Case Name: Hutchison v. Crutcher
Court: Tennessee Supreme Court
Jurisdiction: Tennessee
Decision Date: 1897-02-17
Citations: 98 Tenn. 421
Docket Number: 
Parties: Hutchison v. Crutcher.
Judges: 
Reporter: Tennessee Reports
Volume: 98
Pages: 421–439

Head Matter:
Hutchison v. Crutcher.
(Nashville.
February 17, 1897.)
1. Bills and Notes. Demand and protest not essential, when.
The general rule that the holder of a note or hill is not required to make personal or other demand on the maker, as a condition of holding- the indorser, if the place of payment designated in the note or hill is closed on the day the paper falls due, is not modified or altered hy the fact that a new hank is occupying the place where the old hank at which the paper was made payable had formerly heen engaged in business. {Post, pp. 422-426.)
Cases cited: Ocoee Bank v. Hughes, 2 Cold., 53; Bynum v. Apper-son, 9 I-Ieis., 637; Lane v. Bank, 9 Heis., 419.
3. Same. Demand and protest essential, when.
The holder of a hill or note, payable hy its terms at a particular national bank, must, as a condition of holding the indorser, present the same to a receiver of the hank appointed hy the Comptroller of the Currency because of its insolvency, and in charge of its assets, administering them for the benefit of its creditors, where the place in which he is administering- his trust, though not the former hanking house, is in the same city, and its location is well known in the business community. {Post, pp. 428, 429.)
Case cited and approved: Bank v. Junk Bros., 94 Tenn., 634.
3. Same. Place of payment.
The “place of payment ” of a bill or note may he a house, hank, counting-room, store, or other place of business where the holder can deposit or provide funds to meet it, and where a legal offer to pay can he made. (Post, p. 4S5.)
4. Banks and Banking. Effect of insolvency and receimership.
The closing of the doors of a national hank hy the Comptroller of the Currency, on account of insolvency, and the appointment of a receiver and placing him in charge of its assets, to ad minister them for the benefit of creditors, does not extinguish the corporation or work a forfeiture of its charter. (Post, pp. 426-428.)
Cases cited: 14 Wall., 383; 104 ü. S., 54, 462; 161 U.’S., 1.
5. SUBROGATION. Not alloivecL, when.
The indorsee of a note secured by a vendor’s lien upon one of two lots covered by a prior vendor’s lien on both, which was reconveyed by the original purchaser, is not entitled to be subrogated to the rights of the holder of the original vendor’s lien in the lot retained by such purchaser because the latter, without fraud, interposed a cross bill in an action to foreclose the original vendor’s lien and thereby procure the sale of the lot conveyed in exoneration of that retained, where the purchaser never became liable upon the note because of the failure of the holder to make due presentment to the maker. (Post, pp. 429-433,)
FROM DAVIDSON.
Appeal from Chancery Court of Davidson County. Thos. H. Malone, Ch.
Chambers & Zarecor for Hutchison.
J. C. McReynolds for Crutcher.

Opinion:
Beard, J.
The complainant in this cause seeks a personal decree against the defendant as the in-dorser of a protested promissory note, and also to have it fixed as a lien on certain real estate described in the bill. This note, of which complainant is the owner, was executed by one Smith in 1892 to the order of the defendant, Crutcher, and was made payable on May 31, 1896, at the Commercial National Bank, a banking institution then in successful operation in the city of Nashville. Before its maturity the Commercial National Bank was found to be insolvent, and, acting under the authority of law, the Comptroller of Currency of the United States appointed a receiver, and placed him in charge of its assets. For some timé after his appointment, the receiver was engaged in winding up the business of the bank, in £ ' the house occupied by it at the time of its suspension." He then moved its books and other assets to another building in Nashville, where he opened a receiver's office, and was there engaged in liquidating the affairs of the bank at the time this note fell due. On his removal, the Merchants' Bank took possession of the house vacated by him, and was established there at the date last mentioned. The fact of his removal, as well as the place where, after his removal, he was engaged in administering his trust, were well known in the business community of Nashville.
At maturity the note sued on was placed in the hands of a Notary, who, without making any demand, treated it as dishonored, and protested it for nonpayment. The record disclosing these facts, the Court of Chancery Appeals held that the indorser was discharged, resting their opinion upon the failure of the Notary to make demand for the payment of the note at the Merchants' Bank. The correctness of -this conclusion is called in question by the complainant, and we think properly so. The general rule certainly is, when the place of payment is specially designated in the note or bill — as, for instance, a bank — and it is closed on the day the paper falls due, the holder Avill not be required to make personal or other demand, as the paper is ipso facto dishonored. 3 Rand, Sec. 1115; Tiedeman Com. Pap., Sec. 314; 1 Par. N. & B., 438.
In Ocoee Bank v. Hughes, 2 Cold., 52, in recognition of this doctrine, it is said by this Court: "The law is well settled that where a place of payment is stated in the face of the bill, it will be sufficient to present the bill for payment at the place specified, and if no one can be found there, the protest may be made without demand or further inquiry." This general rule, we do not think, is modified or altered by the fact that a new bank is then occupying the place where the old corporation had formerly been engaged in business. Mr. Daniels, in his work on Neg. Insts., Vol. II., Sec. 1119, agreeing with the other text-writers just referred to, says: "If the holder, on the day of maturity, finds the bank or other place of business closed, he is not bound to make any further demand to charge either drawer or indorser." But he then adds: "If the paper is payable at a certain bank that has ceased to exist, or at the countingroom of a firm which has dissolved before its maturity, it will certainly be sufficient to make presentment to the bank which has succeeded the former institution, if such there be, or at the countingroom of the succeeding firm, if such there be." It will be observed that the author does not say that such demand is £ ' essential, ' ' but that it will be £ £ sufficient. ' ' Of the cases cited to this text, only one supports this very cautious statement. In Central Bank v. Allen, 16 Me., 41, the institution at which a note was payable had gone out of existence when it matured, and another banking corporation was then occupying its former place of business, .and the Court say that presentment was properly made at this latter bank. On the other hand, in Roberts v. Mason, 1 Ala., 373, it was held that, where the bank designated as the place of payment had ceased to exist, no demand was necessary, even though it had been sold to another similar corporation, which was made the former's agent for settling its affairs of discount and deposit. In such case, the Court say, a demand upon the latter would be ' ' an act of supererogation, and of consequence ineffectual for any purpose." To the same effect are Spain v. Balzell, 1 Fla., 302, and Berg v. Abbott, 82 Pa. St., 177 (S. C., 24 A. R., 158). The other cases cited by the author, to wit: Sanderson v. Oakey, 14 La., 373, and Bynum v. Apperson, 9 Heis., 637, give no support to his text. The first of these was a suit against a maker of a note, and in no way involved the liability of an indorser; while in the last, the indorser of paper payable at the Union Bank of Memphis, in 1862, was discharged, because the holder did not, as he might have done, present it at maturity at that bank, but, instead, held it until the close of the civil war, and then made personal demand of the maker.
Though not noted by Mr. Daniel, the Court of Chancery Appeals, seem to regard Lane v. Bank, 9 Heis., 419, as sustaining the view which they adopt. It is true, that, in the opinion in that case, the Central Bank v. Alien, supra, in the course of the argument on the general question of diligence, is referred to by way of illustration, but the judgment of the Court was rested upon the peculiar facts found in that record, which, taken as a whole, made ' ' a case of gross and inexcusable negligence, ' ' relieving the indorser.
Without pursuing this discussion, while disagreeing with that Court as to the ground upon which they place their judgment, we do concur with them in holding the indorser discharged, upon the facts set out in this record. We think the failure to present this note at the office of the receiver of the Commercial National Bank was laches which exonerates .him. Although this bank had ceased to do business, yet it still had a legal existence.
That it was no longer a going concern in the transaction of a banking business, is certain. But it is equally certain that the act of the Comptroller of the Currency in closing its doors on account of insolvency, appointing a receiver and placing him in charge of its assets, to administer them for the ben efit of its creditors, did not extinguish the corporation or work a forfeiture of its charter. In the Bank of Bethel v. Pahquioque Bank, 14 Wall. (81 U. S.), 383, the Supreme Court of the United States say: "Beyond doubt, the appointment of a receiver supersedes the power of the directors to exercise the incidental power necessary to carry on the business of banking, as the receiver is required to take possession of the books, records, and assets of every description of the association, and from that necessarily the association is forbidden to pay out any of its notes, discount any notes or bills, or otherwise prosecute the business of banking, but the corporate franchise is not dissolved, and the association as a legal entity continues to exist." So it was held in that case that a creditor might institute suit in a State Court against a national bank after the appointment of a receiver, and prosecute the same to judgment. Afterwards, in National Bank v. Ins. Co., 104 U. S., 54, the same principle was announced and applied in the case of a national bank going into voluntary liquidation, and Bank of Bethel v. Pahquioque Bank, supra, was cited and approved as authority. In Rosenblatt v. Johnson, 104 U. S., 462, this question again underwent examination upon a claim of the State of Missouri to tax the assets of a national bank in the hands of a receiver appointed by1 the Comptroller of the Currency. The Court, repelling this claim, said: "Such property and assets, in legal contemplation, still belong to the bank, though in the hands of the receiver, to be administered under the law. The bank did not cease to exist on the appointment of a receiver." To like effect is Commercial National Bank v. Hartford Deposit Co., 161 U. S., 1. This being the status of the Commercial National Bank at the time this note fell due, what was the duty of the Notary ? We think there can be no doubt, if it had matured on a day intermediate between the one on which the bank examiner took charge and the day on which the receiver was appointed — its assets all remaining in the bank's place of business, and the doors being open —that it would have been the Notary's duty to have presented it there, before making protest. Yet, the •carrying on of business incidental to banking was necessarily as completely suspended during that period of time as afterwards, when the' receiver takes charge. It seems to us equally certain, if this maturity had occurred after the receiver -took possession, and while he kept his office and the assets of the association at its old place of business, that presentment there would have been a condition precedent to protest. With regard to the assets of the bank, he had succeeded in a qualified degree to the trust which, while it was in active operation, was imposed by law upon the ' corporation itself — that is, of managing them wisely and discreetly for* the benefit of its creditors. For the time being, and for the purpose of gathering in and distributing its assets, he stands in the shoes of the officers of the insolvent association con trolling its processes of involuntary liquidation, as would be its officers in a case of voluntary liquidation.
If the law be as we have assumed it is in the two cases put above by way of illustration, we cannot see why it should be otherwise where the receiver, still in charge, has simply removed his office and the assets of the bank to another place in the same city. For he was still, pro hoc vice, the representative of the corporation. It is not a sufficient answer to this view to say that a demand at the office of the receiver would have been futile, and therefore unnecessary. For, if this bank had been a going concern at the maturity of this paper, demand there would have been an essential prerequisite to holding the indorser, though it was shown ever so clearly that the maker had no funds there to meet it, nor was there by person or by agent to care for it. The duty is made imperative by the designation of the place of payment, without regard to the probability of payment following such demand. We are the more content to rest our opinion on this ground because we think it is in harmony with the case of American National Bank v. Junk Bros., 94 Tenn., 624.
Nor do we agree with the Court of Chancery Appeals in its holding on the other branch of this case, viz.: with regard to the equitable lien which complainant sets up in his bill. The facts out of which this claim arises are these: The de fendant, Crutcher, bought from Jolly two lots of land, and gave three notes for the deferred payments, all secured by a lien on the two lots. Subsequently, Crutcher sold and conveyed one of the lots to Smith, who agreed, as the consideration of the sale, to discharge Crutcher's notes to Jolly, and, at the same time, to pay an additional sum, for which he executed to his vendor the note in controversy, and a lien was retained in the deed to Smith to secure the discharge of these several obligations. ' Smith afterwards sold and conveyed his lot to one Hite, who assumed two of the Crutcher notes to Jolly and the note of Smith to Crutcher. Jolly sold his notes to Bainbridge, and Crutcher transferred the Smith note, before maturity, to the present complainant. In September, 1893, Bainbridge's three notes (the Jolly) being all due and unpaid, he filed his bill against Crutcher, setting up a lien on both lots, and asking for a decree of sale of the two. In this proceeding the defendant, Crutcher, filed a cross bill making Smith and Hite parties thereto, alleging the sale of the one lot to Smith and the assumptions by him of the Bainbridge notes, as well as the execution of the note here sued on, and the subsequent sale by him to Hite and his assumption of the notes, as has been already set out, and praying that the Smith lot be first sold,. for the ultimate relief of the lot reserved by him. To this cross bill, Hutchison, though then the owner, by transfer, of the Smith lot, was not made a party. A decree was pronounced in accordance with the prayer of the cross - bill, and at a subsequent sale ' made thereunder the Smith lot brought just enough to pay off the Bainbridge notes and costs, leaving the other lot in defendant, Crutcher's, hands, discharged of all liability. The bill in the present cause charged that the conduct of Crutcher, in thus procuring a sale of the lot on which complainant's note was a lien, to satisfy the notes which were a lien on all the property, without notice to complainant, was contrary to equity and good conscience, and a fraud upon complainant; that Smith was insolvent, and that under these facts he was entitled in equity to have the lot retained by defendant sold to pay this note.
The Court of Chancery Appeals find that Crutcher was not guilty of fraud in filing or pressing his cross bill to a decree, but they grant complainant relief upon the theory that the defendant was bound on the note held by complainant and on the three notes of Bainbridge, and while the former note was a lien only on the Smith lot, the other notes were secured by a lien on both lots; and as the Smith lot, at the chancery sale, by paying the Bainbridge notes, relieved defendant personally, as well as his lot, from these notes, equity will let in complainant to a reimbursement out of the lot. This theory could possibly be maintained if the defendant was liable on complainant's note. But on this his liability was never at any time anything more than contingent. It was purely so at the time these chancery proceedings in question were instituted and determined. This contingent liability never became fixed. On the contrary, the Court of Chancery Appeals have held that the failure to make proper demand of this Smith note had exonerated the in-dorser, so that when this present bill was 'filed the indorser was under no obligation whatever to take care of it. In this conclusion we have concurred. The result of this theory, therefore, if enforced, would be to subject the defendant's property to a debt upon which he personally never has been found liable, and • this without fraud or wrongdoing on his part. This want of personal liability upon the part of Crutcher is a fatal objection to the application of the doctrine of subrogation, and distinguishes this case from that of Eddy v. Trawer, 6 Paige Chy. R., 521, cited and relied upon in the opinion of the Court of Chancery Appeals.
The decree of that Court, relieving the indorser from a personal decree, is affirmed, and that part of it applying the rule of subrogation is reversed. The complainant's bill is dismissed.