Pease v. Landauer

Taylob, J. It will be seen from the foregoing statement of facts tbat tbe question whether the holder of a check can maintain an action at law against the bank upon which it is drawn, to recover the amount thereof, upon a refusal of payment on presentation, the drawer of the check having a deposit account in such bank to his credit for an amount equal to or in excess of the amount of the check at the time of presentation, is not involved in this case. Nor do we think the other question is involved, viz., whether the drawer of the check may lawfully, as between himself and the bank, direct the bank to refuse payment of his check drawn upon his account; or, in other words, stop payment of his check before presentation, so that the bank, though willing, would have no authority in law to pay the same on presentation. Eor the purposes of the consideration of this appeal, it may be admitted that the decided weight of authority is in favor of the proposition that no action at law can be maintained by the check-holder against the bank for a refusal to pay the same on presentation, and that the drawer may, before presentation, stop payment, so that the bank would have no legal authority to pay the same. The argument upon these questions, upon both sides, is clearly and ably stated by Mr. Morse in his work on Banks & Banking (2d ed.), 29, 35, 258, 263, 265, 266-215, 302-304, 525-538; and see cases cited. It seems to us that the real question presented in this case is whether, in equity, as between the holder of a check for value and the drawer, the bank being indifferent as to whether the amount due to the drawer shall be paid to him or the check-holder, the check-holder should be paid in — 26 — preference to tbe drawer. Tbe receiver in tbis case stands in no better position than tbe firm wbo drew tbe check; be stands in its place, and, for tbe purpose of tbis case, we must treat it as tbougli tbe firm wbo drew tbe check was still in existence. Coates v. First Nat. Bank, 91 N. Y. 20, 26; 2 Story’s Eq. Jur. (10th ed.), § 1228; Eurrill on Assignor. (2d ed.), 483; Hawks v. Pritzlaff, 51 Wis. 160; Estabrook v. Messersmith, 18 Wis. 551; High on Receivers, § 495; Van Alstyne v. Cook, 25 N. Y. 489; Kerr on Receivers, 183-185. Briefly, we have tbis state of facts: Tbe firm of E. D. Davis & Co. gives Joseph M. Pease a check upon their bank in Milwaukee for tbe sum of $574.23, in settlement of an indebtedness due from them to Pease. At tbe time the check was given, and when presented for payment, there was sufficient standing to tbe credit of tbe firm in tbe bank upon which it was drawn to pay tbe same. Tbe amount of tbe check is charged against Pease in their account with him, and credited to tbe bank on their account with tbe bank. Before tbe check is presented for payment at tbe bank, .an action is commenced by one partner against tbe other to dissolve tbe partnership and close up its business. In that action a receiver is appointed, and tbe bank has notice of such appointment before tbe check is presented, and thereupon tbe bank declines to pay tbe check until the right of tbe receiver and tbe check-bolder is determined by tbe court, and it retains in its possession tbe money due tbe firm, without objection by tbe firm or tbe receiver, until such determination can be bad. No demand for tbe money is made upon tbe bank by tbe firm or tbe receiver, and, so far as appears from tbe evidence, tbe credit to tbe bank for tbe amount of tbe check remains, as well as tbe charge of tbe same amount to Pease, on tbe books of tbe firm. So far, at least, as Davis is concerned, be appears willing that tbe money should be paid to Pease, or to bis assignee, if be — 27 — have one, if the note Pease agreed to surrender to him when the check was given be surrendered and canceled. This was done at' the hearing of the order to show cause, so that the only objection Davis had to the payment of the money to Pease or his assigns was removed at the hearing. I do not understand that the commencement of the action to dissolve the partnership, and the appointment of a receiver in that action, was in itself a revocation of the order upon the bank to pay the money to the holder of the check, and that if the bank had paid the check after a simple notice that a receiver had been appointed, without any direction on his part to the bank not to pay the check, the bank would have paid it in its own wrong, and have been liable for the amount so paid, either to the receiver or the firm. The receiver in such an action takes possession of the property of the firm for the benefit of the members of which it is composed, and not primarily for the benefit of the creditors of the firm. Notwithstanding the absence of any direct evidence in the record upon the question, we think it may be fairly inferred that, upon the hearing of the order to show cause, the receiver made claim to the whole credit due from the bank to the firm, and resisted the payment of the check to the holder; but it does not disclose that any such claim was made by the firm or either of• the members thereof. However that may be, we shall treat the question as though the receiver had the right, even as against the wishes of the members of the firm, to demand the payment of the amount due from the bank to him, and that such demand on his part must have the same effect in the law as though made by the firm or the members thereof. We come back to the question stated above. As between the holder of a check for value and the drawer thereof, the bank upon which the check is drawn standing indifferent, and the drawer having an account to his credit — 28 — in the bank sufficient to pay the same, is the check-holder entitled in equity to have the money paid to him to the amount of his check, or may the drawer arbitrarily stop its payment and compel the bank to pay the money to him ? As a question of morality there can be no doubt as to the injustice of permitting the drawer to prevent the payment of his check. When he gave the check to Pease, it was with the implied if not express assurance that he had a credit at the bank upon which his check was drawn, sufficient to pay it, and that the bank would pay it on presentation, and that he would not himself do any act to prevent the bank from paying the same on presentation. Without this express or implied assurance on the part of the drawer of the check, it cannot be presumed Mr. Pease would have taken it upon the settlement of his claim against the drawer. Relying upon this assurance on the part of the drawer, he received the check, and it seems to us very clear that upon equitable principles the drawer is estopped from stopping its payment except for some good cause, and that if he does so arbitrarily he is guilty of a fraud which a court of equity will not sanction. But in this case the drawer did something more than merely giving his check to Pease for the amount due him; he charged Pease with the amount of the check and credited the bank with the payment thereof, and such charge and credit remains on the books of the firm apparently up to the present time. He has, therefore, so far as he could without the consent of the bank, appropriated so much of the debt due him from the bank as is necessary to the payment thereof, to such payment; and, the bank not objecting to such appropriation, there can be no equity in now allowing the drawer of the check to withdraw such appropriation without showing some reason for so doing. The bank not objecting, we think it is the plain duty of a court of equity to direct the payment of the check out of the funds in the bank to the credit of the drawer. — 29 — Upon this question courts have differed in opinion, hut we think both reason and authority are in favor of the rule above stated. Risley v. Phenix Bank, 83 N. Y. 318, 328; Coates v. First Nat. Bank, 91 N. Y. 20; Walker v. Seigel, 2 Cent. L. J. 508; German Savings Inst. v. Adae, 8 Fed. Rep. 106; Wheatley v. Strobe, 12 Cal. 92, 97; Harker v. Anderson, 21 Wend. 372, 881; Nat. Ex. Bank v. McLoon, 73 Me. 498; Bell v. Alexander, 21 Grat. 1, 6; In re Brown, 2 Story, C. C. 502, 519; Yeates v. Groves, 1 Ves. Jr. 281; Lett v. Morris, 4 Sim. 607; Row v. Dawson, 1 Ves. Sr. 331; Pope v. Huth, 14 Oal. 407; 2 Daniel on Neg. Inst. § 1638; 1 id. § 23; Morse on Bank. 459, 474; Byles on Bills (7th ed.), 14, and note; 1 Story’s Eq. Jur. 1044; Story on Prom. N. § 498, note 3. These authorities we think fully establish the rule that, as between the drawer of a check and the holder thereof for value, the drawing' and delivery of the check operates as an equitable assignment of the account or fund upon which it is drawn, to the amount of the check, and as a consequence such equitable assignment is binding upon the drawer, and he cannot avoid it except for some good cause. All the learned authors and judges speaking upon the subject say that it is a fraud on the part of the drawer of the check to make the same, when he knows he has no credit or fund to draw upon, and that it is equally a fraud, as between him and the person to whom he gives the check for value, to withdx-aw the fund or credit before the check is presented for payment. Daniel, in his work on Negotiable Instruments, says: “As between drawer and payee on the one side, and the drawee on the other, it creates no obligation on the latter to pay it, as he has a right to insist on an integral discharge of his debt; and if the creditor give a subsequent order for the whole amount, he may pay it with impunity, as he thus discharges his whole debt in its entirety at once. But if the payee goes into equity, or if the parties are brought therein by — 30 — any proceeding, so that all of them are before the court, the holder of the order may enforce it as an equitable assignment as against all subsequent claimants, whether by assignment of the drawer or by legal process served upon the drawee.” Sec. 23, p. 20; Yeates v. Groves,1 Ves. Jr. 280; Lett v. Morris, 4 Sim. 607; Bradley v. Root, 5 Paige, 632; Marine & F. Ins. Bank v. Jauncey, 1 Barb. 486; Harris v. Clark, 3 N. Y. 93, 120; Cutts v. Perkins, 12 Mass. 209. See 3 Lead. Cas. Eq. (3d Am. ed.), 356. The reason of this rule is that while the debtor cannot be subjected to several actions by several parties to recover one debt due to an assignor who has assigned the debt to several in distinct parts, without his assent, in equity all the parties entitled to the whole debt due from the debtor are before the court, and he is subjected to but one action for the whole debt, and the rights of all the parties are settled in one action. The objection, therefore, to splitting up the claim is obviated, and there is no reason why the several assignees of the debt should not have their rights settled in such equitable action. All parties entitled to any part of the debt due from the bank to the firm, or the receiver of the firm, being before the court, and the bank standing indifferent, and willing to pay to such party or parties as the court shall direct, it seems to us that it would be contrary to a fundamental rule of equity to permit the drawer of the check to prevent the appropriation of the fund in the bank for that purpose, when such act on his part would be a fraud upon the holder of the check. We-are of the opinion that the county court should have either directed the payment of the amount of the check to the petitioner, Joseph M. Pease, or have directed the bank to hold the same until such time as the right to the same, as between Pease and the Mechanics’ National Bank of New York as garnishee, should be determined; and in case it was . determined that such bank was entitled to the money, as — 31 — against Pease, then have directed the money to he paid to snch bank. We are aware that there are decisions of courts of high authority which are in conflict with the rule above stated; hut I think, as is well stated by the learned judge who decided the case of Germam, Savings Inst. v. Adae, 8 Fed. Rep. 106, that “ there is certainly no good ground for holding that a check drawn upon a fund in bank is not an equitable assignment as between the drawer and payee; and in a case where there is no controversy as to the rights of the bank or drawee, it does not he in the mouth of the drawer or his assignee to say that such an instrument is not an equitable assignment.” By the Court.— The order of the county court is reversed, and the cause remanded for further proceedings in accordance with this opinion.