Court Opinion

ID: 5457821
Source: CourtListenerOpinion
Date Created: 2022-01-09 19:26:04.657769+00
Date Added: 2024-06-11T08:32:44.546483
License: Public Domain

Hand, J.
There is no evidence of any express agreement that the Bank of Troy should have a lien upon the notes sent to it for collection by the Canal Bank. The defence, then, must be sustained, if at all, it seems, on the ground of their lien as bankers. As a general rule, a banker has a general lien on all securities in his hands belonging to a customer, for the general balance due from the latter. (2 Kent, 641. 2 Selw. N. P. 539. Davis v. Bowsher, 5 T. R. 488.) But on the other hand, if the securities do not belong to the debtor, but to a third person, prima facie, the real owner may claim them unless divested of that right by his own act or assent. (Saltus v. Everitt, 20 Wend. 267. Hoffman v. Carow, 22 Id. 318.) The note in controversy in this case, undoubtedly belonged to the plaintiffs; and was indorsed by them and placed in the Canal Bank for the purposes of collection merely. And they should have the avails unless the defendants are authorized to-treat it as their own or the property of the Canal Bank; or can insist upon a lien as against that bank. As the plaintiffs treated it as negotiable, and gave possession of it to the Canal Bank, and the Canal Bank made an indorsement payable to the defendants, the instrument carries upon it evidence that the legal title is in the defendants. This, however, will not avail them if they are not in a situation to be considered, bona fide holders. If they had notice that the note did not belong to the Canal Bank, or if the circumstances known to them were such as to put them upon inquiry; in short, if they have not the right of possession as a bona fide holder, they can not hold it as against the owner.
Notwithstanding the general rule above laid down in regard to a banker’s lien, there is another rule equally as well settled ; that this lien may be controlled by, and be dependent upon circumstances. Almost every opinion establishing the right, affirms the qualification. In Davis v. Bowsher, (supra,) Lord *316Kenyon recognized the lien upon the securities in a banker’s hands for a general balance, “ unless there be evidence to show that he received any particular security under special circumstances, which would take it out of the common rule.” And the late Chancellor Kent says it is “subject equally to be controlled by special circumstances,” (2 Kent, 641.) The recent case in the court of appeals, of Clark v. The Merchants’ Bank, (2 Comst. 380,) was not one of lien. Clark & Co. the plaintiffs, were brokers in Philadelphia, and Smith & Co. were brokers in New-York; and they were collecting agents for each other, and business correspondents, and had been for years; and usually, though not always, drew against paper sent for collection. Each kept two accounts, one (No. 1) contained the remittances of the plaintiffs to Smith & Co., and the other (No, 2) the funds of Smith & Co. transmitted to plaintiffs. The plaintiffs, on the 15th of the month sent a sight draft by a house in Richmond on a house in New-York, for $7000, indorsed to the plaintiffs, and by them to Smith & Co. with other paper, a list of which was headed “For account (No. 1,)” in all, amounting to over $17,000 beside other paper amounting to between $2000 and $3000, for collection; and the plaintiffs sent in the same communication, their drafts on Smith & Co. amounting to over $20,-000, all of which was received by Smith & Co. on the 16th, who presented the draft for $7000. to the drawers on that day and received a check on the Phenix Bank, New-York, which, on the same day, Smith & Co. indorsed and deposited with the defendants, who received the money in the usual course of business, on the 17th. Smith &. Co. failed on the 16th, and did not pay the drafts of the plaintiffs upon them, and on the 18th the plaintiffs claimed the proceeds of the check of the drawees, and afterwards sued the defendants. The court of appeals held that it was sent to be placed to the credit of the plaintiffs, to be drawn against, in the usual course of business, and that the plaintiffs could not recover ; and reversed the judgment of the superior court of New-York in their favor. Gardiner, J. in delivering the opinion of the court, put it upon the ground that the check was transmitted to be credited to the plaintiffs, and not for collection.
*317Brandcb v. Barnett is reported three times. It was first decided in the court of common pleas in 1840, (1 M. & G. 908;) next in the court of exchequer chamber in 1843, (6 Id. 630 ;) and lastly, in the house of lords in 1846, (3 M. G. & S. 519.) Burn was the agent, for many years, of Brand ao; who, at first resided at Rio dc Janeiro, and after in Portugal. Burn bought on account of the plaintiff and with the plaintiff’s money, certain exchequer bills, and deposited them in a tin box which he kept at his bankers, the defendants; he retaining the key of the box. Whenever it became necessary to receive the interest, on the exchequer bills and to exchange them for new ones, Burn was in the habit of taking them out of the box and giving them to the defendants for that purpose; such being the usual course of business; after which, the new exchequer bills were handed over to and locked up by Burn in the box; the amount of interest, received by the defendants, being passed to the credit of Burn’s account. But the exchequer bills, themselves, were never entered to Burn’s credit. The defendants had no knowledge or notice that the bills were not the property of Burn. On the 1st of December, 1836, Burn took the exchequer bills out of the box and gave them to the defendants to obtain the interest and new bills, which was done on the 20th of December, by the defendants. Burn was unwell when he delivered the bills to them, and afterwards grew worse, and was, in consequence, out of town three or four weeks; and was generally absent until his failure, on the 23d day of January, up to which time the new bills remained in the possession of the defendants. When he failed he had largely overdrawn his account with the defendants, and had drawn out and paid in large sums' during the time the bills were in their hands. The exchequer bills were transferable by delivery. The plaintiff never knew who were Burn’s bankers till he failed, nor did the defendants ever receive any information of any transaction between Burn and the plaintiff. The suit was brought for the new exchequer bills so received by the defendants; and which had not been returned to Burn as above stated. The defend*318ants claimed that they had a lien upon the bills for the general balance due to them from Burn.
The court of common pleas gave judgment for the plaintiff. Tindall, C. J. admitted the general lien that bankers have upon the securities of their customers in their hands, unless there be something to show that such lien was not intended to arise; but he said this lien arises like other liens out of contract, and this contract being between the banker and the customer, could not take away the rights of other parties; and lie thought that nothing had passed between Burn and the defendants amounting to a representation that Burn owned the bills, or that he had authority to pledge them. That had he pledged them, he would have been guilty of a statuteable misdemeanor, and there was nothing to show that to be his intention.
The court of exchequer chamber reversed this judgment. Lord Denman, Ch. J. delivered the opinion of the court, and said, that the rights of bankers do not extend to all securities which may happen to be in their hands for any purpose, but to such only as come tc their hands as bankers, in the way of their business; and he considered, that, although the bills were delivered for a particular purpose, that purpose ivas the performance of a duty as bankers; and that they came to the defendants’ possession in the course of business. That negotiable securities, transferred by delivery to a bona fide holder for value, are deemed, with respect to such holder, and to the extent of the rights acquired by him by the transfer, 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 them to him. And that the defendants had a lien upon the bills for the general balance due to them from Burn.
The house of lords reversed the decision of the court of exchequer chamber. Lord Campbell delivered an opinion in which Lord Lyndhurst (lord chancellor,) briefly concurred. They disapproved of the doctrine laid down by Tindall, C. J. in the court of common pleas, that the defendants had no lien because the bills did not belong to. Burn. On this point they coucurred *319with Lord Denman; that the bills being negotiable by delivery, the defendants had a right to consider them the property of Burn, without any express representation by him to that effect. That the holder of negotiable securities is to be assumed to be the owner, and third persons, acting bona fide, may treat him 'as such: and that a lien in such cases may exist, although the securities should turn out to be the property of a stranger. And as to the lien of bankers, they concurred with Lord Kenyon in Davis v. Bowsher, (supra.) But they held there could be no lien in this case, because, under all the circumstances, these exchequer bills could not be considered as deposited with the defendants as bankers. That the defendants procured the new exchequer bills for the express and only purpose of delivering them up to Burn, that he might deposit them in the tin box, which would give them no lien; and if they had no lien when they obtained them, no lien would afterwards be obtained by the overdrawing of Burn.
The case of the Bank of the Metropolis v„ New England Bank, came before the supreme court of the United States twice, once in 1843, (1 How. U. S. R. 234,) and again in 1848. (6 Id. 212.) The Bank of the Metropolis, in the district, of Columbia, had been for a long time dealing and corresponding with the Commonwealth Bank of Mass., which failed on the 13th day of January, 1838. They had mutually remitted for collection such bills, &c. as either might have, which were payable in the vicinity of the other, which, when paid, were credited to the party sending them, in the account current kept by both banks, and regularly transmitted from one to the other; and they regularly settled upon these principles, charging postage, protests, &c. &c., the balance being sometimes in favor of one and sometimes of the other. On the 24th day of November, 1837, the Bank of the Metropolis owed the Commonwealth Bank $2200, and in the latter part of that year the Commonwealth Bank sent to the Bank of the Metropolis for collection in the usual way, sundry paper which would fall due in February, March, April, May and June following. They were indorsed E. P. Clark, Cashier, who was the cashier of the N. E. *320Bank, pajmble to C. Hood, Cashier, who was cashier of the Commonwealth Bank, and by him to G. Thomas, Cashier, who was cashier of the Bank of the Metropolis. On the May the Commonwealth Bank failed, its cashier wrote a letter to the Bank of the Metropolis, directing it to hold the paper that had been so forwarded, “ subject to the order of the cashier of the N. E. Bank, it being the property of that institution.” The N. E. Bank sued the Bank of the Metropolis for the proceeds of all the paper so sent, and the court below gave judgment for the N. E. Bank. The cashier of the Commonwealth Bank testified that they were never the property of the Commonwealth Bank, nor had that bank any interest therein ; but they were, at the time of the receipt thereof, and ever after, the property of the N. E. Bank, and subject to its order and control. At this time the Commonwealth Bank was indebted to the Bank of the Metropolis about $2900. These notes, &c. were indorsed by the cashier of the N. E. Bank without consideration, and were placed in the hands of the Commonwealth Bank for the mere purpose of collection. On the cause coming back to the supreme court the second time, the court said the jury should have been instructed that if, upon the whole evidence, they should find that the Bank of the Metropolis, at the time of the mutual dealings between them and the Commonwealth Bank, had notice that the latter had no interest in this paper, and transmitted it to the Bank of the Metropolis for collection merely, as agent, then the Bank of the Metropolis could not retain it, as against the N. E. Bank, for a general balance due to the Bank of the Metropolis from the Commonwealth Bank. And if the Bank of the Metropolis had not such notice, and regarded and treated the Commonwealth Bank as owner, still it could not retain the paper against the real owner, unless credit had been given to the Commonwealth Bank, or balances suffered to remain in the hands of the latter, to be met by the negotiable paper transmitted, or expected to be transmitted, in the usual course of dealings between the two banks. But if the jury found that in their dealings the Bank of the Metropolis had regarded and treated the Commonwealth Bank as owner of the paper so *321transmitted for collection, and had no notice to the contrary, and upon the credit of such remittances, made or anticipated in the usual course of dealing between them, balances from time to time were suffered to remain in the hands of the Commonwealth Bank, to be met by the proceeds of such negotiable paper, then the Bank of the Metropolis could retain said paper, as against the N. E. Bank, for the balance of account due from the Commonwealth Bank.
These cases declare the law within the jurisdiction of these courts of last resort, respectively.
The principles they maintain, applied to the principal case, are fatal to the defendants. They received the note for collection merely. For, notwithstanding the words “ for account,” in the letter, and which perhaps referred to the two items carried out, such was the testimony. It is to be supposed, from their own practice and experience, and from their knowledge of business generally, that the defendants knew that a large amount of the paper they received from the Canal Bank, was placed there for the sole purpose of collection. This was notice enough to put them upon inquiry; and, at least, sufficient to prevent them from relying upon these notes as securities for advances or for a balance; and brings the case within the principle laid down in the Bank of the Metropolis v. New England Bank, (supra.) Under such circumstances, they were bound to know that, at most, they had no hen except upon paper owned by the Canal Bank. By the usual course of the dealings between the two banks, no credit was given for a note sent, until collected ; and the bank sending it could recall it at any time. And when a note was dishonored, it was immediately returned and the expenses charged. The defendants, in this case, after the Canal Bank failed, took back what was uncollected by the Canal Bank, by them before sent to that bank. But what seems wholly inconsistent with any implied contract for a lien, on every Monday all balances were paid up. This note was in the hands of the defendants between three and four weeks before the Canal Bank failed; and consequently the two banks squared all accounts two or three times during that period. And had not the *322Canal Bank failed, they would have settled and paid all up on both sides, probably, many times before this note became due. This wholly repels the idea of any contract for a lien, express or implied. The plaintiffs in Clark v. The Merchants' Bank failed, because it was clear that the draft was not sent for collection, but to be credited. And the defendants failed in Brandao v. Barnett, because they received the bills (or the new ones in exchange) to return again, which was inconsistent with a lien, even as against Burn. In the case of the Bank of the Metropolis v. New England Bank, the court held the former must maintain a position similar to that of a bona fide purchaser, that is, for value and without notice. And Brandao v. Barnett comes to nearly the same point. Here, as we have seen, the note was sent for collection merely; and by the course and practice of the business it was to be returned when called for, at any time before it was collected, and also if not collected. Thus, in some important particulars, coming within the principles laid down in the cases to which I have already adverted.
It may be added, that as against the plaintiffs in this cause, the defendants could not retain the note for a pre-existing debt, due from the Canal Bank. (Stalker v. M'Donald, 6 Hill, 93.) So that, 'suffering former balances to remain in the hands of the Canal Bank, on the strength of such paper, would not give to the defendants title as against the- real owner, though perhaps it would be different in cases coming before the supreme court of the United States. (Swift v. Tyson, 16 Pet. 1.) It would seem that the defendants may be treated by the plaintiffs as their agents, (Bank of Orleans v. Smith, 3 Hill, 560,) unless the defendants are in a position to insist upon their mere legal title, on the ground that they are bona fide holders, in the sense of that term, in this state; which we have seen is not the case.
There must be judgment for the plaintiffs.