Heinrich v. First Nat. Bank of Middletown

• Decision Date: 11 July 1916
• Citation: 113 N.E. 531,219 N.Y. 1
• Parties: HEINRICH v. FIRST NAT. BANK OF MIDDLETOWN.
• Court: New York Court of Appeals Court of Appeals

219 N.Y. 1

113 N.E. 531

HEINRICH

v.FIRST NAT. BANK OF MIDDLETOWN.

Court of Appeals of New York.

July 11, 1916.

Appeal from Supreme Court, Appellate Division, Second Department.

Action by Eliza Heinrich, as executrix of Jacob Heinrich, deceased, against the First National Bank of Middletown. From a judgment of the Appellate Division (164 App. Div. 960,149 N. Y. Supp. 1086), affirming judgment for plaintiff, defendant appeals. Affirmed.

John Bright, of Middletown, for appellant. Abram F. Servin, of Middletown, for respondent.

CARDOZO, J.

[1][2][3] In April, 1912, the plaintiff's assignor, Charles Hagen, was a customer of the defendant, the First National Bank of Middletown, N. Y. He had two accounts, one a general account, in which the deposits were subject to payment by check, and the other an account in the ‘Interest Department,’ in which deposits drew interest, and were subject to rules similar to those that are common in savings banks. On April 21 and 22, 1912, two checks, one for $1,001 and the other for $2,002, in all $3,003, drawn by Gouverneur E. Smith & Co. to the order of Charles Hagen, and indorsed without restriction by the payee, were received by the defendant and credited to the customer's general account. Promissory notes for like amounts had been drawn by Hagen and made payable at defendant's bank. On April 23d the notes were presented for payment. The defendant did not own them. It received them from other banks for collection. Through the credit of the two checks the account was provided with the requisite funds, and the defendant applied the deposit to the discharge of the notes. It marked the notes paid, canceled them with a perforating stamp, and debited the depositor on its books with the amount of the payment. This it had the right to do. A depositor who makes a note payable at a bank by implication authorizes the bank to pay the note and charge it to his account. Negotiable Instruments Law, § 147; AEtna Nat. Bank v. Fourth Nat. Bank, 46 N. Y. 82, 88,7 Am. Rep. 314;Baldwin's Bank of Penn Yan v. Smith, 215 N. Y. 76, 80,109 N. E. 138. But the checks which had supplied the requisite credits had not yet been collected. The defendant mailed them on April 23, 1912, to its correspondent, the Market Street National Bank of Philadelphia, Pa., for presentation to a bank in Riverhead, Long Island, on which they were drawn. The checks, though mailed, were not received. The envelope containing them was mislaid through the negligence of employés of the post office. About ten months later, in February, 1913, it was found behind a radiator in the post office in Philadelphia.

The loss of the checks became known to the defendant on May 3, 1912. It waited till May 8th, and then gave notice to its depositor. It requested him to procure duplicate checks from Gouverneur E. Smith & Co., the makers, and inclosed a letter to be forwarded to the makers for that purpose. On May 15th Gouverneur E. Smith & Co. wrote that they had stopped payment of the checks, and that, on learning from their bank that the checks had not come in, they would sign and forward duplicates. They did not keep their promise. The defendant made no attempt to enforce payment. Its officers told Hagen two or three times that he would have to get duplicate checks, but beyond that they did nothing. They say they also told him, and in effect with his assent, that in default of duplicates, they would charge the checks back to his account, but this he denies. Since a motion for the direction of a verdict was made by both sides, we must accept as true the evidence most favorable to the plaintiff. He promised to use his efforts to save the defendant from loss. He did not promise, if the efforts failed, to bear the loss himself. Aebi v. Bank of Evansville, 124 Wis. 73, 79, 102 N. W. 329,68 L. R. A. 964, 109 Am. St. Rep. 925.

On June 5, 1912, the makers of the checks became bankrupt. Up to that time their bank account had been sufficient to enable the checks, if presented, to be paid. The defendant, on learning of the bankruptcy, charged the checks against the interest account of its depositor. It selected the interest account, rather than the general account, because the latter had been reduced by drafts. Hagen, when notified of the charge, made prompt protest that it was unauthorized. The question now is whether the bank or the depositor is to bear the loss.

We think the loss has been rightly cast upon the bank. The checks were credited as money, and were indorsed by the payee without restriction. The defendant did not hold them as a mere agent for collection. It held them as owner. Cragie v. Hadley, 99 N. Y. 131, 1 N. E. 537, 52 Am. Rep. 9; Met. Nat. Bank of N. Y. v. Loyd, 90 N. Y. 530;Burton v. United States, 196 U. S. 283, 302, 304, 25 Sup. Ct. 243, 49 L. Ed. 482;Taft v. Quinsigamond Nat. Bank, 172 Mass. 363, 52 N. E. 387. In transmitting them for collection, it was acting in its own behalf, and not in behalf of its depositor. It adopted...