National Exchange Bank v. Ginn & Co.

Urner, J., delivered the opinion of the Court. This is an action by a bank to recover money paid on the cheek of a depositor, and recovery is sought upon the ground that the payment was made under a mistake of fact. Tt appears without contradiction from the record that on October 19, 1909, the William J. C. Dulany Company drew ¹⁸² its check on the National Exchange Bank of Baltimore, the appellant, payable to the order of Ginn and Company, the appellees, for the sum of five thousand dollars. The check was mailed to the appellees in New York and was by them deposited on October 20, 1909, in the National Park Bank of that city.

On the same day it was forwarded by that bank to the Farmers and Merchants’ National Bank of Baltimore for collection.' It was received by the latter bank on the morning of October 21st, and about nine o’clock on that morning the check was passed through the Clearing House and was paid about eleven o’clock by the appellant in the regular course of its clearance settlements. At ten o’clock approximately on the same morning receivers were appointed for the Dulany Company upon a bill alleging, and its answer admitting, its insolvency. The company’s deposits with the appellant just prior to the payment of the check in question amounted to $9,019.18. It was indebted to the appellant in the aggregate sum of $21,620.80, including $5,000 upon a promissory note which matured that day and $5,-792.02 upon a demand note.

The appellant might have set off the Dulany Company’s indebtedness against its deposit credits, but supposing it to be solvent and in ignorance of the receivership, the bank honored the $5,000 check when it was presented in due course for payment. About fifteen minutes before twelve o’clock, and within an hour after it paid the .check, the appellant learned for the first time of the appointment of receivers for the Dulany Company and of its insolvency. One of the officers of the appellant thereupon immediately offered to return the cheek to the Farmers and Merrchants’ Bank and requested repayment. This was refused, and the appellant then proceeded against the appellees as non-resident debtors and attached in the hands of the Farmers and Merchants’ Bank as garnishee the funds which had been paid on the check.

The suit againts the appellees was tried upon issue joined on general issue pleas to the common counts in assumpsit, ¹⁸³ including a count for money had and received, and resulted in a verdict for the defendants under the direction of the-Court. There is hut one exception in the record, and that refers to the action of the trial Court in thus withdrawing the case from the jury. Upon the undisputed facts we have stated the question to-be determined is whether the appellant, because of its ignorance of the drawer’s insolvency at the time of the payment of the check, is entitled to recover the amount paid to the holder in order that the bank’s right of set-off against the-drawer may be utilized. It is to be observed that this very interesting and important question is not here complicated by any of the elements-of deception or imposition which are sometimes found in-cases of erroneous payments.

The conduct of every party concerned was characterized by absolute good faith. When-the check was given the drawer had ample funds in the bank on which it was drawn. It was issued in the usual course of' business and was used in payment of a valid claim. It was-honored solely in consequence of a mistake as to the existence of a condition which, if known, would have induced a-contrary course of action.

It was correctly'assumed in the argument that the receivership created for the Dnlany Company could not, under the* circumstances, be regarded as influencing the result of this suit; because not only was the payment of the cheek made without knowledge of that proceeding, biit it is clear that the appellant has a right of set-off which would absorb the fuud if recovered. Colton v. Drovers’ Building Asso., 90 Md. 94 ; Dubreuil v. Gaither, 98 Md. 544 . As the suit -is dii’ectly against the payee of the check, the situation is not affected by the rules of the Clearing House, through which it was presented and collected'. One of these rules provides “that errors in exchange and claims arising from the return of checks or other causes are to be adjusted by eleven o’clock A. kl. directly between the banks which are ¹⁸⁴ parties thereto, and not through the Clearing House,” and that “upon request made before eleven o’clock A. M. every bank shall extend until twelve o’clock the time for returning to it checks ‘not good’.” When the offer was made at about quarter to twelve o’clock to return the check under consideration it was refused upon the ground that it was made after eleven o’clock and that there had been no request prior to that hour for an extension of time.

It is well settled that such a regulation is binding only upon the members of the Clearing House Association. Its rules are designed exclusively for their convenience and protection as among themselves, and have no effect upon the rights or liabilities of other, parties. 5 Cyc. 614; Merchants’ Nat. Bank v. Nat. Bank of Commonwealth, 139 Mass. 518 ; Overman v. Hoboken City Bank, 30 N. J. Law, 61.

The failure of the appellant to offer to return the check and to demand repayment within the time prescribed by the rules of the Clearing House would therefore not impair its claim against the payee for the restoration of the fund if its right of recovery should be foiuid to be otherwise perfect. So far as the purposes of this case are concerned, the situation is precisely the same as if the appellees had in person presented the cheek to the appellant and had received the money over its counter. Whether they are liable to repay it under the circumstances of the case is the sole question to be considered. The appellant’s theory is that the insolvency of the Dulanv Company matured its obligations to the bank; that the deposits of the company thereupon became applicable to its indebtedness, and that consequently there was no money really available for the payment of the check when it was presented.

It is argued, therefore, that the check was paid as the l'esult of a mistake as to the true condition of the drawer’s account. In the case of Manufacturers’ Bank v. Swift, 70 Md. 515 , a check was paid by the bank on which it was drawn although the drawer “had no funds in the bank at the time of payment properly applicable to this purpose.” The check was ¹⁸⁵ originally drawn against an account opened by tbe drawer in his name as sole trustee by the endorsement and deposit in that form of a check payable to the order of himself and another as trustees jointly. The payment accomplished by the check given by the trastee had' no relation to the trust estate to which the deposit really belonged, but the bank was misled into the contrary belief by an order of Court, which had been brought to its attention, permitting the timstee who made the deposit, on account of the absence of his co-trustee, “to act as fully, in all matters pertaining to said trust, as if both were present and acting.” Under the misapprehension thus induced the acting fiduciary was allowed to add to the check given by him as sole trastee the name of his co-trustee as a drawer. The deposit account being also changed so as to stand in the name of the two trustees it was then charged with the check as corrected.

The bank having been required to restore the funds thus misappropriated from the trust estate, on the ground of its actual though unintentional participation in the breach of trust (Swift v. Williams, 68 Md. 236 ), brought suit against the payee of the check; but recovery was denied by this Court because the bank had been neglectful of its means of knowledge and because: “It is the duty of a bank to know the state of its depositor’s account .and if it makes a mistake in this respect it must abide the consequences. The presentation of a check is a demand for payment; if it is paid, all the rights of the payee have been satisfied, and he is not entitled to ask any questions. It would forever destroy the character of a bank in all commerieal circles if when it was ready and willing to pay a check, it permitted the holder to inqrdre if the drawer had funds there to meet it. It is a matter with which he has no concern.

In the absence of fraud on the part of the holder, the payment of a check by a bank is regarded as a finality. And the fact that the drawer had no funds on deposit will not give the bank any remedy against the holder.” ¹⁸⁶ One of the decisions cited in the Swift Case as an authority in support of the proposition we have quoted was that of Oddie v. National City Bank, 45 N. Y. 735. There the check was presented for deposit to the hank on which it was drawn and was credited to the payee’s account. This was treated as equivalent to payment of the check hy the hank, and it was held that “where a check is presented, to a hank for deposit, drawn directly upon itself, it is the same as though payment in any other form was demanded.

It is the right of the bank to reject it, or to refuse to pay it, or to receive it conditionally * * * but if it accepts such a check