Exchange Nat. Bank v. Johnson

• Decision Date: 15 March 1887
• Citation: 30 F. 588
• Parties: EXCHANGE NAT. BANK v. JOHNSON and others.
• Court: U.S. District Court — Western District of Tennessee

30 F. 588

EXCHANGE NAT. BANK v. JOHNSON and others.

United States Circuit Court, W.D. Tennessee.

March 15, 1887

McCorry & Bond, for plaintiff.

Pitts &amp Hays and Mr. Meeks, for defendants.

HAMMOND J.

The verdict in this case for the defendants is well supported by the proof upon at least one ground not at all affected by the objections taken on this motion for a new trial to the charge of the court. I do not see how the jury could escape finding that Ferry, Davis & Co. were the agents of the plaintiff bank for the collection of the note, be its ownership or interest whatever it may have been. The statement of the principal clerk and the president, that they were not agents for collection, and were never authorized, is utterly worthless being merely their opinions or conclusions upon that issue of fact, and not their testimony as to the existence of certain substantive circumstances and transactions from which the issue might be determined by the jury, whose province it was to draw the proper inference of fact as to the agency from the circumstances, and not from the opinions of the witnesses. They might affirm, certainly, that there had never been any formal appointment of the firm as agents for that purpose, but when they are asked, 'What authority had Ferry, Davis & Co. at any time to collect said note?' and they answer, 'They had no authority,' or, 'They had no authority whatever, verbal or written,'-- the testimony can go no further than such an affirmation, and is entitled to no weight beyond that.

Out of the well-known facts of the case the agency is established notwithstanding these opinions of the contrary, and on the cross-examination of the president it is substantially admitted. Being asked why the bank did not for nearly two years take any step towards the collection of this note, and others of similar character 'discounted' for Ferry Davis & Co., he replied: 'Up to the time of their failure they were profuse in their promises and statements that the parties whose notes were held were going to make them shipments of cotton and peanuts to cover their indebtedness, and that they would promptly sell and take up the notes. After their failure, and as soon as we were able to get their books and accounts, we immediately, through our attorneys, commenced proceedings to enforce the collection of these notes and accounts. ' And subsequently, referring to this answer, he was asked if he was not willing and anxious that that should be done; to which he replied, 'Yes.' This was an agency abundantly sufficient to justify the makers in paying the note to Ferry, Davis & Co., and the facts show that the bank never for an instant contemplated payment in any other way until, after the failure of Ferry, Davis & Co., this somewhat discreditable attempt to compel the makers to pay it a second time was conceived. It is, considering the circumstances, taking an unfair advantage of the equivocal situation in which the makers were placed, and of which they never had any knowledge.

Counsel for the defendants sought to raise an estoppel here, and asked a charge to that effect, which was refused, because the defendants did not know anything of the facts,-- did not even know that the bank held the note, and of course did not, in making the payments, act upon, or rely in the least upon, the circumstances sought to be used to invoke the doctrine of estoppel. As the court told the jury, the defendants acted most recklessly, and in their own wrong, to pay the note to the original payees without demanding its production, or satisfying themselves that it had not been transferred to some one else having alone the right to collect it; and, under the commercial law, there could be neither sympathy with them, nor relief for them, if they found afterwards that some other holder was entitled to the payment. Yet there could be no doubt of their right to meet this demand by the bank for repayment by showing that the payments they had already made to the original holder were authorized by the bank itself, as they undoubtedly were. The truth is, it is somewhat a misnomer to call the transaction a 'discount' of the note by the bank. It took that form, undoubtedly, and so entered into the book-keeping processes as a 'discount,' but, in substance and fact, it was the transfer of the note, either in payment of, or as collateral security for, a pre-existing indebtedness to the bank. It is wholly immaterial which it was, since there was, in either case, an agreement between the original holder making the transfer and the bank that the original holder, and not the bank, would collect the note, and apply the proceeds to the payment of the note itself, or to the indebtedness secured.

Counsel for the plaintiff seem correctly to gauge the transaction when they argue that it was not a pledge, either in payment of or as collateral for any particular debt, but only a pledge to secure 'a line of credit' for the depositors' account with the bank; the object being to place the title in the bank as a security for whatever should be due on the depositors' account, either in the shape of notes, indorsements, or overchecks, though the bank, as usual in such cases, goes through the forms of 'discount,' deposits, 'memorandum,' or 'call' notes, renewals, and the like, with the evident convenience of thereby saving its tolls due for interest, discount, charges, etc., and preserving its usual style of bookkeeping. Neither can it be denied that the bank is as much under the protection of the commercial law with regard to such paper as if the transaction were in both form and substance what it seems to be in form. Nevertheless, be its holding what it may, if the bank delegates to its customer the power and duty of making collections for it, and receiving payment of the note, it cannot dispute the validity of such payments if its customer become unfaithful, and does not pay over the collections.

If anything more than the confession of the president of the bank, already adverted to, be needed to support this finding by the jury, let it be remembered that the makers were country merchants, residing in a small village on the Tennessee river, remotely situated from railroads and the centers of commerce; that they were dealers in produce, and Ferry, Davis & Co. were their factors; that it was the intention of both parties to have the note paid by shipments of produce to that firm, and not, after the manner of banks, in money at the counter of the bank, although it is in terms payable at another than the plaintiff bank; that the plaintiff did not at maturity demand payment, either at the bank where the note was payable on its face, or of the makers; neither did the plaintiff, when the note was about to mature, give any notice that it held the note, as was the usual course of business with ordinary paper to be collected by the bank, either on its own account or for customers; nor did the plaintiff give any notice or demand any payment at any time after maturity, but silently held the note for nearly two years from August 4, 1883, the date of its 'discount,' until after the failure of Ferry, Davis & Co., on February 8, 1885, and then only put it out for collection in April, 1885. There is some little pretense in the testimony of the principal clerk that this indulgence was on account of short crops, and given as a favor to the makers; but this witness appears, on the fact of the deposition, to say nothing of the confession of the president and the other proof,-- to be quite unreliable in his statements; and the jury, no doubt, found the facts as stated above, and their judgment should be conclusive.

Now, I do not wish to be misunderstood here. It is conceded that the makers can find no sort of excuse in these circumstances to evade the rule of the commercial law that payment must be made to the assignee of the note for value before maturity, and without notice; that the bank was not bound to give notice of the transfer to it; that, as concerns the makers, it was not bound to demand payment, at maturity or afterwards, anywhere; that it might, during the whole period of the statute of limitations, silently hold the note without demanding payment, and that these indulgencies or want of notice could be no defense to the makers, paying, however ignorant they may have been of the situation, to any one else than the holder of the note. It was their business to assure themselves that the person to whom payments were made was the person entitled to receive payment. These facts and circumstances are not in that sense to be relied on as any defense to this action, but they are, under the peculiarities of this case, conclusive evidence of an agreement, express or implied, between the bank and its customer, that the latter should collect the note; whereby, fortunately for the defendants, the payments were authorized, even if the note did belong to the bank.

Nothing more is needed to sustain the verdict, but I think I should not set it aside if this feature were wanting. It is quite evenly balanced, on other facts, whether the note did belong to the bank or to Ferry, Davis & Co., and, perhaps, a verdict either way should not be set aside. Notwithstanding the appearances already noticed, the relation between Ferry Davis & Co. and the bank, in regard to this and other 'country paper' held by them, and 'discounted' to the bank, might be, in fact, misunderstood by either, and perhaps was never very clearly and definitely determined at all by anything that was agreed between them upon the subject; and certainly nothing in proof here makes it clear what this relation was. There are abundant opinions of witnesses, but no precise facts that settle the controversy, and, as before remarked, the...