Second National Bank v. Western National Bank

Brent, J., delivered the opinion of the Court. There is really but a single question presented in this case, and that is, whether a bank, which by mistake has certified a promissory note, made payable at its banking house, to be “ good,” can afterwards correct such mistake. It appears that the Second National Bank held by the endorsement of the payees a promissory note of Tilghman & Drakely, drawn at four months to the order of Carmine & Co., and payable at the Western National Bank, at which bank the drawers kept their deposit account. On the morning of the day on which the note was due, about half past eleven o’clock, the runner of the bank, holding the note, presented it at the banking house of the Western Bank, when it was certified by the paying teller as good, by writing upon it in blue pencil mark the initial letter of his name. The runner after leaving the Western Bank, proceeded on his rounds, and reached the Second [134] National Bank about one o’clock, when he told the president, Mr. Gilman, that the note had been paid, “meaning thereby that it had been certified.” About one o’clock the same day the teller of the Western Bank, in putting another memorandum on his file, noticed the order' of Tilghman & Drakely received that day, and which he had placed upon his file, directing him not to certify their “note to E. H. Carmine & Co., for $1200.00, due to-day.” He immediately enclosed the order to the-Second National Bank, with a note calling the attention of the bank to it, and requesting that his name might be-erased. The messenger left a few minutes after one, and upon his return reported that the president said “all right.” About the same time a message was sent from the Second National Bank to Messrs. Carmine & Co., the-endorsers, requesting them to call at its banking house, and accordingly one of the firm came. The president, Mr. Gilman, stated to him the facts of the certification of the note, and the demand for its erasure. Mr. Carmine expressed his surprise that the note was not paid, and after some conversation with the president consented to waive protest, and at his suggestion wrote on the note, above the endorsement of the firm, “protest waived.” All this appears to have transpired not later than two-o’clock. Afterwards, at about three, it became known to the banks and the endorsers that Messrs. Tilghman & Drakely had failed. Mr. Carmine after leaving the bank went to see Messrs. Tilghman & Drakely, and asked them for security, but they refused. On the next day the Second National Bank, without erasing the certification, sent the note through the clearing house, debited to the Western Bank, and received the money for it. [135] The teller of the Western Bank, upon receiving its clearing house list of that day, found the note enclosed and debited to the bank. He immediately erased his certification, which was in pencil mark, and went with the note to the Second National Bank, where he demanded and received the money for it, and where he left the note. These are the important facts in this case, and upon them the appellant must rest its right to recover from the appellee the amount of the note. The presentation and certification of this note were in the regular course. The balances between the banks were to be settled daily through the clearing house, of which association they were members. To accomplish this, the bank holding a note presents it for payment, on the day of its maturity, at the bank where payable. If the drawer has the funds in bank to meet it, it is so certified by the teller, generally by memorandum on the note, and charged to the account of the drawer. It is then returned to the creditor bank, and retained until the following day, when it is used in the clearing house in the settlement of exchanges as an item of credit in favor of the one, and as a charge against the other. As said in the case of the Irving Bank vs. Wetherald, 36 N. Y., 337, “The correctness of this certificate is a matter which the certifying bank has the means of knowing, and is bound to state correctly. If the presenting bank relies upon its accuracy, and fails to charge the endorsers as upon nonpayment on presentation, the certifying bank is estopped from denying the truth of its statement. Having asserted, of its own knowledge, that the maker had funds in its bank to meet the note, and the presenting bank, having omitted to charge its indorsers in reliance upon such statement, the certifying bank will not be permitted to go behind its own statements. The teller of the bank is the proper officer to make this statement, and his statement binds the bank whether accurate or erroneous.” The [136] same principles are established in 16 N. Y., 125, and 25 N. Y., 143. If in the present case the Second National Bank had been misled by the certificate, and relying upon its accuracy had omitted to take steps to charge the endorsers, there can be no doubt the Western Bank would be bound to make good the amount of the note. But the facts are, that the Second National Bank was informed of the error so soon as it was discovered, and in time to fix the responsibility of the endorsers, either by protest, or by getting from them, as it did, a waiver of protest. There is no principle of law better established, than that an error of fact may be corrected in any reasonable time before it is acted upon by the other party relying upon its truth and accuracy. There can be no such stringent rule of law as would make a memorandum of this description irrevocable the moment it is placed upon the note. If put there in error, like any other error or mistake it may he corrected before rights and liabilities have been incurred or losses sustained in consequence of it. Here the corrected information was received by the bank nearly about the time their runner returned with the note. It gave them ample time and opportunity to act upon it and take the necessary steps to fix the liability of the endorsers. This the proof shows was done, and no damage or loss has been incurred from the mistake of the teller of the Western Bank. But even if steps had not been taken to fix the liability of the endorsers, the Western Bank could not have been held liable, as the corrected information was given in time to do so, and the presenting bank was bound to accept and to act upon it. 36 N. Y, 337. There is nothing in the fact that this error was not corrected at the clearing house the following day. That was not the proper place to make the correction. One of the fundamental rules of the clearing house association is, [137] that errors in the exchanges and claims, arising from the return of checks and other causes, are to be adjusted directly between the banks which are parties therein, and not through the clearing house. And this was promptly done, in the present case, by the Western Bank so soon as it received its clearing house list of the day. (Decided 25th March, 1879.) An offer was made by the appellant, and rejected by the Court, to give in evidence the existence of a usage, that a certification made in error could not be revoked before new rights had been acquired on the faith of such certification. That such usage had not been generally acted upon, and understood by the banks is manifest from the proof on the part of the appellant which preceded the offer. But we have no doubt that the proof was offered in good faith. We think, however, it was properly excluded; usage to be binding and effective must be uniform, notorious and reasonable. The idea that any such usage, as offered, was notorious and uniform was precluded by the proof already given. It was unknown to the president of one of the banks immediately concerned in this case, and to the cashier of the other. But the offer was rejected upon the more tenable ground, that even if any such usage existed, it is unreasonable and repugnant to the well settled rule of law. Errors, as we have already said, may always be corrected before the other party, acting upon them as true, has incurred any loss or damage, or assumed any new rights or liabilities. The rule rests upon the soundest principles of reason and justice, and any usage in conflict with it would be so unreasonable and unjust that it cannot be maintained. It follows from what we have said, that the rulings of the Court of Common Pleas, upon the admissibility of evidence, and upon the several prayers offered, are without error. The judgment will therefore be affirmed. Judgment affirmed.