to bearer; while the Maryland statute, Art. 13, Sec. 29, does not.

It was also conceded the payees were fictitious persons. If the Massachusetts’ law applies and the checks were made payable to bearer, the respective banks had a right to cash them without any indorsements. On the other hand, if the Maryland law be applicable and the checks were not payable to bearer, the indorsements would be forgeries for which the said banks would be responsible. The appellant contends the Maryland law is controlling; that there was no delivery of the checks made in Massachusetts, and, although mailed to its agent in Baltimore, Hancock had the power and authority to direct that they be not delivered to the supposed payees; that until delivery, the checks as such had no legal existence; and the indorsements were, therefore, forgeries and the banks were answerable. ⁵¹¹ The appellees counter by claiming the checks are bills of exchange; that in these cases there were no contracts or meetings of the minds, as the payees were “either non-existent, fictitious, or if alive, unaware” their names were being used; and that the undertakings of Hancock were made at the times it signed the checks in Boston.

Questions relative to negotiable instruments arising upon a conflict of laws are not always free from difficulty. The Negotiable Instruments Act makes no provisions as to what law governs bills and notes in a case of conflict of laws, and, in determining this question, it is necessary to consider certain factors. Some of these are: (1) That the law relating to what law governs contracts in general is applicable, so far as general principles are concerned; (2) that there is considerable conflict in the decisions relating thereto; (3) that general statements in the decisions should be controlled by the specific statements of law in regard thereto; (4) that an ordinary negotiable instrument often includes many contracts, each several signature — as maker, drawer, acceptor, guarantor, surety or indorser — being a separate contract; (5) and that each separate contract may bring into question a different place and law, since each contract involves a place of contract and a place of payment which may be governed by different laws. In like manner, one law may determine the validity of a contract, while other laws regulate its form or construction or the steps to be taken for its maintenance or enforcement. 10 C. J. S., Bills and Notes, par. 47.

It seems generally to be conceded that the proper law governing a bill or note is the law which the parties to the instrument intended to govern. Accordingly, if the bill or note contains express provisions that it shall be governed by the laws of a particular state, those laws govern. The checks in these cases were signed by Hancock in Boston and mailed to its agent in Baltimore. Under Art. 13, Sec. 205 of the Maryland Code and Ann. Laws of Mass.

Ch. 107, Sec. 208 checks are bills of exchange, but these are not controlling. The mere signing of a check creates no contract or liability thereon until delivery in accordance with Sec. 36 ⁵¹² of Art. 13 of the Maryland Code (1951), or Ch. 107, Sec. 38 of the Ann. Laws of Mass, which specifically provide: “Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. * * * ” The well known author, Joseph H. Beale, in his work The Conflict of Laws, Vol. II, par. 312.2, citing numerous authorities, uses the following pertinent language: “* * * Since, however, a contract is a promise, or set of promises, to which the law attaches legal obligation, and since it cannot be