Dakin v. Bayly

• Decision Date: 20 November 1933
• Docket Number: No. 44,44
• Citation: 90 A.L.R. 999,78 L.Ed. 229,54 S.Ct. 113,290 U.S. 143
• Parties: DAKIN v. BAYLY
• Court: U.S. Supreme Court

290 U.S. 143

54 S.Ct. 113

78 L.Ed. 229

DAKIN

v BAYLY.

No. 44.

Argued Oct. 20, 1933.

Decided Nov. 20, 1933.

Messrs. Donald C. McMullen, of Tampa, Fla., and George B. Springston, of Washington, D.C., for petitioner.

Messrs. Melvin A. McMullen and Thomas Hamilton, both of Clearwater, Fla., for respondent.

Mr. Justice ROBERTS delivered the opinion of the Court.

This was an action on the common counts and on an account stated brought in the United States District Court for Northern Florida by the receiver of First National Bank of St. Petersburg, Fla., against the People's Bank of Clearwater, Fla., a state bank. In addition to pleas of the general issue, the defendant pleaded specially that the St. Petersburg bank was indebted to the defendant in a sum in excess of plaintiff's claim, by virtue of the delivery to defendant of four drafts drawn by plaintiff on the Chase National Bank of New York to the defendant's order which had been dishonored.

The plaintiff replied that certain checks or drafts drawn on the St. Petersburg bank or other banks in St. Peters- burg were deposited for collection with the Clearwater bank; were forwarded by the Clearwater bank to the St. Petersburg bank for collection; the St. Petersburg bank collected the items drawn on it by charging the accounts of its depositors and those on other local banks by settlement of balances with them; the four drafts in question were sent to the Clearwater bank as remittances of the amounts so collected, pursuant to the collection letters accompanying the checks; neither bank carried an account or deposit in the other, and for a long period each bank had been sending checks and drafts to the other for collection and remittance; and averred that, by reason of the facts stated, there was no mutuality in the debts or demands existing between the parties at the time the action was brought, and the defendant was not entitled to the set-off sought in its pleas. The District Court sustained a demurrer to the replication, and, as plaintiff refused to plead further, entered judgment for the defendant for the excess of its demand. The plaintiff appealed to the Circuit Court of Appeals, where the present respondent was substituted as appellee; the Clearwater bank having gone into liquidation. That court affirmed the judgment (63 F.(2d) 592), and, upon the plaintiff's petition, we granted certiorari.

The statute of Florida¹ permits set-off of 'demands mutually existing * * * at the commencement of the action.' The question is whether the debts were mutual. The Circuit Court of Appeals answered in the affirmative, basing the decision on the section of the Florida statutes which provides:² 'The holder of a negotiable instrument may sue thereon in his own name; and payment to him in due course discharges the instrument,' saying that since the Clearwater bank might maintain a suit in its own name for the amount due by the petitioner, the demand might be set off; and that it was a matter of no concern to the petitioner whether the Clearwater bank held the checks for collection or for value. The petitioner urges that this holding bases the right of set-off upon a rule of procedure and ignores the substantive requirement that the demands must be mutual in quality; and says that the debt of the St. Petersburg bank was not to the Clearwater bank, which was a mere collecting agent, but to the depositors. The conclusion is that, while the Clearwater bank individually owed the receiver of the St. Petersburg bank, the latter did not own the former, but at best the claim was made as an agent. If this be true, set-off may not be allowed, for a defendant sued upon his individual debt may not avail himself for this purpose of a demand against the plaintiff held in a fiduciary capacity. Central National Bank v. Connecticut Mutual Life Ins. Co., 104 U.S. 54, 26 L.Ed. 693; Libby v. Hopkins, 104 U.S. 303, 26 L.Ed. 769; Western Tie & Timber Co. v. Brown, 196 U.S. 502, 25 S.Ct. 339, 49 L.Ed. 571; United States v. Butterworth-Judson Corp., 267 U.S. 387, 394—395, 45 S.Ct. 338, 69 L.Ed. 672; Thomas v. Potter Title & Trust Co. (D.C.) 2 F.Supp. 12.

Were the cross-demands of the parties of the same quality, or, to state it otherwise, did each claim from the other in the same right? In the ordinary case the unrestricted indorsement and deposit of checks with the Clearwater bank would create the relation of debtor and creditor, and the bank would collect the items, not as agent for the depositors, but as owner. Exchange National Bank v. Third National Bank, 112 U.S. 276, 5 S.Ct. 141, 28 L.Ed. 722; City of Douglas v. Federal Reserve Bank of Dallas, 271 U.S. 489, 46 S.Ct. 554, 70 L.Ed. 1051. A statute of Florida, however, requires of the bank of deposit only due diligence in the forwarding of such a check for collection and in the absence of negligence conditions liability for the amount of the check on receipt of final payment from the collecting bank.³ The parties are presumed to have contracted with reference to this statute (Federal Reserve Bank v. Malloy, 264 U.S. 160, 44 S.Ct. 296, 68 L.Ed. 617, 31 A.L.R. 1261), and the situation is as if they had expressly agreed that the Clearwater bank was to act as agent only and was not to become the debtor of the depositors unless and until it had received actual and final payment of the checks. Since, then, the Clearwater bank acted as the agent of depositors in forwarding checks to the St. Petersburg bank, the depositors have a right of action against the latter for any default in collection or remittance. Federal Reserve Bank v. Malloy, supra. See, also, City of Miami v. First National Bank (C.C.A.) 58 F. (2d) 561. The Florida courts have reached the same conclusion. Atlantic National Bank v. Pratt, 95 Fla. 822, 116 So. 635; Edwards v. Lewis, 98 Fla. 956, 124 So. 746; Myers v. Federal Reserve Bank, 101 Fla. 407, 134 So. 600.

Much is made of the absence of any showing that the Clearwater bank did not credit the depositors in account immediately on receipt of the items for collection; but, in the absence of evidence to the contrary, we must assume the relation was what the statute made it—one of mere agency rather than one of debtor and creditor. As was said in the Malloy Case, the effect of the statute might be avoided by agreement or by clear and certain custom known to the depositor, but no such agreement or custom was pleaded by the defendant. The replication asserts the checks were deposited with the Clearwater bank for collection and were forwarded to the St. Petersburg bank for collection and remittance, and the defendant's demurrer admits these averments. On this record we are bound to hold that the St. Petersburg bank stands in the relation of agent to the individual depositors of the items and is liable to them for failure to remit cash or equivalent in satisfaction of the amounts collected. The Clearwater bank must therefore sue as representative or agent of depositors, for a recognition of its right to sue as owner would destroy the cause of action of the depositors against the St. Petersburg bank or leave that bank subject to a possible double liability. If the cross-demand is asserted in an agency capacity, the debts are not held in the same right by the two banks, lack mutuality, and the one cannot be set off against the other; if it is asserted by the Clearwater bank as owner of the drafts, the demand cannot be maintained, for the reason that no showing is made that the agency relationship was altered to that of debtor and creditor.

The respondent, however, seeks to support the judgment on another ground. He says that the Clearwater bank accepted the drafts, forwarded by the St. Petersburg bank, as payment, thus assumed ownership of them, acknowledged the change in the relationship to its depositors from that of collecting agent to that of debtor, and so properly pleads the offset. We think this position cannot be maintained.

As respects the set-off of cross-demands, the rights of the parties became fixed at the moment of the insolvency of the St. Petersburg bank and consequent suspension of payment, Scott v. Armstrong, 146 U.S. 499, 511, 13 S.Ct. 148, 36 L.Ed. 1059; Davis v. Elmira Savings Bank, 161 U.S. 275, 290, 16 S.Ct. 502, 40 L.Ed. 700; and the right to set off is governed by the state of things existing at the moment of insolvency, not by conditions thereafter arising, Yardley v. Philler, 167 U.S. 344, 360, 17 S.Ct. 835, 42 L.Ed. 192, or by any subsequent action taken by any party to the transaction, Evansville Bank v. German-American Bank, 155 U.S. 556, 15 S.Ct. 221, 39 L.Ed. 259. What, then, was the situation as disclosed by the record, when the St. Petersburg bank closed its doors? That bank, as subagent for the Clearwater bank's depositors, had made collection and sent the drafts for the amount to the Clearwater bank. It is incorrect to say that the St. Petersburg bank paid the amounts collected by forwarding drafts to the Clearwater bank, or that the Clearwater bank upon receipt of the drafts was bound to accept them as payment and its depositors were likewise thereupon bound to treat the agency of the Clearwater bank and that of the St. Petersburg bank as ended and the relation of debtor and creditor as established between them and the Clearwater bank. Equally inaccurate is the assertion that receipt and retention of the drafts required the Clearwater bank, unless its depositors asserted ownership of them, at once to credit the depositors with the amount of the items represented by the drafts. The bank was not bound to assume the relation of debtor until, in the words of the statute, it had received final payment, i.e., cash or its equivalent, and we should not presume that it did so.

Until these drafts were paid, the subagent had not discharged the obligation resting upon it, and remained liable to suit by the persons whose checks had been forwarded for collection and remittance. Bank of Washington v....