Grant v. Walsh

August 8,1893, the defendant, who for many years had been a regular depositor in the Madison Square Bank, drew his check for $1,000 to his own order on the Farmers’ Loan & Trust Company, indorsed it, ‘Tor deposit,” and delivered it to the bank. Later in the day the Madison Square Bank sent the check to the St. Nicholas Bank, with which it had a clearance contract binding it to keep constantly on deposit with the latter $50,000, *61on which, the St. Nicholas Bank should pay no interest as part of the consideration for the clearance contract. This contract could be terminated on 24 hours’ notice, but it obligated the St. Nicholas Bank to make clearance for the Madison Square Bank for the day succeeding that on which the notice was given. Such a notice was given, on the 8th of August, by the St. Nicholas Bank, but, as it was compelled to make clearance for the day following, the result was that on that day it paid for the Madison Square Bank $372,806.75, although it had received no deposit from the Madison Square Bank after the 8th of August. This amount largely exceeded the deposits of the Madison Square Bank with it, but under its contract with the Madison Square Bank and the clearing house it was obliged to clear for that bank for that day, wf ether it held any of its funds or not. The condition of the account between the Madison Square Bank and the St. Nicholas Bank on the 8th of August was as follows: After the clearances of the morning of August 8th were made, the Madison Square Bank owed the St. Nicholas Bank $50,006.52 over and above the $50,000 deposit, which under its contract the Madison Square Bank was bound to keep continually on deposit. Its actual indebtedness then was, on account of clearances made by the St. Nicholas Bank and its contract obligation to it, $100,006.62. After the clearances of the 8th of August the Madison Square Bank made deposits with the St. Nicholas Bank aggregating $78,087.24. This included the check of $1,000, which is now the subject of controversy. These deposits repaid the overdraft, but left $21,919.38 still due to the plaintiff on account of its clearance house contract, under which it was compelled, on the day following, to pay for the St. Nicholas Bank over $370,000. At the close of business on August 8th, the Madison Square Bank closed its doors, and shortly thereafter, in an action brought by the attorney general, receivers were duly appointed. When defendant ascertained the fate of the bank, he at once stopped payment of the check, whereupon the St. Nicholas Bank commenced this action to recover thereon. Subsequently, this plaintiff was substituted in place of the St. Nicholas Bank. The answer set up that, at the time when the deposit was made, the Madison Square Bank was insolvent, of which fact its officers, agents, and employés had full knowledge, and that its acceptance of the check without notifying him of such insolvency constituted a fraud upon the defendant, and, further, that such insolvency and fraud were known to the St. Nicholas Bank at the time it received defendant’s check and gave the Madison Square Bank credit for it. As the case stood when plaintiff rested, his right to recover on the check had been made out. When defendant indorsed his check for deposit to his account, and delivered it to the Madison Square Bank, that he might draw against it according to his usual custom, the title to the check immediately vested in, and became the property of, the bank, which title it could and did confer upon its transferee, the St. Nicholas Bank. Bank v. Lloyd, 90 N. Y. 530; Cragie v. Hadley, 99 N. Y. 131-133; People v. St. Nicholas Bank, 77 Hun, 159, 28 N. Y. Supp. 407. The evidence to which *62we have sufficiently referred shows that the St. Nicholas Bank, upon such transfer, became a bona fide holder of the check for value.

This brings us to the affirmative defense pleaded, and which the ■defendant sought to establish on the trial. If it were a fact that the Madison Square Bank was irretrievably insolvent, and it was manifest to its officers that a condition of open insolvency must immediately ensue, the acceptance of the deposit made by the defendant constituted such a fraud as entitled its owner to reclaim from such bank the draft or its proceeds. Cragie v. Hadley, supra. It may be doubted whether defendant met the burden of proof resting upon him to establish the insolvency of the bank on August 8, 1893. People v. St. Nicholas Bank, supra. And the evidence wholly fails to show that the officers, agents, and employés ■of the bank knew that the bank was irretrievably insolvent, and that the struggle to maintain its credit must be given up. But defendant’s evidence offered for the purpose of showing such knowledge on the part of the officers of the bank was excluded by the court, to which ruling an exception was taken, so we shall assume in the further discussion that the evidence established that fact; for, if proof of the facts would have made good defendant’s defense, it would follow that, because of its exclusion, a new trial should result. It was not shown that the St. Nicholas Bank, at the time of the transfer of defendant’s check to it, had any knowledge whatever of the insolvency of the Madison Square Bank, and of the fraud which the bank perpetrated on the defendant. Proof ■of the fraud of the Madison Square Bank therefore, at most, burdened this plaintiff with the necessity of proving that the St. Nicholas Bank obtained the check in good faith and for value, without notice of the fraud. Vosburgh v. Diefendorf, 119 N. Y. 357, 23 N. E. 801. If the fact be that the evidence upon this subject presented a question for the jury, it is doubtful whether the appellant is in a position to urge that the court erred in directing a verdict. At the close of the testimony, plaintiff’s counsel asked the court to direct a verdict in plaintiff’s favor. Defendant’s counsel thereupon requested the court to direct a verdict in favor of the defendant. The effect of the request by counsel for both parties was to ■confer upon the court the authority to pass upon any questions •of fact which the record presented. The court directed a verdict for the plaintiff, defendant excepting. After the court had rendered its decision, as the request made by counsel authorized it to do, the defendant asked the court to submit certain questions of fact to the jury. This request came too late; but, if it were in time, we do not think the court was in error in refusing it. It does appear from the evidence, affirmatively and conclusively, that the St. Nicholas Bank obtained the check in the regular course of business, and gave the Madison Square Bank credit for it, as by such course of business and its contract it was bound to do. That this was done in good faith, and without notice on the part of the ■St. Nicholas Bank of the insolvency of the Madison Square Bank, is shown by the testimony of William J. G-ardinier, the cashier ■of the St. Nicholas Bank. Inquiry was made of him as to the rea*63son for the notice given by the St. Nicholas Bank, on the 8th of August, that it would no longer act as the clearing agent for the Madison Square Bank. He said:

“We gave notice that St. Nicholas Bank would not clear any longer for the Madison Square Bank because they had drawn against the balance that they agreed to keep there of $50,000, and had failed to make it good. We did not do that because we considered the Madison Square Bank insolvent. I hadn’t heard rumors to that effect,—that they were insolvent. Never heard a word about it I am sure of it.”

The exceptions should be overruled, and judgment directed in favor of the plaintiff, with costs. All concur.