Mellon Nat. Bank v. Citizens Bank & Trust Co.

• Decision Date: 18 February 1937
• Docket Number: No. 10757.,10757.
• Citation: 88 F.2d 128
• Parties: MELLON NAT. BANK v. CITIZENS BANK & TRUST CO. OF CAMDEN, ARK., et al.
• Court: U.S. Court of Appeals — Eighth Circuit

88 F.2d 128 (1937)

MELLON NAT. BANK v. CITIZENS BANK & TRUST CO. OF CAMDEN, ARK., et al.^*

No. 10757.

Circuit Court of Appeals, Eighth Circuit.

February 18, 1937.

COPYRIGHT MATERIAL OMITTED

Benjamin E. Carter, of Texarkana, Ark. (A. L. Burford and Willis B. Smith, both of Texarkana, Ark., on the brief), for appellant.

J. E. Gaughan, of Camden, Ark. (T. J. Gaughan and E. E. Godwin, both of Camden, Ark., on the brief), for appellees.

Before GARDNER, THOMAS, and FARIS, Circuit Judges.

GARDNER, Circuit Judge.

This case was treated as a suit in equity below, although the only substantial relief sought was damages for the loss of certain Travelers Cheques issued by appellant and sent to the appellee Citizens Bank & Trust Company for sale. We shall refer to the parties as they were designated in the lower court.

The suit was tried on stipulation of facts, from which it appears: That between November 5, 1931, and June 21, 1933, certain Travelers Cheques issued by plaintiff were delivered to defendant Citizens Bank & Trust Company to be sold and delivered by it to purchasers. These cheques were in denominations of $20 each, and were in substantially the following form:

"20 $20 Travelers Cheque for $20 20" Signature of Holder ........................No Mellon National Bank Pittsburgh, Pennsylvania. Through its Correspondents will pay to the order of ............Date of Issue.... In the United States In other countries Twenty Dollars $20.00 at Bankers Buying Rate of Exchange for Checks of New York.

When countersigned with the above signature and presented within one year from date of issue.

MELLON NATIONAL BANK OF PITTSBURGH Countersign B. W. Lewis, Cashier here "20 20."

These cheques were delivered by plaintiff to defendant Citizens Bank & Trust Company and accepted and receipted for by said defendant pursuant to a form of receipt reading as follows:

"Trust Receipt.

"Received in trust from the Mellon National Bank its Travelers Cheques, executed in blank, as follows:

                  ..Nos.   to   Inclusive   for    $10.00   each
                  ..Nos.   to   inclusive   for    $20.00   each..
                  ..Nos.   to   inclusive   for    $50.00   each..
                  ..Nos.   to   inclusive   for   $100.00   each..
                  ..Nos.   to   inclusive   for   $200.00   each..
                

say, in all, ...... Dollars, $ ...... for which we accept the responsibility of due issue at a price not to exceed 100¼% of their face value and agree to account for same to said Mellon National Bank, as issued at 99¾% of said face value, the proceeds to remain as a trust fund until payment has been made in cash to the Mellon National Bank. We further agree to return to said Mellon National Bank, when called upon so to do, any of these cheques remaining in our hands, and should any of them be lost, stolen or surreptitiously put into circulation while in our possession, we agree to account for them in the same manner as if they had been regularly issued by us; and notice to said bank of such loss or theft, or notice to stop payment of such cheques, shall not be a bar to or prevent said bank from paying same when presented.

"CITIZENS BANK & TRUST CO., "Camden, Ark. ............................. Cashier-Treasurer. "Date .............193.."

The cheques here in controversy are similar to those issued by other banks and express companies. They are sold to purchasers who at the time of purchase are required to sign them in the presence of the selling agent. They contain a blank line or space for signature of the holder, on or in which the holder signs his name when the cheque is transferred or cashed. This is for the apparent purpose of enabling the transferee to determine by comparison of signatures that the person presenting same is the bona fide holder thereof.

The trust receipt above set out was signed by the cashier of said defendant bank. He had not by any formal action of the board of directors been authorized to execute such an instrument, nor had the form of instrument been approved by any formal action of the board of directors; neither did the directors have any knowledge of the provisions of the trust receipt, and did not ratify the action of the cashier in signing same, except to the extent that they were chargeable with notice from the following facts.

For some time prior to November 5, 1931, the bank had been selling these cheques and continued to sell them up to the date of a robbery of the bank on June 21, 1933, and it was known to customers of the bank that it had such cheques for sale, and signs advertising for sale Travelers Cheques of the Mellon National Bank were displayed in the office of the bank. Receipt of said cheques and the sales thereof were from time to time entered on the books of the bank, and the payment made for them by the bank to the Mellon National Bank when sold were entered on the books of the bank, and the profits accruing from such sales were entered on the books. The cheques while in the possession of the bank were kept in a steel safe with other valuable securities of the bank. On the 21st of June, 1933, a band of armed men entered the bank and robbed it, forcing one of the employees to open the locked door of the steel safe and to take therefrom the securities, including the cheques in question, and they were carried away by the robbers. The officers of said defendant bank notified the Mellon National Bank by wire of the robbery, but not-withstanding this notice, the Mellon National Bank honored such of the cheques as were presented, by cashing them to the amount of $3,780. Later the robbers were apprehended and $800 face value of the Travelers Cheques were recovered and have been cancelled. Approximately $530 face value of the cheques are still out-standing, and have not been cancelled nor paid. The cheques which were cashed after the robbery were put in circulation, either by the robbers or by persons who obtained them from the robbers, but bore the signatures of persons purporting to be the holders thereof. The cheques paid by the Mellon National Bank after the robbery were cashed at various towns in the States of New York, Minnesota, Illinois, Indiana, Maryland, the District of Columbia, and Canada, but came to the Mellon National Bank through regular banking channels. They were apparently in regular form, bearing nothing on their face to charge any person with notice that they were stolen or that they had not been regularly issued. Before commencing this action, the plaintiff made demand for 99¾ per cent. of said $5,110 face value of the cheques. The bank received no compensation for the handling of these cheques, unless and until they were sold by it, in which event it retained 50 cents per $100 face value. There was no claim of any negligence on behalf of said defendant bank.

On these stipulated facts the lower court entered findings of fact and conclusions of law in favor of defendant Citizens Bank & Trust Company, expressing the view that (1) the trust receipt was a contract of guaranty which said defendant did not have authority to execute and its attempt so to do was an ultra vires act; (2) that if the bank had such authority, it could not be exercised by the cashier, and hence the act of the cashier did not bind the bank; and (3) that the Mellon National Bank was not obligated to pay the cheques that had been stolen, and for that reason its act in so doing created no liability so far as said defendant bank was concerned.

Plaintiff has appealed from the judgment entered, challenging the correctness of the lower court's conclusions of law.

Whether the defendant Citizens Bank & Trust Company had authority to enter into the trust receipt agreement depends upon the nature of that agreement. The lower court was of the view, and appellee Citizens Bank & Trust Company here contends that the contract was one of guaranty. The Supreme Court of Arkansas in First Nat. Bank of Ft. Smith v. Nakdimen, 111 Ark. 223, 163 S.W. 785, 786, Ann.Cas.1916A, 968, referring to a contract of guaranty, said: "`A guaranty,' as is stated in one of the encyclopedias of law, `is a collateral undertaking by one person to be answerable for the payment of some debt or the performance of some duty or contract for another person who stands first bound to pay or perform. There can only be a contract of guaranty where there is some principal or substantive liability to which it is collateral; if there is no debt, default, or miscarriage of a third person either present or prospective, there can be nothing upon which to base a contract of guaranty.' 20 Cyc. p. 1397."

A "guaranty" is a collateral agreement, and it imports the existence of two different obligations, one that of the principal debtor, and the other that of the guarantor. See, also, Border Nat. Bank v. American Nat. Bank (C.C.A.5) 282 F. 73; Merchants' Nat. Bank v. Citizens' State Bank, 93 Iowa, 650, 61 N.W. 1065, 57 Am. St.Rep. 284; Tidioute Savings...