Citizens' Bank & Trust Co. v. Thornton

• Decision Date: 07 December 1909
• Docket Number: 1,872.
• Citation: 174 F. 752
• Parties: CITIZENS' BANK & TRUST CO. v. THORNTON et al.
• Court: U.S. Court of Appeals — Fifth Circuit

174 F. 752

CITIZENS' BANK & TRUST CO. v. THORNTON et al.

No. 1,872.

United States Court of Appeals, Fifth Circuit.

December 7, 1909

The appellant, the Citizens' Bank & Trust Company, a banking corporation under the laws of Tennessee, filed its bill in the circuit court against the First National Bank of Attalla and Thomas M. Thornton, as receiver, appointed by the Comptroller of the Currency to liquidate its affairs. The original bill sought a decree against the bank and the receiver for $21,000 upon two promissory notes of the First National Bank for borrowed money, and a note for $5,000 hereafter referred to as the Buckmaster and Williams note which appellant bank had discounted for defendant bank, and also to subject certain collateral for the debts attorney's fees, etc.

The defendants' answers admit that the First National Bank of Attalla received the Buckmaster and Williams note for collection some time in April, 1906, but averred that the defendants never collected said note, or received any benefit therefrom, but that L. M. Dyke secured a renewal of the note and sent it to the appellant; that appellant returned it with the request that it be indorsed by the First National Bank of Attalla; that it was so indorsed by said L. M. Dyke, but that the said indorsement was a mere accommodation indorsement, and was made by Dyke without authority; and that the same was ultra vires so far as the bank was concerned, and created no liability.

The answer further denied that the First National Bank of Attalla ever discounted said note with appellant, or received any benefit from its indorsement, and averred on information that the note was the individual debt of L. M. Dyke; and that the transaction with reference thereto was entirely for his benefit. The bill was twice amended in particulars not now material, since all the claims were paid, except the Buckmaster and Williams note, and by stipulation entered into in the court below, the controversy is resolved into an issue of the liability of the defendant bank upon the note, and the right to apply in satisfaction thereof certain collateral deposited with the appellant, under a written agreement, the nature and terms of which are hereafter stated.

The appellant did a banking business at Chattanooga, Tenn., and was the correspondent of the Bank of Attalla, a state banking institution at Attalla, Ala., from some time in October, 1904, until October 19, 1905, when that bank ceased to do business, and was succeeded by the First National Bank of Attalla, which took over the business of the Bank of Attalla, and appellant continued as the correspondent of the First National Bank of Attalla until it was closed by order of the Comptroller of the Currency, and Thornton placed in charge as receiver on May 15, 1906.

As the rights of the parties concerning the Buckmaster and Williams note turn upon the dealings between the Bank of Attalla and the First National Bank of Attalla and their transactions with the appellant as their correspondent, it will conduce to a better understanding of the case to give the correspondence between them, premising that L. M. Dyke was cashier of the Bank of Attalla until it ceased to do business, and afterwards became president of the First National Bank of Attalla upon its organization October 19, 1905, and acted as such until that bank was placed in the hands of a receiver May 15, 1906. The proof also shows that the original Buckmaster and Williams note, in renewal or payment of which the Buckmaster and Williams note in suit was given, was indorsed by the Bank of Attalla, and not by the First National Bank of Attalla, and that the inaccurate statement in that respect in the correspondence was due to confounding the two transactions.

On September 19, 1905, Dyke, as cashier of the Bank of Attalla, wrote appellant as follows:

'Attalla, Ala., Sept. 19, 1905.

L. M. Dyke, Cashier.'

On October 3, 1905, Dyke, as cashier of the Bank of Attalla, wrote appellant as follows:

'Attalla, Ala., Oct. 3rd, 1905.

'Very truly yours,

L. M. Dyke, Cashier.'

On October 18, 1905, the day before the First National Bank of Attalla commenced to do business, Dyke, as cashier of the Bank of Attalla, wrote appellant as follows:

'Attalla, Ala., Oct. 18th, 1905.

L. M. Dyke, Cashier.'

The proof shows that the note inclosed in that letter was received for discount by the Citizens' Bank & Trust Company, and the proceeds amounting to $4,850 credited to the Bank of Attalla, on October 19, 1905. On October 20, 1905, a note of the Bank of Attalla to the appellant for $5,000 matured, and by instructions of Dyke appellant charged that note to the Bank of Attalla on that day. The books of appellant show there was a general credit balance upon its books in favor of the Bank of Attalla of $6,840.31 at that date, in which was included the item of $4,850, the proceeds of the discount of the Buckmaster and Williams note. On October 19, 1905, Dyke as cashier of the Bank of Attalla wrote appellant as follows:

'Attalla, Ala., Oct. 19, 1905.

L. M. Dyke, Cashier.

'Signatures for the First National Bank of Attalla for the transaction of the business, will be myself as President and W. R. Lawley, Cashier.'

The books of appellant at the close of business October 3, 1905, show there was a credit balance in favor of the Bank of Attalla of $4,560.92. On November 1, 1906, appellant opened a new account with the First National Bank of Attalla, and the credit balance of $4,560.92 in favor of the Bank of Attalla was included in the new account, and credited to the First National Bank of Attalla. It was shown by the testimony of Henson, president of appellant, that it was customary to render the Bank of Attalla and its successor, the First National Bank of Attalla, a detailed statement of the credits and debits against the account during the month; such statement showing the credits and debits and opening balance at the beginning of the month and the closing balance.

Such statement was sent to the Bank of Attalla at the close of October, 1905, or a day or two later. This statement was a transcript of the face of the ledger for the month covered therein, and inclosed in a letter as follows:

'Bank of Attalla, Ala.

On the 28th of February, 1906, the Bank of Attalla borrowed of appellant the sum of $10,000, evidenced by note as follows:

'Sixty days after date we promise to pay to the order of Citizens' Bank & Trust Company, ten thousand and no/100 dollars, value received, negotiable and payable at Citizens' Bank & Trust Company, Chattanooga, Tennessee.

'To secure the payment of this or any other obligation to said bank, due or to become due, the undersigned hereby pledges to said bank, or its assigns, holders of the same, the collateral described on the back hereof, or hereunto attached, and it is hereby agreed that upon the non-payment of this obligation said bank or holder, may sell the same at public or private sale, for cash or on credit, as a whole or in parcels, at any place in the city of Chattanooga, without notice; and said bank, or holder, may at any such sale, purchase the same, or any part thereof, for its or his own account, and after deducting all costs of sale, the balance of the proceeds shall be applied to this obligation, and any surplus to any other note, obligation, bill, overdraft, or open account upon which the undersigned shall be in any way bound, primarily or secondarily, absolutely or contingently, due or to become due. Such application to be made in the manner and proportions as to said bank or holder may seem fit. Upon the discharge of this obligation said bank or holder may deliver the collateral to the undersigned or order, but shall have the right to retain the same to answer any other obligation, note, etc., as above described, just as if specially pledged under an agreement in the exact terms of this, and in no event shall said bank or holder be in any way responsible in dealing with said collateral to any person bound with the undersigned in any debt to said bank. It is also agreed that said collateral may from time to time, by mutual consent, be exchanged for others, which shall also be held by this bank, or assigns on the terms above set forth. The undersigned also hereby agrees to give said bank or its assigns, such additional collateral as its President, Vice-President or Cashier may at any time demand, and if said collateral shall not be promptly given when demanded, this note shall become immediately due and payable. It is agreed that said bank shall not be responsible in any way for nonpresentment, or for failing to protest any item in said collateral requiring presentment and protest. If this note or any collateral attached thereto, is collected by an attorney, by suit or otherwise, or if suit be brought upon either, we agree to pay all fees and cost of collection. It is agreed by the makers and indorsers hereof that demand, protest and notice of nonpayment of this paper are expressly waived.

'First National Bank of Attalla,

'By L. M. Dyke, President.'

Indorsed on the back: 'As collateral on the within note are pledged bills receivable amounting to $16,285.50.'

The original Buckmaster and Williams note matured on April 15, 1906, and a few days before that was sent to the First National Bank of Attalla for collection. On April 14, 1906, Dyke wrote the cashier of appellant as follows: 'The First National Bank of Attalla,

'Capital $30,000.00 fully paid.

'Attalla, Ala., April 14, 1906.

'Very truly yours,

L. M. Dyke,'

To this letter appellant replied on April 16, 1906, as follows:

Citizens' Bank & Trust Co., Chattanooga, Tenn. April 16,

H. Bushnell, Cashier.

'The First National Bank of Attalla,

'Capital...