Marchant v. Summers

Decision Date12 November 1935
Docket NumberNo. 3894.,3894.
Citation79 F.2d 877
PartiesMARCHANT v. SUMMERS.
CourtU.S. Court of Appeals — Fourth Circuit

W. C. Wolfe, of Orangeburg, S. C., for appellant.

Carroll E. Summers, of Orangeburg, S. C., for appellee.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

PARKER, Circuit Judge.

This is an appeal from a decree which directed the receiver of a failed national bank to turn over to plaintiff four $100 Liberty Loan bonds, together with the proceeds of certain interest coupons, in the hands of the receiver. It appears that in 1919 plaintiff deposited the bonds with the bank for safe-keeping under an agreement which required the bank to collect the interest thereon and deposit it to plaintiff's account. The agreement, which was in writing, after reciting the deposit of the bonds with the bank, set forth the terms under which they were to be held by it, as follows:

"This certificate is non-transferable and therefore non-negotiable. The bank agrees to collect the semi-annual interest on said bonds when due and credit to the owners account with this bank.

"This bank reserves the privilege of using the bonds represented by this certificate in such a manner and for such purposes as it may choose and requires five (5) days notice when the return of the above amount of bonds is desired — not necessarily the identical bonds, but bonds of the same issue, same denomination and value.

"This bank makes no charge for this service but reserves the right to return the above amount of bonds to the owner after reasonable notice and in case of this certificate being lost or destroyed the bank reserves the right to require the owner to publish proper public notice thereof before the issuing of a duplicate or the delivery of the bonds."

The bank held the bonds, collecting the interest coupons and crediting same to plaintiff, until November 24, 1931, or January 12, 1932. On one or the other of these dates it pledged them along with bonds belonging to other customers, totaling $17,000, to secure deposits which had been made with it by the Postal Savings Bank. It had already deposited bonds of its own to secure this postal savings account; but upon being called upon for additional security, it pledged two lots of bonds belonging to its customers, one on November 24, 1931, and the other on January 12, 1932, among which were the bonds of plaintiff. These bonds of customers were not credited to them or in any way entered upon the books of the bank until they were pledged to secure the postal savings account. They were then listed among the bank's resources as "bonds owned by customers" and among its liabilities as "bonds borrowed from customers."

After the bank was placed in receivership, the amount due the Postal Savings Bank was paid from the proceeds of the sale of the bonds belonging to the bank, and the bonds of customers which it had pledged, or bonds of like character and amount, were returned to its receiver and are now held by him. The order appealed from directed the receiver to turn over four of these, together with the proceeds of the interest coupons which he had collected, to the plaintiff. The receiver contends (1) that the effect of the deposit of the bonds was to create a mere debtor and creditor relationship between the bank and plaintiff, and (2) that, in any event, plaintiff is not entitled to the return of bonds after the pledge to secure the postal savings account, as the bonds returned to the receiver are not shown to be the identical bonds of plaintiff. We do not think that there is merit in either of these contentions.

It is well settled, of course, that where a bank takes bonds of a customer as security or for safe-keeping, the relationship established is that of bailor and bailee, and not that of debtor and creditor, which would arise upon a sale and purchase of the bonds. Leach v. Sanborn State Bank, 203 Iowa, 401, 212 N. W. 694, 51 A. L. R. 900, 905; Andrew v. Citizens' State Bank, 203 Iowa, 345, 212 N. W. 745, 51 A. L. R. 906, 909; In re Farmers' & Merchants' Sav. Bank, 202 Iowa, 859, 211 N. W. 532, 51 A. L. R. 910, 912; Kincheloe v. Bank of Hardinsburg, 246 Ky. 1, 54 S.W.(2d) 384, 84 A. L. R. 1530; Gwynn v. Spurway (D. C.) 28 F.(2d) 37; notes in 51 A. L. R. 914, and 84 A. L. R. 1534, and cases there cited.

And we do not think that the character of the transaction here involved was changed from a bailment to a sale merely because the bank was given the right to use for its own purposes the bonds deposited with it. The agreement provided that if it should avail itself of this privilege, it should be bound, not to pay for them in cash, but to return others of the same issue, denomination, and value, which shows that a sale to the bank giving rise to the relationship of debtor and creditor was not contemplated, but merely a power to make use of the bailed property. The case is not unlike that of Walter A. Wood Mowing & Reaping Mach. Co. v. Vanstory (C. C. A. 4th) 171 F. 375, wherein it was held by this court that an option on the part of a bailee to purchase bailed property did not convert the bailment into a sale and vest title in the bailee.

When the bank pledged the bonds of plaintiff as security for the postal savings account, it was acting within the power vested in it by the contract with plaintiff; and there can be little doubt that, if the bonds had been required to make that account good, they could have been used for that purpose and plaintiff would have had merely a nonpreferential claim for their value, as was held in Kohler v. Spurway (D. C.) 28 F.(2d) 36, upon which the receiver relies. Where, however, the bonds were not sold under the pledge, but were restored to the receiver, there is no reason why the rights of the owner therein should not be recognized, just as though they had never been pledged under the power. Andrew v. Citizens' State Bank, supra.

And we see nothing in the argument that title to the bonds passed absolutely to the bank so that the relationship of debtor and creditor was established, as in case of a sale, merely because the contract provided that the identical bonds need not be returned to plaintiff, but merely bonds of the same issue, denomination, and value. It is true that ordinarily it is said that, where there is no obligation to restore the specific article, but the bailee is at liberty to return either money or other goods of equal value, "there is a transmutation of property, and the obligation created is a debt and not a bailment." 6 C. J. 1086; Jones on Bailments (2d Ed.) 102. But as shown by Prof. Williston (Sales, § 338), this statement of the rule cannot be literally accepted; and certainly it admits of many exceptions. See 6 C. J. 1091-1096, and cases cited. It has no application here, where the surrounding circumstances clearly show that a bailment and not a sale was contemplated, and where the provision for the return of other bonds of equal value was evidently intended to prevent a settlement for the bonds at their value in money in case the bank should use them under the power given in the contract under which they were deposited. It has been held that, where the option to return other articles of the same kind applies in case of a loss for which the bailee is liable, the bailment is not converted thereby into a sale. Smith v. Niles, 20 Vt. 315, 49 Am. Dec. 782, 783; 6 C. J. 1087....

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2 cases
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    • U.S. District Court — Eastern District of New York
    • 9 Septiembre 1991
    ...relationship between Nachamie and Guardian was therefore that of bailor and bailee rather than debtor-creditor. See Marchant v. Summers, 79 F.2d 877, 879 (4th Cir. 1935); Genesee Wesleyan Sem. v. United States F. & G. Co., 247 N.Y. 52, 55, 159 N.E. 720 (1928); Wasserman v. Broderick, 140 Mi......
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