Commercial Nat. Bank of Pennsylvania v. Armstrong

• Decision Date: 30 August 1889
• Parties: COMMERCIAL NAT. BANK v. ARMSTRONG.
• Court: U.S. District Court — Southern District of Ohio

39 F. 684

COMMERCIAL NAT. BANK v. ARMSTRONG.

United States Circuit Court, S.D. Ohio, Western Division.

August 30, 1889

Harmon Colston, Goldsmith & Hoadly, for complainants.

E. W Kittredge, Jos. Wilby, and W. B. Burnet, for defendant.

JACKSON J.

The general object and purpose of the bill in this case is the recovery of certain funds, which the complainant claims are impressed with a trust character in its favor, and which it is alleged have come into the possession of the defendant as the receiver of the Fidelity National Bank of Cincinnati. The trust character of the fund claimed is disputed, and that constitutes the real controversy between the parties to the suit.

The material facts of the case, as established by the evidence on which the questions of law arise, and the right to the relief sought depends, are the following, viz.: The Fidelity National Bank, desiring to open and establish business relations with the complainant addressed to it, under date of February 12, 1887, the following circular letter and propositions:

'Coml. Nat. Bnk., Philadelphia, Pa.-- GENTLEMEN: Inclosed herewith we hand you our last statement, showing us to be the second bank in Ohio in deposits in the tenth month of our existence. We should be pleased to serve you, and trust you will find it to your advantage to accept one of the following propositions:

'No. 1. We will collect all items at par, and allow 2 1/2 % interest on daily balances, calculated monthly. We will remit any balance you have above $2,000 in New York draft, as you direct, or ship currency at your cost for expressage.

'No. 2. Will collect at par all points west of Pennsylvania, and remit the 1st, 11th, and 21st of each month.

'No. 3. We will collect at par Ohio, Indiana, and Kentucky items, and remit balances every Monday by draft on New York. We do not charge for exchange on propositions No. 1, 2, and 3.

'No. 4. Will collect Cincinnati items, and remit daily at 40 cents per thousand, or 20 cents for $500 or less. National banks not in a reserve city can count all they have with us as reserve. Your early reply will oblige.'

To this communication the Commercial National Bank replied on February 18, 1887, accepting the second of the above propositions. This letter of acceptance was written upon one of the printed letter-heads which complainant was in the habit of using in its general business intercourse with correspondents, relating to paper received or transmitted for collection; the printed portions of the letter being in the following form:

'COMMERCIAL NATIONAL BANK OF PENNSYLVANIA.

'PHILADELPHIA, . . . 188 . . .

'To . . . National Bank . . .

'Yours of . . . inst. is received, with inclosures as stated.

'Respectfully, . . .,

'For Cashier.

'I inclose for collection, . . .; for credit, . . . '

Along with this letter of acceptance complainant transmitted certain sight drafts or checks to the amount of $2,007.55, indorsed for collection for Commercial National Bank, which constituted the first dealings or transactions between the two banking associations. Upon the receipt of complainant's acceptance of its said second proposition the Fidelity National Bank caused to be prepared and forwarded to the Commercial National Bank a stamp to be used by it in indorsing paper transmitted for collection, under and in pursuance of the contract and agreement then entered into between the two banks. The impression or indorsement made by said stamp was this:

'Pay Fidelity Natl. Bank of Cincinnati, O., for collection for Commercial Natl. Bank of Philadelphia. E. P. GRAHAM, Cashier.'

Commencing with its letter of acceptance of said second proposition, complainant continued to forward to the Fidelity National Bank, for collection, commercial paper, consisting of checks, drafts, and promissory notes, payable in the designated territory either at sight or on demand, or at a certain time after date or after demand, until June 21, 1887, when the Fidelity National Bank, having become insolvent, was closed by the comptroller of the currency, and soon thereafter defendant was appointed receiver of its assets, and its charter was forfeited. Upon all the paper which complainant transmitted to the Fidelity National Bank for collection under the contract formed by the acceptance of said second proposition, there was placed by the use of the stamp furnished by the Fidelity National Bank the above special indorsement:

'Pay Fidelity Natl. Bank of Cincinnati, O., for collection for Commerical Natl. Bank of Philadelphia. E. P. GRAHAM, Cashier.'

At the date of its failure and suspension, the Fidelity National Bank had not accounted for paper so indorsed and transmitted by complainant between the 4th and 20th June, 1887, to the amount of $16,000 or $17,000. There is no dispute as to the items making up said amount, or as to the fact that each of said items were duly received by said Fidelity Bank, and have, upon each item or piece of paper, the special indorsement aforesaid. It was not understood or intended by either the transmitting or the receiving bank that the title to the paper sent forward for collection should pass to or be vested in the Fidelity Bank; on the contrary, the agreement and understanding between them contemplated (what was expressed by the proposition made and accepted, and the indorsement placed on the paper) that the title to all such paper should be and remain in the complainant, who neither opened or intended to open any deposit account with the Fidelity National Bank. Previous to this special arrangement entered into between them, they had had no business connection or transactions, and kept no accounts with each other. All the paper forwarded by complainant between the 4th and 20th June, the proceeds of which are involved in this controversy, was transmitted in letters having the printed form of letter-heads, as above indicated; and in conformity with the general usage and course of business between banks occupying towards each other such relation as the contract in question created, or sending and receiving commercial paper for collection, a distinction was made between such paper as was payable at sight or on demand, and such as was payable at a certain day, after date or after demand. The former were designated as 'cash items,' and the latter as 'time paper.' The course of business between the two banks, and the method of keeping their accounts with each other, were as follows: When 'cash items' were transmitted by complainant to the Fidelity National Bank, including these embraced in the present controversy, they were entered as of the date of their transmission on the foreign cash item book of the former, and from said book such entries were posted into the general account of the Fidelity Bank on complainant's books, as of such date; and, when such 'cash items' were received by the Fidelity National Bank, it credited the same on its books to the complainant as of the date received, and charged the same to its correspondents to whom such 'cash items' were sent by it for actual collection. If such 'cash items' were not paid on presentation, the Fidelity National Bank would charge them back to complainant, and return them, whereupon complainant would credit the Fidelity Bank with the same upon the account which it kept against the latter. When the complainant transmitted 'time items,' or papers including that covered by this suit, the same were entered on complainant's foreign collection register as of the date of transmission, and were not entered upon the general account of the Fidelity National Bank, upon the books of the Commercial National Bank, until advice was received from said Fidelity Bank that such time items had been collected. The Fidelity National Bank neither credited nor remitted complainant such time items until if had received advice from its correspondents of their payment. The books of the Fidelity National Bank show to whom it sent all the paper, both 'cash' and 'time items,' for collection, and when the same was collected by its correspondents, with all or most of whom it had current accounts showing balances in favor of or against said Fidelity Bank from day to day, and at the time of its suspension. Up to June 4, 1887, the Fidelity National Bank, in pursuance of, and in compliance with, its contract and agreement, made remittances with complainant on the 1st, 11th, and 21st of each month of collections made up to the date of each remittance, accompanying the same with a statement of the several collections made and included in such remittance. Such statements designated and identified the separate items of paper which had been collected. Such remittances, together with any and all such cash items as were not paid on presentation, were, by the Fidelity Bank, charged back against the complainant on the books of the former, and were credited to the Fidelity on the books of the complainant. Under date of May 25, 1887, the complainant's cashier, E. P. Graham, wrote the cashier of the Fidelity Bank as follows:

'Dear Sir: We do not wish to complain, but would like to understand why your remittances of May 21st only included items sent you up to May 14th, and received by you on the 16th. We have to explain these things to our depositors, and wish to act intelligently on the subject. Yours, etc.

' . . . '

To this communication the Fidelity National Bank, through E. L. Harper, vice-president, returned the following reply:

'GENTLEMEN: We collect at par, and include in our remittances everything collected to date.'

The complainant made no objection to this construction of its undertaking of the Fidelity National Bank, but acquiesced therein, and continued to transmit paper for collection under...