Clancy v. First State Bank

On December 9, 1924, the plaintiff, for the purpose of becoming a customer of the defendant bank, drew a check for $600 on the Nicollet County Bank in Minnesota in favor of the defendant. One of the bank officials made out the deposit slip but gave no copy thereof to the plaintiff. The defendant bank treated this check as a deposit, entered it in a pass book given to the plaintiff, and on the books of the bank as a credit to the plaintiff. Plaintiff received permission to check against this deposit, and did so check. As stated in appellant's brief, "The check was forwarded in due course to the First National Bank at Minneapolis, and by it forwarded to the collecting bank, a sister institution at St. Peter and was actually collected by it."

That is, the Nicollet County Bank paid the check when it was presented for payment. This collecting bank in St. Peter remitted to the First National Bank of Minneapolis by draft, but this draft was dishonored because this bank of St. Peter became insolvent and closed its doors. The First National Bank of Minneapolis had of course given credit to the defendant bank, and because of the insolvency of the bank in St. Peter revoked the credit. The defendant then notified the plaintiff of this failure to receive the proceeds of the check, and on December 19, 1924, on the theory that the Nicollet County Bank had failed, induced the plaintiff to give his note for $600 in lieu of the credit he had received. On learning that the bank on which he had drawn the check had not failed, and that the check was paid, plaintiff brought this action to cancel the note, on the ground among others, of failure of consideration. By stipulation of the parties this is the only issue in the case. The trial court found for the plaintiff and the defendant appeals.

The record shows that plaintiff, when he gave the defendant his check for $600 supposed the defendant would handle the check on the Nicollet County Bank in the same manner it handled similar checks, but it does not show that he knew what this usage was. However, while he may not have been familiar with the methods usually employed, we assume he did not expect the bank to send a special messenger to Minnesota to get the cash and bring it back. When the plaintiff issued his check to the defendant for a deposit credit and the defendant placed the same to the credit of the plaintiff and permitted him to check against it, the defendant became the owner of the check and so far as this case is concerned the relation between the parties was that of debtor and creditor. This is now the settled law in this jurisdiction. See First Nat. Bank v. Wells County, 54 N.D. 502, 209 N.W. 962. Here Judge Birdzell, in discussing the question of holder for value, says "when an indorsee bank upon the transfer of paper to it, gives to the depositor a conditional credit, and afterwards pays drafts and checks of the depositor on the strength of that credit, the indorsee becomes a holder for value." This view has the support of eminent authority. See Douglas v. Federal Reserve Bank,271 U.S. 489, 492, 70 L. ed. 1051, 1053, 46 Sup. Ct. Rep. 554; National Bank v. Bossemeyer, 101 Neb. 96, L.R.A. 1917E, 374, 162 N.W. 505.

The only warranty of the plaintiff we need to consider is that the check would be paid by the Nicollet County Bank when presented to it. The check was so paid when presented. Being the property of the defendant it was immaterial to the plaintiff through what agency the defendant sought collection. Under the circumstances of this case the defendant was not the agent of the depositor for collection. The defendant was dealing with its own property and could select any channel of collection which it saw fit. Had the check been dishonored it would be a different tale. But it was the collecting bank that failed, not the bank on which the check was drawn, hence plaintiff fully complied with his warranty. As shown in the case of Berg v. Federal Reserve Bank, ante, 406, 52 A.L.R. 988, 213 N.W. 965, the contract of a drawer of a check is fulfilled when the holder presents the check for payment and the drawer has funds on deposit to meet it which the drawee is ready and willing to deliver. In this case the drawer had the funds, the holder presented the check, and the funds were paid over on the check.

We do not attach much importance to the contention that it was the custom and usage of the bank to charge back to the depositors uncollected checks. There is no contention that such usage was brought directly to the attention of the plaintiff in this case so as to make it a part of the contract. That the plaintiff may have supposed and understood the usual practice would be followed does not say he knew what that usual practice was. Under facts quite similar to those shown in this case the Supreme Court of Vermont held that they did not give rise to a "fair and legitimate conclusion that the parties did not intend title" to the check should pass. Walker v. D.W. Ranlett Co. 89 Vt. 71, 93 A. 1055. We can see no difference in principle between such a check deposited by an endorser and one deposited by the drawer. It is only when proof of a contrary intent is shown that the bank is not considered the owner of the check.

But even though we should consider there was an understanding and agreement between the plaintiff and defendant that the check could be charged back against his account if not paid, nevertheless, title passed to the defendant, and it was the defendant's check, subject to the condition. What would be required to set the condition in operation would be that the check was not paid. But the check was paid in this case and so such condition, usage and custom did not become operative "and therefore the title acquired by the bank on receipt of the check has never been devested." See Brusegard v. Ueland, 72 Minn. 283, 75 N.W. 228, 229.

"The fact of the right to charge back the check to the depositor's account if it should be dishonored . . . does not affect the character of the transfer or render the bank any the less the owner of the check." Noble v. Doughten, 72 Kan. 336, 3 L.R.A.(N.S.) 1167, 83 P. 1048.

It is apparent, of course, that chapter 170 of the Session Laws of 1925 (§ 6954a1 of Supplement) and chapter 92 of the Session Laws of 1927, have no application to the case, regardless of their effect on the question of agency of the defendant bank. The check and the note are to be determined by the law at the time they were given.

It is conceded this note was given on the theory that the check had not been paid and that therefore plaintiff owed the defendant the amount of credit he received in his pass book, and which he had checked against. But this credit was the consideration for the check and that contract was completed. There was therefore no consideration for this note. The judgment of the lower court is affirmed with costs.

BIRDZELL, Ch. J., and BURKE, CHRISTIANSON, and NUESSLE, JJ., concur.