# Railroad Company v. National Bank

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## Concurring Opinions

    Clifford
    Bradley
United States Supreme Court
102 U.S. 14
Railroad Company v. National Bank
ERROR to the Circuit Court of the United States for the Southern District of New York.
This was an action by The National Bank of the Republic of New York against The Brooklyn City and Newtown Railroad Company.
The case, as made by an agreed statement of facts, is this:--
The company, a corporation organized under the laws of New York, executed, at Brooklyn, in that State, May 9, 1873, its promissory note for the sum of $5,000, payable four months after date to the order of William V. LeCount, its treasurer, at the Atlantic State Bank of Brooklyn. It was indorsed in blank, first by him, and then by Palmer & Co., a firm composed of Thomas Palmer, Jr., and Anson S. Palmer, the former being the president and the latter the financial agent of the company, and together owning the larger portion of its stock. It was made for the purpose only of raising money thereon for the company. Neither LeCount nor Palmer & Co. received any consideration for their respective indorsements. The note thus indorsed was, with others, placed by the company in the hands of Hutchinson & Ingersoll, a firm of note-brokers in Wall Street, for negotiation and sale.
Prior to the execution of the note Hutchinson & Ingersoll had frequently borrowed money from the bank. They, however, kept no account, and had no transactions with it, other than those to which reference will now be made.
In the month of October, 1872, the bank first made them a call loan at seven per cent interest, of $25,000, on collaterals. Subsequently, in 1873, it made to them other call loans on collaterals, at the same rate of interest, as follows: March 11, $15,000; March 15, $10,000; April 11, $10,000; May 16, $10,000; May 20, $20,000; May 23, $10,000; June 4, $15,000; June 6, $12,000; June 12, $10,000; June 19, $36,000; and July 11, $10,000. Each of these loans was a separate one, upon a particular and distinct lot of collaterals. Hutchinson & Ingersoll were in the habit of borrowing money from various banks and from individuals or firms upon specific lots of collaterals.
The loan of $36,000 on 19th June, 1873, was upon several notes as collateral security, among them the above-described note for $5,000, executed May 9, 1873. All the loans by the bank, prior to the one of $36,000, had been paid off before that loan was made.
The loan of $10,000 on 11th July, 1873, was upon the following notes as collateral security: Two notes of Howes, Hyatt, & Co. for $2,605.98 and $3,540.15, and two of H. L. Ritch & Co. for $3,320.17 and $2,146.92.
On the 22d of July, 1873, Howes, Hyatt, & Co. having become insolvent, Hutchinson & Ingersoll executed and delivered to the bank, at its request, antedated to June 19, 1873 (which was the date of the $36,000 loan), a written instrument, whereby they agreed with the bank 'that all securities, bonds, stocks, things in action, or other property or evidences of property whatsoever, which have been or may at any time hereafter be deposited or left by us or on our account, with said bank, whether specifically pledged or not, may be held by said bank, and shall be deemed to by and are hereby pledged as security for the payment of any and every indebtedness, liability, or engagement on our part, held by said bank, and that on the non-payment, when due and payable, of any sum or sums of money which have been or may hereafter be by said bank lent, paid, or advanced to or for the account or use of us, or for which we are or may become in any way liable or indebted to said bank, the said bank, or its president or cashier, may immediately thereupon, or at any time thereafter, sell, &c., . . . and apply the net proceeds of sale to the payment of any sum or sums due and payable from us to said bank, and hold any surplus of such net proceeds, together with any and all remaining securities, property or evidences of property, then held by said bank and not sold, as security for the payment of any and all other of our then existing and remaining liabilities and engagements to said bank.'
When that writing was executed, no agreement was made to extend the loan, or to refrain from calling it in.
The bank knew that Hutchinson & Ingersoll were note-brokers, but until Aug. 8, 1873, had no knowledge or information of the connection of the Palmers with the railroad company, or of the circumstances attending the making or indorsement of the note in suit, or of the purpose thereof, or of any relations, dealings, or communication between Hutchinson & Ingersoll, and the parties to the note (except that they knew Hutchinson & Ingersoll to be note-brokers), or that the note was anything else than ordinary business paper, or that there was any question as to the right of said Hutchinson & Ingersoll to pledge or negotiate it. Nor did the railroad company know or suspect that the firm had parted with or hypothecated said note until Aug. 15, 1873.
The company, by reason of certain advances made to its use, by Hutchinson & Ingersoll, became indebted to the latter, on the 8th of August, 1873, in the sum of $600. On the fifteenth day of August, 1873, it tendered that sum to the firm, and demanded a return of the $5,000 note. During the same month it made a like tender to the bank, and demanded the note.
The $36,000 loan was paid in full out of the collaterals given to secure its payment, as they respectively matured, without resorting to the note in suit, the first payment of $4,580 being July 22, 1873, and the last payment being April 4, 1874, leaving the $5,000 note in the bank's possession.
Hutchinson & Ingersoll are insolvent. The collaterals collected exceeded the $36,000 loan by $2,403.61.
On the $10,000 loan of July 11, 1873, there was a balance due the bank, Nov. 21, 1876, of $5,136.68 after exhausting all collaterals in its possession which had been specially pledged to secure that loan, and crediting the amount, with interest collected, of a certain judgment to be now referred to.
In 1874, the bank sued Palmer & Co., as indorsers upon the note in suit, in the Supreme Court of New York. The case was sent to a referee, who rendered judgment in favor of the bank for $601, which seems to be the amount due from the railroad company to Hutchinson & Ingersoll. That judgment, with the costs, was satisfied.
The present action is by the bank against the railroad company to recover the amount of the $5,000 note executed by the latter on the 9th of May, 1873, and placed in the hands of Hutchinson & Ingersoll for sale for the benefit of the company. It was agreed that, if the company is liable to the bank upon that note, the amount would be as of Nov. 21, 1876, $5,136.68.
The court below gave judgment for the bank, and the company sued out this writ.
Mr. William Dorsheimer for the plaintiff in error.
The matter is res judicata, for there was a determination, by the Supreme Court of New York, upon the same subject-matter in a controversy between the same parties or their privies. It is true that the defendants there were not the makers of the note. Although makers and indorsers may have independent interests, yet they, in this instance, are privies. The note never had any valid inception. The making and indorsing were alike without consideration. Neither the maker nor the indorsers could incur any liability on the note, except such as might arise from the unauthorized action of Hutchinson & Ingersoll in pledging it to the bank.
The term 'privies' is not confined to persons interested in real estate (3 Tomlin, Law Dict. 218; 2 Bouv. 382), nor is it true that only the same parties, eo nomine, are bound by a judgment. Green v. Clark, 5 Den. (N. Y.) 497; s. c. 13 Barb. (N. Y.) 57; Kent v. Hudson River Railroad Co., 22 id. 278; Taylor v. Spader, 48 N. Y. 664. The expression 'parties' is not confined to the parties to the record. It includes all those who have a direct interest in the subject-matter of the suit. Bates v. Stanton, 1 Duer (N. Y.), 87; Ehle v. Bingham, 7 Barb. (N. Y.) 494.
Even if the judgment be not construed as res judicata, in the strict sense, the bank is estopped from proceeding further with this action. It selected its own tribunal, abided by the judgment there rendered, and entered satisfaction of it, after accepting the money which the court determined to be the whole amount due upon the note. The claim was extinguished by that acceptance and satisfaction. Woodworth v. Spofford, 2 McLean, 168; Sedam v. Williams, 4 id. 51; King v. Hoare, 13 Mees. & W. 449; Farrell v. Hibbard, 3 N. H. 318.
This case was tried upon similar pleadings, and the same state of facts as that, with the single exception of the paper signed July 22, 1873, which would not have varied the result there, and in no way strengthens the case here. It was signed long after both loans had been made, was without consideration, and no action was taken upon it. The bank did not agree to extend the loan, nor did it refrain from calling it in. It must be conceded that, under the adjudications in New York, the bank was not in that case entitled to recover more than the sum awarded, unless it had a lien upon all the securities of Hutchinson & Ingersoll, which was termed in the decision a 'banker's lien.' Its relations with them were not those of banker and customer, and such a lien could not, therefore, attach. They were not depositors or dealers with the plaintiff, and kept no account there. In the cases where the question of such a lien has arisen, the party asserting it was a banker quoad the person from whom the security had been acquired. In some of them, the lien was claimed under special circumstances, as on a pledge, but no banker's lien can arise, unless the relation of banker and customer exists. The banker in England is the general financial agent of the customer. Even there the lien would not apply to a case like this, though the parties did actually occupy the legal relation of banker and customer. Davis v. Bowsher, 5 T. R. 488; Brandas v. Barnett, 12 Cl. & Fin. 787; Jones v. Peppercorn, 1 John. 430; Bolland v. Bygrave, 1 Ry. & M. 271; In re European Bank, Agra Bank Claim, Law Rep. 8 Ch. 41.
Outside of the question as to the asserted specified lien of a 'banker' the plaintiff cannot recover. Ocean Bank v. Scott, 23 N. Y. 293; Clarke v. Lawrence, 36 id. 118; McBride v. Farmers' Bank, 26 id. 450; s. c. 25 Barb. (N. Y.) 657; Van Namee v. Bank of Troy, 8 id. 312; West v. American Exchange Bank, 44 id. 175; American Exchange Bank v. Corlies, 46 id. 19; Farrington v. Franklin Bank, 24 id. 559; Neponset Bank v. Leland, 5 Metc. (Mass.) 259; Story, Agency, sect. 381; Commercial Bank v. Marine Bank, 3 Keyes (N. Y.), 337; Bay v. Coddington, 5 Johns. (N. Y.) Ch. 54; s. c. 20 Johns. (N. Y.) 637.
These decisions all affirm this doctrine, and it may be now considered as the settled law of the State of New York.
The plaintiff relied upon Swift v. Tyson, 16 Pet. 1.
1. An examination of that case will show that the acceptance sued upon was, with another, transferred in payment of a promissory note, which was given up when they were received. All that was there decided is, that an innocent third party may acquire a title to a note if he takes it in payment of a pre-existing debt, as well as if he makes an immediate advance upon it.
2. But conceding, for the purposes of the argument, that a party receiving a note as additional security to an existing claim takes it free from the equities between antecedent parties, this is not such a case. The note was given as such security for a loan, which has been since paid. The right of recovery cannot extend to a subsequent and independent loan made upon different collaterals.
3. The cases in the English books relied upon below were those of continuing loans or balances. In other words, the party holding the notes had done, or omitted to do, some act on the faith thereof.
Here there was no agreement to extend the second loan.
An examination of Swift v. Tyson shows that the point was taken on the argument that 'the acceptance of the bill of exchange by the defendant having been given in New York, the contract was to be regulated by the laws of that State.' The reporter says: 'This question was not brought before the court by the certificate of division.'
In the case at bar the question is clearly presented. Inasmuch as these parties are both residents of New York, and the contract was made there, and the plaintiff resorted to her tribunals for the assertion of its rights, and obtained a judgment upon which it received payment, and gave satisfaction, the case should be determined by the lex loci contractus; and this court, it is submitted, should accept the decisions of the courts of that State as governing this case.
Mr. Thomas II. Rodman, contra.
The doctrine in Swift v. Tyson (16 Pet. 1) is explicit and decisive in favor of the plaintiff. It was reaffirmed and enforced in McCarty v. Roots (21 How. 432), and has been adopted and applied in the State courts. Quinn v. Hard, 43 Vt. 375; Russell v. Splater, 47 id. 273; Atkinson v. Brooks, 26 id. 569; Fisher v. Fisher, 98 Mass. 303; Stoddard v. Kimball, 6 Cush. (Mass.) 469; Roberts v. Hall, 37 Conn. 205; Bank of Republic v. Carrington, 5 R. I. 515; Williams v. Little, 11 N. H. 66; Bowman v. Millison, 58 Ill. 36; Manning v. McClure, 36 id. 490; Payne v. Bensley, 8 Cal. 260; Giovanovich v. Citizens' Bank, 26 La. Ann. 15; Smith v. Isaacs, 23 id. 454; Allaire v. Hartshorne, 21 N. J. L. 665; Armour v. McMichael, 36 id. 92; Maitland v. Citizens' National Bank of Baltimore, 40 Md. 540; Robins v. Lair, 31 Iowa, 9; Bonaud v. Genesi, 42 Ga. 639.
If the pledge of June 19, 1873, had not been made, the plaintiff, organized and doing business as a national banking association, would have had the right to hold the note in suit for the deficiency on the second loan. Hutchinson & Ingersoll were in the habit of borrowing money of the plaintiff on collaterals. A banker has a lien for a general balance (In re European Bank, Agra Bank Claim, Law Rep. 8 Ch. 41), and it is not excluded by a special contract, unless the latter be inconsistent therewith.
The defence of a former recovery is not tenable. The judgment was not rendered in a suit between the same parties, and there is no privity between maker and indorser to which the doctrine of estoppel applies. Bigelow, Estoppel, 75. A judgment against the indorser of a note does not discharge the maker. Russell & Erwin Manuf. Co. v. Carpenter, 5 Hun (N. Y.), 162; Pritchard v. Hitchcock, 6 Man. & G. 151.
The plaintiff's claim was not satisfied by the payment of the judgment against the indorsers for a part of the debt. Part payment by, and release of, the indorser does not discharge the maker. Story, Promissory Notes, sect. 422, note 2; Commercial Bank v. Cunningham, 24 Pick. (Mass.) 270.
Mr. JUSTICE HARLAN, after stating the facts, delivered the opinion of the court.

## Notes

This work is in the public domain in the United States because it is a work of the United States federal government (see 17 U.S.C. 105).
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