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Lyons v. Union Exch. Nat. Bank of New York

Supreme Court of New York, Appellate Division

May 3, 1912

JOHN J. LYONS, as Treasurer of the FRATERNAL ORDER OF EAGLES, NEW YORK AERIE NO. 40, an Unincorporated Association Consisting of Seven or More Members, Appellant,

Page 494

APPEAL by the plaintiff, John J. Lyons, as treasurer, etc., from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of New York on the 18th day of December, 1911, upon the dismissal of the complaint by direction of the court after a trial at the New York Trial Term.


George W. Glaze, for the appellant.

Sydney H. Herman, for the respondent.


The plaintiff, claiming to have on deposit with the defendant bank at least the sum of $13,000, brought this action to recover that sum on the ground that the defendant had refused to honor the plaintiff's check duly presented for said amount. The defendant for answer asserted that when the check was presented the plaintiff had on deposit only the sum of $2,555.29. The case turns on a deposit on April 13, 1904, by the plaintiff in the defendant bank of a check for $13,000, drawn by the plaintiff upon the Federal Bank of New York to the order of the defendant, with which deposit the plaintiff's account with the defendant was opened. According to the evidence of the plaintiff, the check was presented by it with a deposit slip pursuant to a prior arrangement and upon the defendant's solicitation to open an account. A pass book was delivered to the plaintiff at the time of the deposit in which the amount was credited to the plaintiff as cash, and a similar credit entry was made on the books of the defendant. Later in the day the check was presented to the Federal Bank for payment. The latter declined to pay cash but offered to and did certify the check, making it payable at the Importers and Traders' National Bank. The defendant's evidence is to the effect that its messenger was instructed to procure either cash or a certification, and it did accept a return of the check thus certified.

Page 495

The check was thereafter and on the same day but after banking hours presented to the Importers and Traders' Bank for payment, but payment was refused, the reason assigned being that it was after banking hours. The defendant then indorsed the check payable to the order of the National Bank of Commerce of New York and deposited it with the latter on the following morning to be put through the clearing house. It was returned to the defendant on that day with a slip marked 'bank closed.' There is a sharp conflict in the testimony as to the circumstances attending the deposit of the check by the plaintiff. According to the defendant's evidence, its president stated to the agent or officer of the plaintiff who presented the check that the Federal Bank was in a shaky condition and that the defendant would not accept the check as a deposit, whereupon it was agreed that the defendant should take the check for collection as the plaintiff's agent, and all of the subsequent steps were taken with the knowledge and at the request of the plaintiff. According to the plaintiff's evidence, nothing whatever was said as to the condition of the Federal Bank or as to the defendant's taking the check for collection or as to what the defendant should do in the effort to collect the check for the plaintiff, the case standing, according to the plaintiff's evidence, upon the bare deposit of the check with a deposit slip and the delivery of the pass book containing the credit entry and the credit upon the books of the defendant.

The plaintiff raises a question of pleading which we do not consider it necessary to discuss at length. Irrespective of whether the defendant gave the plaintiff a credit against which the latter was permitted to draw, it had the right upon the return of the check to charge it back. The issue as framed by the pleading was whether the plaintiff had $13,000 to its credit when the defendant refused to pay the check for that amount. Upon the merits, however, we think there was a question of fact for the jury.

Vide Metropolitan National Bank v.

Page 496

Loyd, 90 N.Y. 530; Cragie v. Hadley, 99 id. 131.) But the respondent contends that that rule does not apply where the check is drawn by the depositor; that in such case the bank merely constitutes itself an agent for the depositor to transfer the latter's funds from some other bank to itself. But we fail to perceive any distinction in principle between the two cases. It may be, as contended, that the practical result is a temporary loan without interest pending the collection of the check. But that is the effect of the transaction in either case, the only difference being that, where the check is drawn by a third party, the bank has more security. We see no reason why a bank may not accept a depositor's check as cash precisely as it might credit his account with the proceeds of a note made by him. It can easily protect itself by taking the check only for collection, as according to the defendant's evidence, it did in this case, and it is familiar practice for banks to accept items for collection only, making an entry in the back of the depositor's pass book to characterize the transaction as such and not entering the deposit as cash until the collection is made. In this case, according to the plaintiff's evidence, the defendant accepted the check as cash precisely as was done in the case of Metropolitan National Bank v. Loyd (supra). The case is the same as though the defendant had delivered cash to the plaintiff, which the latter immediately deposited. We think that, if the defendant accepted the check and gave an unqualified credit therefor, it became a holder thereof. It is of no consequence that it was not a holder in due course within the law merchant, and cases like Citizens' State Bank v. Cowles (180 N.Y. 346) have no application.

It was the law in this State prior to the passage of the Negotiable Instruments Law, that the holder of a check by procuring it to be certified discharged the drawer from liability, for the obvious reason that the drawer of a check after it is certified, cannot draw out the funds necessary to meet it. The money ceases to be his and is appropriated to the payment of the check. (First National Bank of Jersey City v. Leach,52 N.Y. 350.) Section 324 of the Negotiable Instruments Law ...

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