Security Nat. Bank of Sioux City, Iowa, v. Old Nat. Bank of Battle Creek, Mich.

• Decision Date: 22 February 1917
• Docket Number: 4688.
• Citation: 241 F. 1
• Parties: SECURITY NAT. BANK OF SIOUX CITY, IOWA, v. OLD NAT. BANK OF BATTLE CREEK, MICH.
• Court: U.S. Court of Appeals — Eighth Circuit

241 F. 1

SECURITY NAT. BANK OF SIOUX CITY, IOWA, v. OLD NAT. BANK OF BATTLE CREEK, MICH.

No. 4688.

United States Court of Appeals, Eighth Circuit.

February 22, 1917

George C. Scott and John R. Carter, both of Sioux City, Iowa (Wm Milchrist, H. W. Pitkin, H. W. Brackney, and Homer B. Carter all of Sioux City, Iowa, on the briefs), for plaintiff in error.

C. M Stilwill, of Sioux City, Iowa (D. C. Shull, F. E. Gill, and J. U. Sammis, all of Sioux City, Iowa, on the brief), for defendant in error.

This is an action by the Old National Bank of Battle Creek, Mich., against the Security National Bank of Sioux City, Iowa, on the latter's draft in favor of the former for $4,670.37 on the Continental & Commercial National Bank of Chicago, which was issued and mailed to the plaintiff on August 1, 1913, was duly presented for payment and protested, but never paid, and the action resulted in a judgment for the drawee for the amount of the draft, interest, and costs. The defense was that the draft had been issued and mailed to the plaintiff by the Security Bank for the purpose of transmitting to the plaintiff the proceeds of the collection of 4 promissory notes made by the Western Implement Company, a partnership, in business at Sioux City, payable to the order of the Michigan Buggy Company, a corporation of Michigan, indorsed by the latter, discounted by the plaintiff, and sent by it to the Security Bank, at which they were payable, for collection. The case was tried by the court under a stipulation that the jury was waived, that the statement embodied in the stipulation was 'a statement of all the facts material to the issues involved in the case,' that the court might make special findings which should embody the facts stipulated, 'and also such material facts as the court may find from the testimony of certain witnesses. ' The court made 33 special findings of fact. It is conceded that the first 31 are sustained by the agreed facts; the thirty-second and thirty-third findings are challenged, on the ground that they are not supported by the stipulation and the evidence, and upon this ground, and upon the ground that the findings of facts are insufficient to sustain the judgment, a reversal is sought. Laying aside the 2 findings assailed, the first 31 disclose these facts:

The Michigan Buggy Company was a corporation manufacturing and selling automobiles, with its principal place of business at Kalamazoo, Mich., and the Western Implement Company was a copartnership selling automobiles and having its principal place of business at Sioux City, Iowa. After March 1, 1913, and until some time in August of that year, it was engaged in receiving, on consignment from the Michigan Company, automobiles for sale by it. About March 1, 1913, the Implement Company made and delivered to the Michigan Buggy Company its 4 promissory notes, aggregating $4,675.07, payable to the order of that company, at the Security Bank, on August 1, 1913. These notes were made and delivered by the Implement Company, without consideration, for the accommodation of the Michigan Company; but they were in form regular commercial paper, and none of the parties in interest in this suit, except the Implement Company and the Michigan Company, had any notice that they were accommodation paper until after the transactions which conditioned the rights of the parties to this suit were completed. Prior to July 19, 1913, the Michigan Company indorsed and transferred these notes to the plaintiff, which discounted them in good faith for value. The plaintiff mailed them to the Security Bank for collection, and that bank received them on July 21, 1913. The Implement Company had made like accommodation notes for the Michigan Company to the amount of about $240,000, but neither the plaintiff nor the Security Bank had notice of this fact.

For about three years before August 1, 1913, the Implement Company had been and was a customer of the Security Bank, and as such had been accustomed to deposit with that bank checks of the Michigan Company on other banks, and to receive credit for them by that bank when they were deposited, and all such checks so deposited prior to July 30, 1913, had been paid in the regular course of business. On July 30, 1913, the Michigan Company was insolvent, but none of the other parties to these transactions had any notice of that fact until after the acts which fixed their rights herein had been performed. On July 26, 1913, the Michigan Company sent to the Implement Company 4 checks, aggregating $33,389.38, signed by itself, payable to the order of the Implement Company, 2 on banks in Kalamazoo, Mich., and 2 on banks in New York, with instructions to pay from the proceeds thereof the four notes owned by the plaintiffs and other like accommodation notes that were payable at the Security Bank on August 1, 1913. The Implement Company received these checks in the afternoon of July 30, 1913, deposited them to its credit in the Security Bank, which received them, credited them to the Implement Company in its general account, which was subject to checks of the Implement Company, and gave that company its duplicate deposit slip, showing a credit to the Implement Company of the aggregate amount of these checks. On the same day the Security Bank indorsed each of these checks with the words 'Prior indorsements guaranteed,' and with an order to pay it to the bank to which it sent it, and mailed the 2 checks on the Kalamazoo banks to the National Bank of the Republic at Chicago, and the 2 drawn on New York banks to the National City Bank of New York, for collection.

On the inside cover of the passbook which had theretofore been furnished to the Implement Company, and which it was accustomed to use in making its deposits, was this printed notice: 'Notice. Checks, drafts, and other papers received by us on deposit or for collection are taken at the depositor's risk only until we have received actual payment. We assume no responsibility for neglect or default of collecting agents. We reserve the right at our discretion, without liability, to forward items direct to drawee bank for returns. ' At the time the 4 checks, aggregating $33,389.38, were deposited, the account of the Implement Company showed a credit balance of only $2,074.63, and there were checks outstanding more than sufficient to absorb it. After the deposit of the 4 checks, and the deposit of another item of $4,166.15, and the deduction of a check of $87 paid, there appeared on the books of the bank at the close of business on July 30, 1913, and at the opening of business on July 31, 1913, a credit balance to the Implement Company of $39,543.16. Checks were drawn on this account and deposits made at will by the Implement Company, and on the opening of business on August 1, 1913, there appeared on the books of the bank a credit balance to the Implement Company of $38,269.13. In the absence of the credit of the 4 checks made by the Michigan Company, the Implement Company had not a sufficient balance on the books of the bank to warrant the payment of the 4 notes owned by the plaintiffs, or any like accommodation paper made by the Implement Company, nor had the Implement Company sufficient property to pay its accommodation paper, or any substantial percentage of it.

On August 1, 1913, Mr. Braskamp, one of the members of the partnership the Implement Company, brought into the Security Bank the check of the Implement Company on that bank for $12,932.50 to take up and pay 14 of its accommodation notes due on that day. Mr. Cummings, the assistant cashier of the bank, however, informed him that the bank had 19 such notes for collection, that he (Cummings) had prepared drafts for them, and asked him to give the bank the check of the Implement Company for $20,818.15. Thereupon Mr. Braskamp gave to the bank the check of the Implement Company upon the bank, payable to the bank, for $20,818.15, in payment of the 19 notes, 4 of which were the notes owned by the plaintiff. The bank on receipt thereof believed the Michigan Company's 4 checks had been or would be paid, charged the $20,818.15 to the Implement Company on its books, stamped each of the 19 notes paid, and surrendered them to their maker, the Implement Company. Thereupon the Security Bank took from the proceeds of the 4 notes owned by the plaintiff its usual commission for collection, drew the draft in suit for the balance of the proceeds, and caused it to be mailed to the plaintiff in the usual course of business, some time after 4:30 p.m., on the train from Sioux City to Chicago, due to leave Sioux City at 4:50 p.m. on August 1, 1913. Before the draft was mailed, the books of the bank had been closed for the day, and the transaction had been closed on those books.

There were other accommodation notes of the Implement Company, like those of the plaintiff, in addition to the 19 which it paid with its check for $20,818.15, which were payable at the Security Bank on August 1, 1913, and which the Michigan Company's checks for the $33,389.38 were sent to cover and the Implement Company on August 1, 1913, made and delivered to the following named banks, respectively, its checks on the Security Bank in payment of some of those notes, to wit: Its check for $943.15, payable to the order of the Iowa State Savings Bank, in payment of 1 such note; its check for $3,424.63, payable to the order of the Northwestern National Bank, in payment of 3 of such notes; and its check for $1,250.44, payable to the order of the Live Stock National Bank, in payment of 1 such note. All these checks were presented to the Security Bank through the Sioux City clearing house, and were honored and paid by that bank on the 1st day of August, 1913, and at the close of business that day the credit...