Court Opinion

ID: 9572874
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:45:15.577813+00
Date Added: 2024-06-11T12:34:31.035092
License: Public Domain

PaeKee, J.,
dissenting. Branch Banking and Trust Company, hereafter called Branch Bank, received the drafts from the Bank of Halifax originally as an agent for collection. As such it was not originally the real party in interest under G.S. 1-57, and nothing else appearing would not be entitled to maintain this action. Bank v. Rochamora, 193 N.C. 1, 136 S.E. 259; Worth v. Feed Company, 172 N.C. 335, 90 S.E. 295; Bank v. Exum, 163 N.C. 199, 79 S.E. 498.
The 6th finding of fact in part is: “The Bank of Halifax was given credit for the drafts upon their receipt by the Branch Bank.”
According to the agreement between Branch Bank and the Bank of Halifax, set forth in the 6th finding of fact, when the Branch Bank gave the Bank of Halifax credit for the drafts upon their receipt, it had the right of timely charge back if the drafts were not paid. Unquestionably, Branch Bank expected to receive prompt payment within twenty-four hours from the Bank of Washington or timely notice from the Bank of Washington of nonpayment of the drafts, which would have enabled it to reverse its credit to the Bank of Halifax, and charge the items back. According to the agreement between them, Branch Bank’s liability to the Bank of Halifax is limited to the exercise of due care.
This is the 17th finding of fact: “Following the return of the drafts in question to the Branch Bank by the Bank of Washington, the Branch Bank charged back to the Bank of Halifax the face amount of all eight drafts and returned the said drafts to the Bank of Halifax. The Bank of Halifax refused to accept the return of the drafts, and in turn forwarded the same back to the Branch Bank, which is now the holder of the same.”
The parties stipulated in a pre-trial conference as follows: “It is stipulated that the Bank of Halifax declined to accept these items to be charged back to its account by the Branch Banking and Trust Company on the ground of the delay involved.”
J. E. Paschall, president of Branch Bank, testified as follows: “The Branch Banking and Trust Company did not notify the Bank of Halifax of the nonpayment of these items prior to their return by the Bank of Washington. The Branch Bank did not notify the Bank of Halifax because they were considered as paid. I know why we did not notify the Bank of Halifax. We did not notify them because we were looking to the Bank of Washington for payment. We were looking to the Bank of Washington for payment because of the lapse of time. The lapse of time was 24 hours plus mailing time and, after *224that, we considered them paid. When these drafts were returned by the Bank of Washington to the Branch Banking and Trust Company, the Branch Banking and Trust Company undertook to charge them back to the Bank of Halifax. The Bank of Halifax refused to accept the charge. The Branch Bank admitted its liability on the drafts to the Bank of Halifax. This admission of liability was when I was asked a pointblank question. The conversation that took place was some time later. I don’t remember just exactly when, but we admitted it as soon as we found out they did not accept them. The Bank of Halifax refused to permit us to return the drafts as soon as the drafts got back to them on account of the passage of time. They claim that the drafts were paid or they thought they were paid. Of course, we knew that they were correct. We had received the drafts back from the Bank of Washington before the Bank of Halifax made that decision because they thought they were paid. The Branch Bank does not assert any claim against the Bank of Halifax or the drawer of these drafts at this time.”
Fletcher H. Gregory, Jr., vice president of the Bank of Halifax, testified: “On February 2, 1960, the Branch Bank undertook to charge these drafts to our account. They returned the drafts to us. We did not accept the drafts. We did not accept the drafts (sic). In the absence of notice to the contrary, we considered that the transactions were closed and that the drafts had been finally paid and that we had final credit at the Branch. We had entered into a deposit arrangement at the Branch Banking and Trust Company under the terms of which items were deposited subject to final payment. We did not accept this charge back under the terms of that arrangement because we considered that final payment had been made. When the Branch Bank returned these drafts to the Bank of Halifax, we did not undertake to charge them back to the account of the H & N Hog Market. We did not call on the H & N Hog Market for all of them. The Branch Banking and Trust Company has admitted liability to the Bank of Halifax on these drafts. The Branch Banking and Trust Company paid the Bank of Halifax for these drafts.”
Appellant states in its brief: “However it be viewed, whether under the deposit agreement or under the terms of the Negotiable Instruments Act, the plaintiff lost its right to charge the drafts back to its forwarder on account of the lapse of time. Thereupon, it admitted its liability.”
The majority opinion states: “No reason appears why plaintiff was not legally entitled to charge the amount of these uncollected and unaccepted drafts to the Bank of Halifax or why the Bank of Halifax, in turn-, was not legally entitled to charge the amount thereof to H *225& N Hog Market. Indeed, they were entitled to do so under the express terms and conditions of the agreements under which credit had been given. The credits given ‘were purely temporary and conditional.' ” The majority opinion cites in support of the above statement American Barrel Co. v. Commissioner of Banks, 290 Mass. 174, 195 N.E. 335. As I read this case, it does not support the above statement. The facts in the Massachusetts case are entirely different, in that the vital point here of the long delay by Branch Bank to notify the Bank of Halifax of the nonpayment of the drafts was not presented in the Massachusetts case, and that opinion doesn’t even mention such a point.
The majority opinion further states: “When plaintiff ‘admitted its liability’ to the Bank of Halifax, absolutely or tentatively, it admitted a liability that did not exist. Its gratuitous admission of liability conferred no legal rights on plaintiff.”
I do not agree with the two above statements quoted from the majority opinion. In my opinion, Branch Bank’s admission of liability to the Bank of Halifax is based upon the fact that Branch Bank realized it had breached its agreement with the Bank of Halifax to exercise due care, which exercise of due care means it was the positive legal duty of Branch Bank to notify in apt time the Bank of Halifax of the nonpayment of these drafts, so that the Bank of Halifax could protect itself against H & N Hog Market, to whom it is reasonable to infer from the findings of fact the Bank of Plalifax had paid the face value of the drafts after it had not heard of their nonpayment for such a long time from Branch Bank.
The drafts here constitute commercial paper in the strictest sense, and must be regarded as favored instruments, as well on account of their negotiable quality as their universal convenience in mercantile affairs. Goodman v. Simonds, 20 How. (U.S.) 343, 15 L. Ed. 934, 941. The office of these drafts was to collect for the drawer, H & N Hog Market, Weldon, North Carolina, from the drawee, Washington Hog Market, at the Bank of Washington, Washington, North Carolina, money to which the former may be entitled. 7 Am. Jur., Bills and Notes, Section 6 — Bills of Exchange and Drafts.
These drafts are cash items. “Cash items, in banking phraseology, mean notes, checks, or memoranda in the paying teller’s possession at the close of a day’s work which he, for the time being, treats as cash in order to make his books balance.” Green v. Farmers & Merchants State Bank, Tex. Civ. App., 100 S.W. 2d 132, 138. To the same effect, La Monte v. Mott, 93 N.J. Eq. 255, 116 A. 269, affirming 93 N.J. Eq. 229, 107 A. 462, 469.
This is the court’s 7th finding of fact: “The Branch Bank forwarded *226said drafts to the Bank of Washington with its letter of transmittal on a form containing the following provisions: ‘We enclose for collection and return of proceeds as listed below. Deliver documents only on payment. Correspondents will be held liable for loss resulting from delay in returning papers. Return promptly all unpaid items. Please report by date of letter. Wire nonpayment of items of $1,000.00 and over. Do not protest items $1,000.00 or under, or those bearing this stamp or similar authority of a preceding endorser.’ On the above form the Branch Bank typed the words ‘Cash draft,’ followed by the amount of each of said drafts.”
The drawee, Washington Hog Market, is allowed twenty-four hours after presentment of these drafts to it by the Bank of Washington in which to decide whether or not it will accept these drafts. G.S. 25-143.
G.S. 25-96 reads: “Except as herein otherwise provided, when a negotiable instrument has been dishonored by nonacceptance or nonpayment, notice of dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharged.”
G.S. 25-111 reads: “Where the person giving and the person to receive notice reside in different places the notice must be given within the following times: (1) If sent by mail it must be deposited in the post office in time to go by mail the day following the day of dishonor, or if there be no mail at a convenient hour on that day, by the next mail thereafter; (2) if given otherwise than through the post office, then within the time that notice would have been received in due course of mail if it had been deposited in the post office within the time specified in the last subdivision.”
The machinery, which is set up by modern banking to facilitate the flow of commercial, negotiable instruments, is geared to these statutes.
Branch Bank by its long delay in notifying the Bank of Halifax of the nonpayment of these drafts lost its right to charge the drafts back to the Bank of Halifax under its agreement, and also lost its right to proceed against its forwarder, the Bank of Halifax, on its endorsement by virtue of the sections of our Negotiable Instruments Act above quoted. Due to its long delay, and at this point, Branch Bank became the owner and holder of these drafts for value.
In my opinion, the evidence and the findings of fact clearly show that Branch Bank is the owner and holder for value of these drafts in the amount of their face value $5,569.26 which it has paid to its forwarder, the Bank of Halifax, and which it realizes it cannot recover from the Bank of Halifax because it breached its duty with the Bank of Halifax to exercise due care, and is entitled to maintain this *227action against the Bank of Washington based upon negligence. American National Bank v. Savannah Trust Company, 172 N.C. 344, 90 S.E. 302; same case, 177 N.C. 254, 98 S.E. 595; Annotation, 6 A.L.R. 618.
In my opinion, the 3rd conclusion of law of the trial judge: “The Branch Bank has not been damaged by the conduct of the Bank of Washington in attempting to collect the drafts,” and his 4th conclusion of law: “The Branch Bank is not the real party in interest and not entitled to maintain this action,” are not supported by the findings of fact, and are erroneous and unrealistic. Unless Branch Bank can recover from the Bank of Washington, it will lose $5,569.26, the face value of these drafts.
Plaintiff alleges alternatively: “13. Even if it should be determined that the defendant did not accept said drafts, nevertheless, the defendant negligently failed in its duty as collecting agent to collect said drafts promptly or to return them promptly. The defendant extended credit to the Washington Hog Market, contrary to the plaintiff’s instructions, by not requiring the prompt payment of said drafts upon presentment, although it knew or should have known, and is charged with the knowledge that the said Washington Hog Market was then in serious financial difficulties. The acts of the defendant as herein alleged constituted negligence in the performance of its duty to the plaintiff, as a result of which the plaintiff has been damaged in an amount equal to the face amount of said drafts, to wit, the sum of $5,569.26.”
Defendant alleged as a further answer and defense a plea of estoppel, as set forth in the majority opinipn.
The majority opinion states near.its close: “We do not hold the evidence insufficient to support a finding of fact that defendant was negligent.”
In my opinion, the facts found by the trial judge show as a matter of law that the defendant was negligent, and that such negligence has proximately caused Branch Bank a loss of $5,569.26, the face value of the drafts. I am further of opinion that the findings of fact show that Branch Bank is not estopped to maintain this action against the Bank of Washington.
The rapid flow of cheques, drafts and other commercial paper is vital to modern business and modern banking. The requirement that payment must be made or notice of dishonor given within the established and allowable time is essential to present day operations of business and of banking. To hold, as the majority opinion seems to hold, that a receiving bank is permitted to charge a cash item back to its customer, who has in all probability, paid such amount to its *228depositor, days and weeks after its dishonor, will create utter confusion, and tend to impair, and hamper our credit system and the operations of banking. As appellant aptly says in its brief: “a time honored maxim among bankers warns, ‘Never let the sun set on a Cash Item.’ ”
My vote is to remand the case back to the lower court to reverse the judgment below, and to enter conclusions of law upon the facts found, as set forth above, and then to enter judgment for the plaintiff.
Higgins, J., joins in dissenting opinion.