Merchants' National Bank of Philadelphia v. Goodman

• Decision Date: 05 October 1885
• Docket Number: 151
• Parties: Merchants' National Bank of Philadelphia v. Goodman et al
• Court: Pennsylvania Supreme Court

2 A. 687

109 Pa. 422

Merchants' National Bank of Philadelphia v. Goodman et al

No. 151

Supreme Court of Pennsylvania

October 5, 1885

March 31, 1885 [Copyrighted Material Omitted] [Copyrighted Material Omitted] [Copyrighted Material Omitted]

ERROR to the Court of Common Pleas No. 1, of Philadelphia county Of July Term 1884, No. 151.

Assumpsit, by Samuel Goodman, W. E. Goodman and Joseph Goodman trading as Harrington & Goodman, against the Merchants' National Bank.

The following case stated was agreed upon by the parties: -- On the thirtieth day of October, 1883, the defendants in error opened an account as depositors with the plaintiff in error, and they then received from the plaintiff in error a bank book, upon the first page of which was printed the following notice: --

NOTICE.

"In conformity with the rules adopted by all the banks of this city, members of the Clearing House Association, you are hereby notified tat you are held responsible as endorser for the non-payment of all cheques upon other banks of this city, members of said association, deposited by you as cash in this bank, until the close of the business day next succeeding that on which such cheques are deposited. This bank receiving such cheques only for collection on your account through the exchange at the Clearing House. Upon all other cheques and drafts deposited by you as cash, your responsibility as endorser continues until payment has been ascertained by this bank."

On the 14th November, 1883, the defendants in error deposited with the plaintiff in error as cash a cheque for $489.20, and dated November 11th, 1883, drawn by Ruhman & Co. on the Mississippi Valley Bank, a bank doing business at Vicksburg, in the state of Mississippi. On the same day the plaintiff in error remitted that cheque by letter to the Mississippi Valley Bank, requesting payment thereof. On 19th November, 1883, the cashier of the Mississippi Valley Bank mailed to the plaintiff in error a letter inclosing in payment for the cheque, a draft of the Mississippi Valley Bank upon the Hanover National Bank of New York city, dated 19th November, 1883, to the order of the cashier of the plaintiff in error for $489.20. The Mississippi Valley Bank was doing business on the said nineteenth day of November, 1883, but it failed on some day thereafter, and the plaintiff in error was not advised of the failure until it received the hereinafter-mentioned letter of 26th of November, 1883, from the Hanover National Bank of New York. The letter from the Mississippi Valley Bank was received by the plaintiff in error in due course of mail on the 24th of November, 1883, and on the same day the plaintiff in error remitted the draft to the Hanover National Bank of New York for payment. On the 26th of November, 1883, the Hanover National Bank of New York returned that draft to the plaintiff in error, notifying the plaintiff in error that there were no funds on deposit with it to the credit of the Mississippi Valley Bank. The plaintiff in error at once notified the defendants in error in the following terms: "In return for cheque received from you on Mississippi Valley Bank, Vicksburg, we have received the draft of the bank on Hanover National Bank, N.Y., but there are no funds provided at that bank to meet the same. Shall we order the cheque on Vicksburg returned, that you may receive the money from your customer?" and on the 28th November, 1883, the defendants in error wrote to the plaintiff in error as follows: --

"In reply to yours just received, please order returned the cheque of the Mississippi Valley Bank. We have written our correspondent there in regard to the matter, but have not received any reply as yet. Do you wish us to send cheque now and cover the amount of the deposit, or shall we await the return of the one deposited?"

The plaintiff in error then wrote to the Mississippi Valley Bank calling for the return of the cheque remitted to it, and in reply receiving a letter from E. S. Butts, receiver of the bank, dated 4th December, 1883, saying: "The cheque you call for cannot be returned, as it was paid, charged to drawer's account, and cancelled. Exchange was remitted you for it, but unfortunately was not paid, the Mississippi Valley Bank having failed. Your claim then stands only as an ordinary debt against that institution. The assets may reach $200,000, while the liabilities will largely exceed $1,000,000."

Upon the case thus stated the court below entered judgment against the plaintiff in error for $489.20, with interest from 22d December, 1883, ALLISON, P.J., delivering the following opinion: --

Upon the foregoing statement of admitted facts, the majority of the court agree that judgment should be entered in favor of the plaintiffs on the case stated.

This conclusion is reached, whether the transaction is to be treated as the purchase of the checks by the Merchants' National Bank from the plaintiffs, the check having been received and credited by the bank as cash, or whether, under the terms of notice which appear on the first page of plaintiff's deposit bank book, the transaction is to be considered as a deposit of the check for collection on plaintiff's account. If the latter view be adopted, the defendants must be regarded as having advanced to the plaintiffs the amount of money for which the check called, until it could be ascertained whether it would be paid upon presentation to the Mississippi Valley Bank. In whatever light it may be viewed, the parties to this action stand to each other in the relation of endorser and endorsee, the endorsee being required to demand and entitled to receive payment from the maker of the check. The contention on the part of the plaintiffs is, that sending the check, to the bank on which it was drawn for payment, is not such a demand as will release the endorsee from liability to the endorser, when, as it is here admitted, the bank to which it was sent for payment does not return the money for the check, nor the check itself, but cancels it on the theory that it has been paid, by charging the account of the drawer with the amount of the check, surrendering the possession of it to him, or at least entitling him to have it delivered up to him, as paid and cancelled.

That it was regarded as having been paid, appears by the letter of the receiver of the Mississippi Valley Bank of December 4th, 1883, which is made part of the case stated, in which he writes, "It was paid, charged to drawer's account and cancelled."

By reference to the notice, which appears in the first printed page of the case stated, it will be seen, that checks on banks of this city, connected with the Clearing House Association, would be received by the defendant bank only for collection on the depositor's account. The second clause of the notice provides, that on all other checks and drafts deposited as cash your (the depositor's) responsibility as endorser continues until payment has been ascertained by the bank.

Both classes of checks were required to be endorsed by the depositors; upon the first class such liability continued until the close of the business day next succeeding that on which such checks were deposited. And upon the second class, until payment has been ascertained by the Merchants' National Bank. The defendant, therefore, accepted the checks as cash, holding the plaintiffs, as endorsers, responsible to them in case it should not be paid on presentation to the bank on which it was drawn.

Whatever may have been the rights of the defendant as the holder of the check received under the circumstances set forth in the case stated, in the opinion of a majority of the judges their duty under the law, required them to forward it to a correspondent or sub-agent, with instructions to present the same for payment, and if payment was refused, to have had it protested and returned at once to the defendant. Had this been done the rights of all parties would have been protected. The conclusion is a legitimate one, that had demand been made by an agent of defendant bank, the money for the check would have been paid to such agent, whose whole duty would have been performed by transmitting the proceeds of the check to the defendant bank who would thus have secured the advance which it had made to the plaintiffs, and the transaction as to all parties concerned would have been properly closed out. It must not be overlooked that the duty which the defendant bank undertook to perform in connection with the collection of the check was voluntarily assumed; it cannot, therefore, complain if it is held not only to good faith, but also to the exercise of such diligence as would protect the rights of all parties. The law imposes no unreasonable obligation upon one who undertakes to do that which the defendant in this case undertook to perform. The entire measure of that duty was to transmit to a responsible agent for collection, and this the defendant could have done, or declined the performance of the obligation, if it had no correspondent or agent to whom it could have transmitted the check for collection from the bank on which it was drawn. Or it could have declined to accept the performance of any act connected with the collection of the check, except as acting under the instruction and at the risk of the depositor. This the defendant did not do, but assumed the responsibility of sending the evidence of the plaintiff's right to have the money for which it called collected for their benefit to the bank which was expected to make payment. Not obtaining the money, but a worthless draft in return, the defendant treating the check as not paid, charged the amount of it back to the plaintiff's account, and when they called for the check, as the best evidence of their right to...