National Bank of Commerce v. Bossemeyer

162 N.W. 503, 101 Neb. 96, 1917 Neb. LEXIS 71

• Court: Nebraska Supreme Court
• Decided: April 14, 1917
• Docket: No. 19061
• Status: Published

Opinions

Letton, J.

On January 3, 1911, defendants, who are grain dealers at Superior, Nebraska, drew a sight draft upon a firm in New Mexico for $729 and attached a bill of lading for a car of grain consigned to the order of the drawer. They deposited the draft in the. First National Bank of Superior .(hereafter termed “the Superior bank”), which gave them credit for the amount upon their checking account." This was done in accordance with a custom whereby defendants deposited such drafts with bills of lading attached and were given credit, with the understanding that, if the draft was not paid, it should be protested, and its amount, with protest fees, should be charged back; that, if interest was charged to the bank by the correspondent, the interest should be charged to the account of drawer. Before the draft was deposited, by mutual agreement the custom was changed and such dishonored drafts were not charged back, but defendants, upon being notified of their return, would give a check to the bank to cover the amount of the draft and protest fees. This was the custom in Superior between banks and grain dealers generally.

The Superior hank sent the draft and hill of lading to plaintiff, its correspondent hank in Lincoln, which credited it with the amount and forwarded the draft and hill of lading to New Mexico through its regular correspondents. The draft bore upon its face the following: “Protest and return immediately with all papers attached if not paid upon presentation.” The indorsement by the Superior bank is as follows: “Pay any bank or banker. All previous indorsements guaranteed.” Before the draft reached New Mexico the Superior bank had suspended payments and been taken in charge by the comptroller of currency. Defendants notified the drawee not to pay the draft, caused the car to be delivered, and collected the amount due from him. The draft was protested and returned to plaintiff. This action was brought against the drawers by plaintiff as a holder for value, as defined in section 5344, Rev. St. 1913. Five similar transactions are alleged as causes of action in the petition.

Several defenses are set up: (1) That the drafts were deposited with the Superior bank for collection only, to the knowledge of plaintiff, and were received by plaintiff from that bank for collection. (2) That, since the Superior bank charged interest until the collection was made and charged the drafts back if not paid, it was not an owner or holder in due course, and the same relation as to the drafts being deposited for collection existed between the Superior bank and plaintiff. (3) That at the time the drafts were received the Superior bank was insolvent, which was known to plaintiff and to the officers of the Superior bank, but unknown to defendants, and that when these conditions became known defendants rescinded the transaction. The action was tried to the court without a jury, which found generally for the defendants and rendered judgment of dismissal. Plaintiff appeals.

The evidence is undisputed that the Superior bank had only one account with plaintiff; that as soon as such drafts were received by plaintiff it gave credit to the Superior bank for the amount of the same and usually charged interest from that time until it received the proceeds from its correspondent bank; that if any draft was protested and returned it charged back the amount of the draft and protest fees to the Superior bank, and that this is the usual custom among bankers. Plaintiff had no notice of the insolvency of the Superior bank until January 9, 1914, and had no knowledge of the dealing between the drawer and the Superior bank, but received these drafts in the usual course of business, relying upon the indorsements. The assistant cashier of the plaintiff bank testifies that the dirafts were sent to plaintiff, together with checks on Lincoln and other banks, foreign bills of exchange, and other items, with deposit slip “Enclosed for credit and advice,” and were acknowledged in the following form:

Items merely sent for collection were entered under the column “We enter for collection.” When plaintiff received notice of the failure there was a credit of $3,608.36 on its books to the credit of the Superior bank. This amount fluctuated until March 28, when there was $4,102.52 on hand, which was the amount at the time of the trial. The plaintiff bank had also loaned to the Superior bank $10,-000 upon its note, which was secured by collateral to the amount of $14,000; $1,000 of which has been collected and the remainder is of questionable value. The drawer testified that the drafts were deposited with the Superior bank for collection only. The question for determination is whether the draft was received by the plaintiff for collection, the title and ownership remaining in the Superior bank, or, did plaintiff become a holder in due course by the indorsement and receipt of the draft and the crediting of . the Superior hank with the amount thereof? Defendants contend that the indorsement is restrictive and shows that the title did not pass; that, since the custom was that interest should he charged between the date of the receipt of the paper and the receipt of the money in payment thereof, and because if not paid it was the custom to charge the amount and protest fees back to the account of the Superior bank, the draft was taken for collection only.

Is the indorsement restrictive? Whatever may have been held before the enactment of the negotiable instruments act, it is clear that this question must be determined by the provisions of that statute. Section 5354, Rev. St. 1913, is as follows: “An indorsement is restrictive which either: First — prohibits the further negotiation of the instrument; or., second — constitutes the indorsee the agent of the indorser; or, third — vests the title in the indorsee in trust for or to the use of some other person. But the mere absence of words implying power to negotiate does not make an indorsement restrictive.”

There is nothing on the face of this indorsement which prohibits the further negotiation of the instrument or constitutes the indorsee the agent of the indorser, or vests title in the indorsee in trust for the use of some other person, and hence, by the most elementary principles of statutory construction, the"plain meaning of the language must be observed, and it must be held that the indorsement was hot restrictive.

In Bank of Indian Territory v. First Nat. Bank, 109 Mo. App. 665, a case which was decided before the negotiable instruments act went into effect in that state, it was held, without any discussion of the reasons, that an indorsement such as this was a restrictive indorsement. In three cases decided in that state after the act was in force (National Bank of Rolla v. First Nat. Bank, 141 Mo. App. 719; National Bank of Commerce v. Mechanics American Nat Bank, 148 Mo. App. 1; Citizens Trust Co. v. Ward, 195 Mo. App. 223) the same ruling was made; but in none, of these cases was the language of the statute considered, and the holding is placed upon the authority of the first case, which, as we have seen, was decided before the act took effect. These cases are not authority upon the proposition as to whether such an indorsement is restrictive under the provisions of the act. Furthermore, any bank receiving a draft with such an indorsement has the right to again indorse it in blank or payable to any particular bank or person. This, of course, it would have no power to do if the indorsement was restrictive. If, however, the words “for credit,” “for account,” “for collection and return,” had been added, the character of the indorsement would have been changed entirely, and it would have been restrictive, showing upon its face that the indorsee bank took it only as a collecting agent, and not as a holder for value. White v. Miners Nat. Bank, 102 U. S. 658; Commercial Bank of Pennsylvania v. Armstrong, 148 U. S. 50; Ditch & Bros. v. Western Nat. Bank, 79 Md. 192, 23 L. R. A. 164; Murchison Nat. Bank v. Dunn Oil Mills Co., 150 N. Car. 718; Fayette Nat. Bank v. Summers, 105 Va. 689, 7 L. R. A. n. s. 694; United States Nat. Bank v. Geer, 55 Neb. 462.

In First Nat. Bank of Belmont v. First Nat. Bank of Barnesville, 58 Ohio St. 207, 41 L. R. A. 584, it is pointed out that the practice of indorsing checks “for collection,” “for account,”had become almost universal, but when it was decided by the supreme courts of New York and Missouri that the drawee bank could not recover ba.ck money paid upon a forged draft in the one case from a collecting bank, or in the other from the bank owning the draft, “it startled the banks located in large cities, and awakened them to the dangers attending the payment of such drafts or bills, and the result was that in the year 1896 the clearing house in the city Qf New York adopted a rule to the effect that its members should not send through the exchanges any paper having any qualified or restrictive indorsements, such as Tor collection,’ or Tor account of,’ unless all indorsements were guaranteed by the bank sending such paper. This action was soon followed by the clearing houses in other cities, and in some of them all indorsements are required to be either in blank, or ‘pay to......or order.’ By this action of the clearing houses, indorsements ‘for collection,’ or ‘for account of,’ have fallen into disuse, and the banking business of the country is now done, almost universally, upon unrestricted indorsements.” We conclude, then, that the indorsement by the Superior bank was general, and not restrictive.

Does the fact that, if protested, the Lincoln bank was entitled to charge back the amount of the draft and protest fees constitute it merely an agent for collection and not a holder in due course? While there is some conflict in the authorities, the better view is that the deposit of a check „or draft in a bank with a general indorsement and the giving of credit for its amount by the bank to the depositor, in the absence of other evidence as to the intention of the parties, passes the title to the bank and makes it a holder for value, entitled to recourse on prior indorsers upon the protest of the paper. In other words, when such a state of facts is proved there is a prima facie case made that the title has passed, and the fact that it, the receiving bank, may charge back a protested draft does not affect the relation. In Higgins v. Hayden, 53 Neb. 61, before the enactment of the negotiable instruments act, it was held that a bill of exchange drawn to the order of a bank by its customer, the amount of which was placed to his credit, and on which he drew and the bank paid checks, became the property of the bank; such conduct being inconsistent with the theory of a bailment for collection. 2 Michie, Banks, sec. 127; 1 Morse, Banks and Banking, sec. 187; 2 Morse, Banks and Banking, secs. 573, 575; National Bank v. Everett, 136 Ga. 372; Dymock v. Midland Nat. Bank, 67 Mo. App. 97; Brusegaard v. Ueland, 72 Minn. 283; Jefferson Bank v. Merchants Refrigerator Co., 236 Mo. 407, 415; Ditch & Bros. v. Western Nat. Bank, 79 Md. 192, 23 L. R. A. 164; Burton v. United States, 196 U. S. 283; 25 Sup. Ct. Rep. 243, and cases cited; Noble v. Doughten, 72 Kan. 336, 3 L. R. A. n. s. 1167; Bank of the Metropolis v. New England Bank, 1 How. (U. S.) 234; Fayette Nat. Bank v. Summers, 105 Va. 689, 7 L. R. A. n. s. 694; also cases cited in 7 C. J. p. 635, note 27, p. 599, note 43.

That credit to the drawer was entered by the Superior bank in a passbook in Which was printed, “This bank in receiving out of town checks and other collections acts only as your agent and does not assume any responsibility beyond due diligence on its part,” cannot affect the right of the plaintiff to recover in this case. The fact that the drawers put the paper in circulation, and that the Superior bank was thus able to negotiate it as its owner and holder, received full credit for it, the plaintiff bank having no knowledge of any infirmity, makes it a holder for value as defined in section 5344, Rev. St. 1913.

The Minnesota case, In re State Bank, 56 Minn. 119, is not in conflict with these views, since in that case the controversy was between the original parties, and not between a holder for value without notice, and the drawer, and such was the relation between the parties in the other cases cited in which a printed notice was on the passbook. A similar case is South Park Foundry & Machine Co. v. Chicago G. W. R. Co., 75 Minn. 186.

The fact that a custom between banks and grain dealers is that, when any draft bearing a general indorsement was unpaid, it was protested and either charged back or paid by the drawer is an argument in favor of the plaintiff’s position, and not in favor of the defendants, because such a custom clearly recognizes the liability of the drawer to pay a dishonored draft to the indorsee who has failed to collect the same. Even though by the custom between the drawer and-the Superior bank the drafts were taken only for collection,. there is absolutely no proof in the record that the plaintiff had any knowledge whatever of this state of affairs. It received the draft with the general indorsement and credited the Superior bank with the amount in its deposit account which was drawn upon from day to day. Under section 5379, Rev. St. 1913: “The drawer by drawing the instrument admits the existence of the payee and Ms then capacity to indorse, and engages that on due presentment the instrument will be accepted or paid, or both, according to its tenor, and that if it lie dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it. But the drawer may insert in the instrument an express stipulation negativing or limiting his own liability to the holder,” The benefit of, this liability in case of dishonor was transferred to plaintiff by the general indorsement. When the Superior bank closed its doors its assets became the property of the receiver for the purpose of liquidating its affairs. The rights of its receiver against the plaintiff or plaintiff’s right to apply the fund in its hands to the payment of the debt of the Superior bank are not involved in this case, since the receiver is not a party to the suit, and the case must be determined without regard to this fund. That the bank was in fact insolvent at the time of the deposit, under the circumstances of this case, does not seem to be material: First, because plaintiff bank took the draft in good faith for value without notice or knowledge of any infirmity in the title • and, second, because the drawers between the time of the deposit of the first drafts and the closing of the bank drew out over $4,000 more than the credit given, and within a few hundred dollars of the total amount deposited within this period, leaving the account of the drawers substantially as it was before the drafts were deposited.

Under the provisions of the negotiable instruments act and the evidence in the case the defendants are liable as drawers for the full amount of the drafts and protest fees. The judgment of the district court is reversed and the cause remanded, with directions to enter judgment for the amount due.

Reversed.

Rose, J., took no part in the decision.