Case Name: Clark et al. vs. The Merchants' Bank
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1849-10
Citations: 2 N.Y. 380
Docket Number: 
Parties: Clark et al. vs. The Merchants’ Bank.
Judges: 
Reporter: New York Reports
Volume: 2
Pages: 380–386

Head Matter:
Clark et al. vs. The Merchants’ Bank.
Wher- the owner of a bill sends it to his correspondent to be collected and with directions to place it to his credit, and at the same time draws at sight against the fund, the title to the bill passes, so that the proceeds cannot be followed into the hands of third persons receiving them in good faith.
C. & Co. were brokers in Philadelphia, and S. & Co. were brokers in New-York. They were the collecting agents and business correspondents of each other in those cities. C. & Co. sent to S. & Co. a bill due at sight, to be collected, and directed it to be placed to theii credit. At the same time C. & Co. drew sight drafts on S. & Co. for the amount. S. &. Co. collected the bill by receiving the check of the drawee, and credited the amount to C. & Co. They then deposited the check in the bank where their accounts were kept, and the bank passed it to their credit as cash and received the cash upon it. S. & Co. stopped payment without paying the drafts of C. & Co. drawn against the bill, and being indebted to the bank more than the amount of the bill. Held, that on the receipt of the bill by S. & Co. the title vested in them, and that C. & Co. could not recover the proceeds thereof from the bank.
Clark u. Merchants’ Bank, 1 Sandf. 498, reversed.
Appeal from the superior court of the city of New-York, where the action was assumpsit, tried in February, 1848. The case was this: Clark & Co. (the plaintiffs,) in the spring of 1845, were stock and exchange brokers in the city of Philadelphia, and for four or five years had corresponded and transacted a large business with John T. Smith & Co. exchange brokers in the city of New-York. The course of business between the two houses was as follows : Clark & Co. transmitted to Smith & Co. funds to be credited and drawn against, or held subject to their order. They sent bills, checks and notes for collection, and usually drew on Smith & Co. for payment, but sometimes directed payment in New-York, or made other disposition of the funds collected. On the other hand, Smith & Co. forwarded to Clark & Co. bills, checks and notes for collection, which were credited to the former, and drawn against or disposed of in like manner. Each house kept two accounts. One containing the remittances of Clark & Co. to Smith & Co. was called account No. 1. Tbe other, containing the funds of Smith & Co. transmitted to Clark & Co. was called accoum No. 2.
On the 15th of May, 1845, Clark & Co. sent by mail to Smith & Co. a sight draught of Maury & Purcell of Richmond on Carpenter & Vermilye of New York, for $7,000, endorsed to Clark & Co. and by them to Smith & Co. The letter enclosing the draft was as follows:
“ Phila., May 15tb, 1845,
Messrs. John T Smith & Co.
Gent.
Yours of 14th rec’d
with 7,955 48 cks. and all paid.
2,595 Par.
30 Relief, 2 60
20 Lebanon, 3 3, 15
10 Del. Bridge, t 08
45 Hamburgh, 1 45
10,655 48 to yr. cr. (2) To your debit (2) $128
Find herein for col.
Farr, Power & Weightman’s note pbl. at M.
Ex. Bk. 14—17 May, - - - - $1,120 88
Hancock & Mann on D. P. Rich, 1 day’s st. 1,375 20
For acc. (1)
Maury Purcell on Carpenter Sf Vermilye, 7,000 00
Ellis & Valette on Corning & Co. 4,000 00
U « « (l 2,000 00
H. T. Pain on Drew, Robinson & Co. - 1,700 00
W. Nesbitt & Co. on Phenix Bank, ’ 893 30
S. Hartshorn on Washington Post, 508 75
Prentiss, Dow & Co. onW. M.Vermilye, cash’r. 428 25
J. M. Moore cash on Merchants’ Bank, 322 28
B. F. Warner cash on John Ward & Co. 289 61
H. McCullough cash on Phenix Bank - 245 00
T. J. Carson on E. D. Morgan & Co. - 47 43
Bk, notes, - ..... 541 00
$17,975 62
Have drawn,
10,000 00^ 5.000 00 465 00 46 23 • 321 03 5.000 00 $20,832 26. We enclose an order on A. P. Halsey, cashier, for the two bills of $5,000 each, one on Brown Bros. & Co. for $5,000, and one >on J. Lahens & Co. for $5,000. Please get the bills, and hold them until Mr. Underhill returns. • Truly yours,
E. W. Clark & Co. per Jas. H. Stebbins.”
The draft and securities mentioned in the letter went with the letter. The letter and enclosures were received by Smith & Co. on the morning of the 16th of May, 1845, and on the same day the draft of Maury & Purcell on Carpenter & Vermilye for $7,000, (the bill in question,) was presented, and the check of the drawees on the Phenix Bank was received by Smith & Co., endorsed by them, and deposited with the defendants, who received the money of the Phenix Bank in the usual course of business, on the 17th of May. The money went to the credit of Smith & Co. who kept but one account with, and were indebted to the defendants. Smith & Co. stopped payment on the 16th of May, and did not pay the drafts drawn on them by Clark & Co. mentioned in the letter; and upon the 18th, Clark & Co. claimed the proceeds of the check of Carpenter & Vermilye, and subsequently brought this suit to recover the money. On the above, facts the defendants moved for a nonsuit, which was denied, and they excepted. The jury found a verdict for the amount of the draft and interest.- The superior court refused a new trial and gave judgment for the plaintiffs. (See 1 Sandford’s Superior Court Rep. 498.) The defendants appealed to this court.
S. A. Foote, for appellants.
.0. Lord, for respondents.

Opinion:
Gardiner, J.
The material question, as stated by the court below, is whether the bill in question was transmitted to Smith & Co. for collection merely, as was to be credited to the plaintiffs, when received by the former, whether collected or not. As the bilí was endorsed in blank by the plaintiffs, the legal title passed to Smith and Co. prima facie, and the plaintiffs must establish the fact that it was endorsed and forwarded for the purpose of collection.
If this was a question of fact, proper to be submitted to the jury, their verdict for the plaintiffs has disposed of the whole question, and there is nothing to review. If, however, it was a question of law arising upon facts undisputed, then the inference should have been drawn by the court, and the motion for a nonsuit will present it for our consideration.
Two witnesses were called by the plaintiffs, as to the course of dealing between them and Smith & Co. of N. York. There is no discrepancy in their testimony, and both parties assume the evidence as true in every particular. Whether, therefore, it establishes the agency for which the plaintiffs contend, would be a question of law, and so the learned court, in their opinion, seem to regard it. From one of the witnesses we have the facts that funds were transmitted by the plaintiffs to be drawn against, or held subject to their order. From the other, that Smith & Co. received drafts, checks and notes, to be placed to the credit of the plaintiffs, who generally drew against the fund, unless special directions were given ; that the remittatices of the plaintiffs were account (I,) and those of Smith & Co. account (2;) that on the 15th of May, the plaintiffs wrote the New-York house, enclosing $2496,08 in notes for collection, and $17,975,-62 in bank notes, checks and drafts, including the $7000 draft in question, for account (I,) and advised their correspondent, in the same letter, that they had drawn upon them to the airouut of $20,832,26, at sight. The $17,975,62 was therefore transmitted to Smith & Co. to.be placed to the credit of the Philadelphia house in account (I,) to be drawn against in the usual course of business. As the mode of dealing had been continued for years, and was perfectly understood by all parties, the plaintiffs had a right to draw against funds remitted, and Smith & Co. were bound to accept. The whole fund was, by the course of dealing, and in this instance by the directions of the plain tiffs, treated as cash; it was passed to their credit according to their instructions, and the draft in question was for account (1,) in the same sense that the $541 in bank notes, contained in the same remittance. Lord Eldon seems to have been of opinion, that "if the bills were entered as cash, with the knowledge oi the customer, and he drew, or was entitled to draw, upon the banker, as having that credit in cash, he would thereby be precluded from recurring to the bills, specifically." Story on Agency, § 228, note 3, and cases.)
The plaintiffs in this case drew, and were, as we have seen, entitled to draw, by arrangement. Their bills at sight amounted to $20,832, although the paper transmitted was only $20,-471,70, of which $2,496,08 was sent for collection, and not available under some days. There is no proof of the actual state of the accounts between the different firms on the 16th of May; but whether it was in their favor, or otherwise, can we suppose that the plaintiffs expected that their drafts would be dishonored, if the $17,000 in securities were not paid at sight? The case is much stronger than that of a customer with a banker. The parties were exchange brokers; mutual correspondents ; receiving funds for, and making drafts upon, each other. Unquestionably it was their intention to keep each other in funds to answer the bills, drawn by them respectively. But in case that the paper transmitted should, from accident, or any other cause, be unavailable, a principal object of the arrangement was to prevent these drafts from being returned dishonored, by making it the duty of their correspondents to accept and pay, notwithstanding. Each would be safe in so doing, because they would have the responsibility of all the parties to the paper, including the firm whose drafts they were to pay. The whole arrangement was one of mutual convenience; and to hold that such drafts were transmitted for collection merely, with no right to a credit, or to draw against them, until they were actually paid, is to lose sight of the situation of these brokers, their business, and its necessities.
It is probably true, that Clark & Co. expected the $17,000 in securities would be available on the 16th of May; but if unavailable, the plaintiffs' witness says, it was a fund to be drawn against; for it was for account (1;) not when collected, but in the state in which it was transmitted. Account (2) was kept in the same manner, and on looking at the letter of the 15th of May, we find about #3000 in stocks (not the cash proceeds) credited at par and the discount debited. The securities, as we learn from the clerk of the New York house, were to be placed to the credit of Clark & Co., unless other directions were given, and were generally drawn against. It would be a singular mode of transacting business, to give credit for securities, and allow the funds thus constituted to be drawn against, and the drawer at the same time to retain the entire legal or equitable interest in the securities, of which the fund was composed.
The error of the learned judge, I apprehend, consists in the assumption, that nothing went into account (1) properly; or, what is the same thing, nothing was credited to Clark & Co. in the course of business, until collected. This inference is opposed to the testimony of the only witnesses who speak as to the nature of the business, and mode of transacting it, and to instructions of the plaintiffs.in the letter of the I5th of May. How are we to account for the different instructions in reference to the two drafts forwarded for collection, and the other funds, upon the supposition that neither were to be credited in account (1) until collected, and when collected, both would be thus credited in the ordinary course of business ? Why distinguish, when all were sent for collection only, and when the credits were to be given on the same contingency, and the rights of the parties were precisely the same, in reference to both classes of securities ?
We think that these different firms were agents and bankers for each other. This is proved by the course of business. The letter of the 15th of May covered securities for account (1,) and for collection, together with an order to receive bills of exchange, and hold them, until the return of Mr. Underwood. For the first class they were to be credited, with the right to draw upon their correspondents; as to the second and third, the N. York firm were the mere agents of the plaintiffs, and had no other interest in, and control over, the assets, than such as were necessary to the discharge of their agency; that the title to the bill in controversy, under the circumstances disclosed by the evidence, vested in Smith & Co. upon its reception by them; and that their application of the proceeds to the payment of their own debt cannot be questioned in a suit against creditors receiving them in good faith.
The judgment of the superior court must, therefore, be reversed.
Judgment reversed.
See Warner v. Lee, 6 N. Y. 144. Commercial Bank v. Union Bank, 11 ibid. 213. McBride v. Farmers' Bank of Salem, 26 Ibid. 450.