Bank of Batesville v. Maxey

Riddick, J., (after stating the facts.) This is an- action by a bank against a number of defendants, who were sureties on a promissory note of one Maxey executed by him to the bank for a loan of $2,000. The defendants, for answer set up that the note had been paid by one W. E. Davis, who was not a party to the note. It is admitted that Davis did pay to Yancey, Reeder & Casey, a firm of attorneys, an amount equal to the balance due on this note, and that they gave him a receipt for the same in full as attorneys for the bank. It is also admitted that, after deducting a fee for making the collection, these attorneys paid the balance of the money to the bank, which credited the net amount paid to it on the note. The net amount paid the bank left a balance unpaid on the note equal to the amount retained by the attorneys for a fee, and the decision in this case is narrowed down to the question as to whether the attorneys represented the bank in making the collection from Davis, so that a payment to them was in law a payment to the bank, or whether, if they did not represent the bank, the circumstances are such as to estop the bank from denying that they did represent it, or to show that the bank ratified the act of the attorneys in making the settlement with Davis. The evidence showed that Maxey, the principal in the note, had failed in business, and was a bankrupt at the time the note became due. Though Maxey had failed, the sureties on the note were solvent, and made it perfectly good. But the bank, at the request of Maxey, filed the note with the referee in bankruptcy, in order that it might receive its proportion of the bankrupt’s estate, and to protect the sureties to that extent. A small amount was paid on the note from the assets of the estate, but a considerable sum remained due for which the sureties were liable to the bank. While matters stood in this condition, Yancey and one Adams, manager of the White River Grocery Company, a creditor of Maxey, had a meeting at Penter’s Bluff with Maxey and two of the sureties on the note of Maxey to the bank. Maxey divulged facts which tended to show that one Davis was a secret partner in the mercantile business carried on by Maxey, and that Davis was liable for debts contracted in the course of that business. Now, the bank was not interested in this matter, for the sureties on its note made it perfectly good. And while the evidence shows that the firm of Yancey, Reeder & Casey, of -which Yancey was a member, was retained by the bank generally, they had no authority to undertake collection of claims held by the bank unless they were especially requested to do -so. They had never been requested to collect this note, further than to have it allowed by the referee as a claim against the estate of Maxey in bankruptcy. At the time of this meeting at Penter’s Bluff, the note was' in the possession of the bank, and Yancey had no authority from the bank to collect it or to take steps for that purpose. He did not go to Penter’s Bluff at the instance or request of the bank, or to represent it, but as the attorney for Adams, the manager of the White River Grocery Company, and as the attorney for other creditors of Maxey whose claims he held for collection. These debts were unpaid, and Yancey was interested in getting information that would show that Davis, a man of means, was liable for the payment of them. The two sureties present were interested; for, if the amount due the bank " from Maxey could be collected from Davis, they would be relieved from liability to pay it. The outcome of this meeting was an understanding that Yancey should go ahead and get up the evidence against Davis, and, if possible, compel him to pay these debts, including the debt due the bank. It is unnecessary for us to consider whether this understanding, taken in connection with the subsequent action of Yancey in collecting these debts from Davis, and to that extent relieving the sureties of this debt, was sufficient to make them liable for a fee for Yancey’s services. We may assume that these two sureties had no thought of such a thing; that, knowing that Yancey represented a number of creditors who had claims against Maxey, and supposing that he also represented the claims of the bank, they expected that he would look to these parties, and not to them, for his fee. Whether this was so or not is immaterial here, for, as before stated, the evidence shows that the bank had not authorized Yancey to collect this debt as their attorney or agent. He did subsequently collect money to the amount of these debts from Davis, and gave him a receipt in full against them, signing thereto the name of his firm as attorneys for all the creditors represented, including the bank. The receipt that these attorneys gave tends to show that they were assuming to act for the bank in making the collection, but they say that the receipt was given in that form to identify the different debts for which the money was paid,.and to satisfy Davis. However that may be, the receipt is no evidence against the bank until it is shown that the attorneys were attorneys for the bank, and this, as before stated, is not shown. A payment by Davis to these attorneys was not, under the facts of this case, a payment to. the bank, and did not affect the debt due the bank. It is contended with much force that the bank ratified the act of the attorneys by afterwards receiving the money. We are not able to agree with this contention.' No express ratification is claimed, and to amount to an implied ratification the act of the bank must be done with the full knowledge of the facts, and must be inconsistent with any other reasonable hypothesis than that of approval of the acts of the attorneys who assumed to act as its agent. But there is nothing to show that, at the time the bank accepted this payment, it had notice that these attorneys had assumed to act for it, and had given Davis a receipt in full for this debt. The attorneys testified that they did not act for the bank, but for the sureties; and as the bank had not authorized them to collect the note, the mere payment by them to the bank of money collected from Davis did not notify the bank that they had assumed to act as its agents and had made a full settlement-of the debt with Davis. If the bank was seeking to hold Davis liable for the balance due on the note, it is doubtful if it could retain the money secured by the attorneys from him by executing this receipt ill full, and at the same time reject the settlement. But Davis was not a party to this note, and the bank has never asserted that he was liable for it. This is not an action against Davis, but against the parties to this note, with whom no settlement was made, and who have paid nothing on the note. If, after discovering that a receipt in full had been executed by these attorneys to Davis for this debt, the bank had refused to retain the money and returned it to him, this might have resulted in injury to the sureties, and in the end the bank might have been compelled to shoulder the loss, if any had resulted from the return of the money. Davis was not asking for a return of the money; and as a return of it to him might result in injury to the sureties or the bank, the only safe course for the bank to pursue was to hold the money. Under these circumstances, the failure of the bank to return the money is not inconsistent with a denial on its part of the right of these attorneys to collect the money for the bank, or their right to give a receipt in full against the note. As the bank could not return the money without risk of injury to itself or the sureties, its retention thereof was not in law a ratification of the act of the attorneys. Martin v. Hickman, 64 Ark. 217; Brown v. Wright, 58 Ark. 20; Bryant v. Moore, 26 Me. 84, 45 Am. Dec. 96; Thatcher v. Pray, 113 Mass. 291; 1 Clark & Skyles, Agency, page 327. It follows from what we have said that instruction No. 1, and other instructions given at the request of the defendants, in which the court told the jury in substance that if the bank retained the money paid to it by Yancey, Reeder & Casey after notice that these attornejrs had.assumed to act for the bank in the settlement made with Davis it would be a ratification of the acts of the attorneys in making the settlement, were, in our opinion, erroneous and misleading. For, while this instruction, abstractly considered, may be correct in stating that a principal cannot ratify a part of the transaction and reject another part, yet, under the facts here, it is misleading. As the act of the bank in receiving this money from the attorneys who had collected it from Davis did not mislead or injure the defendants in any way, but, on the contrary, was a direct advantage to them, to the extent of such payment, we see no grounds of estoppel. On the whole case, we are of the opinion that the facts in evidence made out a clear case in favor of the bank, except as to $34.80, the amount paid by the bank to the attorneys out of the $384 collected through the bankruptcy proceedings. The evidence shows that these attorneys were requested to look after this matter in the bankrupt court by the cashier of the bank. He did it at the suggestion of Maxey to protect the sureties on Maxey’s note. The collection of the $384 in this way resulted in a benefit to the sureties, to that extent; but, as they did not authorize this step 'to be taken for them, they cannot be charged with the expense of the collection. The bank authorized it, and a payment of that amount to the attorneys was a payment to the bank. But, as we have said, the collection from Davis was not authorized by the bank, and it is responsible only for the part of that collection that came to its hands. • For the reasons stated, the case is reversed, and the cause remanded for a new trial.