John Wills, Inc. v. Citizens Nat. Bank of Netcong

The defendant bank discounted certain notes for the plaintiff corporation crediting the proceeds to its account. The notes were renewed from time to time, the last on June 13th, 1939, at which time the plaintiff was notified that the notes must be paid at maturity, July 13th, 1939. They were not paid, and at the close of business on that day the customer's account was charged with the amount due on the notes. Notice of this, together with the original notes, was then mailed to the customer and was apparently received the next day. The present action is for damages, because of the failure to pay checks presented some weeks later in excess of the amount then on deposit after the charge made for the defaulted notes.

"It is a general rule that a bank has the right to set-off or apply the deposit of its debtor to the payment of his matured debts, upon the theory that as the depositor is indebted to the bank upon a demand which is due, the funds in its possession may properly and justly be applied in payment of such debt, and it has therefore a right to retain such funds until payment is actually made." Marmon, c., Co. v. The Peoples, c., ofElizabeth, 106 N.J. Eq. 170, 173.

The majority opinion proceeds on the theory that the right of set-off did not accrue till after the liability of the endorser was fixed by notice of dishonor. Even so, we think there was sufficient notice and presentment to charge the endorser. It appears that at the close of business the notes were not paid. The bank wrote and mailed to the endorser letters in the following form enclosing the dishonored notes: "The Citizens National Bank of Netcong, Netcong, N.J., July 13th, 1939, John Wills, Inc. We charge your account and return herewith for reasons stated below Note of A. Alberts due to-day, endorsed by you. Amt. $572.87. Total $572.87." "The Citizens National Bank of Netcong, Netcong, N.J., July 13th, 1939, John Wills, Inc. We charge your account and return herewith for reasons stated below Note of Charles Veigel due to-day endorsed by you. Amt. $580. Total $580." Clearly, the endorser knew that the makers had not paid the notes. Hence, the charge. Burgess v. Vreeland,24 N.J.L. 71.

N.J.S.A. 7:2-96 is as follows: "The notice (of dishonor) may be in writing or merely oral and may be given in any terms whichsufficiently identify the instrument, and indicate that it hasbeen dishonored by non-acceptance or nonpayment; it may in all cases be given by delivering it personally or through the mails." Italics ours.

The writings sent identify the instruments and indicate that they were not paid and that they had been charged against the plaintiff's account. The plaintiff was not delayed in its action against the maker. We deem the notices sufficient. Dodson v.Taylor, 56 N.J.L. 11; Haines v. Dubois, 30 Id. 259;Sussex Bank v. Baldwin, 17 Id. 487.

The notes were payable at the defendant bank. The drawer apparently had no accounts there. Presentment was not necessary to charge the drawer. N.J.S.A. 7:2-79 is as follows: "Presentment for payment is not required in order to charge the drawer where he has no right to expect or require that the drawee or acceptor will pay the instrument." Also Weed v. VanHouten, 9 N.J.L. 189.

But as to presentment, where a note is payable at a specific bank it seems sufficient evidence of presentment if the note be there on the date of maturity and is not paid.

In Rosenthal v. Levine, 148 Atl. Rep. 675, it was said: "``Where a note is * * * payable at a bank it is sufficient that the note is there ready to be given up on payment, should the promisor come to pay it.' Gilbert v. Dennis, 3 Metc. (Mass.) 496; 38 Am. Dec. 329. ``It is sufficient presentment of a note payable at a bank if it is actually in the bank at maturity ready to be delivered on payment.'" N.J.S.A. 7:2-73;Brannan's N.I.L. (6th ed.) and cases collected, pp. 857,et seq.

When the notice indicating dishonor of the notes endorsed by the plaintiff was in the mails the right of set-off existed. N.J.S.A. 7:2-105. Under the statute the notice deposited in the mail fixed liability.

The legal right to charge endorser's account then existed a few minutes after the actual charge was made. If the charge was premature no harm was done because the bank was closed for the day when it was made. On the next morning, on any theory of the case, the right existed. To invalidate the charge as premature by a fraction of an hour would be due to too great a nicety in bookkeeping requirements.

Formal notice of protest is necessary only in the case of a foreign bill of exchange. N.J.S.A. 7:2-118. The maker of a note is not entitled thereto. Fidelity Union Trust Co. v. DeckerBuilding Material Co., 106 N.J.L. 132. No formal protest of a note, aside from a sufficient notice of dishonor, is necessary to fix the liability of the endorser. Sussex Bank v. Baldwin,supra.

It is also settled that the right of the bank to charge up defaulted paper against its customer's account at common law is optional and well recognized. National Mahaiwe Bank v. Peck,128 Mass. 298. Certainly, a bank discounting paper for a customer looks to him to see to payments or renewals and it is unwise to defeat sound banking practice.

"The accepted rule in most jurisdictions is that while a bank which is the holder of a note or bill of exchange may, if it chooses to do so, apply to its payment the funds of an endorser, or other person secondarily liable on the instrument, on deposit with the bank, it is under no obligation or duty, either towards other endorsers or towards the person primarily liable, to apply such deposit in payment of the instrument." 7 Am. Jur. 467, § 645.

"Where a note has been discounted for an endorser's benefit, it is considered that the endorser's deposit may be applied in payment thereof at the option of the bank." C.J.S. 624, § 300.

The checks complained of were not presented to the bank till after the notes discounted for its benefit fell due and were not paid. The bank was under no obligation to create an overdraft, in order to honor plaintiff's check. Bankers should not be obliged to suffer the loss of money because accommodated customers do not fulfill their obligations.

In Landers Co. v. Lincoln-Alliance Bank (C.C.A. 5th),298 Fed. Rep. 79 (37 A.L.R. 576), writ of certiorari denied, 265 U.S. 593, this rule was applied. The note of the learned author in the report in 37 A.L.R. 578, is as follows: "It seems that there is no question but that a bank having on deposit at the time of the maturity of a negotiable instrument of which it is the holder, funds belonging to one secondarily liable, may apply deposits to the payment of the instrument. 3R.C.L. tit. ``Banks and Banking,' § 224."

The cases examined in many jurisdictions support the text. We think the judgment of the court below was proper and should be affirmed, with costs.

For affirmance — THE CHANCELLOR, PARKER, BODINE, DONGES, WELLS, JJ. 5.

For reversal — THE CHIEF JUSTICE, CASE, HEHER, PERSKIE, PORTER, DEAR, WOLFSKEIL, RAFFERTY, HAGUE, JJ. 9.