Citizens State Bank v. E. A. Tessman & Co.

• Decision Date: 28 February 1913
• Docket Number: Nos. 17,799-(183).,s. 17,799-(183).
• Court: Minnesota Supreme Court
• Parties: CITIZENS STATE BANK OF HAMILTON, MONTANA, v. E. A. TESSMAN & COMPANY.<SMALL><SUP>1</SUP></SMALL>

121 Minn. 34

CITIZENS STATE BANK OF HAMILTON, MONTANA, v. E. A. TESSMAN & COMPANY.¹

Nos. 17,799-(183).

Supreme Court of Minnesota.

February 28, 1913.

Action in the district court for St. Louis county against E. A. Tessman & Co. and P. G. Kraemer to recover $2,016 upon five bank checks. Among other matters, the complaint alleged that defendant Kraemer duly indorsed and delivered the checks in suit to plaintiff, who thereby became the owner thereof; that plaintiff duly indorsed and presented them for payment to the bank in Duluth on which they were drawn, but payment was refused by the bank on the ground that defendant E. A. Tessman & Co., subsequently to the drawing of

the checks had directed the bank not to pay them; that defendant company had so directed the bank; that immediately thereafter defendant Kraemer was notified that the checks had been presented for payment and payment refused.

Defendant E. A. Tessman & Co. in its answer admitted that payment of the checks was refused by the bank at Duluth upon the ground that the answering defendant had stopped payment of the checks and that this defendant had so directed the bank. It also alleged that prior to the commencement of the action and while defendant Kraemer was the owner of the checks, and without knowledge that plaintiff claimed any interest in the checks or was the holder thereof, and upon the belief that defendant Kraemer was the owner thereof, the answering defendant paid and satisfied the amount of the checks to defendant Kraemer, and he agreed with the answering defendant that the checks should be canceled and discharged.

In his answer defendant Kraemer alleged that the checks described were sent by him to plaintiff and received and retained by it solely as agent for defendant for collection only, for the purpose of placing the proceeds of the same to defendant's account in plaintiff's banking house, and for no other purpose. The other material allegations of the complaint were denied.

The amended reply to the answer of E. A. Tessman & Co. denied the new matter in that answer and alleged that plaintiff purchased two of the checks before their dishonor in good faith, and in due course of business, without notice of any failure of consideration, or other defect, and paid a valuable consideration therefor, and at all times plaintiff was a bona fide purchaser of the checks for value in the regular course of business, without knowledge or notice of any defect therein or defense thereto.

The case was tried before Dancer, J., who made findings and ordered judgment in favor of plaintiff against defendant E. A. Tessman & Co. From the judgment entered pursuant to the order for judgment, and from an order denying its motion for an amendment of the conclusions of law, defendant E. A. Tessman & Co. appealed. Affirmed.

Warner E. Whipple, for appellant.

Alford & Hunt, for respondent.

HALLAM, J.

Defendants Tessman & Co. and Kraemer are both engaged in business in Duluth. Plaintiff bank is located at Hamilton, Montana. In 1909 defendant Kraemer opened a checking account with the bank, and continued to be a depositor and customer until after the occurrence of the events hereinafter narrated.

Some time early in 1910 defendant Tessman & Co. gave defendant Kraemer five checks on a Duluth bank aggregating $2,000. These checks were indorsed and delivered by Kraemer to plaintiff bank and deposited therein to his credit. One thousand nine hundred and sixty-five dollars of this amount was immediately checked out by Kraemer, and paid by the bank on checks payable either to Tessman & Co. or to its officer, Christ Sanders. When the checks issued by Tessman & Co. were presented to the Duluth bank for payment they were all dishonored, and plaintiff bank charged them back to Kraemer and returned them to him. As a result of these transactions the account of Kraemer in plaintiff bank was overdrawn by the amount of these checks, and in fact more, and said overdraft has never been reduced below that amount. Subsequently Tessman & Co. executed and delivered to Kraemer a second batch of five checks on said Duluth bank, in lieu of the first batch, and for the same amounts with protest fees added, and Kraemer indorsed and delivered them to plaintiff, in lieu of the dishonored checks, and to make good the overdraft caused thereby. These are the checks sued on in this action.

Prior to this time there was no express agreement as to terms and conditions upon which checks and other commercial paper deposited by Kraemer should be received and held by the bank. It had come to be the custom and understanding between them, however, that all checks deposited by Kraemer should be credited to his checking account, and if any were dishonored, that they should be charged back and returned to him.

Upon receipt of the second batch of checks plaintiff declined to credit the amount to Kraemer's account, but entered and held them for collection. Kraemer was so advised, and acquiesced. These checks were in due course presented to the Duluth bank for payment. In the meantime Tessman & Co. had stopped payment on them, and payment was refused. The checks were thereupon returned to plaintiff bank, and it has held them ever since. No part thereof has ever been paid.

Prior to this suit Kraemer and Tessman & Co. had an accounting and settlement, in which Kraemer received and acknowledged payment of all sums due him from Tessman & Co. on account of, or growing out of, all prior dealings between them. This settlement was without the knowledge or consent of plaintiff. At the time the settlement was made, defendants had full knowledge of the possession of said checks by plaintiff bank. The court on these facts gave judgment for plaintiff against Tessman & Co. for the amount of the checks and interest, and Tessman & Co. appeals from the judgment.

1. On principle the bank should recover. It gave Kraemer a fictitious credit of $2,000, based entirely on Tessman & Co.'s dishonored checks. By reason of this fictitious credit, Tessman & Co. and its officer were enabled to draw out of this bank $1,965 on checks issued to them by Kraemer. Tessman & Co. then gave a second batch of checks, which were forwarded to make good the overdraft caused by its own acts and default. It then stopped payment on these checks, and, knowing that the bank had the checks, it now claims to have paid them to Kraemer instead of to the bank. It defends this suit on the ground that the bank declined to credit the second batch of checks as cash, but, instead, entered them for collection, and claims that it was accordingly justified in ignoring the bank and making settlement with Kraemer. Appellant's position cannot be sustained either on principle or authority.

2. The indorsement of the checks was unrestricted, and their indorsement and delivery gave the bank the legal title. By an almost unbroken line of decisions this confers a right to sue thereon, even though the indorsee is in fact an indorsee for collection only. Vanstrum v. Liljengren, 37 Minn. 191, 33 N. W. 555; Elmquist v. Markoe, 45 Minn. 305, 47 N. W. 970; Anderson v. Reardon, 46 Minn. 185, 48 N. W. 777; Minnesota Thresher Mnfg. Co. v. Heipler, 49 Minn. 395, 52 N. W. 33; St. Paul Title Ins. & Trust Co. v. Thomas, 60 Minn. 140, 61 N. W. 1134; Orr v. Lacy, 4 McLean 243, Fed. Cas. No. 10,589; Purdy v. Brown, 4 Ark. 535; Curtis v. Sprague, 51 Cal. 239; First Nat. Bank v. Hughes, 46 Pac. 272; McCallum v. Driggs, 35 Fla. 277, 17 South. 407; Laflin v. Sherman, 28 Ill. 391; Mead v. National Bank of Fayetteville, 6 Blatchf. 186, Fed. Cas. No. 9,366; Manley v. Park, 68 Kan. 400, 75 Pac. 557, 66 L.R.A. 967, 1 Ann. Cas. 832; Demuth v. Cutler, 50 Me. 298; Moore v. Hall, 48 Mich. 143, 11 N. W. 844; Wintermute v. Torrent, 83 Mich. 555, 47 N. W. 358; Roberts v. Snow, 27 Neb. 425, 43 N. W. 241; Robinson & Carson v. Crandall & Vincent, 9 Wend. (N. Y.) 425; Ward v. Tyler, 52 Pa. St. 393; Farmers Bank v. Penn Bank, 123 Pa. St. 283, 16 Atl. 761, 2 L.R.A. 273; 8 Cyc. 83. Such an indorsee is the real party in interest within the meaning of the Code. Anderson v. Reardon, 46 Minn. 185, 48 N. W. 777; Minnesota Thresher Mfg. Co. v. Heipler, 49 Minn. 395, 52 N. W. 33; Seybold v. National Bank, 5 N. D. 460, 67 N. W. 682; Mead v. National Bank of Fayetteville, 6 Blatchf. 186, Fed. Cas. No. 9,366. In such a case courts will never inquire whether a plaintiff sues for himself or as trustee for another nor into the right of possession unless in an allegation of mala fides. 2 Daniel Neg. Inst. § 1191.

3. Rock County Nat. Bank v. Hollister, 21 Minn. 385, cited by appellant, is not inconsistent with this rule. There the indorsement was restrictive in form. The words used were: "Pay to Rock County National Bank * * * for collection." Such an indorsement does not confer the right to sue. The distinction between such restrictive indorsement and an unrestricted indorsement is generally recognized. Rock County Nat. Bank v. Hollister has repeatedly been distinguished on this ground. Jackson v. Sevatson, 79 Minn. 275, 278, 82 N. W. 634; Seybold v. National Bank, 5 N. D. 460, 67 N. W. 682; Roberts v. Snow, 27 Neb. 425, 43 N. W. 241; 7 Cyc. 808.

4. Appellant contends that, though the indorsement was unrestricted, it was perfectly competent to show that the checks were in fact held for collection; that in such case the indorsee was the agent of the indorser; that the agency was revocable; and that a settlement with the indorser is a defense to an action by the indorsee. It is undoubtedly competent to show that, although the indorsement is in terms absolute, the paper was in fact indorsed and delivered for collection. In re State Bank, 56 Minn. 119, 57 N. W. 336, 45 Am. St. 454. It does not follow, however, that the rights conferred on the indorsee are in such case revocable by the indorser, or that the indorser can deprive the indorsee of his rights by a settlement with the drawer of the checks. If the agency...