168 Iowa 707 | Iowa | 1915
The plaintiff is a banking partnership of Bellevue, Michigan. The defendant is a banking corporation of Sioux City, Iowa. Two other actors figure prominently in the facts. The Western Implement Company was a partnership engaged in the retail implement and automobile business in Sioux City. Its capital was about $11,000. The Michigan Buggy Company was a manufacturing corporation of Kalamazoo, Michigan, engaged largely in the manufacture of automobiles. The Western Implement Company was a patron of the defendant bank to the extent that it maintained a checking account therein. For convenience in the discussion, the
It will be seen from the foregoing that the draft in suit presents on its face a cause of action and that the affirmative defense thereto is in the nature of a failure of consideration and mistake.
‘ The general rule is that money paid under a mistake of fact may be recovered; but the payment of a check or note by a bank upon which it is drawn or at which it is made payable, under the mistaken belief that the drawer of the cheek or the maker of the note has sufficient funds to his credit to pay the check or note, seems to be an exception to the general rule. The eases do not seem to be entirely agreed upon what principle this exception is based, but the great, if not the overwhelming weight of authority, maintains this exception to
“In Hull v. Bank of South Carolina, Dud. I. 259, one of the earliest American cases that we have found, the supreme court of South Carolina said that ‘this question is to be decided rather by authority than general reasoning on the subject. . . . They ccmiot always guard against fraud and imposition, but they may against mistakes depending on an inspection of their own books and accounts. . . . They accepted and paid the check presented by the defendant for and on account of Hopton, the drawer, whose money they kept for his convenience and accommodation. The privity of contract is between them and their customer, Hopton, and not between them and one who may have happened in the course of dealing to present a check drawn by Hopton.’ ”
The reason for the exception to the general rule above stated is based upon two important considerations. The first is that ordinarily there is no reason but laxity and neglect why a bank should not know the state of a depositor’s account at the time it pays a cheek. The second is that the holder of a check receiving payment thereon is in no position to inquire as to the state of the depositor’s account or as to his credit with the paying bank. Taking the exception as above stated, we think it is not decisive of the ease before us, nor is this case the equivalent of the supposed case stated by the appellant.
The question of conditional satisfaction and conditional credits where checks are accepted in the transaction of business is very fully discussed in the cited cases and we will not now enter that field of discussion. The following excerpt from the Griffin case sufficiently indicates the trend of such discussion :
“Cheeks, drafts and other bills of exchange are the means of transferring the money, in adjusting nearly all commercial transactions, and in authorizing an agent, whether bank or individual, to make collections, it may be assumed, in the absence of instructions to the contrary, that the authority is to be executed in the manner usual and customary in the commercial world. While the agent may not accept anything but the actual cash in satisfaction of the claim, he may receive a check or draft, negotiable and payable on demand, which he has good reason to believe will be honored on presentation, as a ready and more convenient means of obtaining the money in conditional satisfaction of the debt. Such payment offers no greater temptation to the agent than payment in cash to which ordinarily it is equivalent. If honored by the drawee, payment relates back to the time of delivery.”
The general rule is that money paid through a mistake of fact may be recovered back provided the recipient thereof shall not thereby be put in any worse position than he would have occupied if the mistaken payment had not been made. In such case it is not necessary that the mistake be mutual. Union National Bank v. Sixth National Bank, 3 Am. Rep. 718; James River National Bank v. Webber, 124 N. W. 952 (N. Dak.); Merchants National Bank v. National Bank, 139 Mass. 513 (2 N. E. 89) ; Merchants Bank v. National Eagle Bank, 101 Mass. 281. The exception to this rule has already been stated in the quoted excerpts. As therein appears, the exception does not obtain in the presence of fraud or imposition. It only remains then to inquire whether the innocent recipient will be prejudiced by requiring restitution.
“The vendor had already lost; the paper was good for nothing to him. Nor does the .fact that he supposed it to be good justify him in keeping the money or property received, which could only have been given for it by the purchaser upon the same supposition that it was good. There has been a failure of consideration. ,
“The appellant has met with a regrettable loss, but his misfortune is in no manner chargeable to the appellee. His loss was as real, tangible, and certain before and at. the time he undertook to make the loan as it is now. To say that he might hold and enforce the note and mortgage for which the appellee has never received the slightest value is to say that he may, without having furnished the least consideration, compel the appellee to assume the responsibilities of his faithless banker and make good the wasted deposit.”
In the first ease cited, the Interstate Bank was the collecting bank which had received a note for collection from the Watkins Bank. The endorser of the note presented in payment his own check on the Merchants Bank. The collecting bank made immediate inquiry of the Merchants Bank whether such check was good and was informed that it was. The collecting bank thereupon accepted the check and surrendered to the endorser the paper of its principal. It credited the principal with the proceeds of the collection and mailed notice accordingly. It also charged up the amount against the credit account of the Merchants Bank, which account was maintained with it by the Merchants Bank for such purpose. The check proved to be in fact worthless. The information from the Merchants Bank that it was good was the result of a mistake of that bank, such bank having understood the conversation to refer to a different check. The Interstate Bank thereupon immediately rescinded, returned the check, and repossessed itself of the paper, and notified its principal. It was held that no one was prejudiced as a result of the mistake and that the parties were entitled to restore the status quo. The following excerpts from the opinion indicate the line of argument adopted in that case:
“There is at least plausible ground for the argument that until the note is paid its owner is entitled to its possession and to all the incidental rights attached to it, and therefore an agent who fails to return either the very thing intrusted to him, or its equivalent in money, the only thing he is authorized to accept for it, should not be permitted to haggle
“We do not understand that it is claimed, and it certainly cannot successfully be maintained, that the mere physical exchange of a note held for collection for a check can at once fix a liability upon the collecting agent, irrespective of all considerations of the subsequent conduct of the parties. If after such an exchange the agent, before the maker of the note left his presence, should become so far doubtful of the sufficiency of the check as to insist upon and obtain a retransfer of the note, this would clearly reinstate the precise situation that existed before any surrender of the note was made. In the present case, if, when the Interstate Bank first called up the Merchants Bank, it had been told that the check was worthless, and had then reclaimed the note, probably no contention would have been made that it had incurred any liability. This is for all practical purposes just what was done so far as the mere matter of time was concerned, for the delay was really insignificant. We are therefore of the opinion that the recaption of the note was accomplished under such
“We cannot regard this entry of credit upon the books of the Interstate Bank as any more determinative of its relations with the Watkins Bank than of the question of the payment of the note. In Midland Nat. Bank v. Brightwell, 148 Mo. 358, 71 Am. St. Rep. 608, 49 S. W. 994, it is said: ‘When a note or draft is sent by one individual or bank to another bank for collection and to remit the proceeds to the sénder, the relation of principal and agent is created, and not that of creditor and debtor. . , . Having received the note or draft for collection, it does not owe the amount thereof to the sender until collected, and though it may credit in its books therefor, such a credit may be treated as provisional if the paper is afterwards dishonored, and it may cancel the credit.’ ‘The fact that the depositor’s account is credited with the amount of the items taken for collection does not of itself operate to transfer the title to the paper, for, by the custom of bankers, the collection is charged back at once if not paid.’ 3 Am. & Eng. Enc. Law, 2d ed., p. 817. The fact that the credit was given only after the check had been received and an inquiry made about it does not affect the principle by which the matter is controlled. The bank might well elect to give credit only for such collection items as upon investigation it believed reasonably certain would be paid, and to hold others without credit until actual payment, without, by pursuing such course, binding itself to be answerable whenever its judgment that payment would be made should prove mistaken.”
The Merchants National Bank case above cited is quite in point. In that ease the plaintiff had paid the check of one Burgess drawn upon itself. At the time it honored the check, Burgess appeared to have a credit upon its books. This
Upon the record before us, it is our conclusion that the defendant in this case was within its rights in returning the Western Company’s check and in reclaiming the plaintiff’s note and that the plaintiff is not entitled to claim the affirmative benefit of the mistake.
There is a further consideration here that the defendant bank had a cause of action against the attachment defendants outside of the transaction involved in the $20,000 check. It had paid on the 1st of August over its counter, checks presented by other collecting banks in payment of other notes. These payments amounted to several thousand dollars. For such payments, the defendant bank had no other remedy, so far as appears in this record. This itself would have justified a suit, although it might be doubtful whether the checks themselves could have formed the basis of the cause of action. Be that as it may, the beginning of the suit worked no estoppel upon the defendant as against the remedy elected on August 1st.
“We reach the conclusion that the judgment entered below dismissing the plaintiff’s suit was proper and it is— Affirmed.