Jaselli v. Riggs National Bank

Mr. Justice Robb delivered the opinion of the Court: We will first determine whether said provision in said section demands the literal interpretation given it by the learned trial justice. The section reads: “The payee of a money order may, by his written indorsement thereon, direct it to be paid to any other person, and the postmaster on whom it is drawn shall pay the same to the person thus designated, provided he shall furnish such proof as the Postmaster General may prescribe that the indorsement is genuine, and that he is the person empowered to receive payment; but more than one indorsement shall render an order invalid, and not payable, and the holder, to obtain payment, must apply in writing to the Postmaster General for a new order in lieu thereof, returning the original order, and making such proof of the genuineness of the indorsements as the Postmaster General may require.” In the determination of this question, the nature of these money orders must be kept in mind. They are not, as suggested by the learned counsel for appellee, negotiable paper (United States v. Stockgrowers Nat. Bank, 30 Fed. 912), so that the rules applicable to that kind of paper are not controlling here. In the above cited case the opinion was written by Circuit Judge Brewer, subsequently Mr. Justice Brewer of the Supreme Court of the United States. If these orders were negotiable paper, it might be argued with much force that the statute contemplates a personal indorsement by the payee, that is, an indorsement by his own hand. The money order service is merely an incident of the postal system, and was inaugurated to enable the citizen to transmit safely through the mails small sums. United States v. Bolognesi, 164 Fed. 159. The statute in terms provides that more than one indorsement renders an order invalid, and, necessarily, whoever takes one is charged with knowledge of that fact. If an order is presented to a — 167 — postoffice for payment, the postmaster naturally requires the person presenting it to establish his identity; and if any doubt is entertained as to the right of an indorsee to receive payment, further proof as to the genuineness of the indorsement is required. It would be no more difficult for the wrongful holder of an order to deceive the postmaster, should it be held that the indorsement must be by the hand of the payee, than would it be under a holding that indorsement may be by the authorization of the payee, and in either case the person who wrongfully indorsed the name of the payee would be guilty of forgery. There is, therefore, no apparent reason for giving the statute the strict construction contended for by appellee. On the other hand, on both reason and authority, we think it should be given a more liberal interpretation. The money order system is popular and largely patronized by the public because of its simplicity. Technical rules and requirements that add nothing to the safety of the service or the protection of the public should be discouraged, as they tend to lessen its popularity in proportion as they increase its complexity. In the case of State v. Holmes, 56 Iowa, 588, 41 Am. Rep. 121, 9 N. W. 894, the court had under consideration a provision of the Iowa Code as to the holding of terms of circuit courts, as follows: “If the judge is sick, or for any other sufficient cause is unable to attend court at the regularly appointed time, he may by a written order direct an adjournment to a particular day therein specified, and the clerk shall, on the first day of the term, or as soon thereafter as he receives the order, adjourn the court as therein directed.” A judge, not being able to be present, telegraphed the clerk on the first day of the term, “I have made and sent you a written order adjourning court until to-morrow morning at 9 o’clock. Adjourn it accordingly.” The clerk acted as directed, and the following day received the formal order. In its opinion the supreme court said: “The only question, then, is whether the telegram is a written order as contemplated by the statute, and its sufficiency. Contracts may be made by telegram, even where it is required they must be in writing, and it has been said, it makes no dif — 168 — ference if the writing is done with a steel pen, an inch long, attached to an ordinary penholder, or whether the pen be a copper wire 1,000 miles long. Howley v. Whipple, 48 N. H. 487; Trevor v. Wood, 36 N. Y. 307, 93 Am. Dec. 511. The telegraph operator was the agent of the judge, and by means of the wire, and instruments attached thereto, and the operator, the judge wrote the telegram, which was directed to the clerk. We think it was a written order within the meaning of the statute.” A Vermont statute provided that the sheriff might depute any proper person to serve a writ or other precept by indorsing thereon a special deputation. The supreme court of Vermont ruled: “Although ho indorse’ means ho write on the back of’ ■yet it is not necessary under this statute that- the deputation ■should be written upon the very fabric of the process itself. It may be written on any other piece of paper and attached to the back of the process by the sheriff, or he may in certain circumstances authorize another to attach it for him.” In commenting on the facts of the case under consideration, the court said: “Indeed, it [the deputation] was put there by him [the sheriff] in the eye of the law; he performed the act by another as his instrument, and the requirement of the statute was fulfilled.” Cowdery v. Johnson, 60 Vt. 595, 15 Atl. 188. In the present case we think the requirement of the statute is satisfied if the payee directs another to indorse his name on the order. It is none the less the payee’s indorsement because another has been his instrument. A bank may arbitrarily select its customers, and its act in declining an account is not open to question. But once it accepts an account, the depositor eo instanti becomes its customer, and entitled as such to have his cheeks honored to the extent of his credits, until the relationship is terminated by the act of either or both of the parties. Of course, the relationship cannot be abruptly terminated without regard to existing liens and the rights of the parties. Morse, Banks & Bkg. 4th ed. sec. 178; 5 Cyc. Law & Proc. p. 513. And where the bank, without suf — 169 — ficient justification, refuses to pay the check of its customer, he has an action for the impeachment of his credit. It is well settled that a bank is not justified in closing an account and dishonoring checks drawn against it without reasonable notice. The reason is obvious. The depositor is entitled to sufficient notice to enable him, in the exercise of reasonable diligence, to protect his credit. Hart, Bkg. p. 220. The bank will not be permitted to set up as against its depositor the interests of a third party. “It is clearly against public policy to permit a bank that has received money from a depositor, credited him therewith upon its books, and thereby entered into an implied contract to honor his checks, to allege that the money deposited belongs to someone else. This may be done by an attaching creditor, or by the true owner of the fund; but the bank is estopped by its own act.” First Nat. Bank v. Mason, 95 Pa. 113, 40 Am. Rep. 632. In England the rule seems to be that a mere notice from a third party that he claims the balance standing to the credit of the customer will not justify the bank in dishonoring a check. Hart, Bkg. p. 301; Tassell v. Cooper, 9 C. B. 509. In this country, however, there is authority for the proposition that where notice is given the bank that the money standing to the depositor’s credit belongs to another, the bank will be justified in withholding payment of the deposited amount. First Nat. Bank v. Bache, 71 Pa. 213; Arnold v. Macungie Sav. Bank, 71 Pa. 287; McEwen v. Davis, 39 Ind. 109; Zane, Banks & Bkg. ¶ 134; Morse, Banks & Bkg. 4th ed. ¶ 342. Of course, the bank is always protected when the deposit is attached or garnished. Citizens’ Nat. Bank v. Alexander, 120 Pa. 476, 14 Atl. 402. Mr. Morse suggests (¶ 342b) that if the bank “has reason to believe that the claim adverse to the depositor is well founded,” it should bring a bill of interpleader, and cites authorities to sustain the proposition. Mr. Zane concurs in this view (¶ 134), and adds that whenever there is a dispute as to the ownership of a deposit, the bank in essaying to settle it acts at its peril. In the light of the foregoing what was the duty of the bank — 170 — to the plaintiff when it received notice, early in May, that Nicola Jaselli had asserted a claim adverse to its customer? The bank was, of course, charged with knowledge that the payment of these orders had occurred almost two years previously, and that presumptively the transaction was regular, and the deposit the property of’its depositor, the plaintiff. What action did the bank take ? It very promptly proceeded to protect itself by notifying its paying teller to honor no checks of the plaintiff until directed to do so by its cashier. It then telephoned to the New Willard Hotel and immediately learned that the plaintiff was no longer employed there. With that knowledge, and the knowledge that the plaintiff, in March, previously, had deposited a personal check on the Howard National Bank of Baltimore, it addressed a letter to Washington, District of Columbia, asking plaintiff to call. The bank made no effort whatever to interview the adverse claimant of these orders, who knew his brother’s address, nor did it take the trouble to inquire of the postoffice inspector concerning the whereabouts of the plaintiff, although that official had definite information as to the address of the plaintiff upon the second, if not the first, of his several interviews with the bank officials. While we are of the opinion that the bank upon notice of this adverse claim, after satisfying itself that the claim was made in good faith,— that is, that there was some real foundation or justification for it, — would have had the right to retain out of the plaintiff’s deposit a sum sufficient to meet such claim (Arnold v. Macungie Sav. Bank, 71 Pa. 287; McEwen v. Davis, 39 Ind. 109), we think, evertheless, a similar duty devolves upon the bank in such a situation as devolves upon it in closing an account. It must exercise diligence in notifying its customer of the adverse claim, and of its intention to protect itself by retaining out of the amount standing to his credit a sum sufficient to meet that claim; and negligence in that regard, resulting in injury to its depositor, will render the bank liable. Certainly' the bank is not justified, upon the notice of a third party,' in dishonoring its customer’s checks, unless it has exercised diligence in notifying him of its intention to do so, or, of course, — 171 — unless it subsequently develops that the deposit had been wrongfully acquired and was in fact the property of the third party. As to those checks already drawn before notice of the adverse claim, the bank acts at its peril when it dishonors them. In such a situation justice would seem to require that the bank be given sufficient time to ascertain by diligent inquiry whether the adverse claim is well founded; but justice also would seem to demand that in the meantime those checks be not dishonored. Conceding that the position of the bank is a delicate one, the rights of the customer must not be lost to view. If his checks are dishonored without justification, that is, if the adverse claim proves to be unfounded, a grievous injury is done him. Public policy therefore demands that the bank act with diligence and in perfect good faith. The question last suggested is not involved in this case, however, for the reason that the $800 check was not given until many days after the bank had notice of the adverse claim. We think, therefore, that it was clearly a question for the jury, under proper instruction from the court, whether the bank, taking into consideration the facts and surrounding circumstances as disclosed by the evidence, was justified in protecting itself from this adverse claim, and whether it performed its whole duty to the plaintiff in the matter of notice. It was also a question for the jury to determine whether Nicola Jaselli authorized the indorsement of these orders as contended by the plaintiff. Even assuming that the learned trial justice was correct in his view of sec. 4037, Rev. Stat. U. S. Comp. Stat. 1901, p. 2747, it by no means follows that the plaintiff would not have a right of recovery. If the jury should find that the payee of the orders, Nicola Jaselli, authorized indorsement thereof as contended by the plaintiff, the payment of these orders was, at most, a mere irregularity. The only person affected thereby was Nicola Jaselli. Obviously an action by him against the bank would fail, because he, having been responsible for the irregularity, could not take advantage of it. Surely the bank cannot be in any more favorable position in respect to these — 172 — orders than the payee, Nicola Jaselli. If his contention of ownership fails, the bank’s justification must also' fail, unless the jury should find that it had reason to believe his claim well founded, and that it exercised diligence in notifying its customer. Under sec. 1006 of the Postal Regulations of 1902, the Postoffice Department disclaims any responsibility after a money order has once been paid, “but in case of wrong payment it will endeavor to recover the amount for the owner, provided such wrong payment was not brought about through the fault of the remitter, payee, or indorsee.” Under the assumed facts, therefore, the postal authorities were violating their own regulations. Should it be established that the indorsement upon the orders in question was a forged indorsement, the right of the bank, upon’ discovering the fraud, to rescind the transaction and charge off its books the credit given, is not open to question. Flatow v. Jefferson Bank, 135 App. Div. 24, 119 N. Y. Supp. 861. In such a situation the bank would be liable to the true owner of the orders. But fraud may not be assumed. It must be proved, and the question must be determined by the jury. Counsel for the appellee contend that the conduct of the plaintiff during his interview with its officials was such as to warrant the bank in refusing to honor his check. The bank at that time had refused payment of the check and assigned as its reason lack of funds to the credit of the plaintiff. It had done much more. It had undertaken to settle the controversy between him and the claimant of the fund, had paid that claimant the amount of his claim out of the funds standing to the credit of its customer, and had charged against the customer the amount thus paid. Under the authorities, plaintiff would have had an action against the bank for the amount thus appropriated, without previous demand upon the bank. Farmers’ & M. Bank v. Planters’ Bank, 10 Gill & J. 442; Bank of Missouri v. Benoist, 10 Mo. 519; Heard v. Lodge, 20 Pick. 53, 32 Am. Dec. 197; Miller v. Western Nat. Bank, 172 Pa. 197, 33 Atl. 684. The cashier of the bank informed the plaintiff that the bank had summarily taken from his account the amount of — 173 — these orders and paid that amount to Nicola. More than this, the bank had already arranged with the postoffice inspector to notify him when its customer appeared, in order that the inspector, to use the language attributed to him by the bank’s customer, might “get” the plaintiff. This arrangement it faithfully carried out. In the light of these facts, it is not surprising that counsel for the plaintiff should have advised his client against furnishing the bank with any further information. The bank certainly is in no position to complain becaxxse he did not, for it is evident that the bank sought evidence to discredit him, and not evidence in his favor. It had resolved every doubt against him, and nothing he could have said would have changed the situation. Indeed, its learned counsel even now allude to the testimony of the plaintiff and his witnesses as a “most improbadle story.” As to the second suit, the facts and the situation of the parties are materially different. At the time plaintiff drew the check forming the basis of this suit, he had made no deposit for nearly a year, and about seven months prior to the date of said check he had asked for his balance, that is, the balance shown by the books of the bank, and had therexxpon withdrawn it. The plaintiff, therefore, temporarily at least, closed his account with the bank, arrested the relationship theretofore existing between them, and thereafter he had no reason to believe and no right to expect that the bank would honor checks drawn against the disputed amount. While he was not without remedy for the recovery of that amount, the right growing out of the relation which theretofore had existed between him and the bank to have his checks honored had ceased. In King v. British Linen Co. 1 Sc. Sess. Cas. 5th series, 928, the facts were briefly these: The bank, on the 22d of October, 1896, gave notice to a customer of its intention to retain the money at his credit pending settlement of a claim which the bank made against him. Thereafter, while there were sufficient funds to the customer’s credit, the bank refused payment of a check drawn prior to, though not presented until after, the date of the notice. The lord president in the course of his opinion said: — 174 — “Then, if it be the case that at the date of the notice of 22d October, the bank had funds of this gentleman in their hands, there comes thé question, What were their rights and obligations in regard to that account ? Now, I take it that they were quite entitled to close the account, giving notice to their customer, and that they were quite entitled to say: ‘From this date we cease to be your bankers; we decline to do more business with you.’ But then that is only from the date of the notice reaching the customer, and the important point here is that prior to the issuing of this notice this customer had granted a check in the ordinary course of business. I say the bank could not by this notice absolve themselves from responsibilities that they had undertaken as bankers, and meeting this check was one of them. They were entitled to say, ‘In future we will not honor them;’ but they could not say, ‘We decline to meet obligations you have incurred during the currency of our undertaking to supply such orders for money.’ Therefore I hold that as matter of fact the bank were in the wrong in declining to meet this particular check when tendered.” Lord Adam in discussing the case observed: “Had this check which was presented on 10th November been drawn by the pursuer after the date of that notice, I think that the bank would on that assumption have put an end to the relation of customer and banker, and would have been entitled to refuse payment of the cheek after the notice. But that is not the state of facts, because the check of which payment was refused was issued and dated 21st October, — the day before the notice was given by the bank. It seems to me that that notice necessarily applied only to checks issued after the withdrawal of the relation of customer and banker.” The other justices concurred in these views. It is clear that when this second check was drawn the plaintiff knew that the bank denied that it held any funds to the credit of his account. In other words, that as to this amount the bank had expressly repudiated the relationship existing between banker and customer, out of which arises the right of the customer to have his checks honored to the extent of his credits. Had the plaintiff, prior to the withdrawing of the balance ad — 175 — initted by tbe bank, drawn a check within the amount of that balance, and the bank had dishonored that check, an entirely different question would be presented; but having withdrawn all save the disputed amount, the drawing of the second cheek was with full knowledge of the consequences almost certain to ensue, and if his credit has suffered by reason of the dishonor of said check, he is, for the reasons stated, without redress. The judgment must be reversed, with costs to the plaintiff in the first case, No. 2182, with directions to grant a new trial; the judgment in No. 2183 is affirmed, with costs to the defendant. Affirmed as to No. 2182 and reversed as to No. 2188. A petition for a rehearing was denied.