Philler v. Patterson

Opinion by Mr. Justice Williams, Two lines of defense were taken in this case in the court below. The first of these denied the capacity of the plaintiffs to sue, and was brought to the attention of the learned judge by a prayer for instructions to the jury “ that under the evidence in this ease and the statutes governing national banks the plaintiffs cannot maintain the pending action against the defendant.” The second alleged that the note sued on was made for the accommodation of F. W. Kennedy, president of the Spring Gar — 480 — den National Bank, and that the plaintiffs were chargeable with notice of the want of consideration as between the maker and F. W. Kennedy. The first of these lines of defense makes it important for us to consider and determine the character and objects of the Clearing House Association, the distinction to be taken between it and the clearing house, and the functions - and powers of the clearing house committee. An examination of the constitution or articles of association adopted by the banks forming “The Clearing House Association of the Banks of Philadelphia ” shows the character and objects of the organization very clearly. In substance these articles amount to an agreement with each other by thirty-eight national banks in the city of Philadelphia to facilitate and simplify the settlement of daily balances between them for their mutual advantage. This agreement substitutes a settlement made at a fixed place and time each day by representatives of all the members of the association, in the place of a separate settlement by each bank with every other made over the counter. No other object is contemplated or provided for. The association does not provide for any united action for any business purpose. It does not contemplate the emplojunent of capital or credit in any enterprise. It proposes and provides for co-operation to expedite and simplify the transaction by each member of the association of its own proper business in one particular, viz, the settlement of daily balances with the other national banks doing business in the city. Incidentally, co-operation in this particular would tend to bring the banks belonging to the association into closer relations, enable them to become more familiar with the volume of business and the actual condition of each other, and open the way to make them mutually helpful in times of financial stringency; but these results are incidental only. The Clearing House Association is nothing more nor less than an agreement among thirty-eight national banks to make their daily settlements at a fixed time and place each day. To carry this agreement into operation it became necessary to determine the place and hour at which the settlement should be made. A suitable room was secured, fitted up with desks and other necessary appliances at the expense of the associated banks, and a manager chosen to preside over it and direct the action of the clerks and runners when in session. — 481 — This room is the clearing place or, in the language of the constitution of the association, the clearing house. It is the place where the representatives of the several banks meet, and where all balances are struck and settled daily between the banks composing the association. At the close of each meeting the amount due to and from each bank is definitely ascertained. The debtor banks then pay over to the manager the gross balance due from them to settle their accounts with all the members of the association, and he makes distribution of the sum so received among the creditor banks entitled to receive them. The clearing house is therefore not a business organization, a corporation, a partnership or an artificial person of any sort, but a place in which the thirty-eight members of the association settle with each other daily. We come now to consider the committee and the position in the general scheme occupied by it. Among the economies in time and labor contemplated by the banks was a settlement of daily balances without the necessity for handling and counting the cash in every case. To provide for this the banks agreed that they would deposit in the hands of certain persons, to be selected by them and to be called the clearing house committee, a sum of money, or its equivalent in good securities, at a fixed ratio upon their capital stock, to be used for payment of balances against them. For these sums the committee was to issue receipts or certificates in convenient sums, and these receipts or certificates were to be used in lieu of the cash they represented, which remained in the hands of the committee pledged for the payment, when payment became necessary, of the certificates. The committee held the funds and securities deposited with them in trust for the special purpose of securing the payment as far as they would reach of the balances due from the bank making the deposit. On Sept. 24, 1873, the associated banks entered into another agreement with each other by which “ for the purpose of enabling the banks, members of the Philadelphia Clearing House Association, to afford proper assistance to the mercantile and manufacturing community and also to faciliate the inter-bank settlements resulting from the daily exchanges,” they authorized the committee to receive from any member of the association additional deposits of bills receivable and other securities and issue certificates therefor “ in — 482 — such, amount, and to such percentage thereof as may in their judgment be advisable.” The additional certificates, if issued, they agreed to accept in payment of daily balances at the clearing house on the condition that the securities deposited therefor should be held by the committee “ in trust as a special deposit pledged for the redemption of the certificates issued thereupon.” The committee were made, both by the original articles of association and by the additional contract of 1878, trustees or agents for all the members of the association with authority to accept deposits in money or securities and to issue their own receipts therefor, the money or securities remaining in their hands in pledge for the redemption of the receipts or certificates so issued by them. When a bank to which certificates had been issued under the original plan or the contract of 1873 failed to redeem them when their redemption became necessary, it was the duty of the committee to collect the securities in their hands and apply the proceeds to the payment of the holders of the certificates. The deposits were made, and the certificatés issued, under an unconditional pledge of the securities to the committee for the payment of the certificates, and their title could only be divested by the payment of the sums for which the securities were pledged. The entire plan on which the settlements are made is therefore a device adopted by the banks to facilitate their legitimate business as banks, and involves no element of speculation, and no business undertaking by or on behalf of the associated banks. We are unable therefore to see in what respect these banks have violated the statutes of the United States relating to national banks or have transcended the limits which these statutes have drawn about the business of banking. They have diverted none of their funds, embarked in no new undertaking, entered into no business alliance, but devised and adopted what seems to be an improved method for doing a portion of their own necessary work. This same method or one identical in general outline has been adopted by the banks in every great city in the United States and by many in other lands ; and, as far as I am aware, it has nowhere been held that the method is illegal. On the contrary it has recommended itself by its economy of time and labor to the several banks and, by its incidental results in promoting mutual helpfulness and confidence, has come to be regarded — 483 — with favor by the general public. The first line of defense was therefore properly held to be untenable by the court below and the assignment of error to that ruling cannot be sustained. The second line fails with the first. If it was not a violation of law for the banks to arrange for their own daily settlements in the manner provided by the clearing house agreement, then the committee became holders for value of the securities deposited with, and receipted for by them, and as such are not affected by equities existing between the original parties to the promissory notes or other negotiable securities for which they have issued certificates. But if they could be regarded as fixed with notice of the character of the note it is not easy to see how the fact that the note now sued on was made for the accommodation of F. W. Kennedy can avail the defendant. The committee are certainly holders for value and hold the note in pledge for the payment of its face in cash. Let us suppose they knew when they took it that it had been made and delivered to Kennedy for his accommodation. The very object of making an accommodation note is that the person for whose accommodation it was made may use it in the way that will best accommodate him. When it has been so used by the holder the accommodation maker or indorser is bound by the action of his friend and becomes liable to pay the amount of the note according to its terms: Moore v. Baird, 30 Pa. 138; and he cannot defend against the indorsee on the ground that the note was without consideration, for to permit this would defeat the purpose for which he loaned his credit: Cozens v. Middleton, 118 Pa. 622. As against a holder for value an accommodation maker can defend only on the ground of actual payment. The fact that it was without consideration and made for the accommodation of him who negotiated it is immaterial: Miller v. Pollock, 99 Pa. 206. Accommodation indorsers often show the character of their indorsement by a direction made upon the face of the note to credit the proceeds to the drawer, but the fact that the bank discounting had notice that the indorser was lending his credit to the maker has never been thought to affect the bank, or to relieve the indorser. The evidence offered at the trial to show that the note was without consideration and given for the accommodation of F. W. Kennedy, by whom it was used in exactly the manner that must — 484 — have been contemplated when it was given, was properly re jected. It might have been competent if the action had been brought by Kennedy but as against a holder for value it was inadmissible. This question was ruled in the very recent case of Philler et al. v. Jewett, decided at the present term. The judgment is now affirmed.