Case Name: Chaffee v. Bank
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1883-01
Citations: 40 Ohio St. 1
Docket Number: 
Parties: Chaffee v. Bank.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 40
Pages: 1–6

Head Matter:
Chaffee v. Bank.
L. & Co. made an assignment for tlie benefit of creditors, under the insolvent laws of Ohio, on September 26, 1S74. On September 29, 1874,. L. & Co. gave their cheek on the First National Bank of Ravenna to H. & S. and dated it back to September 22d. On September 29th the' bank paid the check with knowledge of the assignment of L. & Co., but without knowledge that the check had been dated back.
Held, in an action by the assignee of L. & Co. to recover moneys on deposit with the bank at the date of the assignment, the knowledge of the bank, that L. & Co. had made an assignment prior to the presentation of the check, put it upon inquiry as to whether or not the check bad in fact been given before the assignment. And such payment of the check would not be a defense for the bank.
Error to the District Court of Portage County.
On July 16th, 1874, Lyons & Co. gave their note to* Heckman 65 Spencer for $225, falling due October 13th,. 1874. On the same day H. & S. sold and endorsed the' note to the First National Bank of Ravenna.
On September 16th, 1874, Lyons & Co. deposited their sight draft on David T. Busby of Baltimore for $292 with the bank for collection, which was paid September 80.
On September 26th Lyons & Co. made an assignment under the insolvent laws to Chaffee, plaintiff in error.
On September 29th Lyons & Co. gave Heckman & Spencer their check on the bank for $280. On the same day H. & S. presented the check at the bank and requested that it be used to take up and pay the note of Lyon & Co. then held and owned by the bank, on which Heckman & Spencer were indorsers. The bank attached the check to the note, and at the maturity of the note applied the money then in the bank realized from the Busby collection to the payment of the $225 note and accounted to H. & S. for the balance of the check.
The application of the proceeds of the check was made by the bank, with knowledge of the assignment of Ljmns & Co., but without knowledge that the check had been dated back to September 22d prior to the assignment.
P. B. Conant for plaintiff in error.
1. The assignment transferred to the assignee all the assets of Lyon & Co., including their choses in action and money on deposit; and the assignee became the purchaser and owner of all their property. Copeland v. Mantón, 22 Ohio St., 398; Fuller v. Steiglitz, 27 Id., 355.
2. At the time of the assignment the Bvisby draft, which is the subject of this controversy, was in Baltimore, in the hands of the correspondent of the bank, for collection, and certainly passed by the assignment. There were no funds in the bank at that time, save $43.02, which was paid to Clark Bishop on the day of assignment. On the 28th of September, two days after the assignment, Busby paid tha* draft to a bank in Baltimore, which gave the Ravenna banl credit for the collection.
3. Notwithstanding the assignment transferred all the assets of every sort to the assignee, still the bank was entitled to notice of the assignment to protect it as a debtor of the assignors, and the only object of the notice is this protection. Copeland v. Mantón, 22 Ohio St., 398; Haven-' port v. Woodbridge, 8 Greenl., 17; Bishop v. Holcomb, 10 Conn., 444; Beckwith v. Union Bank, 4 Sandford’s S. 0., 604.
The requests to charge and the charge of the court raise this question of notice. The court said to the jury, “ If the bank received information from any source that J. D. Lyon & Co. had made an assignment, and the officers Of the bank who received the information believed or ought to have believed it to be true,” etc., it would have been sufficient notice. This comes up to the notice applied to purchasers of commercial paper before due. Johnson v. Way, 27 Ohio St., 374. But surely the bank did not stand in a position to insist upon that rule, for it was in no sense a purchaser of the check for a valuable consideration before due. The bank was simply a debtor and did not purchase the paper, and can stand on no higher plane, or demand any more explicit notice, than-any other debtor.
The bank took the check as security for a pre-existing debt, and was not entitled to any notice. The check is not paid yet. Iloxborough v. Messick, 6 Ohio St., 448; Lewis v. Anderson, 20 Ohio St., 281.
W. B. Thomas for defendant in error.
The bank had no right to refuse payment of a depositor’s check upon an existing fund based upon rumor. It is not claimed here that the bank acted in bad faith. Actual notice must be given in the absence of bad faith. The record only shows that the bank had notice. It is not shown what that notice was, or that it was such notice as the bank ought to have relied upon. Information may have been notice in the eyes of the jury, but courts ought not to allow such notice to be a criterion as between a bank and its depositors. According to such a rule no bank would be safe. Banks receiving money of and for their customers, to be paid out on their checks and notes, are to be protected as to payments made by them in the ordinary course of dealing of said banks, notwithstanding the customers make an assignment, unless said bank has actual notice of said assignment or acted in bad faith. Crriffin v. Hice, 1 Hilton (N. Y.), 184.
Banks do not guarantee the solvency of their depositors. Again, when money paid into a bank is passed generally to the credit of the owner, and not received as a special deposit, this money may be applied by the bank to the payment of any demand they may have against the depositor; Bank v. Hughes, IT Wend., 94.
A banker has a lien upon all securities or drafts, without payment of money, even with notice that the same belongs to another. 3 Pars. Cont., 262; 17 Ohio, 572; 2 Kent, 641; 17 Peters, 179; 1 How., 234; 3 Id., 70 or 770; See 20 Ohio St., 234.
A check is drawn upon an existing fund, and is the absolute transfer and appropriation to the holder of so much money in the hands of the drawee. Baily v. Burgess, 5 Ohio St., 15.

Opinion:
McCauley, J.
The action in the common pleas was by the plaintiff, as assignee for the benefit of the creditors of Lyons & Co. under the insolvent laws, and was brought for moneys of Lyons & Co. claimed to be on deposit with the defendant at the time the assignment was made.
The assignment was made September 26th, 1874, and the bank set up as a defense that on September 29th it paid a check given by Lyons & Co. to Heckman & Spencer for $280, and that the check was dated September 22d, four days prior to the assignment.
On the trial.in the common pleas the jury returned a general verdict for the plaintiff and, by direction of the court, found specially, that on September 29th, when the check was presented, the bank had knowledge that Lyons & Co. had made an assignment on September 26th. It appears also from the evidence on the trial in the common pleas that when the check was presented on September 29th the bank had a note given by Lyons & Co. to Heckman & Spencer and by them endorsed to the bank, and that when the check of Lyons & Co. was presented by Heckman, it was attached to the note of Lyons & Co. and on October 13th following, when the note matured, an amount of the Busby collection sufficient to pay the note was applied in payment of it, and the balance of the $280 cheek was accounted for to Heckman & Spencer.
Upon this state of fact, the bank makes two claims, first, that the check was a complete appropriation and transfer of the funds of Lyons & Co. in the bank to their credit, at the date of the check. And second, that at all events the bank had a lien upon the proceeds of the Busby collection to pay any indebtedness of Lyons & Co. to it.
It is not necessary to consider just how far a check is an appropriation and transfer of the funds of the drawer on deposit at the giving of the check, nor to consider how many exceptions there may be to this rule; for in this case, there were no funds out of which to pay it when it was presented, and it was not then paid but it was kept until October 13th, when the note matured. During which time the proceeds of the Busby collection were received by the bank, and this money was applied to its payment.
The matter of attaching the check to the note and holding it for two weeks was not equivalent to a payment of it. And during the time it was so held the bank had full knowledge that Lyons & Co. had assigned on September 26th. The assignment was a transfer of the fund realized from the Busby collection; and assuming that the check was also a transfer of it, pro tanto, then the bank had knowledge of what purported to be two transfers of the same fund. We think it should not have recognized either transfer by paying the money on it without first making inquiry as to which of them was prior in fact.
As to the banker's lien claimed by the bank. After September 30th it had the proceeds of the Busby collection, but it had not made any advance on the faith of that collection, it had no interest in it — and having made no advance upon it, it had no lien upon it, and no right to retain it to apply in satisfaction of a note held, against the owners of it.
.The bank might have applied this money on any balance due it on general account with Lyons & Co. 3 Parson's Contracts, 262; Bank of Metropolis v. New England Bank, 17 Pet., 174.
The bank having no lien on the proceeds of the Busby collection, when suit was brought for that money by the assignee, it could defend against his claim by using the note of Lyons & Co. as a set-off. This is the only way in which the bank could have applied any part of the Busby collection in payment of the note. And this was not done.
Judgment Reversed.