German N. Bank v. Farmers' D. N. Bank , 118 Pa. 294 ( 1888 )

Opinion,

Mr. Justice Paxson :

A statement of the facts is essential to an understanding of this case. They are substantially as. follows: On May 24, 1884, the Germania Savings Bank drew and delivered to the Penn Bank a check on the German National Bank for $20,000. The Farmers’ Deposit National Bank and the German National Bank were members of the clearing house. The Perm Bank was not, but was represented'therein by the Farmers’ Deposit National Bank as its agent. For- the purpose of collecting said check through the clearing house, the Penn Bank indorsed it: “ For deposit, Clearing House, May 26, 1884; Penn Bank, Pittsburgh, C. F. M’Combs, A. Teller,” and deposited -it with the Farmers’ Deposit National Bank. The check was sent through the clearing house on May 26th in the usual manner, and the Farmers’ Deposit National received credit at the clearing house for the amount thereof. The check was then sent in the usual course of business to the German National Bank upon which it was drawn, where the envelope containing it was opened by C. Van Burén, Jr., for the teller, who examined it, and placed it upon file. Shortly after this, John E. Wessler, the assistant teller, took it off the file, and entered it in the journal, but it was not then, nor has it ever been, posted in the ledger. This was on May 26th. On the same day the Penn Bank failed, and closed its doors a little after twelve o’clock. The Germania Savings Bank hearing of this, and having, it is alleged, a defence to the check as against the Penn Bank, immediately notified the German National Bank to stop payment. On receipt of this notice, the German National Bank cancelled the entry on its journal, and handed the check to its messenger, with instructions to return it to the Farmers’ Deposit National Bank, where it was presented before one o’clock, with the information that payment had been stopped, and a demand was made upon the latter bank for the money. The messenger was requested by the teller of the latter bank to guarantee the cut (made' by the file), whereupon the messenger wrote on the back of the check the words: “Cut guaranteed, O. C. Bergdorf, messenger.” Whereupon the check was accepted, charged back to the account of the Penn Bank, and a teller’s check for the amount given to the German National Bank, which was duly paid through the clearing house next day. The Farmers’ Deposit National Bank held the check, as already stated, for the mere purpose of collection, as agent of the Penn Bank. There is nothing in the case to show if it ever asked the German National Bank whether it had accepted it, or would accept it; that it had any knowledge that the check had been on file (except what the cut would imply), or entered upon any book of the German National Bank; nor that it was induced to give credit or change its position in any way by any action taken by said bank. The Penn Bank never resumed business, and, on May 28th, made an assignment to Henry Warner, who sometime afterward notified the Farmers’ Deposit National Bank that he held it responsible for the amount of the check.

The Clearing House Association is not responsible for anything except the proper distribution of the money paid to settle balances, its purpose being to provide a convenient place where checks may be presented and balances adjusted. Its rules provide : “ Errors in the exchanges shall be adjusted by the banks, and checks not good shall be returned to the bank depositing them, according to the regulations now in force, viz.: before one o’clock p. M. The association not to be responsible in any case.”

Thé course of business in the clearing house, as I gather it from the uncontradicted evidence, is as follows:

The association is composed of nineteen different banks. At half-past nine each morning, each bank sends a clerk and a messenger to the clearing house with all the checks received by it on the previous day on the other banks, the checks on each particular bank being placed in a separate envelope. The checks are then examined, and a balance struck. If a bank is a debtor bank, it is required to pay the amount of its indebtedness to the clearing house before 11:80 of the same day in money. If a creditor bank, it receives its balance from the clearing house from half-past eleven to twelve o’clock. When the checks are assorted, all the checks on any one bank are placed in an envelope and handed to the clerk or messenger of that bank, with a memorandum, stating whether it is a creditor or a debtor bank, and the amount of such debit or credit. If a debtor, this bank then makes up a package of money, corresponding with the amount it owes, and sends it to the clearing house before 11:30 A. m. as before stated. If a creditor, it sends to the same place before 12 o’clock and gets its money. When the checks are returned by the clearing house to the banks upon which they are respectively drawn, the latter have until one o’clock in which to correct mistakes. If there are no funds to meet a particular check; if payment has been stopped, or if from any reason the bank (Jeclines to pay it, the rule of the clearing house above cited, and the practice under it allows the bank until one o’clock to return it to the bank from whence it came. If not returned before that hour, the bank is fixed absolutely for the check. There appears to be no uniform practice on the part of the banks composing the Clearing House Association as to the time of entering on their books the checks received from said association. Some defer entering them until after one o’clock, when the time for the correction of errors has passed. Others place them on file, and enter them immediately. This was done by the German National Bank, defendant, with the check in question. It was put on the file, a spear-shaped instrument, which makes a cut in the check, and was then entered in the journal, but it was not carried forward to the ledger. The officers of the, bank, however, testified that this was done for the convenient transaction of its business; that to defer all such entries until after one o’clock would prevent the bank getting through its business during banking hours ; that the placing it on file, and entering it on the journal was only a conditional acceptance, subject to be revoked for cause at' any time before one o’clock. As to the right of a bank to return a check before one o’clock received from the clearing house, there can be no ’ question. The evidence upon this point was overwhelming, and I believe uncontradicted.

Under these circumstances what are the legal rights of the parties to this suit? As before observed, the Farmers’ Deposit National Bank, plaintiff below, had no interest in this check. It was merely the agent for collection of the Penn Bank. When the check was returned to it from the defendant bank, and it was notified that payment had been stopped, it received said check, and gave that bank a teller’s check for the amount. It gave the latter check for the reason, I presume, that it had received a credit therefor that morning at the clearing house. It then charged the check in question back to the Penn Bank, and sent the check itself to that bank. The surrender of the check was voluntary, and there is no evidence that it was procured by any fraud or misrepresentation on the part of the German National Bank. Under these circumstances I am unable to see what claim the plaintiff bank has upon the latter. It has no interest in the check or the money which it represents. It is not a dollar out of pocket, and a recovery in this suit would add $20,000 to its assets, for which it paid nothing, unless, as I assume to be the case, this suit is for the benefit of the Penn Bank. This would enable the latter to do indirectly what it could not do directly, viz.: to avoid a contest with the drawer of the check and recover, or at least attempt to recover, from the drawee. It is the voice of Jacob, but it is the hand of Esau.

As I understand the case there are but two principles involved, viz.: (a) had the Germania Savings Bank the right to stop payment on the check, and (5) if so, was the right exercised in time, that is to say, before actual payment ? All other material questions in the case are but subdivisions of these.

I presume no one at this day questions the right of the drawer of a check to stop the payment thereof. This is usually done by notice to the bank upon which the check is drawn. If the bank pay after such notice it does so at its peril. The holder of a check has no remedy against a bank upon which a check is drawn for its refusal to pay it. He must look to the drawer. The right to stop payment ceases of course with actual payment.

The case then narrows itself down to the single point, was the check paid when notice was given the German National Bank not to pay it ? The plaintiff contends that it was, and points to the “cut” on the check and the entry in the journal of the German National Bank as evidence of that fact. We may say just here that a vast amount of time was wasted on the trial in the court below over the meaning of the words “ Cut guaranteed.” They are of little importance in our view of the case. This is not a suit upon the guaranty, and its meaning is only indirectly involved. The existence of the “cut” was a circumstance that had some bearing, as it showed in connection with other testimony that the check had been on a file where paid checks are usually placed. But there is no magic in a file-cut or in an entry in a journal. Both required explanation and that was fully given. The “ cut ” and the entry on the journal, if the uncontradicted evidence is to be believed, were made for the convenience of the defendant bank. Together they perhaps constituted a conditional acceptance of the check, subject to the right of the bank under the rules of the clearing house to revoke it and return the check before one o’clock. It cannot be seriously questioned that had the defendant bank pigeon-holed the check instead of placing it on file, it would have had the right to return it before one o’clock. And can it make any difference that for its uwn convenience and to expedite business it entered the check from the clearing house as soon as received ? It had until one o’clock to correct any errors, and I am unable to see upon what principle or what reason the plaintiff bank could have refused to receive the check, with the “ Cut guaranteed,” when offered at any time before that hour.

It may be that had the check been passed over the counter, or received by the defendant bank outside of the clearing house, the rulings of the- court below would have been ade■quaté. But we do. not think sufficient weight was given to the regulations of the clearing house. As between it and its ^associated banks its rules have the force of law. It is a law to them because they have made it so. One plain object of the rule in question was to give the banks until one o’clock to corTect any mistakes, and return checks that for any reason they declined to pay. The clearing house could not exist for a week without some such regulation. And in the face of this rule, the placing of a check on file and even entering it on the journal is not per se payment. It becomes so after one o’clock, if the check is not returned to the bank depositing it before that liour. This is the plain construction of the rule, and the court helow would have been justified in nonsuiting the plaintiff at the close of its case.

There are nineteen assignments of error. I have preferred to discuss the principles involved instead of taking up the assignments, seriatim. All of them are sustained except the fourth, fifth and sixth.

Judgment reversed.