Grant County Deposit Bank v. Greene

• Decision Date: 16 December 1952
• Docket Number: No. 11501.,11501.
• Citation: 200 F.2d 835
• Parties: GRANT COUNTY DEPOSIT BANK v. GREENE.
• Court: U.S. Court of Appeals — Sixth Circuit

200 F.2d 835 (1952)

GRANT COUNTY DEPOSIT BANK v. GREENE.

No. 11501.

United States Court of Appeals, Sixth Circuit.

December 16, 1952.

John E. Shepard, Covington, Ky. and L. M. Ackman, Williamstown, Ky. (L. M. Ackman, Williamstown, Ky., and John E. Shepard, Covington, Ky.), for appellant.

Weldon Shouse, Lexington, Ky., on the brief, for appellee.

Before SIMONS, Chief Judge, and ALLEN and MARTIN, Circuit Judges.

MARTIN, Circuit Judge.

Grant County Deposit Bank, a Kentucky corporation, has appealed from a judgment for $5,020.62 (with interest on separate portions thereof from specified dates) entered by the district court on the verdict of a jury in favor of O. M. Greene, a resident citizen of Georgia. A directed verdict was ordered in the same action against J. W. Eckler of Williamstown, Grant County, Kentucky. Eckler has not appealed.

The cause of action accrues from the manner in which the bank breached its duty to Greene, a live-stock dealer, in the handling of drafts drawn by him on J. W. Eckler, a cattle buyer, to whom Greene had sold and shipped numerous consignments of cattle, the purchase price of which was covered by the several drafts. The cattle sold by Greene to Eckler were shipped in carloads directly to the latter, and a sight draft for each shipment was drawn by Greene upon Eckler and deposited in the Citizens Bank and Trust Company of Bainbridge, Georgia, which attached instructions to each draft and forwarded the same for collection to the appellant bank at Williams-town, Kentucky. The instructions attached and forwarded to appellant with each draft were: "This is a cash item, do not hold. If not paid on presentment, return immediately, wiring nonpayment."

During the period beginning April 1, 1949, and ending June 24 of the same year, fifteen drafts by Greene upon Eckler were deposited in the forwarding bank of Bainbridge, Georgia, and were transmitted by that institution to the collecting bank, appellant here. The first twelve drafts were collected after considerable delay in each instance. As to these drafts, the time lapse between the date of deposit in the forwarding bank and the date of collection by the collecting bank ranged from eleven to twenty-five days, with an average of about two weeks.

The thirteenth draft was in the amount of $4,487.45, and was deposited by Greene in the Citizens Bank and Trust Company at Bainbridge, Georgia, on May 25, 1949. This draft was not paid by Eckler, on account of the unsatisfactory condition of the cattle shipped, but was, at his direction, returned by the appellant bank. It was subsequently paid, however, by the Blue Grass Stock Yards at Lexington, Kentucky, which bought the cattle.

The fourteenth and fifteenth drafts in the series are the only two involved in this litigation. Of these, one in the amount of $4,673.55 was deposited by Greene in his forwarding bank on June 15, 1949. Partial settlement was made by Eckler on this unpaid draft by delivery of a carload of pigs of an allowed value of some $3,000, by two cash payments of $500 each, and by a small credit for interest. This settlement left $669.92 unpaid, which amount was included in the judgment awarded against the appellant bank.

No payment was made by Eckler on the fifteenth and final draft of $4,350.70, which was deposited by appellee in his bank at Bainbridge, Georgia. The judgment entered in the district court on the verdict of the jury was for the total of the unpaid balance of the fourteenth draft and the entire amount of the fifteenth draft: namely $5,020.62.

The gist of the charges made by appellee Greene against the appellant bank are that the bank was grossly negligent in handling the drafts forwarded to it for collection. See Exchange National Bank v. Third National Bank, 112 U.S. 276, 5 S.Ct. 141, 28 L.Ed. 722; that the bank had made misrepresentations to appellee as to the solvency and net worth of Eckler; and that the bank, knowing Eckler was insolvent, had fraudulently for the purpose of deceiving appellee given incorrect information as to the true financial condition of Eckler. See principle stated in Restatement of the Law, Agency, sec. 384(c), p. 857; see, also Bank of British North America v. Cooper, 137 U.S. 473, 11 S.Ct. 160, 34 L.Ed. 759.

The appellant sets forth in its brief that the appellee expressly and by his acts and conduct ratified the transactions between him and his customer, Eckler; that the trial judge, under the pleadings and evidence, should have granted the motion of the appellant bank for a directed verdict at the conclusion of the evidence introduced by appellee and renewed by appellant upon conclusion of the introduction of all the evidence in the case; that the trial judge should have sustained the motion of appellant to alter and amend the judgment by dismissing so much of the complaint as attempted to allege a cause of action against appellant; and that the district court should have sustained appellant's motion for a new trial, which embraced an allegation of newly discovered evidence, "the existence and nature of which was not known and could not have been known by reasonable diligence on the part of this defendant at the time of the trial, or prior thereto."

Vickers, President of the forwarding bank in Georgia, testified as to the interpretation to be given the instructions quoted herein which were sent along with each draft. Asked whether the instructions afforded the collecting bank the right to present the drafts for acceptance or for payment only, he replied that the drafts were to be paid, or returned, and that he had no thought that the collecting bank, after acceptance of a draft by the drawee, would continue to hold the draft, with no notice to the forwarding bank. The cashier of appellant bank admitted that he received the collection instructions and placed the same interpretation upon them as had the forwarding bank. He admitted that his bank failed to follow these instructions.

The record discloses that the drafts were not honored by Eckler upon presentation; yet, no notice of that fact was given by appellant to the Georgia bank until the several drafts were returned at delayed intervals, heretofore stated. Before it became an agent for appellee as his collecting bank, appellant was a substantial creditor of Eckler, well aware of his weak financial condition, and had itself denied him further credit. Notwithstanding this, by the manner in which it handled the drafts appellant really extended credit from Greene to Eckler contrary to the instructions received from appellee's Georgia bank.

This court has had recent occasion to affirm a judgment of the same district judge against the appellant here in a case bearing similarity to that at bar. Grant County Deposit Bank v. McCampbell, 6 Cir., 194 F.2d 469. There, where the drawer of a sight draft deposited it with a forwarding bank under instructions to forward the draft to the Grant County Deposit Bank for presentation and collection with instructions accompanying the draft stating that if it were not paid upon presentation the forwarding bank should be notified by telegram, we held that the Grant County Deposit Bank was the agent of the drawer and that its failure to disclose knowledge of the drawee's depressed financial circumstances and to follow instructions concerning notice of dishonor was such breach of duty as rendered the Grant County Deposit Bank liable for the resulting loss to the drawer. In that case, no fact issue was presented. This court affirmed the action of the district court in sustaining a motion for summary judgment in favor of the plaintiffs.

In the instant controversy, issues of fact were presented upon which the court submitted the case to the jury under appropriate instructions, fully protective of appellant's lawful rights. A chief insistence of appellant is that the actions of the appellee Greene, in permitting the delayed collection of the drafts prior to the time when the last two were returned unpaid and in subsequently attempting to collect from Eckler without making any claim against appellant bank, constitute such ratification of the acts of the appellant as to relieve it of liability to appellee.

In response to the first branch of this argument, it would seem that the continued explicit instructions from appellee's forwarding bank to appellant to handle each draft as a cash item did not constitute a waiver of its liability in failing to follow previous like instructions as to the other drafts. It is well to observe that there was substantial evidence of numerous complaints registered by the Georgia bank, by letter and in telephone conversations, of the delay by appellant in collecting the drafts and transmitting the proceeds.

An answer to the second branch of appellant's argument would seem to be that it had no right to complain of the efforts of appellee on his own to collect from Eckler the delinquent payments. Collection of such would have relieved the bank of liability. The conduct of appellee did not require a change of position by appellant or in any manner serve to prejudice it.

Embry v. Long, 256 Ky. 266, 269, 270, 75 S.W.2d 1036, 1038, best states the principles of Kentucky law relative to questions of ratification and estoppel insofar as applicable to this case. The Court of Appeals of Kentucky declared: "It is a fundamental factor in cases of estoppel that ratification of an unauthorized act of an agent to be made binding on a principal must have been done with a full knowledge of all the material facts, and if they have been suppressed or unknown, the ratification is treated as invalid. * * * The foundation of the doctrine of estoppel by silence is punishment for fraud and that not constructive or legal but actual fraud. * * * Remaining passive does not...