Bk. of Commerce v. Commercial Bank , 141 Md. 554 ( 1922 )

The facts of this case are clearly stated in the opinion of the Court, from which opinion, with great reluctance and with the utmost respect, I feel obliged to dissent, because, it seems to me, an important and fundamental principle of banking has been overlooked by the Court, at least in effect, viz: A bank may pay out funds on deposit only in strict compliance with the instructions of the depositor. This principle is so well established that citation of authority would be superfluous.

If that rule is to be observed, a further question arises in this case, viz: Could the bank, having inadvertently violated such instructions in certifying a trade acceptance, of its own motion correct the mistake before there had been any change in the position of the parties?

The latter point was definitely decided in the affirmative inSecond National Bank v. Western National Bank, 51 Md. 128. But it was strenuously argued by appellee's counsel that the law as established by that case is no longer the law of Maryland, in view of the subsequent passage of the Negotiable Instruments Act, in which there is a provision that the certification of a check by a bank at the instance of the holder releases the drawer and all endorsers from further liability on the check. But this is simply declaratory of the common law, and was the law of Maryland at the time of the decision in SecondNational Bank v. Western National Bank, supra.

A like provision in the Negotiable Instruments Act of New York was ably discussed in Baldinger, etc., Mfg. Co. v.Manufacturers-Citizens Trust Co., 156 N.Y. Supp. 445, and it was held that this provision made no change in the law as it was prior to the passage of that act. This is also recognized inCarnegie Trust Co. v. First National Bank, 213 N.Y. 301 (decided after the passage of the Negotiable Instruments Act of New York), wherein the Court of Appeals of New York distinguished cases, previously decided by that Court, where mistakes in certification were permitted to be corrected, from the case then before it, without the slightest intimation that the law as established by the earlier cases had in any way been affected by the later act.

Indeed the opinion filed in the case at bar concedes that the right of correction still exists and expressly affirms the 51 Md. case, supra, and thus brushes aside the main contention of appellee. See also National Exchange Bank v. Ginn Co.,114 Md. 190; where the authority of the 51 Md. case is recognized.

But the Court holds that appellant was not injured, because it could have paid the trade acceptance and reimbursed itself out of another fund of the acceptor on deposit with the bank, and emphasizes the fact that it did subsequently apply this other fund towards the payment of the indebtedness of the acceptor to the bank. The opinion further undertakes to distinguish this case from the 51 Md. case by special emphasis on the fact that here the bank was not requested to refuse to pay the acceptance, whereas in the former case there was such request. But this argument ignores the general instructions which had been given the bank in connection with these deposits.

The failure to recognize that the subsequent exercise of the right of the bank to apply all deposits of its debtor to the payment of its own claims, was not necessarily inconsistent with its refusal, in dealing with a third party, to disregard the instructions of the owner of such deposits, has led the Court, it seems to me, into serious error.

True, the bank, having in error certified the acceptance, might have taken the risk of paying on it a larger sum than was applicable to it; and if it had done so, it probably could have treated the overdraft as a debt, and applied the money on deposit in the other account to the payment of the debt thus created; but it was under no obligation to choose this alternative rather than correct the mistake, the position of the parties not having changed; and if it did not intend to permit an overdraft at the time of making the certification, then there was clearly such a mistake, assuming the testimony of defendant to be true, as the bank had the right to correct. If it had the right at thattime, and exercised it in good faith, it is not liable to appellee merely because it subsequently applied the fund in controversy to debts due by the depositor to the bank. What became of these funds after the certification was withdrawn, is entirely irrelevant, except possibly as bearing on the question of good faith, which was a question of fact for the court sitting as a jury.

This Court certainly did not mean to hold that any liability of appellant to appellee grew out of the refusal to do something which possibly it might safely have done, but which it was under no obligation to do.

It is conceded that both of the deposit accounts belonged to the Hess Steel Corporation, the acceptor, and therefore both accounts were subject to be applied by the bank, as was afterward done, toward the payment of debts due it by the depositor; but it does not follow that the bank could pay out either fund to third parties except in compliance with the direction given by the depositor as to that account.

Now the uncontradicted testimony in the case is that the smaller account was not payable on orders signed as was the trade acceptance offered in evidence; also that, at the time the certification was withdrawn, the bank had no thought of applying these deposits to debts due it by the depositor.

It may be that the lower court properly refused appellant's prayer for an instructed verdict in its favor, on the theory that the burden was upon it to prove the mistake in making the certification, and its good faith in making the correction; and that the jury was not bound to believe the evidence offered by appellant.

But the court certainly could not properly hold as a matter of law that the testimony offered on behalf of appellant was false either as to the mistake or as to its good faith in making the correction; and this, in effect, it did when it granted plaintiff's first and second prayers. These prayers were as follows:

"The plaintiff prays the court to instruct itself, sitting as a jury, that if it shall find that the instrument in writing offered in evidence by the plaintiff and designated as trade acceptance was duly signed by Jacob S. Schapiro and Harry T. Murray, co-partners, trading as United Iron and Metal Company, that the said instrument was duly accepted in writing by the Hess Steel Corporation and thereafter was endorsed by the said Jacob S. Schapiro and Harry T. Murray, trading as United Iron and Metal Company and discounted by the plaintiff for value and that upon the maturity of the said trade acceptance it was duly presented to the defendant for certification and was certified by it and that thereafter in due course of business the said certified trade acceptance was duly presented to the defendant for payment and that the defendant refused to pay the same, then the verdict shall be for the plaintiff."

"The plaintiff prays the court to instruct itself, sitting as a jury, that if it shall find from the evidence under the pleadings in this case that the trade acceptance offered in evidence was duly discounted for value by the plaintiff, and that thereafter it was duly certified by the defendant, and shall further find that there was on deposit with the defendant belonging to the Hess Steel Corporation at the time such certification was made sufficient funds to pay said trade acceptance, then the verdict shall be for the plaintiff."

These prayers entirely ignored the testimony of appellant that the smaller account was not subject to a check or draft signed as this acceptance was, and the further testimony that the acceptance was certified in error and the mistake was corrected without any thought of applying the funds for the benefit of the bank.

The material error in these prayers will at once appear by comparing them with defendant's fifth prayer, which was granted, and with which they are in absolute conflict. That prayer was as follows:

"The defendant prays the court in instruct itself, sitting as a jury, that if it finds that when the trade acceptance mentioned in the evidence was certified there was less than $5,184.35 balance under the name `Hess Steel Corporation,' then irrespective of what sum of money there was in the account of the Hess Steel Corporation No. 2 in the defendant bank, the verdict should be for the defendant, provided that the court further finds that the defendant notified the plaintiff of this error (if the court so finds) in certifying the trade acceptance before the plaintiff had changed its position or been prejudiced in any way with regard to the trade acceptance."

It needs no citation of authority to support the proposition that where contradictory prayers are granted it is cause for reversal, provided the law is correctly stated in the prayer of the party appealing. If, as I think, defendant's fifth prayer states the law correctly, it follows that the judgment should be reversed.