McGoldrick Lumber Co. v. Farmers Lumber Co.

Burke, J. On the 24th day of February, 1930, the Farmers Lumber Company, a corporation of Streeter, North Dakota, mailed its check on the Citizens National Bank of Streeter, North Dakota, for the sum of $1,976.56 to McGoldrick Lumber Company, Seattle, Washington in payment for a carload of lumber purchased by the said Farmers Lumber Company from the McGoldrick Lumber Company. The check was received in Seattle on the 26th or 27th of February and was deposited on the 27th day of February by the McGoldrick Lumber Company in the Old National Bank of Spokane, Spokane, Washington. The check was forwarded by the Old National Bank of Spokane to the Federal Reserve Bank of- Minneapolis and received by the said Reserve Bank on the 3rd day of March, 1930 and forwarded by the Reserve Bank on the same day direct to the Citizens National Bank of Streeter, Northt Dakota, in a cash remittance letter sent to the said Citizens National Bank on that date in the amount of $2,632.75. On receipt of said check the said Citizens National Bank marked the check paid and charged the same against the account of the Farmers Lumber Company on the 6th day of March, 1930. At that time the Farmers Lumber Company had on deposit in the Citizens National Bank of Streeter, North Dakota, the sum of $4,177.20 and on the 24th day of February, the date the check was issued, the Farmers Lumber *547 Company had a balance of $6,059.59 in the said Citizens National Bank. The Citizens National Bank, at the time of charging the said check to the account of said Farmers Lumber Company, issued its draft for the amount of said check on the First National Bank and Trust Company of Fargo, North Dakota, forwarded the same to the Federal Reserve Bank, where it was received on the 7th day of March. The Citizens National Bank of Streeter closed on the 8th day of March, 1930 and the First National Bank and Trust Company of Fargo, North Dakota refused payment on the draft. At the time of issuing the draft the Citizens National Bank of Streeter had in cash $3,289.36 and on the date of the closing of the bank had the amount of $2,494.97. On the refusal of the payment of the draft the Federal Reserve Bank of Minneapolis charged back the account of the check to the Old National Bank of Spokane, which then in turn charged back the account of the McGoldrick Lumber Company. The check, marked paid and charged against the account of the Farmers Lumber Company, was placed in its statement and delivered to the lumber company with the monthly statements of canceled checks. Thereafter the McGoldrick Lumber Company brought this action against the Farmers Lumber Company and the court made findings of fact and conclusions of law favorable to the plaintiff and from the judgment entered thereon the defendant duly appeals. The one question involved in this case is, was the indebtedness for the carload of lumber paid by the check on the Citizens National Bank of Streeter, in which bank the drawer had funds to pay the check? It is the contention of appellant that a check is payable in cash and that if the holder of the check is willing to accept anything else in payment and drawee bank is willing to give it, the drawer of the' check is not concerned and if the holder, in lieu of money, accepts a draft from the drawee bank such acceptance amounts to a payment. In support of this theory appellant relies upon the case of Haynes Equity Union Exch. v. First Nat. Bank, 63 N. D. 53, 246 N. W. 37, 87 A.L.R. 437. In that case the banks interested were in the same town. The check was drawn upon one of the banks and payable to the other bank. It was presented on the same day that the check was issued. The drawer of the check had the money in the payer' bank to pay the check if payment had been demanded in cash, but in *548 lieu of the cash, the payee bank accepted a draft and this court held that that was payment. That case, however, is not applicable to the instant case. In the instant case the banks are not in the same town and under the facts the case comes squarely under Chapter 92 of the Session Laws of 1927, which reads as follows: “6954-Al. The Bank of North Dakota, or any national bank doing business in this state, or any state banking association as defined in § . . . 5191A12 Supplement to the 1913 Compiled Laws, which shall cash, receive for application on an obligation, or for collection or deposit and credit, any check, note, or other negotiable instrument drawn upon or payable at any other bank, savings bank, trust company, or other financial institution located in another city or town, or which should be presented for acceptance or payment in another city or town, whether within or without this state, may, at its option, forward such instrument for presentment or collection directly to the bank on which it is drawn, or at which it is made payable, or may forward it through the Federal Reserve Bank, or other recognized banking agencies, and in payment of such collection such bank or other agency may accept the exchange or draft of the collecting or payor bank. Such method of collection shall, in the absence of a special agreement to the contrary, be deemed to be agreed to by the parties and the forwarding bank and successive agencies shall not be liable to the owner or depositor until actual final payment is received by the collection of such exchange or draft, and until such final collection the depositor, indorser, guarantor, or surety of any check, draft, or other instrument so received, deposited, cashed or credited, shall be liable to the bank to the extent of any money paid out or credit given by it on account of such instrument. “Provided, However, that the bank and every other agency through whose hands such instrument or the proceeds thereof shall pass shall be charged with ordinary business care, and shall be liable for any lack thereof, or for any default or negligence on its part resulting in loss, but not for the default, negligence or lack of care of any other agencies, and the owner or depositor of such instrument shall have a cause of action directly against such bank, or other agencies, for his damage or loss on account of its default or lack of ordinary care.” There is no claim that there was any neglect on the part of the *549 plaintiff or any of the banks through which the check passed and the facts as stipulated show that it came to the payer bank in the regular and ordinary course of business. This law provides a method for the collection of checks or negotiable instruments received by a bank for application on an obligation, or for collection or deposit and credit, drawn upon or payable at any other bank, trust company or other financial institution located in another city or toion', or presented for acceptance or payment in another city or town, whether within or without this state, and when so received such bank may at its option, forward such instrument for presentment or collection directly to the bank on which it is drawn, or at which it is made payable, or may forward it through the Federal Reserve Bank or other recognized banking agencies, and in payment of such collection such bank or other agency may accept the exchange or draft of the collecting or payer bank. Such method of collection shall, in the absence of a special agreement to the contrary, be deemed to be agreed to by the parties. Such method of collection does not apply to checks issued by one bank on another in the same town or to checks which are not sent out of town or out of the city in which the check is drawn, for in such case the holder can go to the bank and demand payment in cash, but when the check is upon banks in another city or town or when it is sent out of any city or town in payment of an obligation the.holder cannot present the check to the payer bank and demand cash without great inconvenience to himself or to the payer bank and for this reason it is the intent of the law to provide a method for the collection of checks sent out of town in the regular course of business through the mails. The draAver of the check can protect himself by making the check payable in cash only, but if the check is drawn in the usual way without special agreement the drawer is deemed, in law to have consented to the statutory method of collecting such check and in the absence of negligence on the part of the payee or his agents there is no payment until the check, or draft which may have been issued in payment, is actually paid in cash. This permits payment of the check by draft, not a bad draft, but one which will be paid in the ordinary course of business in actual cash. The banks through which the cheek in the instant case passed until it reached the Citizens National Bank of Streeter, the payer bank, were the agents of the plaintiff but the Citizens National Bank of Streeter *550 was the agent of the defendant and the failure to pay the draft was the fault of the agent of the defendant and not the fault of the plaintiff or its agents. In the case of Farmers & M. Bank v. Federal Reserve Bank, 262 U. S. 649, 67 L. ed. 1157, 43 S. Ct. 651, 30 A.L.R. 635, the United States Supreme Court had under consideration a law of North Carolina much the same as chapter 92 of the Session Laws of 1927 and the court held that in the absence of controlling decisions by the state courts the Supreme Court of the United States will construe the statute permitting payment of checks by draft as not authorizing payment by bad draft. The North Carolina statute was considered by the Circuit Court of Appeals in the case of Cleve v. Craven Chemical Co. (C. C. A. 4 th) 18 F. (2d) 711, 52 A.L.R. 980. The court quotes from § 61, 21 R. C. L. page 62, viz.: “In the absence of any special agreement to the contrary, the mere acceptance by a creditor from the debtor of the check 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,” and then said “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, cessat ipsa lex.’ ” Referring to the North Carolina statute the court citing the case of Farmers & Merchants Bank v. Reserve Bank quotes from the opinion viz.: “ ‘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 bj7 exchange only in certain cases, namely, when the check 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 requirement, 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 the face of the check, 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 *551 on reserve deposits, if it should be presented by or through the Federal Reserve Banks.” Minnesota also has a somewhat similar' statute considered in thecase of Holdingford Mill. Co. v. Hillman Farmers’ Co-op. Creamery, 181 Minn. 212, 231 N. W. 928. In this case the defendant mailed its check to the plaintiff for $1,036.50. The plaintiff received the check at its place of business in Holdingford and immediately and in the usual course of business sent it to its depositary, the Stearns County Bank of Albany, for collection, and it reached the bank on Deeember 6, 1927. It was paid by draft and fowarded to the First National Bank of Minneapolis, but the draft was not paid on account of the failure of the Hillman bank. The court said: “The Hillman bank was defendant’s agent, and its attempted payment of defendant’s check with a worthless draft did not become a payment in law for the goods plaintiff had sold and delivered to defendant. That it did not so become a payment was the fault of defendant’s agent and not that of plaintiff or any of its agents.” Citing Cleve v. Craven Chemical Co. (C. C. A. 4th) 18 F. (2d) 711, 52 A.L.R. 980, supra; Schram v. Askegaard (D. C.) 34 F. (2d) 348. There is no merit to appellant’s claim that said chapter 92 applies only to the liability of the collecting banks. Such law states specifically that such method of collection shall in Ihe absence.of a specific agreement to the contrary be deemed to be agreed to by the parties. The drawer and the payee are the parties and they are deemed in law to have agreed to the statutory method of collecting the check. The payment of the check by draft means payment by a good draft that will be paid in the ordinary course of business in cash. ■ In the instant case the check was not collected and the judgment must be affirmed. Nuessle, Christianson and Moellring, JJ., concur.