Federal Reserve Bank of Richmond v. Kalin, 3957.

• Decision Date: 22 February 1936
• Docket Number: No. 3957.,3957.
• Citation: 81 F.2d 1003
• Parties: FEDERAL RESERVE BANK OF RICHMOND v. KALIN.
• Court: U.S. Court of Appeals — Fourth Circuit

81 F.2d 1003 (1936)

FEDERAL RESERVE BANK OF RICHMOND v. KALIN.

No. 3957.

Circuit Court of Appeals, Fourth Circuit.

February 22, 1936.

M. G. Wallace, of Richmond, Va. (G. H. Valentine, of Hendersonville, N. C., on the brief), for appellant.

Thomas H. Franks, of Hendersonville, N. C., for appellee.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

PARKER, Circuit Judge.

This is an appeal from a judgment in favor of the defendant in an action instituted to recover on a promissory note. On a former appeal we reversed an order dismissing the cause for lack of jurisdiction. Federal Reserve Bank of Richmond v. Kalin (C.C.A.4th) 77 F.(2d) 50. The note sued on was executed by defendant to the Citizens National Bank of Hendersonville, N. C., on October 14, 1930, and was payable two months after date at the banking house of that bank at Hendersonville. Two days after its execution it was discounted by the payee with plaintiff and has been held by plaintiff ever since. On November 20, 1930, shortly before the payee closed its doors, and twenty-four days before the note was due, defendant paid the amount thereof to the payee by a check on his deposit account with that bank, knowing at the time that the bank did not have the note in its possession. His defense was (1) that, in collecting the amount due on the note, the payee was acting as agent of the plaintiff and (2) that the action was barred by the three-year statute of limitations. The jury under special issues, submitted in accordance with the North Carolina practice, found that the note was not a sealed instrument, that action thereon was not barred by the statute of limitations, and that, in accepting payment thereof, the payee was acting as agent for the plaintiff. Judgment was thereupon rendered for defendant, and plaintiff has appealed, assigning as error the holding of the trial court that there was evidence to go to the jury on the issue of agency and the court's refusal to instruct the jury to answer that issue in favor of plaintiff.

We agree with plaintiff that there was no evidence to justify the submission of the case to the jury on the question of agency and that verdict should have been directed in its behalf. Defendant introduced no evidence to show that plaintiff had authorized the payee bank to collect the note sued on or any notes other than those sent payee from time to time for collection. Defendant contends, however, that, because of the connection between the Federal Reserve Bank and its branches, because payee did from time to time collect notes which it had discounted with or pledged to plaintiff and was allowed by plaintiff to withdraw such notes from its hands upon paying them or substituting others in their stead, and because plaintiff was accustomed to send to payee for collection at maturity notes which payee had discounted or pledged with it, the jury were justified in inferring that the payee was authorized by plaintiff to collect notes which had been discounted with it, even though they had not been sent to payee for collection. We cannot agree with this contention.

Plaintiff and its member banks are separate and distinct corporate entities, and no agency exists on the part of one to act in behalf of the others, except such as arises from contractual relationships sufficient to establish agency between any other banks. See Federal Reserve Bank v. Early (C.C.A. 4th) 30 F.(2d) 198, Early v. Federal Reserve Bank, 281 U.S. 84, 50 S.Ct. 235, 74 L.Ed. 718. So far as the collection of pledged or discounted notes in advance of maturity is concerned, the evidence as to this amounts to no more than that plaintiff on several occasions allowed the payee to substitute one note for another that had been pledged with it, or to pay before maturity notes which it had indorsed and discounted. Even if plaintiff had known, which does not appear, that these notes had been paid to the payee by the makers, this would not tend to show that plaintiff was holding out the payee as authorized to collect for it notes which it had not forwarded for collection. It shows nothing except that the plaintiff as holder of the notes was willing to accept payment or to accept one note in pledge in lieu of another.

The case on the question of agency, then, comes to this: Could agency on the part of the payee to collect notes discounted with and still held by plaintiff be inferred from the fact that plaintiff had been accustomed to send to payee for collection the notes which payee had discounted or pledged with it? Or, to state the question differently, should authority to collect notes not sent to payee, and not due, be inferred from authority to collect those that were sent to payee for collection on maturity? The authorities leave no room to doubt that this question must be answered in the negative. Cheney v. Libby, 134 U.S. 68, 82, 10 S.Ct. 498, 33 L.Ed. 818; Ward v. Smith, 7 Wall. 447, 19 L.Ed. 207; International Banking Corporation v. McGraw T. & R. Co. (C.C.A.6th) 259 F. 381, 386, 387; Ilgenfritz v. Mutual Benefit Life Ins. Co. (C.C.) 81 F. 27, 32; Carroll v. Zerbst (C.C.A.10th) 76 F.(2d) 961; Smith v. Kidd, 68 N.Y. 130, 23 Am.Rep. 157; Winer v. Bank of Blytheville, 89 Ark. 435, 117 S.W. 232, 131 Am.St.Rep. 102; Hoffmaster v. Black, 78 Ohio St. 1, 84 N.E. 423, 21 L.R.A.(N.S.) 52, 125 Am.St.Rep. 679, 14 Ann.Cas. 877; Wynn v. Grant, 166 N.C. 39, 81 S.E. 949, 954; Adler v. Interstate Trust & Banking Co., 166 Miss. 215, 146 So. 107, 87 A.L.R. 347, and note at page 359; 21 R.C.L. 28. By these cases the following rules are established: (1) That the payee of negotiable paper who has assigned it to another is not the agent of the holder for collection, even though the paper be made payable at the banking house of the payee; (2) that payment of money due on a written instrument to such a payee, who has neither possession of the instrument nor authority to receive the payment, will not discharge the instrument; (3) that authority to collect particular instruments which are intrusted to an agent for collection does not confer authority to collect others of which he is not given possession, and one who pays to him the amount of an instrument not in his possession does so at his own risk; and (4) authority to receive payment of an instrument upon maturity does not carry with it authority to receive payment before the instrument is due.

The leading case on the subject is Smith v. Kidd, supra, where Mr. Justice Rapallo, speaking for the Court of Appeals of New York, said: "If money be due on a written security, it is the duty of the debtor, if he pay to an agent, to see that the person to whom he pays it is in possession of the security. For though the money may have been advanced through the medium of the agent, yet, if the security do not remain in his possession, a payment to him will not discharge the debtor. Henn v. Conisby, 1 Ch.Cas. 93, note. And even the agent being usually employed in the receipt of money, does not in this instance constitute such authority as will serve the debtor. It has been so held in respect to money paid upon a bond to one who usually received money for the obligee, but who had not the custody of the bond in question (Gerard v. Baker, 1 Ch.Cas. 94), and even where the obligor had for several years paid the interest and part of the principal to an agent of the lender through whom the money had been borrowed, who had not the possession of the bond, but had regularly paid the money over to the obligee except the last payment, the obligor was adjudged to pay the last sum over again. For it was held, notwithstanding the hardship of the case, that the circumstance of the agent's having before received the interest and part of the principal, did not imply that he had any authority to receive it, but as long as he paid it over all was well, and any other might have carried it to the creditor as well as he."

As this case comes from North Carolina, it is of interest to note that the highest court of that state in Wynn v. Grant, supra, in a scholarly opinion by the late Justice Walker, approved the rule as stated in Smith v. Kidd and summarized the holding of that case as follows: "(1) Payment of money due on written security, to an agent who has not either possession of the security or express authority to receive such money, is not good, and the principal may compel the debtor to pay it again. (2) The facts that a loan is made through the agent, and that he has collected the interest, and that he has, in special cases, been authorized to...