In Corn Exchange Bank v. Nassau Bank (91 N.Y. 74) the plaintiff had paid a check to which the name of the payee had been forged, after which forged signature, however, the defendant had indorsed the same.Summary of this case from Muller v. National Bank of Cortland
Argued December 6, 1882
Decided January 16, 1883
Joseph H. Choate for appellant. John M. Bowers for respondent.
The general question involved is answered by a series of decisions by this court in favor of the respondent. There is no imputation on the defendant with regard to the way in which it took the check of Kunhardt Co., or the use made of it, but the plaintiff was thereby induced to part with its money without consideration, and the defendant, who received it, is bound to make restitution, unless the plaintiff, by some act or omission of its own, has lost the right to demand or sue for it. ( White v. Continental Nat. Bank, 64 N.Y. 316; and cases there cited by ALLEN, J., 21 Am. Rep. 612.)
The appellant contends that it was the plaintiff's duty to examine and ascertain the genuineness of the payee's indorsement before paying the check, and that in default of doing so, it is as against the defendant estopped from denying its genuineness; but the authorities are the other way. ( Canal B'k v. Bank of Albany, 1 Hill, 287; Whitney v. Nat. Bank of Potsdam, 45 N.Y. 303; Holt v. Ross, 54 id. 472; 13 Am. Rep. 615; The Union Nat. B'k of Troy v. Sixth Nat. B'k of N.Y., 43 N.Y. 452; 3 Am. Rep. 718; White v. Cont'l Nat. B'k, supra; Graves v. Am. Exch. B'k, 17 N.Y. 205.)
The recovery, however, should have been limited to the amount of money received by the defendant from the plaintiff, with simple interest to the time of the rendition of the verdict. The plaintiff paid the check of Kunhardt Co. at its own risk and without authority, and could have no defense to their action. ( Hall v. Fuller, 5 B. C. 750; Morgan v. The Bank of the State of N.Y., 11 N.Y. 404.) There was no privity between Kunhardt Co. and this defendant. The money received by it was not their money, and it was not liable to them. Their money was still on deposit with the plaintiff, and the plaintiff owed them for it.
The cases cited by the plaintiff are not analogous. Elwood v. Deifendorf (5 Barb. 398) and Thompson v. Taylor ( 72 N.Y. 32) stand upon the technical relation of principal and surety, and even then the right to indemnity was held not to extend to expenses incurred in defending against the just claim of the creditor. In Delaware Bank v. Jarvis ( 20 N.Y. 226) the defendant was the vendor of the note in question, and had received from the plaintiff the agreed price thereof. The costs in controversy were incurred in an action which failed because the note was void for usury taken by the vendor, and the recovery for costs allowed in that action was upheld upon the ground that the vendor of a chose in action impliedly warrants its soundness and validity, so far at least as he had been connected with its origin. In the other cases cited by the respondent, the plaintiff had become liable to costs in actions in which he had a remedy over against the then defendant, but in none of them did it appear that the action in which the costs were incurred was caused in whole or in part by the wrongful act or omission of duty on the part of the original defendant. No case I think can be found in which the right to costs of defending an action so caused has been upheld, and that is precisely the position of the plaintiff here. It did not buy or propose to buy the check of the defendants; it assumed to pay it as the obligation of Kunhardt Co., and when informed by them that the condition — indorsement by payee — on which alone they authorized payment, had not been performed, they took the risk of defeat by joining issue with their principals, and withheld their money until it could be determined. It was the business of the plaintiff as between itself and its depositors, to see to it that their money should not be expended except as they directed ( Weisser v. Denison, 10 N.Y. 68; Morgan v. Bank of State of N.Y., supra; Graves v. Am. Exch. B'k, supra; Welsh v. German Am. B'k, 73 N.Y. 424; 29 Am. Rep. 175), and having failed to do so, cannot charge the expense of an action caused by such default upon a third party. The defendant's liability in the present action stands upon a different and entirely distinct ground — the receipt of money paid under a mistake and without consideration. The same principle forbids rests in the computation of interest upon the amount paid.
Another proposition has been very strenuously argued for the appellant, to the effect that the court erred in excluding evidence offered to show, that by usage among banks in the city of New York it was the duty of the plaintiff to examine and satisfy itself as to the genuineness of the signatures of the drawer and payee of the check, and return the same immediately if not good.
The action before us is to recover money to which in conscience and good morals the defendant has no title, and it seeks to retain it upon the ground that by the custom of its kind within a certain city, its payor must at its peril ascertain whether a defect in title existed. Such an obligation might have been created by contract, and so a short statute of limitations imported into the transaction, or a limited period defined, after which the payor should be required to hold its peace; but this is contrary to the legal rights of the parties as fixed by the circumstances of the transaction, and I find no authority which gives that effect to a local usage, or permits it to be received in contradiction of the law merchant.
In Rankin v. American Insurance Company (1 Hall, 619) it was thought to be well settled that a usage could never be set up to contradict a rule of law, or to vary an express agreement, and on that ground it was decided that when by their policy, insurers bound themselves to pay for all damages arising from perils of the sea, evidence of usage, in the port of New York, and elsewhere, that the insurer is not liable until upon survey made by certain officers it is found that the goods were properly stowed and that the damage arose from perils of the sea, is inadmissible, as varying the obligation and introducing a condition precedent into the contract. The same rule applies where usage is offered to oppose or alter a general principle or rule of law, and upon a given state of facts, make the legal rights or liabilities of the parties other than they are by the common law. In Frith v. Barker (2 Johns. 327), KENT, Ch. J., says usage "never is, not ought to be, received to contradict a settled rule of commercial law." Brown v. Jackson (2 Wn. C.C. 24) was an action by the holder of a bill of exchange, against an indorser; the latter in defense offered to prove a custom that in the trade between this country and England, the English merchant receiving a bill, indorsed as the one in question was, must return it immediately on protest to the indorser; that if he call on the drawer for payment, he exonerates the indorser. It was held inadmissible as contrary to the established rule of law relating to such a subject. In Barnard v. Kellogg (10 Wall. 383) it is said, "If on a given state of facts, the rights and liabilities of the parties to a contract are fixed by the general principles of the common law, they cannot be changed by any local custom of the place where the contract was made." In the case before us the common law did not on the admitted facts impose the duty of examination of the check on the paying bank, and we think no custom can be admitted to imply one. Whatever tends to unsettle the law and make it different in different portions of the State, would lead to mischievous consequences, and be against public policy ( Thompson v. Ashton, 14 Johns. 317), and so it has been frequently held.
In Woodruff v. Merchant's Bank (25 Wend. 673) a usage in the city of New York that days of grace were not allowed on a bill of exchange was held to be illegal. NELSON, J., saying, "if sanctioned, its effect would be to overturn the whole law on the subject of bills of exchange in the city of New York, and it could not be allowed to control the settled and acknowledged law of the State in respect to this description of paper." There are cases in this court standing on the same doctrine. ( Security Bank v. Nat. Bank of the Republic, 67 N.Y. 458; 23 Am. Rep. 129; Fuller v. Robinson, 86 N.Y. 306; 40 Am. Rep. 540.)
The plaintiff here had no means of knowledge of the character of the payee's indorsement, beyond those possessed by the defendant, nor, under the common law, was its duty of examination greater. ( Frank v. Lanier, decided January, 1883.) It cannot be charged with it, by proof of usage, without changing the law applicable to such transactions.
Post. p. 112.
We think, therefore, the appellant's proposition in this respect was properly denied by the trial court, but for the reasons above stated, the judgment must be reversed, and a new trial granted, unless the plaintiff stipulates to reduce the judgment to an amount equal to $19,000, with interest from November 10, 1874, to date of verdict, and costs in the courts below, in which case the judgment so modified should be affirmed, without costs to either party in this court.
All concur, except RAPALLO, J., absent.