Van Namee v. President of the Bank of Troy , 5 How. Pr. 161 ( 1850 )

Hand, Justice.

There is no evidence of any express agreement that the Bank of TrOy should have a lien upon the notes sent to it for collection by the Canal Bank. The defence then must be sustained, if at all, it seems on the ground of their lien as bankers. As a general rule, a banker has a general lien on all securities in his hands belonging to a customer for the general balance due from the latter (2 Kent, 641; 2 Sel. N. P., 539; Davis vs. Bowsher, 5 T. R. 488). But on the other hand, if the securities do not belong to the debtor but to a third person, prima facie the real owner may claim them unless divested of that right by his own act or assent (Saltus vs. Everett, 20 Wend. 267; Hoffman vs. Carow, 22 Wend. 318). The note in controversy in this case undoubtedly belonged to the plaintiffs, and was endorsed by them and placed in the Canal Bank for the purposes of collection merely; and they should have the avails unless the defendants are authorized to treat it as their own or the property of the Canal Bank, or can insist upon a lien as against that bank. As the plaintiffs treated it as negotiable, and gave possession of it to the Canal Bank, and the Canal Bank made an endorsement payable to the defendants, the instrument carries upon it evidence of the legal title’s being in the defendants. This, however, will not avail them if they are not in a situation to be considered bona fide holders. If they had notice that the note did not belong to the Canal Bank, or if the circumstances known to them were such as to put them upon inquiry; in short, if they have not the right of possession of a bona fide holder, they can not hold it as against the owner.

Notwithstanding the general rule above laid down in regard to a banker’s lien; there is another rule equally as well settled, that this lien may be controlled by and dependent upon circumstances, Almost every opinion establishing the right affirms the qualification. In Davis vs. Bowsher (supra), Lord Kenyon recognized the lien upon the securities in the banker’s hands for a general balance, “ unless there be evidence to show that he received any particular security under special circumstances which would take it out of the common rule” (5 T. R. 491). And the late Chancellor Kent says it is “subject equally to be controlled by special circumstances (2 Kent, 641). The recent case in the Court of Appeals (1849), of Clark vs. The Merchants’ Bank (2 Comst. 380), to which my attention has been called, was not one of lien. Clark & Co., the plaintiffs, were , brokers in Philadelphia, and Smith & Co. were brokers in New York; and they were collecting agents for each other, and business correspondents, and had been for years; and usually, though not always, drew against paper sent for collection. Each kept two accounts, one (No. 1,) contained the remittance of plaintiffs to Smith & Co. and the other (No. 2,) the funds of Smith & Co. transmitted to plaintiffs. The plaintiffs on the 15th of the month sent a sight draft by a house in Richmond on a house in New York for $7000, endorsed to the plaintiffs and by them to Smith & Co., with other paper, a list of which was headed “ For account No. 1.” in all amounting to over $17,000, beside other paper amounting to between $2000 and $3000, for collection; and the plaintiffs sent in the same communication their drafts on Smith & Co. amounting to over $20,000, all of which was received by Smith & Co. on the 16th, who presented the draft for $7000 to the drawee on that day and received a check on the Phenix Bank, New York, which, on the same day, Smith & Co. endorsed and deposited with defendants, who received the money in the usual course of business on the 17th. Smith & Co. failed on the 16th and did not pay the drafts of plaintiffs upon them, and on the 18th the plaintiffs claimed the proceeds of the check of the drawees and afterwards sued the defendants. The Court of Appeals held that it was sent to be placed to the credit of plaintiffs to be drawn against in the usual course of business, and that plaintiffs could not recover; and reversed the judgment of the Superior Court of New York in their favor. Gardiner, J., in delivering the opinion of the court, put it upon the ground that the check was transmitted to be credited to the plaintiffs, and not for collection. Brandáo vs. Barnett is reported three times. It was first decided in the Common Pleas in 1840 (1 M. & G., 908), next in the Court of Exchequer Chamber in 1843 (6 id. 630), and lastly in the House of Lords in 1846 (3 M. G. & S. 519). Burn was tiie agent for many years of Brandáo, who at first resided at Rio de Janeiro and after in Portugal. Burn bought on account of the plaintiff and with plaintiff’s money, certain exchequer bills and deposited them in a tin box which he kept at his bankers, the defendants, he retaining the key of the box. Whenever it became necessary to receive the interest on the exchequer bills, and to exchange them for new ones, Burn was in the habit of taking them out of the box and giving them to the defendants for that purpose, such being the usual course of business, after which new exchequer bills were handed over to be locked up by Burn in the box; the amount of interest received by defendants being passed to the credit of Burn’s account; but the exchequer bills themselves were never entered to Burn’s credit. The defendants had no knowledge or notice that the bills were not the property of Burn. On the 1st of December 1836, Burn took the exchequer bills out of the box and gave them to defendants to obtain the interest and new bills, which was done on the 20th of December by the defendants. Burn was unwell when he delivered the bills to them,, and afterwards grew worse, and was, in consequence, out of town three or four weeks; and was generally absent until his failure on. the 23d day of January, up to which time the new bills remained in the possession of the defendants. When he failed he had largely overdrawn his account with the defendants and had drawn out and paid in large sums during the time the bills were in their hands. The exchequer bills were transferable by delivery. The plaintiff never knew who were Burn’s bankers till he failed, nor did the defendants ever receive any information of any transaction between Burn and the plaintiff. The suit was brought for the new exchequer bills so received by defendants ; and which had not been returned to Burn as above stated. The defendants claimed that they had a lien upon the bills for the general balance due to them from Burn. The Court of Common Pleas gave judgment for the plaintiff. Tindall, C. J., admitted the general lien that bankers have upon the securities of their customers in their hands, unless there be some thing to show that such lien was not intended to arise; but he. said this lien arises like other liens out of contract, and this contract being between the banker and the customer, could not take away the rights of other parties ; and he thought that nothing had passed between Burn and defendants amounting to a representation that Burn owned the bills or that he had authority to pledge them. That had he pledged them, he would have been guilty .of a statutable misdemeanor, and there was nothing to show .that to be his intention.

The Court of Exchequer Chamber reversed this judgment. Lord Denman, C. J., delivered the opinion of the court and said that the right of bankers does not extend to all securities which may happen to be in their hands for any purpose, but to such only as come to their hands as bankers in the way of their business, and he considered that although the bills were delivered for a particular purpose, that purpose was the performance of a duty as bankers; and that they came to defendants’ possession in the course of business. That negotiable securities, transferred by delivery to a bona fide holder for value, are deemed, with respect to such holder and to the extent of the rights acquired by him by the transfer, as the property of the person transferring, whether the transfer be express or implied; and the bona fide holder acquires a title which did not belong to the person who gave them to him. And that the defendants had a lien upon the bills for the general balance due to them from Burn.

The House of Lords reversed the decision of the Court of Exchequer Chamber. Lord Campbell delivered an opinion in which Lord Lyndhurst (Ld. Chancellor) briefly concurred. They disapproved of the doctrine laid down by Tindall, C. J., in the Court of Common Pleas, that the defendants had no lien because the bills did not belong to Burn. On this point they concurred with Lord Denman, that the bills being negotiable by delivery, that defendants had a right to consider them the property of Burn without any express representation by him to that effect. That the holder of negotiable securities is to be assumed to be the owner, and third persons, acting bona fide, may treat him as such; and that a lien in such cases may exist although the securities should turn out to be the property of a stranger. And as to the lien of bankers, they concurred with Lord Kenyon in Davis vs. Bowsher (supra). But they held there could be no lien in this case, because, under all the circumstances, these exchequer bills could not be considered as deposited with the defendants as bankers. That the defendants procured the new exchequer bills for the "express and only purpose of delivering them up to Burn that he might deposite them in the tin box, which would give them no lien, and if they had no lien when they obtained them, no lien would afterwards be obtained by the overdrawing of Burn.

The case of the Bank of Metropolis vs. New England Bank, came before the Supreme Court of the United States twice. Once in 1843 (1 How. 234), and again in 1848 (6 How. 212). The Bank of the Metropolis in the District of Columbia, had been for a long time dealing and corresponding with the Commonwealth Bank of Massachusetts, which failed on the 13th day of January 1838.

They had mutually remitted for collection such bills, &c. as either might have which were payable in the vicinity of the-other, which, when paid, were credited to the party sending them in the account current kept by both banks, and regularly transmitted from one to the other, and they regularly settled upon these principles, charging postage, protests, &c. &c. the balance being sometimes in favor of one and sometimes of the other. On the 24th of November 1837, the Bank of the Metropolis owed the Commonwealth Bank $2200, and in the latter part of that year the Commonwealth Bank sent to the Bank of the Metropolis for collection in the usual way sundry paper which would fall due in February, March, April, May and June following. They were endorsed by E. P. Clarke, cashier, who was the cashier of the New England Bank, payable to C. Hood, cashier, who was cashier of the Commonwealth Bank, and by him to G. Thomas, cashier, who was cashier of the Bank of the Metropolis. On the day the Commonwealth Bank failed, its cashier wrote a letter to the Bank of the Metropolis directing it to hold the paper that had been so forwarded “subject to the order of the cashier of the New England Bank, it being the property of that institution.”

The N. E. Bank sued the Bank of the Metropolis for the proceeds of all the paper sent, and the court below gave judgment for the N. E. Bank. The cashier of the Commonwealth Bank testified that they were never the property of the Commonwealth Bank, nor had that bank any interest therein, but they were, at the time of the receipt thereof and ever after, the property of the New England Bank and subject to its order and control. At this time the Commonwealth Bank was indebted to the Bank of the Metropolis about $2,900. The notes, &c. were endorsed by the cashier of theN. E. Bank without consideration, and were placed in the hands of the Commonwealth Bank for the mere purpose of collection. On the cause coming back to the Supreme Court the second time, the court said the jury should have been instructed, that if upon the whole evidence; they should find that the Bank of the Metropolis at the time of the mutual dealings between them and the Commonwealth Bank, had notice that the latter had no interest in this paper, and transmitted it to the bank of the Metropolis for collection merely, as agent, then the Bank of the Metropolis could not retain it as against the New England Bank for a general balance due to the Bank of the Metropolis from the Commonwealth Bank. And if the Bank of the Metropolis had not such notice and regarded and treated the Commonwealth Bank as owner, still it could not retain the paper against the real owner unless credit had been given to the Commonwealth Bank or balances suffered to remain in the hands of the latter to be met by the negotiable paper transmitted or expected to be transmitted in the usual course of dealings between the two banks. But if the jury.found that in their dealings the Bank of the Metropolis had regarded and treated the Commonwealth Bank as the owner of the paper so transmitted for collection, and had no notice to the contrary, and upon the credit of such remittances made or anticipated in the usual course of dealings between them, balances from time to time were suffered to remain in the hands of the Commonwealth Bank to be met by the proceeds of such negotiable paper, then the Bank of the Metropolis could retain said paper as against the New England Bank for the balance of account due from the Commonwealth Bank.

These cases declare the law within the jurisdiction of these courts of last resort, respectively. The principles they maintain applied to the principal case are fatal to the defendants. They received the note for collection merely. For, notwithstanding the words “for account” in the letter and which perhaps referred to the two items carried out, such was the testimony. It is to he supposed from their own practice and experience and from their knowledge of business generally, that they knew that a large amount of the paper they received from the Canal Bank was placed there for the sole purpose of collection. This was notice enough,to put them upon inquiry; and at least sufficient to prevent them from relying upon these notes as securities for advances or for a balance, and brings the case within the principles laid down in Bank of the Metropolis vs. New England Bank (supra). Under such circumstances they were bound to know that, at most, they had no lien except upon paper owned by the Cánal Bank. By the usual course of their dealings between the two banks, no credit was given for a note sent, until the defendants had collected it. The bank sending it could recall it any time; and when a note was dishonored it was immediately returned and the expenses charged. The defendants in this case, after the Canal Bank failed, took back what was uncollected by the Canal Bank, by them before sent to that bank.

But what seems wholly inconsistent with any implied contract for a lien, on every Monday all balances were paid up. This note was in the hands of the defendants between three and four weeks before the Canal Bank failed, and consequently the two banks squared all accounts two or three times during that time; and had not the Canal Bank failed, they would have settled and paid all up on both sides probably many times before this note became due. This wholly repels the idea of any contract for a lien, expressed or implied. The plaintiffs failed in Clark vs. The Merchants’ Bank, because it was clear that the draft was not sent for collection but to be credited; and the defendants failed in Brandāo vs. Barnett, because they received the bills (or the new ones in exchange) to return again, which was inconsistent with a lien, even as against Bum. In the case of the Bank of Metropolis vs. New England Bank, the court held the former must maintain a position similar to that of a bona Jide purchaser, that is, for value and without notice. And Brandan vs. Barnett comes to nearly the same point. Here, as we have seen, the note was sent for collection merely, and by the course and practice of the business, it was to be returned when called for at any time before it was collected, and also if not collected.

Thus, in some important particulars, coming within the principles laid down in the cases to which I have already adverted. It may be added, that as against the plaintiffs in this cause, the defendants could not retain the note for a preexisting debt due from the Canal Bank (Stalker vs. McDonald, 6 Hill, 93).

So that suffering former balances to remain in the hands of the Canal Bank on the strength of such paper would not give to the defendants title as against the real owner, though perhaps it would be different in cases coming before the Supreme Court of the United States (Swift vs. Tyson, 16 Pet. 1).

And it would seem that the defendants may be treated by the plaintiffs as their agents (Bank of Orleans vs. Smith, 3 Hill, 560), unless the defendants are in a position to insist upon their mere legal title, on the ground that they are bona fide holders, in the sense of that term in this state, which we have seen is not the case. There must be judgment for the plaintiffs.