Mechanics'-American Nat. Bank v. Coleman

• Decision Date: 10 February 1913
• Docket Number: 3,814.
• Citation: 204 F. 24
• Parties: MECHANICS'-AMERICAN NAT. BANK v. COLEMAN.
• Court: U.S. Court of Appeals — Eighth Circuit

204 F. 24

MECHANICS'-AMERICAN NAT. BANK v. COLEMAN.

No. 3,814.

United States Court of Appeals, Eighth Circuit.

February 10, 1913

[Copyrighted Material Omitted]

Walter H. Saunders, of St. Louis., Mo., for appellant.

George M. Block, of St. Louis, Mo. (F. H. Sullivan, of St. Louis Mo., on the brief), for appellee.

Before HOOK and SMITH, Circuit Judges, and VAN VALKENBURGH, District judge.

VAN VALKENBURGH, District Judge.

The appellant is a national banking corporation of St. Louis, Mo. The appellee is the trustee in bankruptcy of the Embree-McLean Carriage Company, a corporation, formerly doing business in the same city. About May 1st, 1910, the president of the appellant bank learned that the Carriage Company had negotiated with said bank forged notes to the extent of about $20,000. Immediately thereafter a meeting of the directors of the Carriage Company was held, at which the president of the bank was present, and at this meeting it was determined to elect an employe of the bank secretary of the Carriage Company, and place him in charge of its affairs. It was at first suggested that a receiver be appointed for the Carriage Company, but to this the president of the bank objected until an expert accountant should make an examination of the financial condition of the company, agreeing that the bank would discount the bills receivable of the company sufficiently to carry the concern until its true condition could be determined by such examination. Inasmuch as the bank was the largest creditor of the Carriage Company, holding its obligations in an amount exceeding $70,000, this suggestion of its president was adopted. The expert accountants were employed and made their report July 10, 1910. This report showed so conclusively that the Carriage Company was insolvent that, by common consent of all interested, a petition in bankruptcy was filed against it on the 15th day of July, 1910, and thereafter, on August 2, 1910, said company was adjudicated a bankrupt. Shortly thereafter, the bank filed its claim against the Carriage Company which, in a net amount of $24,950.36, was duly allowed. Included in this claim were 13 notes aggregating approximately $21,596. Each of said notes was secured by pledged collateral, and contained the following clause:

'In case said above note is not paid when due and payable and the same is placed in the hands of an attorney for collection we agree to pay to the holder thereof 10 per cent. additional on the principal and interest due thereon as an attorney's fee.'

At the time the bank filed its original claim, to which reference has been made, no mention was made of this clause, nor was any allowance asked thereunder.

August 2, 1911, on the last day of the year following the adjudication, the appellant filed what it called a supplemental proof of claim made up of various items aggregating $9,303.52; one of which, for $2,159.60, was based upon the clauses allowing 10 per cent. for attorney's fees. This additional claim was allowed by the referee; thereafter, the trustee filed his motion to reduce this supplemental claim of $9,303.52 by the amount asked for attorney's fees, as aforesaid, or at any rate that such fees be fixed at a reasonable amount for services actually rendered, if any. At the hearing of this motion before the referee it was shown that, at the time it was decided that an expert accountant should examine the affairs of the Carriage Company, the president of the bank assured the officers of that company that, if the course suggested by him was adopted, the business would go on until an examination could be made, and that there should be no change in the situation until the result of that investigation could be known. Mr. Hill, the bank's president, testified, however, that some time in May, 1910, and therefore during the period of investigation referred to, he placed these notes in the hands of Mr. Saunders, the bank's attorney. He told Saunders that he had learned that $20,000 of forged or fictitious paper of the Carriage Company had been discounted at the bank; that he wanted Saunders to take these notes and collect them whenever it was necessary, and to 'keep him (Hill) straight on the felonious part of handling forged notes and getting the money for them. ' He testified further that Saunders took the notes to his office, and returned them to the bank in a few days. They were made payable, on demand, at the appellant bank; and to satisfy this provision Saunders made formal demand for payment upon Hill, the president of the bank. No demand, however, was made upon the Carriage Company, nor was this action communicated to that company, nor any one in charge of its affairs. No suit was brought or contemplated. Mr. Hill testified that he gave no directions to Saunders; that he knew that if suit were to be brought on the notes at any time prior to the report of the expert accountants it would precipitate proceedings in bankruptcy; that he knew the company had no money with which to meet its obligations to the bank, but that all its receipts were being deposited in the bank; that he did not want suit to be brought, because he did not desire proceedings in bankruptcy to be instituted. However, when the report of the experts came in it was immediately resolved to appeal to the bankruptcy court. Consequently no action upon the notes themselves was either taken or contemplated by the bank's attorney, other than to make the formal demand to which reference has been made. Meantime, the bank did proceed, in the usual course, to collect the collateral held as security, and Saunders, as attorney for the bank, was consulted, and advised the bank as to its rights and its attitude toward this collateral. He did not, however, have charge of the collateral, which remained with the bank, and was handled by its officers and employes in the usual manner. Respecting the services of Saunders, President Hill testified as follows: 'Q. What did Saunders do in relation to the collection of these notes between the time that you say you gave them to him in May and the time you got the Price, Waterhouse report? A. I don't know what he did except he did a great deal of work and made us do a great deal of work.

'Q. In relation to this? A. I said that.

'Q. What were you called upon to do during that time? A. Give collateral, due dates, and everything that was had and anything that we thought good.

'Q. You mean simply looking up the collateral? A. Yes, sir.

'Q. Well, I am talking about the principal notes with reference to the Embree-McLean Carriage Company; what, if any, steps did he take against the Embree-McLean Carriage Company, do you know? A. I really don't know.

'Q. Did he take any steps, do you know? A. He made demand on us for the payment of them.

'Q. You were not an officer in the Embree-McLean Carriage Company? A. No, sir; but these notes were payable at our bank.'

Mr. Hill stated frankly that he had no agreement with Saunders as to what fee the latter should receive for any services rendered the bank in connection with these notes; that all he expected to pay was a reasonable compensation for services actually performed.

Appellant, in the hearing before the referee, stood upon the clause in the note, providing a collection fee of 10 per cent., as conclusive, and offered no testimony as to the value of the services rendered. This was the view adopted by the referee, by whom the motion of the trustee to reduce the supplemental claim of the bank was overruled. The order of the referee overruling this motion was taken to the District Court for review, where the same was disapproved and reversed, and the position of the trustee sustained. From this order the bank brings its appeal to this court.

The position of counsel for appellant is that a clause in a note stipulating for an attorney's fee, provided the note is placed in the hands of an attorney for collection, is valid, enforceable, and conclusive as to amount; that such is the law of the state of Missouri, in which this contract was made, and therefore binding upon this court. The proposition, as stated, cannot be accepted in its entirety. The question here presented is one which falls within the domain of general or commercial law. It involves simply the construction and effect of recitals in negotiable instruments, and no question of right under the Constitution and statutes of a state. In such matters the decisions of the state court are not controlling in the federal tribunals.

'It is not only the privilege, but the duty, of the federal courts, imposed upon them by the Constitution and statutes of the United States, to consider for themselves, and to form their independent opinions and decisions upon, questions of commercial or general law presented in cases in which they have jurisdiction, and it is a duty which they cannot justly renounce or disregard. ' Independent School Dist. v. Rew, 111 F. 1, 49 C.C.A. 198, 55 L.R.A. 364.

The doctrine thus announced by this court finds abundant confirmation in the decisions of the Supreme Court of the United States. The thirty-fourth section of the Judiciary Act of 1789, declaring that the laws of the several states shall be regarded as rules of decision in trials at common law in the courts of the United States in cases where they apply, is limited in its application to state laws strictly local. It does not extend to contracts or other instruments of a commercial nature, the true interpretation and effect whereof are to be sought, not in the decisions of the local tribunals, but in the general principles, and doctrines of commercial jurisprudence. In such cases it is the right and duty of the national courts to exercise their own judgment. Swift v. Tyson, 16 Pet. 1, 10 L.Ed. 865; Burgess...