Safety Motors v. Elk Horn Bank & Trust Co.

• Decision Date: 16 February 1954
• Docket Number: Civ. A. No. 554.
• Citation: Safety Motors v. Elk Horn Bank & Trust Co., 118 F. Supp. 872 (W.D. Ark. 1954)
• Parties: SAFETY MOTORS, Inc. v. ELK HORN BANK & TRUST CO. et al.
• Court: U.S. District Court — Western District of Arkansas

118 F. Supp. 872

SAFETY MOTORS, Inc. v.ELK HORN BANK & TRUST CO. et al.

Civ. A. No. 554.

United States District Court W. D. Arkansas, Hot Springs Division.

February 16, 1954.

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Owens, Ehrman & McHaney, Little Rock, Ark., for plaintiff.

Huie & Huie(for Citizens) Arkadelphia, Ark., Lookadoo, Gooch & Lookadoo, (for Elk Horn) Arkadelphia, Ark., for defendants.

JOHN E. MILLER, District Judge.

In order that the issues might be clearly presented, the Court will first state the substance of the pleadings filed in this case.

Complaint

On June 4, 1953, plaintiff filed its complaint against the defendants in which it alleged:

That plaintiff is an Illinois corporation engaged in the business of selling automobiles.Defendant, Elk Horn Bank and Trust Company, hereinafter referred to as "Elk Horn," is an Arkansas state banking corporation; defendant, Citizens National Bank, hereinafter referred to as "Citizens", is a national banking corporation; and both defendants have their principal places of business in Arkadelphia, Arkansas.

"During May, June and July, 1950, plaintiff delivered possession in Chicago, Illinois, of certain automobiles to J. R. Shepherd, d/b/a Shepherd Motor Co., of Arkadelphia, Arkansas, against sight bank drafts payable to the order of plaintiff drawn by Shepherd Motor Co. upon one or the other of defendant banks.* * Title papers to the aforesaid automobiles were attached to the drafts, which were then endorsed by plaintiff and deposited with the Marquette National Bank of Chicago, Illinois.The drafts were forwarded by the latter bank through the Chicago Clearing House and in turn reached The First National Bank of Chicago, which transmitted same to one or the other of defendant banks for acceptance and payment.The letters of transmittal from The First National Bank of Chicago, * * * instructed defendant banks in each instance to wire nonpayment of items $1,000 and over and to protest all items over $500.All of said drafts appeared on their face to be foreign bills of exchange."

Between and including the dates of June 26, 1950, and July 6, 1950, First National forwarded eleven drafts drawn upon Elk Horn to said bank for acceptance and payment; these drafts were in the total sum of $12,040.

"Defendant Elk Horn wilfully failed and refused to wire notice of nonpayment of said drafts and to protest same, as instructed by the corresponding bank.Defendant Elk Horn wilfully and knowingly failed and refused to return said drafts within twenty-four (24) hours after receipt or within any reasonable time, but, to the contrary, wrongfully retained said drafts forwarded to it between June 26 and July 3 until on or about July 8, 1950, and wrongfully retained said drafts forwarded to it on July 6 until on or about July 15, 1950."

Upon information and belief plaintiff alleges that Elk Horn, during the time it held said drafts, had sufficient funds of Shepherd Motor Company on deposit to pay said drafts, but wrongfully failed and refused to pay the same.

"The eight drafts forwarded to defendant Elk Horn between June 26 and July 3 were received back from said bank by the corresponding bank on July 10, 1950.Plaintiff inquired of Shepherd Motor Co. as to the reason said drafts had not been honored and was informed that the bank account of Shepherd Motor Co. had been moved to defendant Citizens National Bank and was instructed to change the name of the drawee bank to defendant Citizens.Accordingly, the aforesaid eight drafts were transmitted by the corresponding bank to defendant Citizens on July 12, 1950, for acceptance and payment.The three drafts forwarded to defendant Elk Horn on July 6 were received back from said bank by the corresponding bank on July 17 and were, in accordance with the instructions aforesaid, transmitted to defendant Citizens on July 19, 1950."

Between and including the dates of July 15, 1950, and July 31, 1950, First National forwarded to Citizens for acceptance and payment 16 additional drafts in the total sum of $16,709.04, said drafts being drawn upon Citizens and payable to the order of plaintiff.

"Defendant Citizens wilfully failed and refused to wire notice of nonpayment of said drafts and to protest same as instructed by the corresponding bank.Defendant Citizens wilfully and knowingly failed and refused to return said drafts within twenty-four (24) hours after receipt or within any reasonable time, but, to the contrary, wrongfully retained all of the aforesaid drafts until on or about August 5, 1950."

Upon information and belief plaintiff alleges that Citizens had sufficient funds on hand, during said time, to pay said drafts, but wrongfully failed and refused to pay the same.

Plaintiff prays judgment against Elk Horn for $12,040.04, together with interest thereon, and against Citizens for a total of $28,749.04, together with interest thereon.

Answer of Citizens National Bank

On July 11, 1953, defendant Citizens National Bank filed its separate answer in which it admitted the receipt of the drafts in question, but denied that said drafts were forwarded for acceptance and alleged that said drafts were in fact forwarded to it for collection and remittance.

Said defendant denied that it wilfully failed and refused to wire nonpayment of said drafts and to protest same, and alleged that on July 21, 1950, it notified First National that the drafts were drawn against uncollected funds, and on July 25, 1950, again notified it that said drafts were still unpaid; admitted that it did not protest said drafts, but denied that plaintiff was damaged thereby; admitted it did not return the drafts within twenty-four hours after receipt but denied that it did so wilfully and alleged that it returned said drafts within a reasonable time; denied that it was authorized by Shepherd Motor Company to pay said drafts.

Said defendant further alleged that said drafts were secured by automobile title papers attached to the drafts, and "by implied instruction of plaintiff said titles were to be examined by Shepherd Motor Company and payment of draft authorized by Shepherd Motor Company upon approval by it of the title papers attached to drafts; and upon payment of the draft by Shepherd Motor Company, the bank was then authorized to surrender the drafts and the title papers to the Shepherd Motor Company.That these instructions were well known to plaintiff herein.That because of these instructions well known to plaintiff herein it was customary to hold such drafts for a longer period of time than ordinary unsecured commercial paper, and plaintiff by its action agreed to such course of conduct on the part of defendant."

Said defendant also alleged:

That Shepherd Motor Company never approved the titles or authorized payment of said drafts, and within a reasonable time Citizens returned the drafts and title papers to plaintiff; that no act of defendant deprived plaintiff of possession or right to possession of the automobiles.

Shepherd never had sufficient funds in its account to pay all the drafts defendant had received for collection, and Shepherd designated the drafts it desired paid from the funds to its credit.

Many of the drafts received by Citizens were materially altered in that the name of the original drawee had been changed or altered.Said drafts were dated several weeks prior to the time they were forwarded to Citizens, had previously been dishonored, were past due and not negotiable, and plaintiff knew said facts and, if entitled to notice of nonpayment and dishonor, by its action waived its right to such notice.

Plaintiff did not negotiate said drafts within a reasonable time, and transmitted said drafts when it knew that previous drafts were still uncollected and unpaid, and thereby waived any right it may have had to notice of non-payment and dishonor.

That any damage sustained by plaintiff was caused by its own negligence.Plaintiff, as a used car dealer, delivered possession of the automobiles to Shepherd at the time of taking the drafts; that said transaction was not a cash sale, but a credit transaction, "since Plaintiff did not deliver title papers to Shepherd Motor Company but attached same to the drafts, Plaintiff knowing at the time that Shepherd Motor Company would have to make financial arrangements to pay said drafts.Said drafts were made out under Plaintiff's supervision and direction and Plaintiff was to all intents and purposes the drawer of the drafts.It was never Plaintiff's intention that the bank accept the drafts, otherwise it would have made the necessary financial arrangements with the bank and have made the title papers to the bank.On the other hand, the title papers were made to Shepherd Motor Company and it was clearly the intention of the parties that the title papers be surrendered to Shepherd only on payment of the drafts.

Even if the transaction was intended as a cash sale, plaintiff knew, because of former dealings with Shepherd and because the first drafts sent Citizens had been previously dishonored, that the drafts would not be paid promptly, and by continuing to accept the drafts and to turn the automobiles over to Shepherd it was selling the cars on credit and intended to look to Shepherd for its pay.

"When the Plaintiff knew that the drafts were not paid, it was its duty at that time to reclaim the cars and protect itself or to have notified Defendant immediately that it was going to look to the bank for payment, but it did not do this — it elected to proceed against Shepherd, and when it found Shepherd was insolvent and had disposed of the cars, and after the lapse of nearly three years, it comes into court and elects to try and hold Defendant liable for the purchase price of the cars when it had deliberately turned the cars over to Shepherd and had enabled him or his employees to dispose of same; Plaintiff is now trying to hold an innocent par...