On December 6, 1923, the firm of Cleve & White, of Vaneeboro, N. C., sent to the Craven Chemical Company, of Wilmington, N. C., a cheek for $7,467.50, drawn on the Bank of Vanceboro, in payment of a debt due the Chemical Company. The cheek was received on December 7th, and on the same day was deposited with the Murchison National Bank and credited to the account of the Chemical Company. The Murchison Bank immediately forwarded it for collection to the Federal Reserve Bank of Richmond, which received it on December 8th. The latter bank forwarded it to the drawee, Bank of Vanceboro, and it came into the hands of that bank when it opened for business on Monday, December 10th. On December 11th, the Bank of Vanceboro charged it to the account of Cleve & White, whose deposit balance exceeded the amount of the cheek, and in payment of this and certain other items sent to the Reserve Bank an exchange draft for the sum of $8,333.42 on its reserve deposits in the First National Bank of New Bern, N. C.
This exchange draft was received by the Reserve Bank on December 12th, and was immediately forwarded to the drawee, First National Bank of New Bern. It arrived in New Bern and was refused payment for lack of funds on December 13th. In this connection it appears that the Bank of Vanceboro had had a balance on deposit with the First National of New Bern exceeding the amount of the draft, but that on December 10th the latter bank had charged against this balance ■the amount of a note which it held against the former, and this had practically exhausted the balance. The Bank of Vanceboro failed, and a receiver was appointed for it on December 13th. The check of Cleve & White was thereupon duly charged back to the Murchison National by the Reserve-Bank, and to the Chemical Company by the Murchison National.
This action was instituted by the Chemical Company against Cleve & White to recover the amount of their debt, and against the Reserve Bank to recover damages for alleged negligence in handling the cheek. The trial judge directed a verdict in favor of the Chemical Company as against Cleve & White, but against the Chemical Company and in favor of the Reserve Bank on the cause of action asserted against it. Two writs of error have been prosecuted to this court, one by Cleve & White to review the judgment rendered against them in favor of the Chemical Company, and the other by the Chemical Company to review the judgment discharging the bank. On each writ of error the principal ground of complaint is the direction of the verdict, and the points raised by the exceptions thereto are the only ones which need be considered. Those relating to evidence are immaterial, as the verdict should have been directed as it was, whether the evidence which is the subject thereof be considered as'admitted or excluded.
On the case presented by Cleve & White, the question which arises is whether payment of their debt has been effected, because the Chemical Company accepted their check, or because the Federal Reserve Bank, acting for the Chemical Company in the collection of the cheek, accepted from the drawee of the cheek a draft on its reserve deposits in the First National Bank of New Bern.
As to the first proposition, it is well settled that, in the absence of special agreement to that effect, acceptance of a check does not operate as payment of a debt, unless the cheek is itself paid. Little v. Mangum (C. C. A. 4th)
Whether the check has been paid or not depends upon whether or not acceptance by the Reserve Bank of the exchange draft on the reserve deposits of the drawee Bank of Vanceboro operated as payment of the, cheek. Undoubtedly the general rule is that acceptance of such draft operates as payment of the check and discharges the drawer of the check from further liability. Federal Reserve Bank v. Malloy,
“Now a cheek on a bank or banker is payable in money, and in nothing else. Morse, Banks and Banking (2d Ed.) p. 268. The drawer, having funds to his credit with the drawee, has a right to assume that the payee will, upon presentation, exact in payment precisely what the cheek was given for, and that he will not accept, in lieu thereof, something for which it had not been drawn. It is certainly not within his contemplation that the payee should, upon presentation, instead of requiring the cash to be paid, accept at the drawer’s risk a cheek of the drawee upon some other bank or banker. The holder had a right to make immediate demand for payment upon receipt of Anderson’s cheek, though she was not bound to do feo. When her agent, the Old Town Bank — the collecting-bank being the agent of the holder (Dodge v. Freedman’s Sav. & Trust Co.
In North Carolina, however, the rule that a cheek is payable only in cash has been changed by statute. Section 2 of chapter 20 of the Public Laws of North Carolina of 1921, entitled “An act to promote the solvency of state banks,” provides:
“That in order to prevent accumulation of unnecessary amounts of currency in the vaults of the banks and trust companies chartered by this state, all cheeks drawn on said banks and trust companies shall, unless specified on the face thereof to the contrary by the maker or makers thereof, be payable at the option of the drawee bank, in exchange drawn on the reserve deposits of said drawee bank when any such check is presented by or through any Federal Reserve Bank, post office, or express company, or any respective agents thereof.”
The history and purpose of the act, and particularly of this section, are clearly set forth in the opinion of Mr. Justice Brandeis in Farmers’ & Merchants’ Bank v. Federal. Reserve Bank,
“Thus the statute merely sought to remove (when the drawer acquiesced) the absolute requirement of the common law that a check presented at the bank’s counter must be paid in cash. It gave the drawee bank the option to pay (by exchange only in certain eases, namely, when the cheek was ‘presented by or through any Federal Reserve Bank, post office or express company, or any respective agents thereof.’ The option was so limited because the only purpose of the statute was to relieve- state banks from the pressure which, by reason of the common-law require *714 ment, federal reserve banks were in a position to exert and. thus compel submission to par clearance.”
As Cleve
& White
did not specify cash payment in tbe face of tbe cheek, they must be held under the act of 1921 to have impliedly agreed that the Bank of Vanceboro might pay it by an exchange draft on reserve deposits, if it should be presented by or through the Federal Reserve Bank. The Reserve Bank could not require payment in any other medium. Federal Land Bank v. Barrow,
We think not. If, under the case presented, Cleve & White had tendered an exchange draft of the Bank of Vanceboro in payment of their debt, there can be no doubt that this would not have extinguished the debt, if the draft had been dishonored, for the rule is well settled that, “in the absence of any special agreement to the contrary, the mere acceptance by a creditor from his debtor of the cheek of a third person, payable to the creditor’s order, for a pre-existing debt, is not absolute, but merely conditional, payment, defeasible on the dishonor or nonpayment of the check.” 21 R. C. L. p. 61, and eases there cited. The result cannot be different where the draft is tendered by the bank upon the order of the debtor, instead of by the debtor himself. The rule that acceptance of the draft of the drawee bank in payment of a check releases the drawer can have no application; for the reason of the rule, the common-law requirement of cash payment, no longer exists, and the maxim applies: “Cessante ratione legis, eessat ipsa lex.”
We do not find that, the exact point presented by this ease has been heretofore decided, but the principles which we deem controlling were applied by the Supreme Court of North Carolina to a somewhat similar case in Graham v. Proctorville Warehouse Co.,
“We have not overlooked the contention of plaintiff that by reason of chapter 20, Public Laws 1921, the Bank of Proctorville had the option to pay the cheek of J. R. Lawson, its depositor, when same was sent to it for collection through the post office, by draft on the Bank at Wilmington. This statute has been declared by the Supreme Court of the United States not to be' in violation of the Constitution of the United States, and therefore valid. Farmers’ & Merchants’ Bank of Monroe, N. C., v. Federal Reserve Bank of Richmond, Va.,
Debtors contend that the effeet of the judgment of the court below is to require them to pay their debt twice, but this argument begs the question. As we have seen, what has been done has not effected payment of the debt due the Chemical Company, and debtors may file claim against the receiver of the Bank of Vanceboro for the full amount of their deposit, just as though the eheck had not been charged against it when the worthless exchange draft was sent. Graham v. Proctor-ville Warehouse Co., supra. On the other hand, the Chemical Company has been guilty of no negligence. The check sent it was not payment, but a .means of securing payment, or at most conditional payment. It imrne *715 diately put this check in process of collection, and through no fault on its part has received nothing in payment. Debtors chose the bank in which they deposited the money to meet the debt due the Chemical Company. They sent a check on this bank, which under the law they impliedly agreed might be treated merely as an order for an exchange draft. When, without fault ■ on the part of the Chemical Company, this exchange draft turns out to be worthless — when the medium which they have selected for making payment fails to effect payment — they are not in position to say that payment has been made. It is true that there, is no evidence that debtors have themselves been guilty of any fault or negligence, and this seems to be one of those unfortunate cases where one of two innocent parties must suffer from the default of a third. Our conclusion that payment has not been made, and that the loss must fall on debtors,' is, we think, not only in accord with the legal principles which we have discussed, but also with the “broad general principle that, whenever one of two innocent persons must suffer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it.”
Cleve & White insist, also, that the Chemical Company cannot maintain this action on the ground that, because the cheek was deposited with the Murchison Bank, the sole remedy of the Chemical Company is against that bank for negligence in the handling of the cheek, and in support of this position they rely upon the case of City of Douglas v. Federal Reserve Bank,
Upon the writ of error of the Chemical Company, we are also of opinion that the judgment of the District Court should be affirmed. Assuming, without deciding, that under the special contract, evidenced by the deposit slip, the Chemical Company sustained such a relation to the Federal Reserve Bank as would enable it to maintain the suit for negligence, we are satisfied that the evidence-did not warrant submission of the case to the jury as against the bank, for two reasons : (1) Because there was no evidence of negligence on the part of the bank; and (2) because it does not appear that plaintiff has sustained any injury as the result of the failure of the bank to collect the cheek.
For reasons fully discussed in connection with the writ of error of Cleve & White, this case is distinguishable from the case of Federal Reserve Bank v. Malloy,
Plaintiff further contends that the Federal Reserve Bank should have ascertained the precarious financial condition of the Bank of Vanceboro and communicated the same to the Murchison Bank as the representative of plaintiff. There is no evidence that the Reserve Bank had knowledge of the precarious condition of the Bank of Vanceboro, or of any facts or circumstances which would have put it upon notice or inquiry, and there is no evidence that it was guilty of any negligence whatever in its efforts to collect the check, or that any additional diligence on its part would have resulted in collection.
But, even if negligence on the part of the Federal Reserve Bank be assumed, plaintiff cannot recover on account thereof, as there is no showing whatever that plaintiff has suffered any damage. It has recovered in this action the full amount of its claim against Cleve & White, and there is no suggestion that they are insolvent, or that plaintiff cannot collect from them the full amount of its judgment.
The judgment of the District Court is affirmed on both writs of error.
No. 2588: Affirmed.
No. 2589: Affirmed.
The late Judge ROSE sat in the hearing of these cases, but died before he had an opportunity to pass upon the foregoing opinion.