
    Charles Mayer et al., Resp’ts, v. Alfred S. Heidelbach et al., App’lts.
    
    
      (Court of Appeals,
    
    
      Filed October 21, 1890.)
    
    Banks and banking—Acceptance by bank of depositor’s check for purchase of negotiable paper—Bona fide holder.
    Where a depositor in a hank having sufficient funds standing to his credit tenders his check to that bank in payment for negotiable paper which it has for sale, and the bank accepts the check, charges it against the deposit, files it as its voucher and delivers over the paper purchased,, the holder of that paper is a holder for value, because the antecedent debt to him is pro tanto actually and in fact extinguished.
    (Earl, J., dissents.)
    Appeal from judgment of the New York superior court, general term, affirming judgment in favor of plaintiffs entered at special term. . • ■
    
      Simon Sterne, for app’lts; James 0. Foley, for resp’ts.
    
      
       Affirming 24 N. Y. State Rep., 176.
    
   Finch, J.

Whether the draft of the defendants upon their foreign correspondent was sold by them to the plaintiffs who were named as the payees therein, or to Harrison’s bank, which gave the order for the exchange and promised to pay for it, became a material inquiry upon the trial because of the failure to pay the purchase money. Yery much was possible to be said in behalf of either inference, and it was said. Upon the argument no circumstance or suggestion was omitted which could affect a wavering •balance, but the very thoroughness of the discussion served to strengthen our conviction that the question was one of fact, a problem of conflicting inferences, properly submitted as such, and controlled by the finding of the court. That finding established that the sale was to Harrison’s bank, and that the credit, if any, was given to that firm, although the draft, by their direction, was made to the order of the plaintiffs, for whom the Harrisons bought it and to whom they sold it.

Some question is made over the evidence leading to that result;. and about the title of Harrison’s bank to the exchange, assuming that firm to have been the vendees. Proof was offered and received under objection of an alleged custom of dealers in foreign exchange to sell only upon a cash payment, and deliver the drafts conditionally upon an expected remittance of the price; the purpose being to justify the act of the defendants in stopping payment when the vendees failed to remit in accordance with their promise. The court was asked to find the existence of such a custom and refused, and the defendants took an exception. So far as any custom was proved it was immaterial. Some of the evidence indicated a usage in the city of New York among sellers of foreign exchange of delivering the drafts before -the next sailing day of the steamer, and expecting payment on that day, but.so far from such custom making the delivery conditional until payment the evidence indicates the contrary. It shows a habit of exacting the cash except where the standing of the purchaser made a credit until the sailing day prudent and safe; and no single instance of ■stopping payment of the delivered drafts was shown. What there was of the usage seems quite inapplicable to sales out of the city, slid to Country banks or inland dealers, and was not such as to raise a presumption of knowledge on the part of Mayer & Co. In all their dealing nothing had ever occurred tending to bring home to them knowledge of a usage which seems to have been local in its character. But beyond that, the plaintiffs have been found to be purchasers for value and in good faith from Harrison’s bank of the drafts in controversy, and if that be true, the •equities between the original parties are cut off and become immaterial. And so the correctness or error of that finding has been the principal subject of inquiry upon this appeal.

The respondents rely upon two propositions which have thus far prevailed; first, that the actual payment and absolute discharge -of an antecedent debt is a valuable consideration for the transfer ■of commercial paper, and cuts off prior equities; and, second, that the acceptance by a bank of deposit of the check of a depositor over its counter actually cancels and discharges the deposit to the amount of the check.

I have no doubt as to the soundness of the first proposition. It was explicitly conceded in Bay v. Coddington, 5 Johns. Ch., 57 ; affirmed 20 id., 637, which originated the difference between the courts of this state and the concurring views of the Federal court and those of England. While it was in that case ruled that the transfer of negotiable paper as collateral security merely for an antecedent debt did not make the creditor a holder for value within the rule cutting off prior equities, it was yet asserted that .such result followed where, among other things, some existing debt was satisfied thereby. And that, I think, was a natural and logical conclusion from the reasoning upon which the decision rested. The argument was that the holder of the paper merely as collateral lost nothing by its failure, since his debt all the time remained, his original position was unchanged, and he had simply failed to get an added security, himself parting with nothing. It is apparent that the reasoning fails whenever, as a result of the new contract, the original debt has been actually extinguished, when the paper received has been both transferred and accepted as payment, and the debt has been discharged within and by force •of the acts and concurring intention of both parties. And so we have steadily decided. Bank of St. Albans v. Gilliland, 23 Wend., 311; Youngs v. Lee, 12 N. Y, 551; Philbrick v. Dallett, 31 N. Y. Supr., 388; Gould v. Segee, 5 Duer, 260; Brown v. Leavitt, 31 N. Y., 113; Phoenix Ins. Co. v. Church, 81 id., 218; Button v. Rathbone, Sard & Co., 118 id., 666; 27 N. Y. State Rep., 938. These cases and many more like them, however differing in their facts, and although the earlier ones have been more or less criticized, yet agree, as I read them, in the doctrine that where the pre-existing debt is actually and absolutely extinguished in consideration of the negotiable paper transferred the transferee is protected against prior equities. In asserting that as the result ■of the decisions in this state and elsewhere, the Federal court in Brooklyn & N. R. R. Co. v. Nat. Bank, 102 U. S., 31, and. Mr. Daniel in his text book on Negotiable Instruments, §§ 831 and 832, are fully and fairly supported by the line of adjudged', cases.

But the real and more difficult proposition secondly asserted by the respondents springs up at this point, and requires us to consider when the antecedent debt is absolutely extinguished and what proof sufficiently establishes that fact, for the debt though extinguished in form may prove to be discharged conditionally and not absolutely.

The answer depends upon the authorities from which we ought not to depart, but which have been very differently construed by the respective counsel.

. The respondents rely upon Pratt v. Foote, 9 N. Y., 463, followed in Com. Bank of Pa. v. Union Bank of N. Y., 11 id., 203, and a line of subsequent cases which more or less have been controlled by it. That case declared that the acceptance by a creditor from his debtor of a new security or obligation for an old debt,, and the acceptance by a bank of a check drawn upon itself in payment of a note, were entirely different transactions; that the former is the mere substitution of one executory agreement or obligation for another, and there is no extinguishment of the precedent debt unless there is air express agreement to accept the new obligation or security as a satisfaction of the old; but that when the bank upon which a check is drawn accepts it upon its own debt, the same act of acceptance pays the chock to the payee,, and the debt to tli,e bank, and the transaction is the same in effect as if the money was first paid to the payee of the check and instantly repaid to the bank in exchange for the paper bought This view of the transaction necessarily implies that what is done between the parties sufficiently proves a payment and extinguishment of the bank’s debt without any added evidence of an express agreement to that effect, or any further or other act. We mist not fail to observe that other and additional circumstances be ring upon the intent of the parties may change the inference, but the case cited decides that where the bank accepts its customer’s, check for a note due to it, and charges the check to the proper account, and turns it into a voucher by cancellation, the debt is. extinguished on both sides. It is argued at very considerable length that the check accepted by the bank in the case cited was that of a third person, and not the check of the maker of the note, and that the same thing is true of all the cases relied upon by the respondents. That is true to some extent, and in some-qualified sense. In the case cited the check offered and accepted was the check of Scudder, who was first endorser upon the note, and contingently liable thereon, and who evidently drew his check to discharge that liability. While the check was tendered by Foote, the maker, it was nevertheless that of one of the parties to the note, and tendered and accepted in payment thereof., In Youngs v. Lee, 12 N. Y, 552, the creditor surrendered an old note not yet due in exchange for a new note with an endorser, and was held to be a holder for value because the debt was extinguished. Many of the cases to the same purport were reviewed in Phoenix Ins. Co. v. Church, 81 N. Y., 218, and it-was there intimated that the common understanding and usage attending the dealing with banks might well affect the inference to be drawn. I do not find that the doctrine of Pratt v. Foote has ever been questioned or overruled. The payment in that case was held to be absolute and not conditional. The check was tendered in payment of the note and accepted as such, and the transaction in that manner closed. So here the check was tendered in payment for the draft purchased, and accepted and cancelled as payment. There can be no doubt that such was the concurring intention of both parties to the contract which they executed, and the inference would hardly be more certain if the intention had been framed in words and taken the shape of an express agreement I have become convinced that the form of the transaction should not control and modify its substance. If the Harrisons on presentation of the check had paid the money, and the creditor had instantly paid it back in exchange for the draft purchased, there would have been no question about the right of the purchaser. How can we insist that the right is modified because the formal delivery and return of the money was omitted, the substantial result remaining the same ?

I have examined the numerous authorities cited, but question the wisdom of dwelling upon them, since they vary in many respects from the precise facts before us. I prefer to hold upon the authority of Pratt v. Foote, strengthened as I think it is by the suggestions of Phoenix Ins. Co. v. Church, that where the depositor in a bank having sufficient funds standing to his credit tenders his check to that bank in payment for negotiable paper which it has for sale, and the bank accepts the check and charges it against the deposit and files the check as its voucher and delivers over the paper purchased, the holder of that paper is a holder for value because the antecedent debt is pro tanto actually, and in fact extinguished.

The facts of the transaction show that to have been the concurring intention; exhibit a contract executed and completed, and left in no respect executory or conditional; and while the check may be regarded as a request to charge in account, it is a request to a bank of deposit which operates upon the amount of the deposit and effects the actual payment intended on both sides. The position of- the depositor is materially changed by the transaction. Before his purchase he had its amount on deposit, payable to him on demand, but after his purchase no such deposit remained subject to his check, or payable to him at all. If he had held the bank’s note for the deposit, and surrendered that in exchange for the paper bought, it is conceded that he would have been a purchaser for value. But the note itself would be only a voucher or eviolence of the debt; and Avhy should a surrender of that voucher have greater effect than delivery of the check? Because the depositor has no note, but, as is the customary method, allows the bank to keep both sides of the account, and so has no Aroucher to surrender, must we give no force to the delivery of the check and its acceptance by the bank, which equally cancels so much of the deposit, aud equally serves as the bank's voucher for the payment? We cannot say that the depositor has parted with nothing in consideration of the paper received, when, in the customary mode of dealing with banks, he has drawn out his deposit and appropriated it to his new purchase; for what he has for a voucher or evidence of the bank’s debt to him is simply the bank’s credit on its books, and when by his own act he destroys and cancels that credit he parts with the voucher he had as effectively as if, holding the bank’s note, he had parted with that. In view of the customary methods which obtain between banks and their depositors, the inference of actual payment and extinguishment of the debt where the check is accepted, charged in account, cancelled upon the file iron, and filed as a voucher, is proper to be drawn. It seems to be not even essential, to be able to say that the debt extinguished could not be revived under any form of remedy. Phoenix Ins, Co. v. Church, supra.

The question of good faith on the part of plaintiffs was one of fact, which has been found in their favor. It is our duty, therefore, t© sustain the decision of the courts below.

The judgment should be affirmed, with costs.

All concur, except Ruger, Ch. J., not voting, and Earl, J., dissenting.  