Bank of Metropolis v. New England Bank, 42 U.S. 234 (1843)
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Scribd Government DocsBank of Metropolis v. New England Bank, 42 U.S. 234 (1843)
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Scribd Government Docs42 U.S.
234
1 How. 234
11 L.Ed. 115
THE PRESIDENT AND DIRECTORS OF THE BANK OF
THE
METROPOLIS, PLAINTIFFS IN ERROR,
v.
THE PRESIDENT, DIRECTORS, AND COMPANY OF THE
NEW
ENGLAND BANK, DEFENDANTS.
January Term, 1843
This case was brought up by writ of error from the Circuit Court for the
District of Columbia.
At the trial in the Circuit Court, it appeared upon the evidence that the
Bank of the Metropolis, one of the banking institutions of the District of
Columbia, had been for a long time in the habit of dealing and
corresponding with the Commonwealth Bank of Massachusetts. They
mutually remitted for collection such promissory notes or bills of
exchange as either might have, which were payable in the vicinity of its
correspondent, which, when paid, were credited to the party who sent
them, in the account current kept by both banks, and regularly transmitted
from the one to the other and settled upon these principles. The costs and
expenses, such as protests and postage, were, of course, charged in such
account.
The balance was sometimes in favour of one, and sometimes of the other.
On the 24th of November, 1837, the Bank of the Metropolis was indebted
to the Commonwealth Bank in the sum of $2200, and in the latter part of
the year 1837, the Commonwealth Bank transmitted to the Bank of the
Metropolis, for collection in the usual way, sundry drafts, notes, and other
commercial paper which would fall due in the ensuing months of
February, March, April, May, and June. They were endorsed by E. P.
Clarke, cashier, and made payable to C. Hood, cashier, and again
endorsed by C. Hood, cashier, to G. Thomas, cashier. Clarke was the
cashier of the New England Bank; Hood, of the Commonwealth Bank,
and Thomas of the Bank of the Metropolis.
On the 13th of January, 1838, the Commonwealth Bank failed, and on that
day Charles Hood, the cashier, wrote a letter to the Bank of the
Metropolis, directing them to hold the paper which had been forwarded, as
above stated, 'subject to the order of the cashier of the New England Bank,
it being the property of that institution.' When this letter was received, the
account was examined, and it was discovered that on that day the
Commonwealth Bank was indebted to the Bank of the Metropolis in the
sum of $2900.
The deposition of Charles Hood, which appeared to have been taken under
the act of Congress, was read in evidence by the defendant in error. It
stated, among other things, that 'the Commonwealth Bank never, at any
time, owned any of said notes or obligations, or any part or either of them,
and had never any right, title, interest, claim, or lien thereon, but that the
same were at the time of the receipt, and ever afterwards, the property of
said New England Bank, and subject to its order and control.'
The reading of this deposition was objected to in the court below, and
included in the bill of exceptions; but as the objection was not argued in
this court, it is presumed to have been abandoned.
The action was brought by the New England Bank against the Bank of the
Metropolis, and the judgment in the Circuit Court was in favour of the
plaintiff for the whole amount of the proceeds of the notes and bills in
question.
At the trial, a bill of exceptions was taken by the defendant, (the present
plaintiff in error,) which, after reciting the evidence, concludes as follows:
Whereupon, the counsel for defendants prayed the court to instruct the
jury, that, if they shall believe from the said evidence that the
Commonwealth Bank did for a series of years transact business with
defendants, and did from time to time transmit notes and other commercial
paper to defendants for collection, which were all treated by both parties
as if the same were the property of the said Bank of the Commonwealth,
who were credited in their account current with the proceeds, and charged
with the costs and expenses which accounts were from time to time
adjusted upon these principles; that the notes and paper mentioned in said
letter of 13th January, 1838, were endorsed and transmitted in the ordinary
course of business, without any notification that any other party or person
had any interest in said paper, were thus received by defendants, and held
by them; that while thus held by them, the said Commonwealth Bank
became insolvent or embarrassed in its circumstances, and after such
embarrassment the letters aforesaid of the 13th January, 1838, were
written, and at the time of their receipt by defendants, said embarrassed
state of said Commonwealth Bank was known to defendants, and there
was at that period a large balance on general account due defendants from
said Commonwealth Bank, and the said paper was all regularly endorsed
by the cashier of said Commonwealth Bank to defendants; the said
defendants had a right to receive said paper, and the proceeds when
recovered, until such balance was paid; and plaintiffs are not entitled to
recover; which instruction, as prayed, the court refused to give.
Coxe, for the plaintiff in error.
Bradley, for the defendant.
Coxe argued, 1. As to the law, supposing the Commonwealth Bank and
the Bank of the Metropolis to have been the only parties in the
transaction; and, 2dly, How far that law was changed by the intervention
of the New England Bank. On the first point, he cited 17 Wend. 100; 1
Ryan and Moodie, 271; 1 Rose's Cases, 280, 80; 5 T. R. 488, 491, 493; 1
Esp. Cases, 66; 2 Bla. Rep. 1154.
As to the second point, he argued that it must have been a secret trust
between the two eastern banks, which did not follow the specific paper;
and cited 1 Rose's Cases, 238, 242, 246, 248; 7 T. R. 355; 7 Mass. Rep.
319, 324; 2 Vesey, 585.
Bradley, contra. As to the question of lien, 3 Bos. and Pul. 494; 6 T. R. 14;
7 East, 224, that special liens must be sustained by proof; also Burrow,
2221; 6 East, 28; 1 Atk. 236. That the onus is on the person who claims a
lien, 7 Barn. and Cres. 212, in 14 Com. Law. Rep. 30; 3 Bro. Chan. Cases,
21. No lien for general balance on bills casually left. 7 Taunt. 278; see
also 3 Mason's Rep. 222; 1 Maule and Selw. 140; 2 Dall. 60; 1 East, 335;
8 Barn. and Cres. 622, or 15 Com. Law Rep. 319; 7 Bingh. 284; 20 Com.
Law. Rep. 130; Doug. 303; 3 T. R. 321; 1 P. W. 318; 3 P. W. 185; 1 Salk.
160; 1 Atk. 234; 2 Barn. and Ald. 327; 3 Barn. and Cres. 376; 1 Peters, 28,
30, 35.
Coxe, in conclusion, examined cases cited on the other side to show that
they did not apply, and argued that there was a special usage made out
between these two banks. In 1 Livermore on Agency, 261, cases
examined, and same distinction drawn as exists here.
Mr. Chief Justice TANEY delivered the opinion of the court.
If this were a question between the two Boston banks, and the case depended
upon their respective rights, the plaintiff in the court below would,
undoubtedly, have been entitled to recover; for it is admitted, that although the
notes and bills were endorsed to the Commonwealth Bank by the cashier of the
New England Bank, yet no consideration was given for them; nor any advances
of money made upon them; and they were placed in the hands of the firstmentioned bank as the agent of the other, merely for the purpose of collection.
The question, however, is a different one between the parties to this suit, and its
solution must depend, not upon the nature of the transactions between these two
banks, but upon the dealings between the Commonwealth Bank and the Bank
of the Metropolis.
It appears from the evidence offered by the plaintiff in error, that for several
years prior to the insolvency of the Commonwealth Bank, (which happened in
January, 1838,) there had been mutual and extensive dealings between the two
last-mentioned banks, and an account current between them, in which they
mutually credited each other with the proceeds of all paper remitted for
collection when received, and charged all costs of protest, postage, &c.
Accounts were regularly transmitted from the one to the other, and settled upon
these principles; and upon the face of the paper transmitted, it always appeared
to be the property of the respective banks, and to be remitted by each of them
on its own account.
The balances in the account current fluctuated according to the amount of paper
they respectively transmitted, and these balances it would seem were generally
suffered to remain until they were reduced by the proceeds of the notes and
bills deposited with each other in the usual course of their business. Thus, in
November, 1837, the Bank of the Metropolis was debtor upon the account in
the sum of $2200; but in January, 1838, when notice of the failure of the
Commonwealth Bank was received, that balance had been extinguished, and
the last-mentioned bank was debtor in the sum of $2900. It is not suggested
that any information of the interest of the New England Bank, in the paper in
question, was ever communicated to the Bank of the Metropolis until after the
insolvency of the Commonwealth Bank. And the question is, whether the
plaintiff in error has a right to retain the proceeds of the notes then in its hands
to cover the balance of account due upon these transactions.
If the notes remitted had been the property of the Commonwealth Bank, there
would be no doubt of the right to retain; because it has been long settled, that
wherever a banker has advanced money to another, he has a lien on all the
paper securities which are in his hands for the amount of his general balance,
unless such securities were delivered to him under a particular agreement.
5
The paper in question was, however, the property of the New England Bank,
and was endorsed and delivered to the Commonwealth Bank for collection,
without any consideration, and as its agent in the ordinary course of business; it
being usual, and indeed necessary, so to endorse it, in order to enable the agent
to receive the money. Yet the possession of the paper was prima facie evidence
that it was the property of the last-mentioned bank; and without notice to the
contrary, the plaintiff in error had a right so to treat it, and was under no
obligation to inquire whether it was held as agent or as owner; and if an
advance of money had been made upon this paper to the Commonwealth Bank,
the right to retain for that amount would hardly be disputed.
We do not perceive any difference in principle between an advance of money
and a balance suffered to remain upon the faith of these mutual dealings. In the
one case as well as the other, credit is given upon the paper deposited or
expected to be transmitted in the usual course of the transactions between the
parties.
There does not, indeed, appear to have been any express agreement that those
balances should not be immediately drawn for; but it may be implied from the
manner in which the business was conducted; and if the accounts show that it
was their practice and understanding to allow them to stand and await the
collection of the paper remitted, the rights of the parties are the same as if there
had been a positive and express agreement; and such mutual indulgence on
these balances would be a valid consideration; and, like the actual advance of
money, give the plaintiff in error a right to retain the amount due on closing the
account.
It is evident that a loss must be sustained either by the plaintiff or defendant in
error by the failure of the Commonwealth Bank. We see no ground for
maintaining that there is any superior equity on the side of the New England
Bank. It contributed to give to the corporation which has proved insolvent
credit with the plaintiff in error, by the notes and bills which it placed in its
hands to be sent to Washington for collection, endorsed in such a form as to
make them prima facie the property of the Commonwealth Bank, and enabled
it to deal with them as if it were the real owner. The Bank of the Metropolis, on
the contrary, is in no degree responsible for the confidence which the defendant
in error reposed in its agent. And when this misplaced confidence has
occasioned the loss in question, it would be unjust to throw it upon the bank
which has been guilty of no fault or want of caution, and which was induced to
give the credit by the manner in which the defendant in error placed its property
in the hands of an agent unworthy of the trust.
9
If, therefore, the jury find that the course of dealing between the
Commonwealth Bank and the Bank of the Metropolis was such as is stated in
the testimony; that they always appeared to be, and treated each other as the
true owners of the paper mutually remitted, and had no notice to the contrary;
and that balances were from time to time suffered to remain in the hands of each
other to be met by the proceeds of negotiable paper deposited or expected to be
transmitted in the usual course of the dealing between them, then the plaintiff
in error is entitled to retain for the amount due on the settlement of the account.
10
The question, whether the balances were usually suffered to lie for a time on
account of negotiable paper actually deposited or expected to be received, and
which formed the consideration on which the defence rested, is not perhaps as
distinctly stated as it might have been in the hypothetical instruction requested
by the plaintiff in error. But we think it is fairly to be inferred from the
language used in the prayer, by which the defence is put upon the ground that
the paper transmitted was treated by the parties as the property of each other;
and as the prayer was rejected without any explanation or qualification, we
have no reason for supposing that a different construction was put upon it in the
Circuit Court.
11
The judgment must therefore be reversed.
ORDER.
12
This cause came on to be heard on the transcript of the record from the Circuit
Court of the United States for the District of Columbia, holden in and for the
county of Washington, and was argued by counsel. On consideration whereof,
it is now here ordered and adjudged by this court, that the judgment of the said
Circuit Court in this cause be and the same is hereby reversed, with costs; and
that this cause be and the same is hereby remanded to the said Circuit Court,
with directions to award a venire facias de novo.
