Lowrance Motor Company v. First National Bank

• Decision Date: 08 January 1957
• Docket Number: No. 16037.,16037.
• Parties: LOWRANCE MOTOR COMPANY, Inc., Also known as Lowrance Buick Company, Inc., and Winfred Lowrance, Appellants, v. The FIRST NATIONAL BANK OF AUBURN, Auburn, ALABAMA, Appellee. FIRST NATIONAL BANK OF AUBURN, Auburn, ALABAMA, Cross-Appellant, v. LOWRANCE MOTOR COMPANY, Inc., Also known as Lowrance Buick Company, Inc., and Winfred Lowrance, Cross-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

59 ALR 2d 1164, 238 F.2d 625 (1956)

LOWRANCE MOTOR COMPANY, Inc., Also known as Lowrance Buick Company, Inc., and Winfred Lowrance, Appellants, v. The FIRST NATIONAL BANK OF AUBURN, Auburn, ALABAMA, Appellee.

FIRST NATIONAL BANK OF AUBURN, Auburn, ALABAMA, Cross-Appellant, v. LOWRANCE MOTOR COMPANY, Inc., Also known as Lowrance Buick Company, Inc., and Winfred Lowrance, Cross-Appellees.

No. 16037.

United States Court of Appeals Fifth Circuit.

November 27, 1956.

Rehearing Denied January 8, 1957.

Frank M. Gleason, Rossville, Ga., for appellants.

John W. Maddox, Rome, Ga., J. A. Walker, Opelika, Ala., for appellee.

Before TUTTLE, CAMERON and JONES, Circuit Judges.

CAMERON, Circuit Judge.

The appellee, First National Bank of Auburn, Alabama (hereinafter called Bank), claiming to be the holder for value, sued appellant, Lowrance Motor Company, Inc. of La Fayette, Georgia (hereinafter called Lowrance) on four checks totaling $7,025.00¹ drawn by Lowrance on a Chattanooga bank in favor of Trent Moore Motors of Opelika, Alabama (called Moore) and, by Moore, deposited in his checking account in the Bank. Lowrance stopped payment on these checks and set up in defense of this civil action that the Bank was not a holder in due course, but was acting only as agent for the depositor Moore, against whom Lowrance claimed to have a good defense.

Both parties moved for summary judgments and the trial Court granted the Bank's motion, Lowrance appealing. The controlling question presented is whether the Bank which received the deposit of the checks sued on became a holder in due course by paying checks drawn against the deposit, even though the checks of Lowrance were endorsed restrictively and were received by the Bank on a deposit slip reciting that they were received merely for collection.² The record reflects a very complicated set of facts resulting from the dealings between Lowrance and Moore before the deposit and between them, the Bank and American Finance Corporation of Alabama (called Finance Company) after the deposit. But the main question here presented can be disposed of by application of settled principles of law to the crucial facts which are simple and uncontroverted.

On February 10th³ Moore endorsed the four checks given him by Lowrance thus: "Trent Moore Motors, Inc. by Trent Moore, For deposit to the credit of Trent Moore Motors"⁴; and filled out a deposit slip containing these printed words: "In receiving items for deposit or collection, this bank acts only as depositor's collecting agent. All items are credited subject to final payment in cash or solvent credit," and delivered them to the Bank. The deposit was passed at once to the credit of Moore without restriction. At the time of this deposit, Moore had $47.29 in his account.

On the same day the Bank received a letter from the Birmingham branch of the Federal Reserve Bank dated February 9th enclosing, along with other items, three checks of Trent Moore Motors and payable to and bearing the endorsement of Lowrance: check No. 481 dated January 30, 1954 in the amount of $1,800.00; check No. 497 dated February 6, 1954 in the amount of $1,865.00; and check No. 498 dated February 6, 1954 in the amount of $1,750.00.⁵ These three checks were paid by the Bank on February 10th out of the proceeds of the Lowrance checks above mentioned.⁶

February 12th, Lowrance⁷ wired Moore that it had stopped payment on the four checks "until other matters cleared up", but Moore did not advise the Bank of this until February 15th.⁸ The Bank also received a telegram on February 15th from its Atlanta correspondent stating that payment had been stopped. Before receiving this advice the Bank had paid out substantially the entire proceeds of the checks given by Lowrance and deposited by Moore, on which suit was brought.

Under these undisputed facts we think the Bank was the holder for value in due course of the four checks and was entitled to recover from Lowrance.⁹ The parties differ sharply as to whether Moore's endorsements on the four Lowrance checks were restrictive endorsements. We do not find it necessary to decide this point and will assume that the endorsements were restrictive. Nevertheless, it appearing without dispute that the Bank did pay value for the checks by giving immediate unrestricted credit and by permitting the credit to be withdrawn, the relationship between the parties was fixed by these undisputed facts rather than by what was written in the endorsement or on the deposit slip.

The form of the endorsement and of the deposit contract are matters about which the Bank and the endorser are free to agree. What the contract between the Bank and the depositor is rests upon their intention. There can be no doubt about the fact that Moore and the Bank intended that the full right of withdrawal should exist immediately upon deposit of the four checks. The law, as generally applied in such a situation, is thus stated in 9 C.J.S., Banks and Banking, § 221 b., pp. 473-476: "The effect of crediting commercial paper to the depositor's account at the time the deposit it is made, and prior to collection, with respect to the title thereto depends on the intention of the parties, to be determined from the evidence. * * * The immediate crediting of paper as cash, with a right to draw against the credit in advance of collection, will, as a general rule, transfer title to the paper to the bank of deposit in the absence of an agreement to the contrary, even where the paper has been indorsed restrictively * * *.

"Regardless of formal statements on a deposit slip, such as that deposits are accepted for collection only, or that items are credited conditionally or are subject to final payment, if the facts and circumstances surrounding the making of the deposit indicate that it was the intention of the parties that the depositor might draw against such deposit and he does so, the title to the items deposited thereupon passes to the bank. Moreover, an immediate credit with a right of withdrawal overcomes the effect of a statement in the deposit slip that the bank is an agent * * *."¹⁰

The Alabama rule is not in conflict with that above stated. Its Supreme Court declared, in Sherrill v. Merchants' & Mechanics' Trust & Savings Bank, 1915, 195 Ala. 175, 70 So. 723, 725: "A bank does not become a bona fide purchaser for value and without notice of a negotiable paper by simply discounting it for one not its debtor at the time and placing the amount to the credit of the holder by way of deposit. In such circumstances the act of discounting and of crediting only effects to establish the relation of debtor and creditor between the depositor and the bank; but, if the amount deposited to the checking account of the customer is exhausted before maturity or before notice of any defect, then the bank is a purchaser for value. Citing many cases."¹¹ We have considered the authorities relied upon by appellant Lowrance and find that they are not in conflict with these Alabama decisions or the principles here announced.¹²

Another principle of law well established in the decisions, and recognized in Alabama, confirms the Bank's right to recover here, keeping always in mind that its suit is against the drawer of the checks and not the endorser. The Alabama Negotiable Instruments Law, as contained in Title 39, § 50, Code of Alabama, 1940, provides: "Holder striking out indorsement, effect of, — The owner may at any time strike out any indorsement which is not necessary to his title * * *." In dealing with a situation such as is before us here arising under a similar South Carolina statute, the Court of Appeals for the Fourth Circuit said this:¹³ "It is argued, however, * * * that the authority of Link was in some manner limited because the checks cashed were indorsed `for deposit'; but we do not think that this indorsement affects the matter. It is provided by section 48 of the Negotiable Instrument Act, section 3699 of the S.C. Civil Code of 1922, that the holder may at any time strike out any indorsement which is not necessary to his title. If it could be stricken out, its restrictive character could be waived by the holder who was also the indorser * * *; and the acceptance of cash on the check when negotiating it constituted such waiver."¹⁴

Our holding that the Bank was a purchaser for value without notice of the checks sued on really disposes of the case, but we will discuss briefly some of the propositions so earnestly relied upon by Lowrance in the argument of the affirmative defenses interposed. Appellant argues that, by two transactions of February 17th, the Bank admitted that it had handled the four Lowrance checks for collection only and that it was looking to Moore alone to make it whole. It then procured Moore to give it a demand note for $7,025.00, on the face of which was placed this inscription: "This note is given as additional security for my endorsement of check of Lowrance Motor Company, Inc. in the total amount of $7,025.00 payment on which has been stopped." The Bank has made no demand for payment of this note.

About the same time, the Bank obtained from Moore the three cancelled checks Moore had given Lowrance and which the Bank had paid on February 10th. A piece of paper was attached by the Bank to each of these checks bearing these words: "Cancelled and paid in error against uncollected funds, being checks aggregating $7,025.00 drawn by Lowrance Motor Company, Inc. payable to and deposited by Trent Moore Motors, against which attached check was erroneously paid. Lowrance Motor Company, Inc. stopped payment on its said checks totaling $7,025.00. The First National Bank of Auburn, Auburn, Alabama, by Fred A. Duran, President." These checks were then sent back through regular channels in the hope that they would be charged back to the account of Lowrance, which had endorsed them. This course was pursued at the suggestion of the Bank's Atlanta correspondent, but...