National Shawmut Bank v. Barnwell

Cook, J., delivered the opinion of the court. S. E. Barnwell, surviving partner of Barnwell Bros., instituted this suit against the National Shawmut Bank of Boston, to recover the proceeds of a draft drawn by Barnwell Bros, on the Davis Mills of Fall River, Mass., to the order of the Delta Bank & Trust Company, of Clarksdale, Miss., and from a decree in favor of the complainant this appeal was prosecuted. The facts disclosed by the record are substantially as follows: The Delta Bank & Trust Company was formerly a banking corporation doing a general banking business at Clarksdale, Miss. On February 9, 1921, Barn-well Bros., a copartnership composed of S. E. Barn-well and J. W. Barnwell, and engaged in the cotton business at Greenwood, Miss., sold forty-four bales of cotton to the Davis Mills, at Fall River, Mass., for the sum of three thousand seven hundred twenty-eight dollars and ninety-six cents. They drew a draft for the purchase price of said cotton on the Davis Mills, it being payable on sixty-five days’ sight to the order of the Delta Bank & Trust Company. This draft, with the bills of lading for the cotton attached thereto, was deposited with the Delta Bank & Trust Company for collection; the bank issuing to Barnwell Bros, a receipt in the following words and figures: “Deposited with the Delta Bank & Trust Co., Clarksdale, Miss., for collection, draft sixty days, Fall River, *824 Mass., three thousand seven hundred thirty-eight dollars and ninety-six cents. B/L. 44 B/C attached. Credit account Barnwell Bros, when paid.”. The Delta Bank & Trust Company forwarded this draft with the bills of lading attached to the National Shawmut Bank of Boston, appellant, which received it on Feb ruary 12, 1921. In due course, the Shawmut Bank presented the draft to Davis Mills on the 14th day of February, 1921, and it was accepted by the Davis Mills, being payable sixty days thereafter or on the 16th day of April, 1921. Accompanying the dráft, as sent by the Delta Bank & Trust Company to the Shawmut Bank, was a letter of instruction reading as follows: “We inclose for collection and credit items listed below: Davis Mills, Fall River, Mass, sixty-day sight, Three thousand seven hundred thirty-eight dollars and ninety-six cents. When accepted by Davis Mills surrender B. L. and notify us. Hold draft for payment. Credit our account only when paid.” The Delta Bank & Trust Company, being insolvent, closed its doors and suspended payment and business on March 15, 1921, of which fact the National .Shawmut Bank was promptly notified on the following day. In April, 1920, there was an. oral agreement made between Geo. H. S. Soule, the then assistant cashier of the Shawmut Bank, and S. S. Harris, the then cashier of the Delta Bank & Trust Company, that the former bank, should become the New England correspondent of the latter bank, and that the former would lend the latter money, whicli should be repaid, from time to time, by the remittance to the Boston bank of New England items, including drafts for cotton. Pursuant to this arrangement, the Shawmut Bank loaned to the Delta Bank & Trust Company one hundred fifty thousand dollars and at the maturity of the Barnwell draft the Delta Bank & Trust Company owed to the Shawmut Bank one hundred forty ^ six thousand eight-hundred twenty-three dollars and eigh - ty-one cents. After the receipt of the Barnwell draft by *825 the Shawnrut Bank, that bank renewed three notes made to it by the Delta Bank & Trust Company and which matured on February 18,1921, two of which were for twenty-five thousand dollars each, and one for thirty thousand dollars, while on March 1st it renewed another note owed it by the Delta Bank for twenty-five thousand dollars. Mr. Soule, the assistant cashier of the Shawmut Bank, and only witness who testified in the case, states that, when these renewals were made, the Shawmut Bank believed that the Barnwell draft was the property of the Delta Bank and that this fact was taken into consideration when said loans were renewed. When the Barnwell draft matured on April 16, 1921, it was paid by the Davis Mills to the Shawmut Bank and the proceeds credited to the indebtedness of the Delta Bank & Trust Company to the said Shawmut Bank. On April 20, 1921, the special agent in charge of the defunct Delta Bank notified the Shawmut Bank by letter that the draft was not owned by the Delta Bank, but was owned by Barnwell Bros., and was placed by them with the Delta Bank for collection only, but the Shawmut Bank refused to pay over the money to Barnwell Bros., hence this suit. The assignments of error upon which the appellant seeks a reversal of the decree of the court below are that the chancellor erred in failing to find that the appellant was the holder in due course of the draft and therefore had a g*ood title to the same, and in refusing to dismiss the bill of complaint. In support of the decree, the appellee presents two contentions: First, that the Shawmut Bank took the draft as agent for collection only, with notice that the draft did not belong to the Delta Bank & Trust Company, and does not occupy the position of an innocent purchaser for value without notice; and second, that the insolvency and bankruptcy of the Delta Bank & Trust Company acted as a legal revocation of the power and *826 right of the National Shawmut Bank to apply the proceeds of the draft. It is uncontroverted that the Delta Bank & Trust Company was not the owner of the draft in question, but took it as the agent of the appellees Barnwell Bros., for collection only, but, if the correspondent bank, the appellant, became the purchaser of the draft for value without notice that the forwarding bank was not the owner of the paper, it acquired title thereto and would be protected, even as against the real owner. It appears to be the uniform holding of the courts that commercial paper sent “for collection” is notice to all parties that the forwarding bank is not the owner of the paper, while many authorities hold that the words “for collection and credit” used by a forwarding bank in sending a draft payable to its order, to its correspondent bank, indicate that the forwarding bank is the owner of the paper, and gives the collecting bank the right to apply such paper to the debt of the forwarding bank. Garrison v. Union Trust Go., 139 Mich. 392, 102 N. W. 978, 70 L. R. A. 620, 111 Am. St. Rep. 407, 5 Ann. Cas. 813; Cody v. City National Bank, 55 Mich. 379, 21 N. W. 373; Bank of Metropolis v New England Bank, 1 How. 234, 11 L. Ed. 115. Conceding the correctness of this doctrine, and the custom of banks in receiving drafts from forwarding banks or customers to make provisional credits thereof with the option to charge back the amount in the event the paper is not paid, we do not think the doctrine is applicable to the facts here involved. The instructions contained in the letter which accompanied the draft were not merely that the draft was inclosed “for collection and credit,” but these instructions contained the express and emphasized limitation that credit 'should be given the sender ?s account only when paid. The Delta Bank, having tlie draft in its hands for collection only, had the right to appoint a sub-agent for collection, and to prescribe the conditions under which the draft should be handled by this sub-agent, and the letter of instructions was a posi *827 tive direction that the collecting hank should take no property in the draft. When the appellant undertook to act under this letter of instructions, it accepted the conditions imposed thereby, and under these conditions it acquired no property in the draft. Taken in connection with the bills of lading’ attached thereto, the draft bore on its face unmistakable evidence that it was for the purchase price of cotton sold by the appellees to the Davis Cotton Mills, and this fact, in connection with the positive and specific instructions, contrary to the usual custom and course of business, that the amount should he credited to the sender’s account only when collected, was sufficient to put the collecting bank on notice of the fact that the forwarding bank was not the owner of the draft. Under the arrangement for the handling of this draft, as evidenced by the letter of instructions and the acceptance thereof, the appellees or their agent, the Delta Bank, could have recalled, or otherwise controlled, the paper at' any time before its payment, and the collecting bank acquired no rights in the draft except as an agent for collection, and it could acquire no rights in the proceeds of the draft until after the draft had been paid. Before the draft matured and was paid, however, the Delta Bank & Trust Company failed in business, closed its doors and was taken over for liquidation by the state banking department, and the appellant was notified of that fact. The insolvency and suspension of business of the forwarding bank terminated whatever authority the appellant had or might have had to credit the proceeds of the draft as a payment on the debt due it by such bank, and since the appellant collected the draft and credited the proceeds to the debt of the defunct bank after notice of its insolvency and bankruptcy, we think the appellees, the owners of the-draft, are entitled to recover from the appellant the amount so collected and credited. In discussing the effect of the insolvency and bankruptcy of a forwarding bank upon the agency of the *828 collecting bank and its right to credit the proceeds of a draft to the account of the defunct bank, the supreme court of the United States, in the case of Old Nationa l Bank of Evansville v. German-Americcm National Bank, 155 U. S. 556, 15 S. Ct. 221, 39 L. Ed. 259, said: “The contention of the defendant is that it paid the moneys which it received to the party from which it received the draft, to-wit, the Fidelity Bank, which was the agent of the owner. It is not pretended that it ever forwarded to the Fidelity Bank the cash therefor, but the claim is that it credited such amount on the account of the Fidelity Bank, the Fidelity being at the time indebted to it, and that this is equivalent to an actual payment of money. The difficulty with this contention is that, at the time this credit was entered by the defendant, the Fidelity was not in a condition to receive credit or make any settlement; it was insolvent, and in the custody of the officers of the law. ... At the time this examiner took possession the business of the bank stopped, and the authority of the directors and officers ceased. They could not thereafter make any settlement with the defendant to the prejudice of the rights of third parties.” In the case of Morris & Co. v. Alabama Carbon Co., 139 Ala. 620, 36 So. 764, where the facts are very similar to those in the case at bar, the court said: “The assignment of and cessation of business by the Commercial Bank of Selma, occurring previous to the collection of the draft, operated to terminate the agency of the bank, and to forestall whatever right defendants might, in the absence of those occurrences, have had to retain the proceeds of the draft as a payment of the debt due them by that bank, and the plaintiff, as the equitable owner of these proceeds, had the right to recover therefor as for money had and received to its use.” The decree of the court below will therefore be affirmed. Affirmed.