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[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 276 This case comes to us upon questions of law, raised by exceptions taken upon the trial. All questions of fact depending upon conflicting testimony, or upon inferences from the evidence adduced, have been forever settled by the unanimous affirmance of the judgment at the Appellate *Page 278 Division. It is quite obvious, as well from the nature of the pleadings, as from the course of the trial, that the questions to be decided by the jury related to the negligence of the plaintiff in giving certification to the check, when it was in possession of a letter of advice showing that the check had been raised since its issuance; to its continuing neglect to ascertain the alterations in the check, when received through the clearing house exchanges on the following morning, and, thereupon, to make a reclamation upon the defendant within a reasonable, or the usual, time for so doing, and, lastly, to what justification, if any, the defendant had in paying out to its depositor the moneys represented by his deposit of the certified check. The verdict of the jury must be regarded as establishing all these questions adversely to the plaintiff and we must consider the plaintiff as having been culpably negligent in its course of dealing with the check, which, indeed, was not disputed, and the defendant as having paid out the moneys in good faith, relying upon what the known facts appeared to represent. The right of a bank, certifying a check erroneously, to bring an action to recover back moneys paid upon the certified check, as moneys paid by mistake, as a general proposition, is not questioned. If there was nothing more of the case than that fact, the plaintiff's right of recovery would be undoubted; but its negligence in certifying the check was continued in subsequently accepting and paying it; with the result that, in reliance upon the apparent attitude and the acts of the certifying bank, and in the usual course of business, the defendant parted with the moneys upon the demand of its depositor. Thus, the question becomes one of where, as between the parties, the burden of the loss shall rest. The verdict of the jury having determined the plaintiff to have been the culpably negligent one, the judgment should settle that question; unless some error of a material character has been committed upon the trial.
The principal error which the plaintiff insists upon is to that portion of the charge, in which the trial judge said to the jury that, "the question seems to me to be narrowed *Page 279 down to a single one, and that is whether the Continental National Bank, at the time that they certified the draft of the Philadelphia Bank drawn upon it, were guilty of culpable negligence in doing so. That appears to be about the question involved in this case. And that is, as I understand, the question as stated by Mr. Justice INGRAHAM in his opinion in this case on appeal." To this observation of the trial judge, the plaintiff excepted and it is argued, in support of the exception, that it enlarged the rule of law with respect to the effect of certification, as it had been established by the decisions, and that the jurors were left to find adversely to the plaintiff, irrespective of whether the defendant had paid out the moneys to its depositor in reliance upon the plaintiff's payment of the certified check. That this expression of opinion by the trial judge could not have prejudiced the plaintiff's case, I entertain no doubt. Upon its face, it was but a personal reflection of the trial judge and not, actually, an instruction to the jury. It was uttered after the jury had been informed as to the nature of the cause of action and of the defense, and after they had been correctly instructed as to the legal effect of the certification of a check, by a citation from the opinion of this court inClews v. Bank of New York Nat. Banking Assn. The observation was followed, immediately, by a reference to the decision of the Appellate Division upon the case, as it had come up from a former trial of the issues. The opinion then rendered in that court was quoted from, in the following language; "It was, at least, a question for the jury to determine whether or not, with the knowledge of the facts which had been communicated to the officers of the plaintiff, it was culpable negligence on their part to receive this draft, as they did, on the morning of June fourteenth, at about half-past ten o'clock, without examination or verification, and to retain it until after two o'clock; and if the jury should find in the affirmative, and that the defendantmade the payment to its depositor relying upon the acceptance andpayment of the draft by the plaintiff, the defendant would be exonerated from liability for anything more than the amount *Page 280 remaining in its hands to the credit of the fraudulent depositor, when notice of the forgery was given to the defendant." The trial judge added, "That is the rule which I am bound to adopt in this case, because we are all bound by the decision of the Appellate Division of this court." The jury was, thus, distinctly told that, in law, the plaintiff was precluded from recovering back the amount, which it had paid upon the fraudulent check, only, if "the defendant made the payment to its depositor relying upon the acceptance and payment of the draft by the plaintiff." Thereafter, the facts in evidence were reviewed and the rule of law, which the trial judge had announced as controlling in the case, was repeated, in similar language, at the close of the charge. I do not think that we should isolate the particular observation which was objected to, in order to find error. The observation should be considered in connection with the whole of the charge upon the subject and error could only be predicated if, upon such consideration, it was plain that the jury may have been misled as to the scope of their investigation. Standing alone, an inference was, of course, possible from the casual expression of the trial judge as to how the question appeared to him; but the jurors were distinctly, and repeatedly, informed as to what the law obliged them to determine. They were instructed that the defendant's reliance upon the acceptance and payment of the check by the plaintiff was a necessary adjunct to an affirmative finding of culpable negligence in the plaintiff, in order to support a verdict for the defendant. Assuming that the trial judge's remark was incorrect, by itself, it could have had no effect upon the jurors' minds. They were carefully instructed by what considerations they should reach a conclusion upon the relative rights of the parties. Indeed, their attention was directed to the importance of determining at what time the draft was paid by the exchange of checks and they were told that "it makes some difference in this case as to when that took place. * * * The question is, when it was paid." While the certification was an initial fault, which might be regarded as inducing the subsequent careless conduct of plaintiff's *Page 281 clerks, it is quite significant that the trial judge did not leave the case with the jury upon the proposition that that fault was sufficient, alone, to charge the plaintiff with the loss. In emphasizing the first act of certifying the check, as the feature, which, under the circumstances, most impressed him, the trial judge did not mislead the jury; because, if that was culpable negligence, the plaintiff had come under a responsibility from which it should, and might, have discharged itself by the exercise of ordinary care. In failing to do so, we have a situation, where the plaintiff's negligence was unbroken and which estops it from raising a question about the insufficiency of certification alone to charge it with the loss.
There is no question but that the liability, or obligation, which a bank assumes in certifying a check drawn upon it, is well settled by decisions of this court, and with such definiteness of expression as to lend to the rule thus settled the greatest weight. (See Marine National Bank v. National City Bank,59 N.Y. 67; Clews v. Bank of New York Nat. Banking Assn., 89 ib. 419.)
In Marine National Bank v. National City Bank, the plaintiff sued to recover from the defendant moneys, which were alleged to have been paid by mistake. A check on the former had been altered, as to date, payee and amount, and, on presentation, had been duly certified. It was deposited with the defendant and, on the following morning, its amount was paid by the plaintiff. The depositor with the defendant was unaware of the alterations and, relying upon the certification alone, had given to the person offering the certified check its equivalent in gold. A judgment recovered by the plaintiff was upheld by this court and the doctrine was laid down, in strong language, that the certifying bank was not deemed to warrant otherwise as to the check certified than the genuineness of the drawer's signature and the sufficiency of his credit, and it was said that "there is no ground of reason, or authority, for extending the rule to matters not being especially within the knowledge of the certifying bank." In that case, there was no question of a loss by the defendant. It still had the moneys *Page 282 and the question was, solely, as to its liability to refund them, for having been paid under a mistake of fact. It had not changed its position.
In Clews v. Bank of New York Nat. Banking Assn., the question discussed in the opinion was as to the liability of the defendant upon a foreign draft, which it had certified and which certification it had, upon the inquiry of a clerk of the plaintiffs, pronounced to be good. At the time of certification, the draft had been altered in date, name of payee and amount. The inquiry was made by the plaintiffs, before taking it in payment for some bonds. It was held, as in the Marine Bank case, that the defendant's liability was like that of the acceptor of a draft and its certification "guaranteed the genuineness of the drawer's signature, and represented that it had funds of the drawer in its possession sufficient to meet the check, and it engaged those funds should not be withdrawn from it by the drawer, to the prejudice of any bona fide holder of the check; and the certificate did not impose upon the defendant any further or greater responsibility." It was said that "when a check has been raised by some person without authority before certification, the certifying bank cannot be called upon, in consequence of its certification, to pay the amount of the raised check; and when a bank has thus certified a raised check by mistake and subsequently pays the money thereon, without anyculpable negligence on its part, it can recover the amount thus paid as money paid by mistake." (Citing authorities.) "The certification of a check," it was observed, "never imports that there is money in the bank absolutely applicable to the payment of the amount named in the check. * * * It simply imports that the drawer has money to the amount of the check, which will not be withdrawn, and which will be paid upon the check if it is properly payable thereon." In that case, which had several trials, a judgment, finally, recovered by the plaintiffs was affirmed; because it rested upon a finding by the jury of culpable negligence in the defendant, in having answered the inquiry by the plaintiffs, without *Page 283 referring to the information which it possessed. (105 N.Y. 398; 114 ib. 76.)
In the Marine Bank case, Judge ALLEN took occasion to remark that if the court had unduly limited the liability of the certifying bank and had denied the potency of the act of certification, which, for the convenience of business transactions, it was thought it should have, the remedy was in the modification of the form of the certificate, so as to express the enlarged obligation contended for.
The rule of law, as laid down in these cases, with respect to the effect of certification, should have no amplification. Indeed, the concession is made by the respondent that certification does not guarantee the genuineness of any portion of the body of the check and that no duty rests upon the certifying bank to make inquiry relative to such genuineness and, upon the request of the plaintiff, the jury was instructed to similar effect. The rule rests upon the plain reason that a certifying bank is bound to know the signature of its depositor and the condition of his account with it; but that it is not bound to know the handwriting of the body of the check. Certification, therefore, within the authorities, as in the case of the acceptance of a bill of exchange, has reference to facts, which are legitimately chargeable to the knowledge of the certifying bank, and not to any other fact about the paper. (Story on Bills, §§ 262, 263; Bank of Commerce v. Union Bank,3 N.Y. 230; National Bank of Commerce in N.Y. v. NationalMechanics' Banking Association, 55 ib. 211; Marine Nat. Bank v. National City Bank, supra.)
The liability of the plaintiff to bear this loss does not rest upon the mere certification of the draft, it arises by reason of the estoppel, which its continued neglect had worked. When the plaintiff, so tardily, discovered the alterations in the check, it was, then, too late to protect itself, or the defendant, from loss. The money was no longer under the control of the latter. Certification had given to the check a measure of currency, by its guaranty of signature and of funds, and the defendant, in the due and regular course of the banking business, *Page 284 having paid out the moneys upon warrantable presumptions of correctness and of payment, the plaintiff should not be heard upon its demand for the repayment of the moneys. The plaintiff was guilty of culpable negligence in certifying the check and in paying and retaining it, thereafter, and, these facts being established, it would be highly inequitable to admit its right to recover. The remark of the trial judge may well be regarded as a justifiable reduction of the facts proved to the proposition stated by him; which, if not correct in law when taken alone, does not constitute reversible error, because of its explanation from the context.
It is, then, urged by the appellant that the court erred in refusing to charge, upon its request, "that under the constitution of the New York Clearing House Association * * * checks presented by one member against another member are not actually paid until three o'clock in the afternoon of the day on which they are delivered at the Clearing House to the bank against which they are drawn," and "that a check or draft presented to the bank on which it is drawn through the New York Clearing House cannot be considered as paid until (1) either the drawee bank has paid into the Clearing House the amount which it owes to the Clearing House as a result of the previous day's transactions, or (2) it has received from the Clearing House the amount due to it as a result of the said transactions." To the first request the trial judge replied that he "declined to charge any further than he had already charged the jury," and he declined the second, "because that was a question of fact for the jury." It is not quite perceptible how the second request has any relevancy, upon the facts of this case. In his charge, the trial judge had instructed the jury that as the two banks "were both members of the Clearing House Association, they were both bound by the rules of the association," and they "might take the rules of the association * * * into consideration in determining as to when the draft was paid in the exchange of checks. * * * The question is when it was paid. The Continental Bank claims that as soon as it *Page 285 discovered the forgery, which was about four o'clock in the afternoon, it gave all the notice it could give, under the circumstances, to the Tradesmen's Bank." The argument is made that, by refusing to charge the requests, the court submitted the construction of the clearing house rules to the jury and, therefore, erred. I do not think that that was the case. It was a question of fact, upon the evidence, as to whether the defendant was entitled to regard the check as paid. The clearing house rules do establish periods of time at, or within, which the daily exchanges of checks and payments of resultant balances shall be made. The hour for making exchanges is ten o'clock precisely. When the daily exchanges are completed at the clearing house, the banks, which appear as debtors to the clearing house, are obliged to pay the balances against them between twelve-thirty and one-thirty P.M., and balances in their favor are to be paid at one-thirty o'clock, or as soon thereafter as they can be made up. As to reclamations arising upon checks, or drafts, not good for any cause and which are to be made directly between the banks concerned, the clearing house rule simply provides that they "should be made before three o'clock." In this case, both the plaintiff and the defendant were creditors of the clearing house and they were paid. The plaintiff made no reclamation upon the defendant, until between four and five o'clock in the afternoon. According to the testimony of the defendant's clerk, it had been customary to make reclamations between half-past twelve and half-past one o'clock of the day. It was clearly, in my opinion, a question for the jury to say, upon a consideration of the provisions of the rules and of the evidence in the case, whether the defendant was warranted in considering the check as one that had been paid. In the next place, I do not think that the plaintiff is in a position to take this objection, in view of its own negligent conduct. The clearing house rules had no application to the case. The question was one of the good faith of the defendant, in paying out the moneys to its depositor when it did, and that was one purely, of fact upon all the *Page 286 evidence, which the verdict of the jury has settled. It was not one to be determined by a construction of the rules of the clearing house.
It is further urged by the appellant that the court erred in refusing to charge, at its request, "that the plaintiff owed no duty to the defendant to compare the draft in question with the letter of advice from the Philadelphia National Bank before accepting the same, and, making no representation to the defendant as to the genuineness of the body of the draft, it is not now estopped from showing that the money was paid under a mistake of fact and should be refunded." The trial judge declined to charge in that respect, further than he had referred to the subject-matter in his charge. I think that there was no error in the ruling. What the trial judge had said in the charge had sufficiently covered the subject of the request. It may be true that the plaintiff owed no duty of the kind to the defendant, in particular; but that is not the determining question. The question was whether the plaintiff had been so culpably neglectful of its general duty, after giving the check the currency imparted by its certification, and had been so careless in the matter, as to estop it from recovering in this action. The trial judge had instructed the jury, in effect, that, as the law was settled, the fact of a culpable neglect in certifying the check must be accompanied by the further facts of its acceptance and payment, and of the payment by the defendant to its depositor in reliance thereupon. The estoppel upon the plaintiff was created by its whole negligent conduct, from the first error in certifying the check, to the subsequent errors of its payment and retention.
I think that no material errors were committed upon the trial and that the case was fairly submitted to the jury upon the questions of fact, which it involved.
For the reasons given, the judgment should be affirmed, with costs.
BARTLETT and WERNER, JJ., concur; PARKER, Ch. J., HAIGHT, MARTIN and VANN, JJ., concur in the result and in *Page 287 the opinion, except in so far as it seems to undertake to define the boundaries of certification of checks, and as to all that is said in that direction no opinion is expressed, it not being deemed necessary.
Judgment affirmed.