
    Meads, Receiver, &c., v. The Merchants' Bank of Albany
    The certification of a check as good by the authorized officer of a bank is equivalent to the acceptance of a bill of exchange payable on demand, and makes the bank primarily liable to the holder until discharged by payment, release, or the statute of limitations.
    So of the certification as good of a promissory note payable at the bank, where the course of business between banks is, instead of actually paying the notes of customers when in funds on presentment, to mark them as good and settle in the exchanges of next day. Such certificate is an absolute engagement to pay the bank’s own debt, and not a guaranty or promise for the benefit of a third person.
    When a note is thus certified by the teller falsely, the bank not having funds for its payment, it is liable only to a holder in good faith and for value.
    A holder who, ignorant of the falsity of the certificate, treats it as payment, and omits to charge an indorser, is entitled to recover.
    His delay, at the request of the maker of the note and for his accommodation, after its certification, to obtain actual payment, does not discharge the obligation arising from the certificate.
    Appeal from the Supreme Court. Action upon a certificate of deposit for five thousand dollars issued by the defendant. The defendant set up by way of counter-claim, a demand upon a check of J. B. Plumb, upon the Bank of the Interior, of which the plaintiff was receiver, for four thousand dollars, certified by the teller of the bank as good, and also a note of Plumb for five thousand dollars, likewise certified by the teller of the Bank of the Interior as good.
    The trial was before a referee, who found that the defendant on the 25th of February, 1860, was the holder of said note of five thousand dollars; that it fell due'that day, and was presented to the Bank of the Interior for payment according to the course of business, and was then and there indorsed by the teller of said bank upon its face with the words “ Good.
    Kirtland, Teller.”
    That the usual mode of transacting business among the hanks of Albany, in respect to the collection of mercantile paper held by one bank, payable at the counter of another,, in case the same is to be paid, is not to require or receive payment in money on the presentation of the paper, but instead thereof to take back the paper presented, certified in a manner similar to that in .which the note above mentioned was certified ; that the banks are accustomed to settle daily their transactions with each other, and the paper so certified, is usually settled by being included in the bank settlement of the day succeeding that on which it was certified, and is treated and acted upon as being an obligation of the bank so certifying the same.
    The said note was indorsed by one Street, and after it was so certified, it was not protested for non-payment or -the indorser charged.
    On the same day, and after such note had been so presented and certified, Plumb, who was the president of the Bank of the Interior, applied to the defendant’s bank to hold said note to enable him to get it renewed, and not send it in the next day among the exchanges; and the defendant did so upon 'such request.
    At the time when the note was presented for payment the account of Plumb was not good for an amount sufficient to pay it, but was overdrawn, and was not afterwards good before the bank failed; but this was not known to the defendant.
    Plumb was indebted to the defendant on two promissory notes signed by him for ten thousand dollars, for which it held certain stocks as collateral security, these stocks were given up on the 6th of March, 1858, and the aforesaid check for four thousand dollars given therefor. Said check when given was good for the amount thereof, but the account of said Plumb was afterwards overdrawn and so remained till the bank failed, and Plumb became insolvent. The said check when given was received and held by the defendant as security for the balance due on the said two notes of Plumb in lieu of the stocks given up to him. Such checks are customarily sent by the banks holding them, to the banks certifying them, on the morning after their receipt as part of the exchanges; and such checks are treated and acted on as being obligations of the bank certifying them. The practice of certifying checks was never authorized by the board of directors of the Bank of the Interior by any resolution of the board, but the same was, openly and without concealment, done in the usual course of business of the bank by the teller, with the knowledge of the officers; and checks and notes so certified, are uniformly dealt with as imposing obligations on the certifying bank, and the practice was never questioned by the bank or its officers.
    Plumb requested the defendant not to send said check in for payment among the exchanges when the' same was certified, and it was not sent till the bank failed.
    The referee held, as matter of law, that the teller of the Bank of the Interior had authority to certify checks and notes, and that such notes became obligations of the bank, and that the note and check in controversy were obligations of the Bank of the Interior, and that therefore nothing was due the plaintiff, but the plaintiff, a receiver, was indebted to the defendant in the sum of $4,733.44; and he ordered judgment accordingly.
    This judgment was affirmed at general term in the third district. The defendant appealed to this court.
    
      Amasa J. Parker, for the appellant.
    
      William H. Learned, for the respondent.
   Smith, J.

Upon the findings of the referee, upon the facts that the practice of certifying checks, by the teller of the Bank of the Interior, was openly done, in the usual course of business, with the knowledge of the officers of the bank, and such checks uniformly dealt with and treated as obligative of the bank, his conclusion of law, that such teller had authority to certify checks and notes, can hardly be doubted, and is clearly correct; though it is more properly an inference of fact than of law.

Assuming, therefore, that the teller was duly authorized to certify checks and notes, when presented at the counter of the bank, in the ordinary course of business,— which is clearly, as far as such authority can be implied, from custom, or allowed, without distinct proof of more extensive power, specially committed to him,— the facts in respect to the liability of the bank upon the $4,000 check and the $5,000 note present different questions, which should be separately considered.

■ The $4,000 check, it appears, was drawn, and certified good, by the teller, before its delivery to the defendants.

When it was presented to the teller for his certificate in respect to its goodness, the account of Plumb, the drawer, was, in fact, good for an amount exceeding the sum specified in this check. It was, therefore, not improper for the teller to certify this check. His certificate, that it was good, was a true representation of the state of the account of Plumb with the bank, and bound the bank to hold and retain the amount for which the check was drawn, to meet it, on presentation by any person by whom it might be held. It was equivalent to the acceptance of a negotiable bill of exchange, in favor of the holder, for that amount, by the bank. (Farm. & Mech. Bank of Kent Co. v. Butchers' & Drovers' Bank, 16 N. Y., 128.)

The defendants received this chéck for value. The referee ' finds that they gave up to Plumb, at the time of the delivery of the check, eight bonds of the Milwaukee and Mississippi Railroad Company, which were then held by them as collateral to two notes of Plumb, and were worth the amount which Plumb then owed them on his said notes, being $8,500 and interest, from the first of January previous; that the check was received and held by the defendant, in lieu of said bonds, and as security for the payment of the balance due on the said two notes of Plumb.

When the check was so delivered to the defendants by Plumb, he requested that it should not be sent into the Bank of the Interior, among the exchanges; and such check was not. presented to the bank for payment till. its failure, which, it appears from the pleadings, occurred in the spring of 1861; —the plaintiff being appointed receiver on the 21st of May, 1861. The cheek is dated March 6, 1858, and was thus retained by the bank, in hand,- upwards of three years.

Upon this statement of the facts, it is quite clear that this check was not received by the defendants in the ordinary course of business. It was payable on presentation; it was equivalent to cash; it was a mere substitute for so much money in bank. It is foreign to the whole office and design of. a check to take and receive it to be held as security, as much as it would to take the same amount in bank bills or coin. When the defendants took this check to hold as security for Plumb’s debt, and agreed not to send it in with the exchange, they knew this was a departure from the usual course of business in respect to checks. If, therefore, it was essential to the plaintiffs’ right to enforce this check as an accepted bill by the Bank of the Interior, that they should . have received it in the ordinary course of business, clearly the defendants could not succeed. They clearly did not so receive it.

. But I do not think the defendants’ right to recover, upon this check, depends upon this condition. The check was, in fact, drawn upon funds in bank, and was accepted, with funds in hand, by the bank. The indorsement, by its teller, upon the check, that it was good, immediately bound the bank to pay it, thereafter, on presentation. It was then an accepted bill, with funds in the hands of the acceptor. It was not an accommodation bill; the bank, having accepted the check, became the principal debtor, and was bound to keep the funds to meet it.' A liability, once incurred, remains until it is discharged, by payment or release. I can see no principle upon which it can be held that the Bank of the Interior ever discharged its obligation to pay this check, or became in any way released therefrom. Lapse of time would not effect such discharge, till the statute of limitations should attach.- In the case of The Farmers' and Mechanics' Bank of Kent County v. Butchers' and Drovers' Bank (supra), the checks were dated February 16, 1852, and certified on their face immediately. They were applied in payment of instalments due upon a subscription to stock, and afterwards deposited as collateral security, and held till February, 1853, before they were presented for payment. It was not considered that delay in their presentation affected the question of the liability of the bank to pay them. Indeed, Judge Comstock, who dissented from the opinion of the court, said that the court below had regarded these acceptances as payable on demand; and, for that reason, the delay in presentation was considered no objection to a recovery against the acceptor. “In my judgment (he said), the court was clearly right, in this construction, and right, also, in the consequence drawn from it, that the certificates, as an acceptance, if duly authorized, are obligations, as in other cases, until paid, or the statute of limitations should attach as a bar.”

I do not see, therefore, upon what principle the judgment below, so far as relates to the four thousand dollar check can be disturbed. •

The question in regard to the note stands upon somewhat different ground.

The presentation of the note at the counter of the bank on its maturity for payment, was in the ordinary course of business ; and so was the making of the certificate then and there indorsed by the teller, certifying that the same was good. The legal effect and force of such certificate was, that the maker had deposited funds in the bank to meet said note, and that the bank then held the same in deposit for that purpose, and would pay the amount upon request. The course of business among the banks at Albany was such as to make such presentation and indorsement equivalent to payment of the note by the maker, and the substitution of the Bank of the Interior as the debtor of the defendants for the amount of the note payable, in fact, in the exchanges on the next day. But the indorsement was, in effect, an absolute engagement on the part of the Bank of the Interior to pay the note, and dispensed with protest or steps to charge the indorser, as much so as if the defendant had actually received the cash on the presentation of the note, instead of taking the certificate of the teller that the note was good. This certificate was in fact false, and made by the teller in violation of his duty, and in fraud of the bank of which he was an officer. But it is found by the referee that the defendant was ignorant bf this fact, and did not know when said note was so presented and certified, that the account of the said Plumb with the Bank of the Interior was not good for the amount of the note.

The defendant was induced by Plumb to hold on to the note after it had been so certified, and not send it in for payment the next day with their exchanges. But I cannot see that this fact affects their rights any more than did delay in the presentation of the four thousand dollar check.' The bank had become the principal debtor, and could not be discharged without payment or release, if the defendants are otherwise entitled to hold them responsible for the note. • The defendant clearly cannot hold the Bank of the Interior responsible upon the false certificate of its teller, except upon the ground that it is a holder of it for value, and received the same in good faith. In this particular, the case stands upon the same ground with the case' of the Farmers' and Mechanics' Bank v. The Butchers' and Drovers' Bank (supra). In that case the certificate was false and fraudulent, and the question was, whether the defendants were liable, and it was held that the plaintiffs being Iona fide holders for value, were entitled to recover. In this case it appears that the defendants having presented the note and obtained the certificate that it was good, took no measures to charge the indorser or enforce payment of the maker till he failed, “ refraining from these acts ” as the referee finds, “ in reliance upon said certificate.”

This relinquishment of the security of the indorser, and' the taking of this certificate in payment of the note, makes the defendants bona fide holders of. it for value, within the case of Young v. Lee (2 Kern., 554), and the cases on this subject; Stalker v. McDonald (6 Hill, 93); Bank of Salina v. Babcock (21 Wend., 499; 20 id., 115).

The statute of frauds has nothing to do with this question. The force of the certificate indorsed on the check and note, in both cases, is an admission of funds in hand to meet the check and note, and an agreement to pay such funds on presentation of the note or check. It is not an engagement to pay the debt of another; but, upon its face, the engagement, in legal effect, to pay their own debt to the party entitled to it. The case of The Farmers' and Mechanics' Bank of Kent County v. The Butchers' and Drovers' Bank, answers this and all the other objections raised to the right of the defendants to recover, upon this check and note.

I see no ground upon which the judgment can be interfered with by this court, and think it should be confirmed.

Denio, Ch. J., Davies, Sutherland and Allen, Js., concurred.

Wright, J., (dissenting.)

The check of Plumb on the Bank of the Interior, for $4,000, dated on the 6th of March, 1858, if duly certified, imposed an obligation on the bank, substantially the same as that assumed by the acceptor of an ordinary bill of exchange. That obligation was to retain the amount for which the check was drawn, and which, by the certificate, it admitted it had in hand to the credit of the drawer, to meet the check when presented, and to pay the same to the holder, on demand. (Farmers' and Mechanics' Bank v. Butchers' and Drovers' Bank, 16 N. Y., 125.) When the check was certified, Plumb’s account with the bank was good for the amount, and hence the bank was not, in any sense, or as to any person, an accommodation acceptor but the .principal debtor; and would have been liable even to a party who had not parted with value for the check. Certifying a check, when the drawer’s account is good, is substantially accepting a bill of exchange, with funds of the drawer in the acceptor’s hands. Hor is delay in the presentation any objection to a recovery against the bank. The certificate is to be ■ regarded as an acceptance, payable on demand, and was obligatory until paid, or the statute of limitations should attach as a bar. The Bank of the Interior, by certifying the check, became the principal debtor, and not the surety; the acceptor, not the drawer; and it had the money and ought to have it still. So far as relates to the check, therefore, the single question is, was it duly certified ? The certificate was made by the teller of the bank, ■ and as the referee finds, in the usual manner of certifying checks. No point was made by the. plaintiff before the referee as to the form of the certificate. It was found, as a matter of fact, that the teller had been in the practice of certifying checks in the ordinary course of business, and with the knowledge of the officers of the bank, and without objection. This, I think, was enough to sustain the legal conclusion of the referee, that the teller had authority to certify.

Different questions arise in respect to the note. The-defendant had discounted a note made by Plumb, and indorsed by one Street, for $5,000, payable at the Bank of the Interior. On the 25th February, 1860, the day of its maturity, the same was presented at the Bank of the Interior for payment. The account of Plumb at the bank was not good for an amount sufficient to pay the note; but, on the contrary, such account was largely overdrawn. Instead of protesting the note, and notifying the indorser of its non-payment, the teller of the bank at which it was payable wrote over its face the words, “ Good. Kirtland, Teller,” and returned it to the person presenting it, on behalf of the defendant. The note was not sent into the Bank of the Interior, among the exchanges of the succeeding day; but the same was retained by the defendant, at the request of Plumb, to enable the latter to get a note in renewal, indorsed by Street. It was not afterwards renewed, nor was it presented to the Bank of the Interior for payment, nor sent in among the exchanges of that bank, by the defendant, until after its failure; nor was it ever entered on the books of either bank.

If the Bank of the Interior is to be held for the payment of this note, it is because the certifying, by its teller, thaf it was good,” legally imposes on it such obligation. I cannot adopt this view. The bank had no interest in, nor was it in any way a party to, the note; and the transaction was entirely out of the usual course of banking business. Implying, from the words, “ Good. Kirtland, Teller,” a promise to pay the note, it would be a promise to pay the note of. a third person, and for his accommodation. A banking corporation has no power to b°e-come the mere surety for another, upon a contract in which it has no interest, or lend its credit in any way for the exclusive benefit of other parties. The Bank of the Intérior had no power to bind itself, either by guaranteeing or promising to pay Plumb’s note; and such contract cannot be enforced. No question can here arise, whether the defendants were innocent holders of the note, for a valuable consideration; as it was not paper which the bank had made, indorsed or put in circulation, and which had been subsequently purchased by the defendants for value, without notice that it was unauthorized. The defendants were parties to the original transaction, and are presumed to know the extent of the corporate powers of the bank with which they were directly dealing.

Again, there was, in fact, no consideration for any obligation, on the part of the Bank of the Interior, to pay the note. Plumb had no money in its hands that it could appropriate to its payment. Had the agent of the defendants taken the note, on the day it fell due, to the principal financial officer of the Bank of the Interior, and inquired of him, “ Will you pay this note of Mr. Plumb, if we send it in, to-morrow morning, in our exchanges ? ” and the cashier had answered that he would, the promise would have been void, as without consideration ; and it would have been equally void, if both question and answer had been in writing.

No legal obligation of the Bank of the Interior to pay the note to the defendants can be raised, from any custom or mode of transacting business, among the Albany banks, in respect to the collection of mercantile paper. A custom like that found by the referee cannot bind the bank, or impose any obligation, in law, on it, to pay the note. Though certifying that the note was “ good,” it might, the next day, refuse to pay; and payment could not be enforced. But it is shown, in this case, that when notes are so certified, it is-for the purpose of having them put into the exchanges of the next day. They are never so certified for the purpose of being held as a continuing obligation of the bank- Custom only authorizes such a certifying for the purpose of immediate adjustment. Assuming, therefore, that, by custom, the words, “Good. Kirtlánd, Teller," mean that the bank will make the note good, if brought in the next daily exchanges between the banks (and this is the most that can be claimed), the defendants failed to comply with the condition, and retained it several months, until the maker had probably become insolvent, and the bank' had failed. Besides, the transaction was entirely out of the usual course of business between banks. The note was never entered upon the books of either bank. It was held by the defendants, at the maker’s request, after being certified, for the purpose of getting another indorsed by Street, for renewal. This was by agreement with the defendants; and under that agreement it was held until the bank failed. To sustain a claim on such a transaction would be little short of a fraud upon the bank.

I think the referee erred in the conclusion that the note became in law an obligation of the Bank of the Interior to the defendants. The judgment of the Supreme Court affirming that of the referee should be reversed, and a new trial granted, with costs to abide event.

Gould, J., concurred in this opinion.

Judgment affirmed,  