On appeal from a judgment of the Passaic County Circuit Court.
For the appellants, Harry Joelson (Edward F. Merrey, of counsel).
For the respondent, Cohn & Kohlreiter (Peter Cohn, of counsel).
The opinion of the court was delivered by
HEHER, J. The primary question for decision is whether, as averred in the complaint, a special contract of bailment
arose in respect of a portion of moneys concededly deposited by plaintiff with defendant bank upon general account. Conceiving the evidence to be in conflict, the trial judge submitted the issue to the jury; and it was resolved in favor of the plaintiff depositor. As to the moneys thus claimed, the depositary was found to be a bailee. By a motion to nonsuit and exceptions to the charge, the defendant bank challenged the existence of any evidence to support this finding of fact and the consequent judgment.
These are the pertinent facts and circumstances: On January 3d, 1929, the plaintiff depositor opened a savings account with the defendant bank, organized under the National Bank act. 12 U.S.C.A., §§ 21 et seq. On February 24th, 1933, when the sum to his credit in the account totaled $4,147.13, he called at the bank, presented his pass book to the teller in charge and demanded payment of $4,000 so credited to him. While he testified that he entertained what he conceived to be a substantial doubt as to the bank's solvency, and for that reason decided to withdraw the sum in question and satisfy a mortgage on a property owned by him in Mount Vernon, New York, he did not communicate his fears to the teller, nor in anywise suggest this asserted underlying reason for the proposed withdrawal. He informed that officer that his purpose was to liquidate the mortgage referred to. The teller, reminding him of the risk of loss if the withdrawal were made in currency, proposed that he make payment of the required sum by checks drawn upon the account. The depositor promptly acquiesced in the suggestion, and signed two checks upon the account, each in the sum of $2,000. The teller pursued what the proofs disclose was the customary banking practice where checks upon a savings account are to be honored without presentation of the pass-book. He endorsed the checks "O.B. February 24, 1933 -- G.P.D. charge Book No. 17217," which in banking parlance means "taken off the book," and, without effecting a change in the basic relationship, obliges the bank to honor the checks when presented for payment, properly endorsed, without the pass-book. The understanding was that these checks would be delivered to the mortgagee in satisfaction
of the mortgage, and used by him in the customary manner of commercial checks. The teller noted the withdrawals on the pass-book, and there the transaction ended so far as the bank's books of account were concerned. But the depositor quoted the teller as saying: "We are taking this $4,000 off your book and we will put it on the side, and any time these checks is (sic) going to come in they will be paid." On cross-examination, he said the teller undertook "to put that money on the side, from all other moneys -- in a trust fund, that nobody can use that money, not even the bank can use it." The uncontradicted evidence is that there was no segregation of a fund to meet these checks upon presentment, nor was there any transfer of the moneys upon the bank's books to any other account. There were no ledger or other book entries. In the normal course, these were not required until the payment of the outstanding checks. The depositor intended to journey to Mount Vernon within the week for the purpose of delivering the checks to his mortgagee, but the plan was frustrated by illness. On March 6th, 1933, before his recovery, the bank was closed by the president's proclamation of a bank holiday, and did not re-open because of insolvency. It was taken over by the comptroller of the currency, who designated a conservator to take charge of its affairs. The depositor's demand upon the conservator for payment of the checks was refused.
National banks are agencies of the federal government, created for public purposes, and are subject to the paramount authority of the congress. Regulation conflicting with federal laws is beyond the sphere of legitimate state action. The National Bank act (12 U.S.C.A., §§ 91, 194) embodies a policy of uniformity in the treatment of the depositors of an insolvent bank, and, in particular, a ratable division of its assets. The courts of federal jurisdiction, whose adjudications are of course controlling, have given rigid adherence to this concept, so much so that the ratable distribution provision of section 194 of the act has been construed as effecting repeal of an earlier statute granting a general preference to the United States on the insolvency of its debtor. Jennings v. United States Fidelity and Guaranty Co., 294 U.S. 216;
55 S. Ct. 394; 79 L. Ed. 869; Old Company's Lehigh v. Meeker, 294 U.S. 227; 55 S. Ct. 392; 79 L. Ed. 876; Davis v. Elmira Savings Bank, 161 U.S. 275, 290; 16 S. Ct. 502; 40 L. Ed. 700; Texas and Pacific Railway Co. v. Pottorff, 291 U.S. 245; 54 S. Ct. 416; 78 L. Ed. 777; Cook County National Bank v. United States, 107 U.S. 445; 2 S. Ct. 561; 27 L. Ed. 537. In the last cited case, Mr. Justice Field said that the ratable division section of the act "provides for the distribution of the entire assets of the bank, giving no preference to any claim except for moneys to reimburse the United States for advances in redeeming the notes." The primary consideration underlying this policy is the necessity of maintaining unimpaired public ...