Story Case

Nathan Sangerberg was eager to take advantage of a special offer which had been advertised to the general public. The offer stated that orders for the goods described must be received by November 27, accompanied by certified checks, or by bank drafts, or must be sent in early enough to have the checks certified before the close of business on November 27. Sangerberg was able to mail in his order only on November 26, and he enclosed his check upon the Union Bank. The check was presented to the Union Bank on November 27, but they refused to pay or certify to it, on account of a garnishment notice with which they had been served. Sangerberg was notified that his order could not be accepted because the check had been dishonored, and it was, of course, too late to alter the matter, since the special offer had expired. He investigated the reason for the bank's failure to pay his check, and discovered the existence of the garnishment; he was able to prove to the bank officials that it was not directed against him at all, but against a Natalie Sangerberg who had a savings account with the same bank. Since the refusal to pay his check was without legal justification, he demanded that the bank compensate him for the loss of the special offer. At its refusal to recognize his claim, suit was brought. Should he recover?

Ruling Court Case. Svendsen Vs. State Bank, Volume 64 Minnesota Reports, Page 40; Volume 58 American State Reports, Page 522

Svendsen was a customer of the State Bank, keeping a deposit as a checking account. He had drawn on the bank a check for forty-two dollars, in favor of one firm, and another for fifty-four dollars in favor of another firm. When these two checks were presented, the bank refused to pay them, because it mistakenly thought that Svendsen had insufficient money on deposit to cover the two checks. Thereupon, Svendsen brought this action for damages.

It was contended by the bank that his recovery was on contracts, and that his damages would then only be nominal, since no special damages were shown.

Mr. Justice Canty said: "It is held by the authorities that in such a case, the plaintiff's recovery is not limited to nominal damages, but he is entitled to recover general compensatory damages. We are of the opinion that the recovery of more than nominal damages can, on sound principle, be sustained, on the ground that it slanders a trader in his business, where the drawer of a check is a merchant or trader (as in this case). To refuse to honor his checks is a most effectual way of slandering him in his trade, and it is well settled that to impute insolvency to a trader or merchant, is actionable per se, and general damages may be recovered for such a slander." Judgment was given for Svendsen.

Ruling Law. Story Case Answer

When a bank accepts a deposit in a checking account, it, by the act of acceptance, promises, among other things, to pay ont the money to the order of the depositor. We have seen that this gives no right to the holder of the check. But it does give right to the depositor. If the bank refuses to pay out the money as ordered by the depositor, that constitutes a breach of contract. For this breach of contract, damages, of course, may be recovered by the depositor. If the depositor is a merchant or trader, such an act on the part of the bank is regarded by law as slander upon the depositor, for which damages are recoverable without proof of special damages, as is necessary if the action is brought upon breach of the contract.

The bank is without question, in the Story Case, liable to Sangerberg for its breach of its contract to pay checks drawn against his account. The only question is one of damages. Since the contemplated advantage sought by opening the account was to be able to secure money upon short notice, when needed for business, the bank should be held for the ordinary results of finding that privilege suddenly cut off without notice. It is a natural result of the dishonor of his checks, that Sangerberg should have suffered some inconvenience and loss in his business. He should recover general compensation for this loss, but cannot prove the special amount which he might have made if the offer had been accepted, since the bank is not charged with knowing just how important a transaction was represented by the check which they dishonored. A general estimate of the damage to the ordinary business man, not a computation of the value of the special offer, should be recovered.