Court Opinion

ID: 6587441
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:50:12.246507+00
Date Added: 2024-06-11T15:57:14.680297
License: Public Domain

Conaway, J.,
dissenting.
1 can not concur in the view of the court in this case.
The facts are stated in the opinion of the court. Pfeiffer, in selling the mortgaged sheep and disposing of *143the proceeds, was acting for himself and not for the bank. His statements in reference to these transactions, made in conversation with defendant in error and with Hamlin were erroneously admitted, over objection, as evidence against the bank. These statements, as testified to by defendant in error, were to the effect that the bank had taken the money that Pfeiffer had sent it on deposit, and had taken and used it, and he had no way of getting it. In addition to this, defendant in error is asked: ‘£ Hid Pfeiffer state whether this application was made with his consent or not — this application of the money?” He answers: “He said it was not. Pfeiffer told me that he sent the money with good faith, that I should have the money.” Pfeiffer testified, without objection, to the same facts. This is the proper way to prove these facts. It is not permissible to corroborate his sworn testimony by his hearsay statements introduced as admissions or declarations of the bank. They can be admissible on no other hypothesis than that they are the declarations of the bank. Hamlin also testified, over objection, to a conversation with Pfeiffer on December 1, 1893, in which Pfeiffer said in reference to the money in controversy that “heknew it belonged to Mr. Luman, but he had remitted it to the bank, and they had applied it on his debts to the bank without his consent.” These statements are of a character to be. very prejudicial, and their admission is prejudicial error, sufficient of itself to require a new trial. At the time these statements were made Pfeiffer had resumed the discharge of his duties as cashier of the bank. It may be that it would have been proper for defendant in error to have made a demand upon the bank for the money in controversy through Pfeiffer as cashier, at that time, and proper for Pfeiffer to have answered for the bank, as its cashier, that it declined to pay the money. But neither then nor at any other time was it permissible for Pfeiffer to speak for the bank in reference to his intention in making the deposit, or to say for the bank that it had taken and used the money, or to give charac*144ter to his own past transactions in any respect. These matters involve considerations arising from the sale of the sheep and the disposal of the proceeds in which Pfeiffer was not acting for the bank and had no authority at any time to speak for the bank, and in regard to which the bank had no control.
The error is all the more prejudicial from considerations well stated in the opinion of the court on the original hearing, in the following words:—
“The theory indicated here is that Pfeiffer should be deemed the cashier and authorized agent of the bank in the particular transaction,— the bank to be bound by his acts and declarations, and his knowledge imputed to the bank as notice,— and it must be presumed that the court tried the case on that theory. The same reasoning disposes of the claim of the defendant in error, ‘ there is sufficient evidence in the case of the fact that the plaintiff in error had knowledge of the rights of the defendant in error in the draft in question through its vice-president, Goble, to .sustain the action of the lower court.’ There is nothing in the record to indicate that the lower court so decided.”
The rule applicable to such cases is well stated in Angelí and Ames on Corporations, Sec. 803: “hieither the acts nor knowledge of the officer of a corporation will bind it in a matter in which he acts for himself, and deals with the corporation as if he had no official connection with it.” And, I would add, there can be no question that the same rule applies to declarations. They are acts within the meaning of the rule.
Deeming the reasons for awarding a new trial, stated in the opinion of the court on the original hearing, well-grounded and sufficient, 1 was willing that the case should be tried anew, unprejudiced by any further expression of judicial views from this bench. But now, under the changed condition of matters, I find it necessary to examine more critically the case made by the record, and to show some additional obstacles to my concurring in the *145reversal of the first decision of this court. A single good reason for granting a new trial is sufficient, whether it be the one assigned in the former opinion or not. I find in this record at' least three additional reasons.

I. The evidence in this record does not show a real subsisting debt of Pfeiffe)' to Luman.

After the conversation with Pfeiffer, and some time prior to December 28, 1893, defendant in error tools: possession of the mortgaged herd of sheep as mortgagee. His mortgage gave him the right, on default in the payment of any instalment of the mortgage debt, to declare the whole debt due, take possession of the mortgaged property, and advertise and sell it according to law for the best prices obtainable, to pay himself the debt with accrued interest and necessary expenses, accounting to the mortgagor for any surplus. Our statute prescribes the method of advertising and selling. The sale must be at public auction in the daytime, between the hours of 10 a. m. and 4 p. m. “The mortgagee, his assignee, and his or their legal representatives, may, fairly and in good faith, purchase any of the mortgaged property offered at such sale.” (Rev. Stat., Sec. 88.) Defendant in error never regularly or legally foreclosed his' mortgage.' On December 28 he made a settlement with Pfeiffer and took the mortgaged ’ property and some other property in payment of the mortgage debt, except $2,880. A mortgagee may accept a release of the equity of redemption from the mortgagor, but such release is not conclusive against the mortgagor nor third parties, and the courts will scrutinize such transactions closely. The debt of Pfeiffer to defendant in error is the basis of this action. It is incumbent upon defendant in error to show that there is really such a debt fairly and honestly owing to him. What does the record reveal upon this point ? It shows a note with a balance due of about $2,880. If defendant in error had stopped there in his evidence, he would have had a prima facie case. But other facts were too intimately associated with this to be disconnected in evidence. By *146a remarkable coincidence this is the amount of Pfeiffer’s deposit in the bank. Such a coincidence naturally excites inquiry and requires explanation. The explanation is furnished by defendant in error in the evidence introduced by himself. He introduces but three witnesses, Pfeiffer, himself, and his attorney. His attorney knows nothing, and testifies to nothing, about the settlement of December 28. But Pfeiffer in his testimony-in-chief says : “ Mr. Luman gave me back all my paper except $2,880. He retained that in order to bring this action.” He repeats this in substance on cross-examination. On re-examination, in response to leading questions, he explains further: —
“Q. You say Mr. Luman insisted upon keeping back $2,880 of this money for the purpose of suing the bank? A. Yes, sir. Q. Isn’t it a fact that he insisted because it was his? A. Yes, sir. Q. And that he holds you as well as the bank for it in case he has no action against the bank? A. I suppose he does. Q. You are liable for that amount ? A. I expect that is it.”
So it appears by his own showing, by his own witness, that the settlement of defendant in error with Pfeiffer on December 28 was such a settlement as to leave Pfeiffer in doubt as to whether he still owed anything or not. Pfeiffer’s language is well chosen so as not to be an admission of any actual indebtedness in case of a future action against him. The language is not sufficient to authorize a judgment against him. And it further appears from the testimony of defendant in error himself that he does not regard the debt from Pfeiffer to himself as a real debt. He calls it a supposed debt. In his testimony appears these questions and answers : “Q. At the time of settlement what amount was supposed to be due upon this note? A. Supposed to be $2,880. Q. Interest and all up to that date? A. Yes, sir.”
And so they make out a claim which is suppositious as against Pfeiffer, but real, or supposed to be real, as against the bank. And these suppositions, and this sup-*147positious debt or claim, are tbe basis of the judgment in this case.
Now, banking is a lawful and legitimate business. The rights and liabilities of banks are measured by the same rules of law that measure the rights and liabilities of other parties. A debt or claim which is suppositious as against another party can not be real as against a bank. It is error to consider it so. Suppositions do not sustain judgments. This court says in reference to Pfeiffer’s testimony: “He admits that the money was Luman’s.” What he actually says upon this point appears in the following questions by the court, and his answers :
“ Q. At the time you shipped this money whose money was it ? A. The draft was made out to me. Q. Whose money was it ? A. For the sheep covered by this mortgage. Q. Whose money was it? A. Perhaps it was Luman’s.”
Whether it was Luman’s or not is a question of law under the facts proved, and it is a very grave and difficult question. No authority whatever has been cited to show that it was Luman’s. If it was Luman’s, it constitutes an exception to the general rule, well established by the authorities, that the lien of a chattel mortgage does not follow the proceeds of sales of the mortgaged chattels. And the time mentioned is the time when Pfeiffer “shipped this money.” The court ignores in this connection the settlement of December 28. If the money was Luman’s, it was his by virtue of his mortgage lien.

II. It is not settled in this State or elsewhere that the lien of a mortgage follows the proceeds of sales of portions of the mortgaged property wnder the conditions proven in this case.

The general rule of chattel mortgages is that in case of sale of mortgaged chattels by the mortgagor the lien of the mortgage follows the property and does not follow the, proceeds. And this rule does not change as to the proceeds when the mortgaged property is sold, discharged of the mortgage lien by consent of the mortgagee (Smith v. Crawford Co. State Bank, 61 N. W.). The case of Cone *148v. Ivinson, decided by this court (4 Wyo., 203), is, perhaps, as nearly analagous to the case at bar as any Wyoming case which has been reported. It came up on demurrer to the petition. Plaintiff held a mortgage upon a herd of sheep. Defendant was a junior mortgagee of the same property. The petition charged .full notice and knowledge by defendant of plaintiff’s rights, and that all of the mortgaged property theretofore unsold was, at a certain date, sold by the mortgagor at the request and instigation of defendant, and that defendant collected the proceeds and applied them in payment of the antecedent indebtedness of the mortgagor to him. Plaintiff based his action upon two propositions : —
“(1) That the plaintiff’s mortgage was and continued to be a lien upon the property up to the time of the sale prior and paramount to the lien of the defendant. (2) Upon the sale of the property these liens attached in the same order of priority to the proceeds.”
The court ignored these propositions, but held the petition good as alleging a conversion by the sale of the property of the mortgagee in the sheep, for which conversion defendant was liable as having requested and instigated the sale. There was a dissenting opinion upon the ground that the allegations of the petition did not show a sale in hostility to the mortgage lien; but the court seems to have been unanimous in the opinion that the lien of the mortgage did not follow the proceeds of the sale of the mortgaged chattels.
By the terms of the mortgage of defendant in error in the case at bar, Pfeiffer, the mortgagor, had express authority to sell portions of the mortgaged property discharged of the mortgage lien, which he did. This authority to sell was coupled with an express contract duty under the mortgage, and a statutory duty under the statute, to apply the proceeds of such sales toward the payment of the mortgage debt, which he did not. Who is responsible for this failure? No one instigated or requested this. The sale of the mortgaged property and *149the deposit of the proceeds to his own credit by the mortgagor were purely voluntary acts on his part. Instead of the direction “please place to my credit,” he could have said, place to credit of Luman, place to my credit as trustee, or place to my credit as agent. It was a matter in which he was not acting for the bank, and in which the bank had no control. Whether under such a mortgage as this and such a statute as ours the lien of the mortgage will be held to follow the proceeds of sales of portions of the mortgaged property, has not, I believe, been judicially determined. If such is to be the rule, it is an exception to the general law of chattel mortgages. It is an exception made by no express provision of statute. It is an exception made, or sought to be made, by judicial construction, if at all. It is an exception of very grave importance. It is an exception which should not be judicially assumed to exist, but should be established, if at all, only after thorough argument and careful deliberation. It is an exception which must be assumed to. exist in order to sustain the judgment in this case. And not only must the lien be assumed to follow the funds in the hands of the mortgagor, but in the hands of third parties. This point has not been argued or considered. I will not discuss the question nor express an opinion upon it. It is a matter of much too serious import to the business interests of the State to be decided without the most careful consideration.
In order to reach the third obstacle that I find in my way in endeavoring to concur with the court, it seems necessary that I make a supposition myself. I will do so, not as a basis of a judgment, but merely for the purpose of argument. I have to confess to one single, solitary weakness in this connection. I do like an argument, conducted with decorum; and, merely for the purposes of the discussion, will make one supposition in favor of defendant in error, in addition to his own supposition that Pfeiffer owes him $2,880. I will suppose, additionally, that Pfeiffer held that amount charged with a lien or trust in favor of defendant in error. This brings me to obstacle
*150III. The evidence in this record shows that plaintiff i/n error was a holder' for value, of the fund in controversy, in due course of business, without notice of Luma/rds claim.
Under this branch of the case it is necessary to consider four propositions urged on behalf of defendant in error by his counsel. The first is that the discharge of an antecedent indebtedness is not a valuable consideration for the transfer of negotiable paper, as against undisclosed equities of third parties. The money reached the bank in the form of a negotiable draft, was placed to Pfeiffer’s credit according to his direction, thus discharging his debt to the bank, and leaving a balance to his credit. In the following States a holder of negotiable paper taken as collateral security for a pre-existing debt is not a holder for value under the rule cutting off undisclosed equities:
Alabama: Fenonille v. Hamilton, 35 Ala., 319; Connersly v. Bank, 66 Ala., 432; Reid v. Bank, 70 Ala., 200.
Arkansas: Bertrand v. Barkman, 13 Ark., 150.
Iowa: Ruddick v. Lloyd, 15 Iowa, 441; Davis v. Strohm, 17 Iowa, 421.
Kentucky: Alexander v. Springfield Bank, 2 Met., 543; May v. Quinby, 3 Bush., 96; Breckenridge v. Moore, 3 B. Monroe, 629.
Maine: Nutter v. Stover, 48 Me., 163; Bramhall v. Beckett, 31 Me., 205.
Minnesota: Becker v. Bank, 31 Minn., 311.
Mississippi: Brooks v. Whitson, 7 S. & M., 513.
New Hampshire: Williams v. Little, 11 N. H., 66; Jenness v. Bean, 10 N. H., 266; Fletcher v. Chase, 11 N. H., 38; Rice v. Raitt, 17 N. H., 116.
New York: Moore v. Ryder. 65 N. Y., 438; Comstock v. Hier, 73 N. Y., 269.
Ohio: Roxborough v. Messick, 6 O. S., 448; Pitts v. Foglesong, 37 O. S., 676.
Pennsylvania: Ashton’s Appeal, 73 Pa. St., 153; Royer v. Bank, 83 Pa. St., 377; Pratt’s Appeal, 73 Pa. St., 378; Maynard v. Bank, 78 Pa. St., 250.
*151Tennessee: King v. Doolittle, 1 Head, 77.
Wisconsin: Bowman v. Van Kuren, 29 Wis., 209; Body v. Jemsen, 33 Wis., 402.
The following States hold directly to the contrary:
California: Frey v. Clifford, 44 Cal., 335; Davis v. Russell, 52 Cal., 611.
Connecticut: Roberts v. Hall, 37 Conn., 205.
Georgia: Gibson v. Connor, 3 Ga., 47; Bond v. Central Bank, 2 Ga., 92; Meadow v. Bird, 22 Ga., 226.
Illinois: Worcester National Bank v. Cheeney, 87 Ill., 602; Mix v. National Bank, 91 Ill., 20.
Indiana: Stranghan v. Fairchild, 80 Ind., 20.
Louisiana: Giavonovitch v. Citizen’s Bank, 26 La. Ann., 15; Louisiana State Bank v. Gaienne, 22 La. Ann., 555.
Maryland: Maithland v. Bank, 40 Md., 540.
Massachusetts: La Breton v. Pierce, 2 Allen, 8; Payne v. Furnas, 117 Mass., 290; Fisher v. Fisher, 98 Mass., 203; Stoddard v. Kimball, 6 Cush., 469.
Mississippi: Fellows v. Harris, 12 S. & M., 462.
Missouri: In this State courts hold positively both ways. The holder of negotiable paper as collateral security for an antecedent indebtedness is a holder for value according to Grant v. Kidwell, 30 Mo., 455; Boatman’s Savings Institution, 38 Mo., 49, and Paulette v. Brown, 40 Mo., 52. He is not a holder for value according to Goodman v. Simonds, 19 Mo., 106, and Brainard v. Reavis, 2 Mo. App., 490.
Rew Jersey: In this State the holder as collateral is a holder for value under the rule. Allaire v. Hartshorn, 1 Zab., 665; Armour v. McMichael, 36 N. J. Law, 92.
And in Rhode Island: Bank v. Carrington, 5 R. I., 515; Cobb v. Doyle, 7 R. I., 550. And in South Carolina: Bank of Charleston v. Chambers, 11 Rich. (Law), 657.
And in Texas: Greenaugh v. Wheeler, 6 Tex., 515.
And in Vermont: Atkinson v. Brooks, 26 Vt., 569.
This has always been the doctrine of the federal courts *152of the United States and of the courts of England. (See R. R. Co. v. Bank, 102 U. S., 14.)
In the forcible language of Justice Clifford: ‘‘Rot only every court, but every judge of every court in that country concurs in the proposition that the holder of such a negotiable security, before maturity, as collateral to a preexisting debt, without notice of any prior equities, is a tona fide holder, for value, in the usual course of business, and that his title to the instrument is good, and wholly unaffected by any such prior equities between the antecedent parties. ” It is to be remembered in this connection, that by a stronger reason is the holder unaffected by any undisclosed equities of unknown parties, because the parties are unknown, and there is no clue to them or their equities as there is in the case of prior parties to a bill or note.
In addition to the States mentioned, where the holder of negotiable paper as collateral security to a pre-existing indebtedness is a holder for value against undisclosed equities, the following States hold that a transfer in payment of a pre-existing indebtedness is a transfer for value under the rule.
Alabama: Mayherry v. Morris, 62 Ala., 116; Reid v. Bank, of Mobile, 70 Ala., 200. Arkansas: In this State the payment must be absolute and unconditional; Bertrand v. Barkman, 13 Ark., 150. Iowa: In this State payment is sufficient. Pond v. Waterloo Agricultural Works, 50, Iowa, 596. Kentucky: In this State payment is considered as suspending the right of action on the original demand, and as a sufficient consideration under the rule. Alexander v. Springfield Bank, 2 Met., 234; May v. Quinby, 3 Bush., 96; Breckenridge v. Moore, 3 B. Monroe, 629. Minnesota: In this State payment is sufficient. Stevenson v. Hyland, 11 Minn., 201. And in Mississippi: Taylor v. Love, 26 Miss., 574; Emanuel and Barnett v. White, 54 Miss., 63. And in Pennsylvania: Bardsley v. Delp, 88 Pa. St., 420. And in North Carolina: Reddick v. Jones, 6 Ired, 107. And in Wisconsin: *153Stevens v. Campbell, 13 Wis., 419. And in Maine: Bramball v. Beckett, 31 Me., 205. And in Ohio: Roxborough v. Messick, 6 O. S., 448; Comstock v. Hier, 73 O. S., 269.
And in Mew York: In this State Chancellor Walworth, during the long time he was on the bench, held to the doctrine that payment of pre-existing debt was not a valuable or sufficient consideration for the transfer of negotiable paper, as against undisclosed equities of third parties. Stalker v. McDonald, 6 Hill 93; Dickerson v. Tillinghast, 4 Paige’s Chancery, 215. He thus applied his powerful shoulder to the judicial car and shunted it off the track, and no judge or court in that State has seemed disposed to attempt to replace it. But, by a slow and laborious process, the courts of the State of Mew York have laid a new track between the old track and the line upon which Chancellor Walworth left the car, and have placed the car upon the new track. They do not hold that a transfer of .negotiable paper as collateral security for a pre-existing debt is for value under the rule barring undisclosed equities, but that a transfer in payment is, whether the payment be absolute or conditional. Bank of Salina v. Babcock, 21 Wend., 449; Bank of Sandusky v. Scoville, 24 Wend., 114; Brown v. Leavitt, 31 N. Y., 113; Stettheimer v. Myer, 33 Barb., 215; Bank of St. Albans v. Gilliland, 23 Wend., 311; Atlantic National Bank of New York v. Franklin, 55 N. Y., 238; Phœnix Ins. Co. v. Church, 81 N. Y., 225; Mayer et al v. Heidelbach, 123 N. Y., 343.
In Tennessee alone it is held that payment is not a sufficient consideration under the rule (Wormley v. Lowrie, 1 Hump., 470); but this rule does not apply to an accommodation indorsement, made generally and without restriction (Kimbro v. Lytle, 10 Yerger, 417); nor where the pre-existing debt is in the form of a note with an indorser, which note is surrendered (Hill & Co. v. Bates, 10 Yerger, 429). These cases must involve the remarkable result that if two parties sign a note as principals, its *154surrender is not a valuable consideration under the rule; but if one sign as principal and the other as indorser, the surrender of the note is a valuable consideration, under the rule barring undisclosed equities.
The federal courts and the courts of England hold in accordance with our State courts, excepting Tennessee.
The reason of the rule is stated by an English court in the following language ‘ ‘ The title to a bill on account of a pre-existing debt, and payable at a future day, does not rest upon the implied agreement to suspend his remedies. The true reason is that given by the court of common, pleas in Belshaw v. Bush (11 C. B., 191) as the foundation of the judgment in that case; namely, that a negotiable security given for such a purpose is a conditional payment of the debt, the condition being that the debt revives if the security is not realized. This is precisely the effect which the parties intended the securities to have; and the doctrine is as applicable to one species of security as another, to a check payable on demand running bill or a promissory note payable to order or bearer.” This evidently means if the security is not realized by the exercise of due diligence. Negligence in presenting and in endeavoring to collect the check, bill, or note, or in giving notice of nonpayment, may have the effect of discharging the original debt absolutely, although the security be never realized. And the duties which the creditor assumes by becoming a party to the paper are held, by eminent authorities, to be, of themselves, sufficient to constitute the creditor a holder for value. Dan. Neg. Inst. Sec. 831a, and notes.
The draft indorsed by Pfeiffer to the bank was credited to him by his direction as so much money, and he was allowed the benefit of the balance due him, after such credit, in the part payment of his debt to Tim Kinney & Co. The draft was actually negotiable and commercial paper; but such paper passes, according to authorities already cited, freed from undisclosed equities of third parties, much the same as money.
*155The conclusions of such text writers as are at hand are in accord with these authorities.
Parsons on Bills and Notes, 7 Ed., p. 255; Byles on Bills, 5 Am. Ed., p. 229; Tiedeman on Commercial Paper, Sec. 165; Jones on Pledges, Secs. 111-114; Dan. Neg. Inst., Sec. 831a; 3 Kent’s Com., 12 Ed., p. 81; Jones on Mortgages, Sec. 81.
The second proposition of the defendant in error is that notice of Luman’s claim was not necessary to charge the bank.
The case of the Farmer’s & Mechanic’s Bank v. Farwell, 58 Fed., 633, seems to support this proposition. It is there said: “In the absence of fraud or gross negligence on the part of third parties, the bank has no higher right or better title to their moneys intrusted to its depositor than the depositor has himself. It is met here by the rule that equity will follow moneys held in a fiduciary capacity as far as they can be identified, and restore them to the beneficial owner of them. If they are deposited in the bank by a trustee, agent, factor, or bailee, even if they are mingled with his own money, they do not become his property, and the bank stands in' the shoes of its depositors. ” As to this it is certainly true that, under such circumstances, the money does not become the property of the depositor, but it does not follow that the bank stands in the shoes of its depositors. With all due respect to the eminent court announcing this opinion, it must be said that, if it be the law, then all the discussions of notice to banks and other depositors in such cases, so freely indulged in by courts and text writers, are idle talk. Neither do the cases cited by the court sustain its position. The case of Penwell v. Deffell, 4 De Gex, McNaghten & Gordon, 372, merely holds that the debt from the bank to the depositor, so long as it remains due, may be followed and recovered by the true owner of the fund deposited by an agent or trustee as his own. The plain inference is that when the depositary owes the depositor nothing which he can recover, neither can the true owner *156of the fund recover. The case of Murray v. Pinkett, 12 Clark & F., 785, was not a case of conversion of trust money or commercial paper by a trustee or agent to his own use, but it was a deposit of bank shares. The rule established by the English courts is stated in Barnett v. Brandao, 6 McNaghten & Gordon, 666. It is held that negotiable securities transferable by delivery to a bona fide holder for value “are to be deemed, with respect to such holder, and to the extent of the right acquired by them by the transfer, as the property of the person transferring, whether the transfer be express or implied, and the bona fide holder acquires a title which did not belong to the person who gave it to him.” To the same effect is Rumbell v. Metropolitan Bank, L. R. 22, B. Div., 197. In Bank v. King, no banker’s or depositor’s or creditor’s lien or counterclaim against the depositor was involved. Keither in Van Alen v. Bank, 52 N. Y., 1; nor in Bank v. Ins. Co., 101 U. S., 51. In Jordon v. Bank, 71 N. Y., 167, the debt of the depositor to the bank was not due. In Falkland v. Bank, 81 N. Y., 115, the trust fund was kept separate from the individual money of the depositor by depositing it in a different name. And other cases cited are not in point. Another case supporting the proposition of defendant in error is Burtnett v. First National Bank of Corunna, 38 Mich., 630. The same remarks apply to this case as to the last. In Boone on Banking, Sec. 286, the rule is stated as follows: “And where a trustee deposits money of a trust fund in a bank, and causes it to be credited to his private account, without notice that it is -not his private property, or making any special agreement in regard to it, he thereby converts the money to his own use, and the bank may, in the absence of any notice that it is not his private property, apply it as such.” This notice in the case at bar might have been given by Pfeiffer when he transmitted the draft to the bank, either by informing the bank that the money represented by the draft was not his own, or by making it a special deposit, or by depositing it as agent or trustee, or *157otherwise indicating that the draft was not his own property. But he did nothing of the kind. He had an overdrawn account with the bank and an overdue note in the hank, and be directed the amount of the draft to be placed to his credit, which was done, leaving a balance in his favor. It was not the fault of the bank that the fund which Luman claims was in the form of an ordinary bank draft, payable to the order of Pfeiffer, indorsed by him to the bank, or that it was delivered by him to the bank. In none of these things had the bank any control, or. any interest different from their interest in the business of any other customer similarly situated.
In Morse on Banks and Banking, 3d Ed. Sec., 326, the rule is stated at length in these words: “Neither shall the banker have his lien upon non-negotiable property subject to a trust, and improperly left with him or pledged to him by the trustee, though the bank is without notice of the trust; unless, indeed, the cestui que trust shall have done some act or been guilty of some negligence, such as to deprive him of his counter rights. And a deposit in the name of A as agent or trustee, or in the name of A if the bank has notice that it belongs to another, can not be applied by the bank to A’s debt to itself, nor will it have a lien on a fiduciary deposit. If the trust property is traceable to the debt now due from the bank to the depositor, the true owner can claim the fund. ’ ’ And here it is to be remembered that when the amount of the draft was placed to Pfeiffer’s credit, the debt due from the bank to him was the excess of his deposit over his indebtedness to the bank. And when this balance was applied upon his debt to Tim Kinney and Co., with his sanction or by his direction, there was left no debt due from the bank to him. Morse proceeds: “But if the trust property consists of bills or notes payable to bearer, or other property transferable by delivery merely, and be not earmarked as trust property, if the customer deposit them as if they were his own, and the banker receives them in due course, bona fide and with no notice of the trust, he shall hold *158them under his lien. In the case of money or any negotiable securities, it has been frequently held that where the bank has no notice that they do not belong to the depositor, it acquires a valid lien for his indebtedness.” This rule is well established, and the cases in real or apparent conflict with it are few. The following cases are cited on behalf of defendant in error on this point. Bank of the Metropolis v. The New England Bank, 1 How., 234; Wilson v. Smith, 3 How., 764; Milliken v. Shopleigh, 36 Mo., 599; Bury v. Woods, 17 Mo. App., 245; Miller v. Bank, 30 Ala., 392; Bank v. Gregg, 79 Pa. St., 384; Jones v. Milliken, 41 Pa. St., 251; Hackett v. Reynolds, 114 Pa. St., 328. These cases can hardly be considered as directly in point. They are cases of the indorsement of negotiable paper to a bank or other collecting agent for collection pursuant to a custom of taking paper for collection in that way. In so far as they are analogous to the case at bar they are against the contention of defendant in error. They establish the doctrine that a subagent taking negotiable paper for collection apparently belonging to the party from whom it is received, will be entitled to charge against the proceeds of the collection a balance against such party which has been allowed to arise in the course of the business in anticipation of such collection. In the case of a bank and its depositors where an overdraft is allowed, it is done in anticipation of future deposits. The overwhelming weight of authority is in favor of the rule as stated by Morse and Boone, supra. And there is no peculiar virtue in what is called the banker’s lien. Any other creditor of an agent or trustee receiving trust funds from him, for value without notice of the trust, would have just the same protection as a banker under his lien. All that the real owner could recover would be the balance due to the agent or trustee. See Johnson v. Payne and Williams Bank, 56 Mo. App., 257; Kavanaugh v. Farmers’ Bank of Maithland, 59 Mo. App., 540; Security Bank v. N. W. Fuel Co. (Minn.), 59 N. W., 987; Saloy v. Bank, 39 La. Ann., 90; and Gordon v. Kearney, 17 O., 572.
*159The third proposition urged on behalf of defendant in error is that the knowledge of Pfeiffer was notice to the bank. This has been sufficiently considered in another connection. The knowledge which Pfeiffer had of his individual business was not notice to the bank. The fourth and last propositio necessary to consider is the contention of defendant in error that the bank had notice of Luman’s claim through Goble. The court holds that the bank is not liable for the amount applied on Pfeiffer’s debt to Tim Kinney & Co. I concur with this, so I will consider only the question of notice as connected with the amount applied in discharge of his debt to the bank. There is no conflict in the authorities as to the proposition already stated that the relation between a bank and its depositors is that of debtor and creditor. When the amount of the draft was placed to Pfeiffer’s credit, all that the bank bwed him was the excess of the amount above his indebtedness to the bank. What is termed the application of a sufficient portion by the bank of this amount to the payment of his indebtedness to the bank did not change the rights of any of the parties in any particular. The so-called application of the proper amount probably consisted of clerical work in making the necessary entries on the books of the bank and canceling the note. This was done on Nov. 28th, the day the draft was received. Pfeiffer testifies that it was done without his consent. If this were true, and were material, he fully ratified all that was done in this regard on the morning of the next day when, as he testifies, Goble handed him his canceled note, and told him what had been done, within five minutes after he entered the bank. In the meantime no notice of Luman’s claim had been received. (As to ratification, see Cook v. Tullis, 18 Wal., 332.) The earliest notice to the bank of Luman’s claim is a demand for the money, which he testifies to as made by himself upon Goble on December 1st. Hamlin testifies to a demand made about December 8th or 9th. But the court bases its decision upon the ground that there is sufficient evi*160dence to justify a finding by the trial cdurt that the bank had notice of Luman’s equities, supposing him to have any, through knowledge acquired by or imputable to Goble before the receipt of the draft. The rulings of the trial court already cited indicate clearly that it never passed upon or considered this question at all, but held Pfeiffer’s knowledge chargeable to the bank as notice. And the evidence tending to show notice through Goble seems to me insufficient to support a finding that the bank had notice by that means.
I must call attention in passing to some inaccuracies in the statement of the testimony by the court upon this point. It is said that Goble swears ‘‘that he did not know until shortly after Pfeiffer had returned, and after the application had been made, that the money belonged to Luman.” Now Goble nowhere intimates that he ever learned or knew that the money belonged to Luman. Whether the money did belong to Luman is a legal question which the court does not discuss nor directly decide. Hamlin testifies that on December 8th Goble stated that he had no direct knowledge of the source from which the money was derived. This was after Luman’s demand.
The record of a mortgage is notice of its contents to persons interfering with the mortgaged property to the prejudice of the mortgagee’s rights. But it is not notice, and not sufficient to put any one upon inquiry as to whether any property or money which the mortgagor may afterward possess is derived from a sale of the mortgaged property or any portion of it. Street rumors, Goble’s only source of knowledge that Pfeiffer had gone East with sheep, are not notice, and they require no attention. Lu-man testifies that during Pfeiffer’s absence he asked Goble how Pfeiffer was getting along with his sheep, and that Goble answered that he had not heard from Pfeiffer since he shipped those sheep from Eawlins. Goble testifies that he could not have used this language because he “ really did not know; had not heard from Pfeiffer at Eawlins or any other point.” And on cross-examination Luman is *161not positive as to the language used. It is evident that Luman knew of the shipment of the sheep from Eawlins, and that Goble did not. The remainder of the testimony bearing upon Goble’s knowledge of the source from which the money represented by the draft was derived, may be epitomized as follows: Goble knew that Pfeiffer had bought sheep to a considerable amount; would not thought he had money to buy so large a number without going in debt; knew that prices had declined; knew of a small income Pleiffer had outside of his employment at the bank, and about a thousand dollars in property, part of which was a homestead. He understood that when Pfeiffer left the bank he was going out with sheep; that he had a sheep ranch north of Eock Springs. The court lays stress upon the fact that the draft was a Chicago draft, and was mailed from Laramie, a point east of Eock Springs, and that it incidentally appears that Pfeiffer received returns from a shipment of wool sometime in June. The conclusion of the court is that Goble must have known, when he received the draft from Pfeif-fer, that it represented the proceeds of the sale of sheep mortgaged by Pfeiffer; that it represented the proceeds of the sale of sheep mortgaged by Pfeiffer to Luman. In this conclusion I can not concur. Goble testifies positively that he had no such knowledge. Pfeiffer testifies that he did not tell any officer of the bank what he was going away for, and don’t think they knew. But it is to be remarked that if they had known that he went away to sell mortgaged sheep, and that he actually sold them, it would not be knowledge that any money or commercial paper afterward deposited by him as his own was the proceeds of such sale. It is further to be remembered that the acceptance of the draft by the bank, and placing it to Pfeiffer’s credit, discharged his indebtedness to the bank, and left a balance to his credit. This everywhere, except in Tennessee, made the bank a holder for value in the usual course of business. And the draft was ordinary commercial paper.
*162What is the character of notice required of undisclosed equities of third parties to defeat the rights of such holders ?
Wade on Notice,, at section 80, gives the following statement of the law:
‘£ But respecting negotiable instruments, and their transfer, the purchaser occupies a more advantageous position than the purchaser of any other species of property. It is true that even he will be affected by notice of equities which would have defeated the security, in whole or in part, in the hands of the original payee; but so favorable is the law to the facile transfer of negotiable paper that it will not suffer its assignability to be obstructed by a merely technical notice to the purchaser that the obligor, as between himself and the obligee, has a defense to the demand. The notice of defenses to negotiable paper must, therefore, be actual and not merely constructive, and must be of a higher degree than circumstances sufficient to put a man of ordinary prudence on inquiry. ’ ’
Luman’s position is surely not better than that of the obligor in a negotiable instrument.
In Byles on Bills, page 226, the rule is stated thus :
“But mere negligence, however gross, not amounting to wilful and fraudulent blindness or abstinence from inquiry, will not, of itself, amount to notice, .though it may be evidence of it.”
Parsons puts it in these words:
‘ ‘ At oúe time this acquirement of property in negotiable paper was defeasible by proof of want of care; that is, if a holder lost his note, and a thief or finder passed it off to a bona fide holder, the property did not pass if the circumstances were such as to show negligence on the part of the purchaser, or a want of due inquiry. But the question of negligence seems now to be at an end, and nothing less than fraud defeats the title of the purchaser.” (Parsons Merc. Law, page 123.)
Another author has it in these words :
“And the more correct opinion, as it seems to us, is *163that the circumstances must be so pointed and emphatic as to amount to proof of mala fides in the abstinence of inquiry, or such as to be prima facie inconsistent with any other view than that there is something wrong in the title, and thus amount to constructive notice.” 1 Dan. Neg. Inst., 747.
In Story on Bills, page 211, the learned author states the rule in these words :
“For a considerable length of time the doctrine prevailed that if the holder took the bill under suspicious circumstances, or without due caution and inquiry, although he gave value for it, yet he was not to be deemed a holder tona fide without notice. But this doctrine has since been overruled and abandoned, upon the ground of its inconvenience and obstruction to the free circulation and negotiation of exchange and other transferable paper. And it is now held that a party taking a bank note, tona fidev and for full value, is entitled to recover upon it, although it had been stolen, and he took it negligently. ’ ’
The “considerable time” referred to commenced in 1824 with the introduction of the doctrine that negligence in making inquiry upon a knowledge of suspicious circumstances is equivalent to notice, in the case of Gill v. Cubit, 3 Barn. and Cress., 466, and ended in 1836 with the utter repudiation of that doctrine in Goodman v. Harvey, 4 Adol and El., 870. Neither in England nor in the United States has the repudiated doctrine obtained a footing since. This court was too favorable to plaintiff in error at the original hearing in saying that the question of' notice under the evidence is a close question.
I will not multiply quotations nor attempt a review of' the very numerous cases bearing upon this point. There seems to be little, if any, difference of opinion as to the rule in force at the present time. The case of Hamilton v. Marks, 63 Mo., 167, shows a complete change of front by the Supreme Court of Missouri on this question. In Seybel v. The National Currency Bank, 54 N. Y., 288, the prevailing doctrine is carried to a great length. The *164action was for the recovery of the value of two U. S. bonds, not yet due, for one thousand dollars each. They had been stolen with a number of other bonds on the evening of September 12, 1865. They were bought by defendant next day. Before nine o’clock in the morning of that day two printed notices of the robbery, containing the numbers of the bonds, were left at the place of business of the bank, while some persons were sweeping out the room. One of these notices was placed on a desk marked “ Cashier’s Desk,” and the other notice on a desk opposite, in such position as to be seen by the occupants of the desks when they should take their places. The cashier testified that he did not see the notice, and that it was not the custom of the bank to regard such notices, or to keep a memorandum of them. Held, two commissioners of appeals out of five dissenting, that the bank was not liable.
I can not agree with the court in its view of the case of The Union Stock Yards National Bank v. Gillespie, 137 U. S., 411, and 41 Fed., 231, that the evidence is no stronger against the bank in that case than the evidence in this case. The Gillespies were citizens of Kansas City, Mo., doing business there. Eappal, Sons & Co. were in the commission business at the Union Stock Yards, Chicago. They were not buyers and sellers, but agents, or factors, and known to be such by the bank. They were customers of the bank, and, at the time of the transactions out of which the suit arose, their account was largely overdrawn. This overdrawing commenced in January, 1885, 'with an overdraft of $1,476.25, and increased so that in June the amount of their overdrafts was $9,850.96. Notwithstanding this, on July 20 the bank, by its cashier, advised the Kansas City Stock Yards Bank as follows: ‘‘Eappal, Sons & Co. are a firm in good standing financially and otherwise. I don’t think they keep much ready money in the business, but F. J. Eappal owns large farms near Joliet, and is estimated worth from $50,000 to $60,000. He is a man of *165high character, and has always had good credit, even before he had any means. ’ ’ This letter of advice was shown to the Gillespies, who were customers of the Kansas City bank. The Rappals continued to-increase their overdrafts. On October 1st their account was $18,922.21 overdrawn; on October 2d, $18,454.89. The Kansas City bank also had an arrangement with the Chicago bank for notification by telegraph in case any draft was not paid. The Gilles-pies were informed of this. The Gillespies made three several shipments of cattle from Kansas City to Chicago, to Rappal, Sons & Co., as factors, to sell. They drew drafts upon Rappal, Sons & Co. against these shipments. The Kansas City Stock Yards Bank discounted the drafts, and sent them to The Union Stock Yards Rational Bank for collection. The first shipment reached Chicago, and the cattle were sold on Friday, October 2. The draft for the amount of this shipment reached the Chicago bank the same day, was presented for payment, payment refused, and the draft protested. Ko notification of the dishonor of this draft was sent to the Kansas City Bank until Monday, October 5. In the meantime the two other shipments reached the Rappals, and were sold by them, the larger portion on Saturday, October 3, and the balance on Monday, October 5. They deposited their sale tickets, showing weight and price, with,the Union Stock Yards Bank for collection. This bank made the collections, amounting to $26,585.90, and applied it upon the indebtedness of the Rappals to the bank.
This case has five points of strength against the Chicago bank not approached, in my opinion,'by anything in the case at bar.
First. The Chicago bank had given the Rappals credit with the Gillespies by letter of recommendation. Second. The Chicago bank failed to telegraph notice of the dishonor of the first draft when it was dishonored, as it had agreed to do; if it had done so it would have enabled the Gillespies to avoid the loss of the two subsequent consignments, for the value of which the suit was brought. *166Third. The Chicago bank was acting in a fiduciary capacity for the Gillespies in collecting their drafts, thus incurring the duty of diligence and inquiry. Fourth. The drafts against the Rappals for these large amounts received at about the same time could hardly be understood otherwise than that the drafts drawn by the Gillespies were on account of the same property represented by the sale tickets. Fifth. The sale tickets from the stock-yards were notice to the bank that the Rappals had made a sale of cattle for some customer, and that the tickets were received by them in their business as factors. If the bank had any doubt upon this point it owed the duty of diligent inquiry into the matter to the Gillespies,, whose draft it held for collection.
As might be expected, the cases which go farthest in upholding the rights of holders for value of negotiable paper against undisclosed equities, are cases of equities claimed by unknown third parties who are not parties to the paper. Such is the case of Seybel v. Bank, supra. The case of Reid v. Mobile Bank, 70 Ala., 199, is such a case. Negotiable railroad bonds were deposited by one Butt, who held them as trustee for other parties, as collateral security for a debt of his own to the bank. At the time Walsh, the president, and Crawford, a director of the bank, had full knowledge that they were held in trust by Butt, and had full knowledge of the equities of the plaintiffs. Afterward the bank took the bonds in payment. It was held that the title of the bank was good against these equities because these officers did not acquire their knowledge while acting in their official capacities, or while transacting business for the bank. Neither did Goble acquire his knowledge of Pfeiffer’s business while acting in his official capacity for the bank.
I think the order of this court made on the original hearing of this case, directing a new trial, should stand, for three reasons: First, for error in admitting evidence of Pfeiffer’s unsworn statements as admissions of the hank to corroborate his testimony; second, because the evi*167dence does not show a real subsisting debt owing from Pfeiffer to Luman; third, because the money for which this action is brought reached the bank in the form of commercial paper, of which the bank became a bona fide holder for value in the usual course of business.