
    Lightbody vs. Ontario Bank.
    Where bank bills are received in payment, and at the time of such payment the bank which issued the bills has in fact stopped payment, although the failure is not -at the time known at the place of payment, the loss falls upon the party paying, and not upon the party receiving the bills.
    This is an action of assumpsit to recover the amount of a bank note of another bank, paid by the Ontario Bank to the plaintiff, on a check drawn by him upon his funds in deposit; which note, at the time of payment, was not of the value it purported to be on its face.
    The plaintiff kept an account with the Ontario Bank, at their banking house in Utica, and on the thirtieth day of May, 1828, drew his check for $2000, having upwards of that sum in deposit, presented it, and received the amount in bank bills, one of which was a bill of the Franklin Bank of the city of New-York for $500, which he sent to New-York on the same day, and which was forthwith returned to him by mail, with intelligence that the Franklin Bank had stopped payment; whereupon he offered to return it to the Ontario Bank, but it was refused to be received. The Franklin Bank stopped payment *on the twenty-ninth day of May, at 10 A M., when an from the of the bank was served. The bills of the Franklin Bank were current in Utica at the time of the payment to the plaintiff, and until the arrival of the eastern mail on the next day. The bill was paid to the plaintiff in good faith and in the ordinary course of business, without any knowledge of either party that the Franklin Bank had failed. The Ontario Bank refusing to take back the bill, the plaintiff deposited it with the receiver of the Franklin Bank, and was paid by him 33 per cent, of its amount, 25 per cent, of which was paid the 14th April, 1829, and 8 per cent, in June, 1830. The question is whether the plaintiff is entitled to recover the amount of the bill, deducting the 33 per cent, received, or whether the defendants are entitled to judgment.
    M. Fillmore, for plaintiff.
    When the plaintiff drew his check, the Ontario Bank was indebted to him $2000, which has not been paid. One of the bills received by the plaintiff was not what it purported to be on its face, the representative of money to the amount of $500 ; for nearly a year afterwards it was without value, and in reference to the rights of the parties, must be considered as entirely valueless, as the percentage paid by the receiver must be viewed as paid to the plaintiff for the use of the defendants. The bill was no better towards satisfying the just claims of the plaintiff than if it had been counterfeit. The rule of the civil law is, that if a creditor receive by mistake any thing in payment different from what is due, and upon the supposition that it is the thing actually due, as if he receives brass instead of gold, the debtor is not discharged ; and the creditor, upon offering to return that which he received, may demand that which is due by the contract. The rule was approved and adopted by this court in Markel v. Hatfield, 2 Johns. R. 455, in which case it was held that a counterfeit bank bill, received on the sale of property, is no payment, and that the vendor may treat it as a nullity, and resort to the original contract. The principle of that case controls the present, It is conceded the defendants acted in good faith and believed they gave value, but their *obligation to pay was not therefore discharged. A bill of sale of a horse or other animal not present, believed to be alive, but dead at the time, does not discharge a contract; nor is the transfer of a bill of lading of a vessel at sea operative if, at the time, the cargo is lost by the ship having foundered. In all these cases, the loss falls upon him who is the owner at the time of the happening of the event when the property becomes of no value ; and notwithstanding the attempted change of ownership, the parties are restored to their original rights. 1 Com. Law R. 166. 10 Wheaton, 333. The bill in this case became of no value on the twenty-ninth of May, the day on which the bank stopped ; and allowing that until then it was a representative of the currency of the couutry, and that the rule of law as to the receiving of current bills is the same as is applicable to the receiving of current coin, the defendants reap no benefit from it; for on the thirtieth, when the bill was paid to the plaintiff, if had ceased to be the currency of the country ; it was no longer the representative of money, although the bills of the Franklin Bank were current at Utica on that day. Whether the bills of a bank represent the currency of the country is not to be tested by the value put upon such bills in one or another section of the state, but by the ability of the bank to meet its engagements. When the bank stops payment, its bills cease to be the representative of the currency of the country, and are no longer entitled to be treated as cash. This rule determines with certainty, uniformity and universality, the time when the notes of a bank become worthless, and closes the door against frauds upon the uninformed by those having superior facilities for early intelligence. But it is insisted that a bank note in this country is not money except by conventional regulation, and that the negotiation of the note of the Franklin Bank in this case is subject to the same rule which governs the transfer of the notes of individuals, according to which the transfer of a promissory note is no payment of a preexisting debt, unless it be expressly agreed to be received as payment at the ""time of transfer, Chitty on Bills, 96, 99, 100, n. 130; 3 Starkie’s Ev. 1089, n. 1; 3 Wendell, 21 ; Laws of N. Y. of 1830, p. 265; 9 Cowen, 409; 1 Strange, 415; 2 id. 1248. The cases in Strange shew that fa goldsmith’s note or banker’s check, taken for a precedent debt, is no payment, if the drawer fail after negotiation and before presentment. Here the bank had already failed when the bill was passed to the plaintiff. The receipt of dividends from the receiver of the bank does not prejudice the plaintiff, 10 Vesey, 206; 6 Wendell, 369; its only effect is to reduce his claim.
    
      W. J. Bacon and C. P. Kirkland,
    for the defendants, insisted that the plaintiff having elected to take a bank bill instead of cash, and the bill not being forged, and no fraud or misrepresentation existing in the case; but on the contrary, it being conceded that the bill was paid to the plaintiff in good faith and in the ordinary course of business, without any knowledge of either party that the bank had failed, the plaintiff must be deemed to have taken it in payment, and must abide the hazard of the security he took. Ordinarily, if a party take a bill without endorsement, he is considered as assuming the risk of the solvency of the drawer, 1 Esp. Cas. 448; and if he take it as payment, it will be adjudged payment, 11 Johns. R. 409. 15 id. 241. 7 Mass. R. 286, If, however, it may be doubted whether the acceptance of the note of an individual will be considered payment unless expressly agreed to be so received, it is insisted that there is a clear and marked distinction between the note of an individual turned out by a debtor in payment, and a bank bill, and that the latter is not subject to the same rules, which govern the former. “ Bank notes,” said Lord Mansfield, in Miller v. Race, 1 Burr. R. 457, “ are not goods, not securities, nor documents for debts, nor are so esteemed : but are treated as money, as cash, in the ordinary course and transaction of business, by the general consent of mankind, which give them the credit and currency of money to all intents and purposes. They are as much money as guineas themselves are, or any other current coin that is used in common payments as money or cash. They pass by a will which bequeaths all the testator’s money or cash ; and are never considered securities for money, but as money itself.” And in Wright v. Reed, 3 T. R. 554, bank notes of the Bank of England were held to be money. In this court, bank bills *and money are considered convertibie terms. A note payable in bank bills has repeatedly been adjudged to have the same effect as if payable in specie, being treated as a note within the statute, which it could not have been, unless considered payable in money. Thus, in Keith v. Jones, 9 Johns. R. 120, the court say, “ The note is negotiable under the statute; and being declared to be payable in York state bills or specie, is the same thing as being made payable in lawful current money of the state ; for the bills mentioned mean bank paper, which is here, in conformity with common usage and common understanding, regarded as cash.” The same doctrine is held in Judah v. Harris, 19 Johns. R. 144, and in Liber v. Goodrich, 5 Cowen, 186. So bank bills are considered a legal tender, unless specie Is expressly demanded; and even in cases of redemption of lands, where the strictest rules of construction prevail, a sheriff is permitted to receive current bank bills as money, and that againsj the express directions of the creditor. 4 Cowen, 420. Then, what was the relative situation of these parties on the thirtieth day of May, 1828 ? The defendants were indebted to the plaintiff and were called on for payment; the plaintiff chose to take a bill of the Franklin Bank, in preference to receiving cash for his draft, and it was paid to him. This, it is contended, was a payment by which the plaintiff is concluded. The bill was money ; it was part of the currency of the country, and was of value at the time of payment, and until the arrival of the mail on the next day. Then, while in the hands of the plaintiff, it ceased to have value, and he must abide the loss. The loss must fall upon the party in whose hands the bill is, when it is discovered to be without value, or the benefit of bank bills as a circulating medium is destroyed. A bank note is therefore distinguishable from the individual note of a third person, and not governed by the same rules which control the negotiation of the latter. As to the other ground relied upon for the plaintiff, namely, that inasmuch as the payment of a forged or counterfAt note is not the satisfaction of a debt, so the payment of a bank note of .a bank which has failed is no payment, it is answered that there is no similarity in the two cases. A counterfeit billis as no bill ;■ it is utterly worthless, and of no *value. Not so of a bill like the one in question ; it was a genuine and true bill; the day before it was received by the plaintiff, it might have been converted into specie to its full amount, and even now the plaintiff has received one third of its value. Even in the case of Markle v. Hatfield, cited on the other side, Chancellor Kent seems to admit that the receiver of a bank note takes upon himself the risk of the solvency of the bank, and Chief Justice Spencer, in commenting upon that case in Whitbeck v. Van Ness, 11 Johns. R. 414, says : “We held that the payee did not assume upon himself the risk of forgery, the forged note being received upon the faith of its being genuine ; but it is not to be doubted that had the bill been good, and had the bank failed and the parties been equally ignorant of the fact, the decision would have been different.” Vide etiam, 6 Mass. 321. In conclusion, it was submitted, that according to the well settled rules of law in cases of this kind, where the loss must fall upon one or the other of two innocent parties, the defendants are entitled to be preferred. Burr. 1354. Douglas, 655. 1 Bos. and Pul. 260. 1 Mass. R. 66.
    J. A. Spencer, was heard in reply.
   By the Court,

Savage, Ch. J.

The question is, which of these parties shall sustain the loss which has happened in this case. Both were equally ignorant of the failure of the Franklin Bank, when the note was passed. Upon principles of justice and honesty, it would seem that whoever parts with that which is valuable, should receive value for it; and he who receives value should give value in return. When a bank fails, its notes are of no value, or nearly so, and the loss should fall upon those in whose hands the notes are when the failure happens. Any other doctrine, I apprehend, would lead to innumerable and atrocious frauds. Were the knowledge of the party the criterion by which to determine the liability of a person passing notes of a broken bank, those in possession of such paper might be induced to pass it to others who were ignorant of the failure of the bank. And it is well known how difficult it might be to show the knowledge necessary to charge such person.

*This precise question does not appear to have received a judicial determination in this court, though cases somewhat analogous have been decided. A distinction has been taken between a note taken for a precedent debt, and one taken in payment for goods sold at the time. In Herring v. Sanger, 3 Johns. Cas. 71, a note was taken from a member of a firm, upon a settlement of a partnership account. Kent, justice, said it was well settled that accepting a note for a debt due is no payment of the debt, unless it be so specially agreed, or unless the creditor negotiates the note ; it can only postpone the payment until a default in the payment of the note. 2 Johns. Cas. 441. 1 Esp. 8. In Tobey v. Barber, 5 Johns. Rep. 72, the same doctrine was reiterated, and many cases referred to. The rule is laid down that the taking a note, either of the debtor or a third person, for a pre-existing debt, is no payment, unless it be expressly agreed to take it as payment, and run the risk of its being paid ; or unless the creditor parts with the note, or is guilty of laches, in not presenting it for payment in due time.

I am not aware that this rule has at all been departed from when a note has been taken in payment of an antecedent debt. When a note has been taken in payment for goods sold, the cases seem to have turned upon what appeared to have been the agreement or understanding of the parties at the time. The rule of Lord Holt seems to have been, that taking a note for goods sold is payment, because it was part of the original contract; but paper is no payment where there is a precedent debt; for when such note is given in payment, it is always intended to be taken under this condition, to be payment if the money be paid thereon in convenient time. I apprehend there has generally been some circumstance in each case by which the court and jury could ascertain what was the agreement between the parties as to who should run the risk of the solvency of the note transferred in payment of goods. In Roget v. Merritt & Clapp, 2 Caines, 117, the action was on an agreement to sell a quantity of flour for the note of one Lyon. When the flour was demanded and the note tendered, Lyon had failed. Spencer, justice, who delivered the opinion of the court, held that the consideration for the promise to deliver the flour *had failed by the insolvency of Lyon, and refers to the cases of Owenson v. Morse, 7 T. R. 64, and Puckford v. Maxwell, 6 id. 52, to sustain the proposition, that upon an agreement to accept notes in payment of articles, if, before the delivery of the articles, the notes prove bad, the party is not bound to deliver the goods, unless by the contract he was to run the risk of their being paid. These cases assume that notes thus given in payment are of value, and so understood to be when delivered inpayment.

The case of Markle v. Hatfield, 2 Johns. R. 455, arose upon the payment of a forged bank note, upon a purchase of cattle ; and it was held no payment. Kent, chief justice, begins his opinion by saying, “ The justice of this case is clearly with the defendant in error. He parted with his goods to the plaintiff without receiving the compensation which was intended.” And such is the case of every sale where the note is taken in payment, and no express agreement is made as to the risk of collection. Had the note in the case of Markle v. Hatfield been genuine, but the bank insolvent, the remark of the learned judge would have been equally just. The owner of the cattle in that case had parted with his property, and had received waste paper; and it would be equally waste if the bank was insolvent as when forged. The learned judge refers to several cases ; he cites with approbation the case of Stedman v. Gooch, 1 Esp. 3, in which notes were taken for goods sold and received in payment, but proved to be of no value, and the king’s bench held that they might be treated as waste paper, and a suit sustained for the original demand. Johnson v. Weed, 9 Johns. R. 310, was an action for goods sold, and it was alleged that payment was made in a note of a third person. The judge charged the jury that unless the plaintiff agreed to receive the note as payment, and run the risk of collecting it, the mere taking the note would not amount to payment. The plaintiff recovered, and the court refused to grant anew trial. The judge who delivered he opinion of the court said that there must be a clear and special agreement that the vendor shall take the paper absolutely as payment, or it will be no payment, if it turns out to be of no value. In that case there *was evidence from which the jury might infer that the note was not taken at the plaintiff’s risk.

The case of Whitbeck v. Van Ness, 11 Johns. Rep. 409, was for the sale of an horse for the note of a third person ; and nothing was said at the time of delivery as to the solvency of the maker of the note, or at whose risk the note was to be taken. The judge charged the jury that the plaintiff was entitled to recover, unless he had expressly agreed to take the note at his own risk. The plaintiff recovered, and the court granted a new trial. Spencer, justice, in delivering the opinion of the court, states the question to be whether the note of a third person, agreed to be taken in payment for goods sold at the time, is taken at the risk of the vendor or vendee. He says that the case of Johnson v. Weed was rightly decided, because it was clear, from the testimony, that the plaintiff did not intend to take the note at his own risk; but in the case then before him he says, nothing can be more manifest than that both parties understood that the plaintiff should take the nóte at his own hazard. He denies the doctrine advanced in Johnson v. Weed, and goes into an examination of the English cases, sustaining the doctrine of Lord Holt, who held that if A. sells goods to B., and B. gives a bill in satisfaction, B. is discharged, though the bill is never paid. The learned judge, however, concludes his opinion by stating that the intrinsic circumstances of the case plainly show that the plaintiff considered himself as taking the note at his own risk.

All the cases which I have seen are decided upon what was assumed to be the understanding of the parties at the time when the note or bill was delivered in payment for goods. See also 2 Stark. Ev. 306, and 3 id. 1089, n. But no case has been referred to where such note or bill has been considered pajment when delivered upon an antecedent debt. In this case the note in question was paid upon an antecedent indebtedness, to wit, the money which was deposited with the defendants. It has been supposed that if the law be, as stated, in relation to promissory notes, yet as bank notes partake of the nature of money, they are therefore upon a different footing. Although bank notes supply the place of coin, in affording *a circulating medium, yet they are promissory notes, and in most respects the rules relating to promissory notes, are applicable to them. Even if considered for the purpose of the argument as coin, it is very questionable whether any different rule should be applied. I can see no reason why, upon principle, such payment is to be considered valid, so long as the party paying in counterfeit coin parts with no value, and the party receiving gets nothing in return for his property. In the case of the payment of a counterfeit or forged bill, it is settled that the debtor is not discharged, and it is not perceived why the same principle should not prevail where the payment is made in the bill of a bank which has stopped payment. In each case the debtor parts with that which has no value, and the creditor does not receive value for his debt. The plaintiff is entitled to judgment.

Judgment for plaintiff.  