First National Bank v. Nelson

105 Ala. 180

• Court: Supreme Court of Alabama
• Decided: November 15, 1894
• Status: Published

Opinion

HARALSON, J.

1. The main question for decision in this case, as stated by counsel for appellee is: Whether the appellant is a bona fide holder of the check, the subject of this suit, having acquired, before maturity, the legal title for value, in the ordinary course of business.

The action is clearly one in assumpsit.—Wolffe v. The State, 79 Ala. 202. The evidence is not conflicting. It shows that the check was drawn by Moses Bros. & Co. on the Merchants & Planters National Bank payable to the plaintiff below, appellee here — Mrs. Margaret Nelson — or bearer, and that the defendant received the money on it from the drawee, and appropriated it, without the indorsement of the payee, and without her knowledge or consent. These facts having been established by the plaintiff, .the burden was on defendant, which it assumed, to show its right to the check. Its contention is, that under the law, it passed by delivery, merely; and the defendant having thus acquired it before maturity, the law presumes it was obtained bona fide and on a valuable consideration, and its title will prevail over that of the plaintiff.

2. This brings us to consider whether this check is commercial paper in Alabama, and passed by delivery merely.

It would serve no good purpose, perhaps, to trace the history of checks and assign them their place at common law and under statutory systems. Chi tty in speaking of them says, that most of the rules applicable to bills of exchange equally affect these instruments. — Chitty on Bills, 12, 511-547. Randolph defines a check to be, “a bill of exchange drawn on a banker, payable on demand.” — Randolph on Com'l Paper, § 8. The authorities and text books, as a general thing, class them among commercial instruments. “AH checks are bills, but all bills-are not checks,” is the sum of the conclusion of the authorities. — Randolph on Commercial Paper, § 8, supra, and authorities there cited ; Morse on Banks and Banking. §§ 363, 393; 2 Daniel on Neg. Instr., § 583; Byles on Bills, 13 ; 1 Edwards Bills & Notes, § 19; 2 Parsons on Bills & Notes, 57 ; Story on Promissory Notes, 487 ; 3 Amer. & Eng. Encyc. of Law, 211, n. 1.

In the Br. Bank of Mont. v. Crocheron, 5 Ala. 254, this court, in defining the term, notes and bills, as employed in a statute against the issuance of such instruments by a corporation, said, they were sufficiently comprehensive to include checks, drafts, bills single, bonds or tokens. In England and many of the States, a bill may be made payable to bearer, only, and then the title passes by delivery and i.s payable to whoever may be the holder. But, we all know that it is within the legislative competency of each State, when not offending the provision of the federal constitution or that of the State, against the impairment of existing contracts, to regulate the nature, validity, interpretation and effect, of contracts which are to be entered into, or to be performed within its territory. — 2 Daniel on Neg. Instr., § 865.

In this State, the whole system of commercial paper has been regulated by statute. In the Codes of 1852 and 1867, these statutes appear in the chapter headed, "Negotiable Instruments,” and in the Codes of 1876 and 1886, in the chapter headed, “Choses in Action.” There is no paper classed as mercantile or commercial, which was not intended to fall within the regulations of this chapter. It is noticeable that the words, "bill,” and ‘ ‘ bill of exchange, ’ ’ are used interchangeably in the several sections, as meaning one and the same thing ; and, that the words, “bill of exchange,” include a check, we have a direct adjudication, in construction of a similar statute in New York, in the case of Risley v. The Phenix Bank, 83 N. Y. 318. So far as our investigations have gone, we have not seen a case, construing a statute in which the words bill or bill of exchange occur, where the question arose, in which they were not held to embrace a check.

Section 1761 of this chapter of the Code provides, that ‘ ‘All bonds, bills, or notes, except those issued to circulate as money, payable to anything or bearer, to any fictitious person or bearer, or to bearer only, must be construed as if payable to the person from whom the consideration moved'; if payable to an existing person or bearer, must be construed as if payable to such person or order.”

It would seem that in case of a bill of exchange or check, which is payable “to an existing person or bearer,” it needed no judicial construction to determine that it “must be construed as if payable to such person or order,” since this is the positive injunction of the statute, which is not susceptible of being made plainer by any amount of judicial interpretation. This court, however, was called to construe said section, in reference to municipal bonds which had been issued, payable to bearer simply. Having every other ingredient of negotiability, the court held, that they could not, in obedience to this statute, be construed otherwise, than as payable to the person from whom the consideration moved to the maker, when they were issued ; and, so construing them, it was said, the legal title to them could not be derived, except through indorsement; And, as especially valuable to the case we have in hand, as to the policy of the law in the enactment of said section of the Code, and others belonging to the same system of law, we reproduce a part of that decision of the court. Chief Justice Brickell, speaking, said: “It may well be doubted, whether the former statute embraced any instrument payable to bearer only. The present statute not only embraces such an instrument, but every instrument (except bills or notes issued to circulate as money) which is payable to any thing, or to any fictitious person, or bearer; and such instruments are not to be construed as payable to whoever may be the holder, but to the person from whom the consideration moves. If payable to an existing person or bearer, then it is construed as payable to such •person or order. The policy of the statute is to deprive instruments of negotiability, which do not on their face clearly indicate to whom their obligations apply, and from whom title can be securely derived; that title to negotiable instruments, which prevails over the title of the true owner, or over the equities of the original parties, shall be derived only by an indorsement in writing from him to whom they are expressly payable. Such, it is said by Judge Story, was at one time the law of France ; because it was found that bills of exchange, payable to bearer only, or in which a blank was left for- the ñame of the payee, became a cover,of fraud and usury.” Blackman v. Lehman, 63 Ala. 555; Story on Prom. Notes, § 38; Cobb v. Bryant, 86 Ala. 316.

All the instruments mentioned in the statute were, before its enactment and according to the general commercial law, capable of being made payable in any of the ways mentioned in said section 1761 of the Code, and were construed as passing by delivery, without indorsement, and as being payable to whoever came into possession of them. — Story on Prom. Notes, §§ 37, 39; 1 Daniel Neg. Instr., §§ 99, 136; Randolph on Com. Paper, § 654; 1 Morse on Bank & Banking, § 393. If such instruments were stolen, or lost, or parted with by an unfaithful agent, and passed into the hands of a bona fide purchaser for value, the true owner could not reclaim them, although deprived of his property without his consent or fault. It was to correct these evils, as was said in Blackman’s Case, that the statute was passed. We fail to see why checks, as well as any other commercial instruments, do not require the protection of the statute. They are as well known, and, from the necessities of the case, enter as largely into the commercial transactions of the country, as other species of commercial instruments ; and after all we have said and attempted on the subject of negotiable instruments for these many years, to relegate them to take their chances as commercial bastards, and make their own way in the commercial world, deprived of the protection which is accorded to other negotiable instruments, it seems would be against reason, authority and the interest-of the country.

Yet more. The legislature, at the session of 1888-89, (Acts 1888-89, p. 110), amended said section 1761 of Code, by adding to it the proviso, “that all bonds payable to anything or bearer, to any fictitio'us person or bearer, or to bearer only, which have been or may be issued by the State, or any county or municipality thereof, or by any corporation under authority of law, (except such bonds as appear on their face to be registered), shall be negotiable without indorsement, according to the commercial law and governed thereby, except as to presentment, protest; notice and days of grace.” This amendment was evidently intended to meét the difficulties such bonds encountered in circulation, under the statute, as construed in Blackman v. Lehman, 63 Ala. 555, supra, Under that section, as it stands under said amendment, what instruments which are classed as commercial paper, in that they are payable “at a bank or private banking house or at a certain place of payment therein designated,” (Code, §§ 1756, 1757), are excluded from its operation? These two sections embrace by name, — in the first, 1756, — promissory notes and bills of exchange, payable as specified therein, which are governed by the commercial law in its entirety; and in the second,— 1757, — “all other instruments,” besides promissory notes and bills of exchange, so payable, which are governed by that law, as to “grace, protest and notice.”

All papers, therefore, payable in money, at a bank or private banking house, or at a designated place of payment, which are governed by the commercial law in its entirety, or by that law as to days of grace, protest and notice, are included in the provisions of said section 1761, as amended, except such as that section itself excludes from its provisions, and these are, “bills or notes issued to circulate as money,” and the bonds expressly mentioned in the amendatory act. Inasmuch, then, as checks are payable “in money at a bank or private banking house,” and are not “issued to circulate as money,” by every rule of construction, they are embraced within the provisions of said section.

3. It has been argued, that by the general custom, bank checks, when payable to an existing person ox-bearer, pass from hand to hand by.delivery merely, and are payable to the holder without indorsement, and that this circumstance shows the construction which the general pxxblic has placed upon this statute, — a fact, as urged, which should have great weight with courts in determining the true construction of this statute. It is not tobe denied, that if the meaning of words of a statute be uncertaiix, usage may be resorted to for the purpose of interpreting them, (Lawson on Usage & Custom, 462, § 223; Sutherland on Stat. Coxis., § 308); but popular disregard of a statute, or a custom opposed to it, will not x-epeal it; and, a custom or usage which would contradict the commands of a statute ought not to be considered. — Lawson on Usage & Custom, § 216; Sutherland on Stat. Constr., § 137; Richmond & Danville R. R. Co. v. Hissong, 97 Ala. 187; Railroad Co. v. Johnston, 75 Ala. 596; Barlow v. Lambert, 28 Ala. 704.

4. The undisputed facts show, that O.O. Nelson, the husband of plaintiff, was insolvent, and tend also, without conflict, to show that the Adams Cotton Mill, the debtor of defendant, was insolvent, at the date of -the delivery of the check to defendant; that said Nelson, without plaintiff’s knowledge or consent, loaned the Adams Cotton Mill said check, which company, being indebted to defendant in a sum larger than the check, passed it without indorsement to defendant, and it was collected by it from the bank on which it was drawn, and the collection placed to the credit of said cotton mill’s account with defendant. The case of Loeb v. Flash, 65 Ala. 526, was one where a vendor of goods sued to recover them because the purchaser had induced him, by fraudulently concealing his insolvency, to sell them to him on a credit. Loeb & Brother, the defendants in the action, claimed that they were innocent purchasers of the goods, from the party who bought them by such alleged fraud, without any knowledge of the fraud. The only evidence that they had paid or given anything of value for the goods was, that they had given the original purchaser credit for their value on a past due account. It was contended that Loeb & Brother were innocent purchasers, and that the suit could not be maintained against them, on that account. The court said of this defense: ‘ ‘Merely entering a credit on an account past due, without, surrendering anything valuable, would not, under any circumstances, constitute them bona fide purchasers, so as to defeat an action such as this.”—Loeb v. Peters, 63 Ala. 249; Phenix Ins. Co. v. Church, 81 N. Y. 218; Potts v. Mayer, 74 N. Y. 594. The reason of this rule is, that on a failure of the creditor to obtain and retain the goods, the mere entering credit for their value on a past due account, is not a payment of the account. As was said in Spira v. Hornthall, 77 Ala. 146, in commenting on the case of Loeb v. Flash, 65 Ala. 526: “The distinction is between an agreement to receive goods in payment of an existing indebtedness, and an actual satisfaction of indebtedness ; as where the creditor, by the purchase materially changes his position, and gives up something of value on the strength of the property , such as a surrender of the evidences of indebtedness, or prior security. If the creditor’s title should fail, by reason of his debtor’s fraud in getting the goods, his debt still remains unsatisfied, and the right of the original owner to avoid the sale, and recover the goods from the transferee of his fraudulent vendee, will not be defeated.”

In the case before us, there is no evidence that defendant materially changed its position towards the cotton mill, by paying out any cash for the check, or parting with anything of value for it, or surrendering any security ; and if the mill had no title to the check and defendant’s right thereto failed in consequence, there is nothing in the transaction which avoids its right to pursue the mill for the debt, as it could have done beforehand. The payment was merely nominal, and did not constitute the defendant a bona fide purchaser for value, and entitle it to the protection the law gives such a purchaser.

Nelson, the husband, was insolvent; the cotton mill was also, as it appears, insolvent; it owed defendant more than double the amount of this check; the check was payable to the plaintiff and came to the defendant, unindorsed by her. These were' suspicious circumstances, quite enough so, to have aroused the diligence of the defendant to ascertain the rights of the plaintiff in the check. In view of the facts, the bank was not warranted in reposing unquestioned confidence in Mr. Nelson’s capacity to use said check as his own. Good faith, as has been often declared, is an essential element to protection to one as a bona fide purchaser. Having such information as would put a prudent person on inquiry, and having failed to pursue it, which if pursued would have led to a knowledge of plaintiff’s superior rights, lack of good faith is to be imputed to defendant, and it can not, therefore, avail itself, in this transaction, of the plea of a bona fide purchaser for value.—Lockwood v. Tate, 96 Ala. 356; Wolffe v. The State, 79 Ala. 202; Barton v. Barton, 75 Ala. 400; Taylor v. The A. & M. Asso., 68 Ala. 230; Craft v. Russell, 67 Ala. 9.

5. Besides this, there is no question that the check was the separate property of Mrs. Nelson, and was not subject in any manner to the liabilities of the husband. Code, § 2341. The check gave the defendant notice, in that it was payable to Mrs. Nelson, that it was her property. It is of no consequence that Mr. Nelson was acting or assuming to act as his wife’s agent in disposing of the check, for m neither instance had he any right to transfer title to her personal property without her consent. So, if it were admitted that a check payable io a specified person or bearer is transferable by mere delivery, such a transfer would, at least, be illegal, and inoperative, when payable to .a married woman, to pass her title to it, unless the transfer were made with the consent both of the husband and wife.—Code, § 2348; Scharf v. Moore, 102 Ala. 468; Steiner v. Tranum, 98 Ala. 315.

6. Enough has been said, to distinguish this case from that of the Mobile & Montgomery Railway Co. v. Felrath, 67 Ala. 189, which held, that to enable the principal to maintain an action for money had and received against a person to whom the agent has paid the principal’s money, in discharge of his own debt, it must be shown by the plaintiff that the agent is in default to the principal, and that the latter has not the means of indemnity in his hands. That principle is not applicable to the case at bar, and can not be held to annul the statute and our decisions in construction of it, touching the transfer of the title to the personal property of a married woman.

7. We do not deem it necessary to discuss the question of ratification, so earnestly insisted on by the appellant, further than to say, that the plaintiff can not be held to have ratified an act of her husband, of which she was ignorant; that there is no evidence to show that she knew or had any information — certainly, before January, 1892, and possibly not till shortly after her husband’s death, in May of that year — of what disposition he had made of her money. The defendant introduced evidence which tended to show an admission of the plaintiff, made not more than a month after her husband’s death, that she knew he had received a $10,000 cash payment on the sale of the house and lot, but that she did not know, until a short while before, what disposition he had made of it; that Owen Nelson, her husband’s nephew, was copying a book of the Adams Cotton Mills, a short time before, and came across an entry credited to her, of $10,000, in checks, and informed her of it; that she said she did not think it was of any account, or her husband would have looked after it, and before that, she did not know what disposition he had made of the money. It was not shown, that she knew of the check for $5,000, having been delivered to defendant, or at what time, after her husband’s death, she ascertained the fact. She was authorized to presume he had made no illegal disposition of her money, and, except as above stated, it does not appear that she had any knowledge or information of the transaction by which defendant acquired said check from the cotton mill. This suit was commenced on the 8th March, 1893, and some time prior to that date, and after the death of her husband, she must have been informed of it. From this evidence we are unable to hold the plaintiff to a ratification of the illegal disposition of her check by her husband by which the defendant bank acquired it and came into the possession of her money.

We will not consider the other questions which have been discussed. There was no error in giving the general charge in favor of the plaintiff, and in refusing a like charge for defendant.

Affirmed.

Brickell, C. J., not sitting.