First Nat. City Bank of New York v. Frederics-Helton Travel Service, Inc.

• Decision Date: 24 January 1961
• Docket Number: FREDERICS-HELTON
• Parties: FIRST NATIONAL CITY BANK OF NEW YORK and Olaf Ravndal, as Treasurer of American Express Company, an unincorporated association, Plaintiffs, v.TRAVEL SERVICE, INC., Mary E. Frederics and Mary F. Sheafe, Defendants.
• Court: New York Supreme Court

Page 704

209 N.Y.S.2d 704

29 Misc.2d 1041

FIRST NATIONAL CITY BANK OF NEW YORK and Olaf Ravndal, as Treasurer of American Express Company, an unincorporated association, Plaintiffs, v. FREDERICS-HELTON TRAVEL SERVICE, INC., Mary E. Frederics and Mary F. Sheafe, Defendants.

Supreme Court, Special and Trial Term, New York County, Part XXIX.

Jan. 24, 1961.

Shearman & Sterling & Wright, New York City, by Robert C. Fry, of counsel, for plaintiff, First National City Bank.

Roth & Riffkin, by Saul Roth, New York City, of counsel, for defendant.

ISIDOR WASSERVOGEL, Special Referee.

Plaintiff seeks to recover from defendant the sum of $7,560, which represents the face amount of certain travelers' checks entrusted to defendant for sale to its customers.

Plaintiff (hereinafter referred to as 'City Bank') caused to be delivered to defendant approximately $8,000 worth of blank travelers' checks, to be sold by defendant in the course of its regular business. Upon receipt of these blank checks, defendant was required by City Bank to sign so-called 'Trust Receipts' which contained the following provision:

'* * * (d) pending due issuance or return to and receipt by the Bank of such Checks, the undersigned assumes full responsibility to the Bank for their safekeeping and in the event of loss, theft or destruction of all or any of the checks prior to their issuance the undersigned will notify the Bank promptly thereof in writing and will upon request provide the Bank with a bond in twice the amount of the Checks so lost, stolen or destroyed * * *.'

The travelers' checks here involved were presented for payment to City Bank by several out-of-town banks and, upon such presentation, were paid the amount which City Bank seeks to recover here. By way of affirmative defense, however, defendant asserts that these checks were stolen from its offices during the night of June 27, 1957, and that immediately upon the discovery of the theft the following morning, City Bank was given notice of the loss pursuant to the foregoing provision of the 'Trust Receipts.' It is defendant's contention that the monetary loss to City bank was caused solely by the fact that City Bank voluntarily chose to pay out sums of money upon the presentation of such checks at a time when it actually knew, or should have known, that these checks had been stolen in unexecuted and non-negotiable form.

The record clearly establishes that City Bank had actual knowledge that the travelers' checks here involved were stolen prior to the time it made payments thereon. City Bank contends, however, it could not refuse to pay the checks upon presentation because the out-of-town banks were holders in due course. I do not agree with such contention.

In my opinion, City Bank was under no legal obligation to make such payments. When the checks were entrusted to defendant by City Bank, they concededly did not contain the name of any payee. It is a matter of common knowledge that without a signature and counter-signature, a travelers' check cannot be cashed. It is the counter-signature, which, in effect, gives the paper its final form of negotiable currency (Sullivan v. Knauth, 161 App.Div. 148, 152, 146 N.Y.S. 583, 585, affirmed 220 N.Y. 216, 115 N.E. 460, L.R.A. 1917F, 554). Thus, the checks, in the form in which they were in defendant's possession at the time they were stolen, were clearly incomplete and non-negotiable instruments. By operation of law, therefore, where incomplete instruments have not been properly delivered, as is the fact in this action, they will not, 'if completed and negotiated, without authority, be a valid contract in the hands of any holder, as against any person whose signature was placed thereon before delivery.' Sec. 34, Negotiable Instruments Law.

There is no merit to City Bank's argument that 'delivery' of the travelers' checks was made when the blank instruments were entrusted to defendant. An act of transfer and intention are the essential criteria of a valid 'delivery' within the meaning and intent of the applicable statute. See Sec. 2, Negotiable Instruments Law; Irving Trust Co. v. Leff, 253 N.Y. 359, 171 N.E. 569; Grannis v. Stevens, 216 N.Y. 583, 587, 111 N.E. 263, 265.

It is both the act and intent to make delivery which results in the instrument becoming operative according to its terms. Obviously, there was no intent by City Bank to have the travelers' checks become operative upon their receipt by defendant. In the ordinary course of business, these checks became operative only when sold and delivered by defendant to a bona fide purchaser who then signed and countersigned same. Such a transaction must be deemed to be the clear intent of both parties to this action. Thus, when the checks were stolen before issuance in the proper and customary manner to a bona fide purchaser, 'delivery' of these blank travelers' checks never took place within the meaning and intent of the applicable statute (supra; Sullivan v. Knauth, supra). Thus, in view of the provisions of Sec. 34, Negotiable Instruments Law, heretofore cited, and the fact that the travelers' checks here involved were undelivered and incomplete, City Bank, contrary to its contention, was under no legal duty to make payment upon the presentation of such checks by the various out-of-town banks.

Moreover, as noted by Mr. Justice McGivern in his decision denying City Bank's motion for summary judgment, it may reasonably be concluded that, in the interests of 'good business,' City Bank 'would have paid these checks upon presentation even if the holders thereof were not holders in due course in order to preserve their highly-advertised safety, negotiability and marketability' (First National City Bank of New York v. Frederics-Helton Travel Service, Inc., 22 Misc.2d 481, 483, 195 N.Y.S.2d 150, 152).

In order to sustain City Bank's position in this action, it would be necessary to conclude that defendant was an absolute insurer under the provisions of the 'Trust Receipts' it executed at City Bank's request. A search by the Court as well as by counsel of the relevant case law in this State indicates that the particular factual situation here involved and the language of these 'Trust Receipts' have never been litigated or interpreted by the courts in this jurisdiction. Cases cited by both sides in their briefs are readily distinguishable from the matter now before this Court. The closest c...