Batson v. Alexander City Bank

SOMERVILLE, J. The meritorious and decisive questions presented by the rulings of the trial court on the pleadings may be concisely stated as follows: Where money is obtained by fraudulent representations which authorize a rescission of the contract under which it is paid, and it is rescinded, can the rescindor recover — 496 — the amount of the money in general assumpsit from one who has received it in good faith, without knowledge of the fraud, but who has given no value for it? And, if so, can such amount be recovered from a bank which in'good faith received it as a general deposit in the usual course of business, and credited the depositor’s account therewith, having at the same time a substantial claim against such depositor by his promissory notes, and nothing of value in its custody belonging to the depositor except his said deposit, but having made no appropriation of the deposit to its debt before notice of the plaintiff’s rights? .With respect to the status of money obtained by fraud, and paid to another in due course of business without knowledge of its fraudulent source, we approve the following language: “The rule has been settled by a long line of cases that money obtained by fraud or felony cannot be followed by the true owner into the hands of one who has received it bona fide and for a valuable consideration in due course, of business. - * It is said that the case is to be governed by the doctrine established in this state that- an antecedent debt is not such a consideration as will cut off the equities of third parties in respect of negotiable securities obtained by fraud. But no case has been- referred to where this doctrine has been applied to money received in good faith in payment of a debt. It is absolutely necessary for practical business transactions that the payee of money in due course of business shall not be put upon inquiry at his peril as to the title of the payor. Money has no earmark. The purchaser of a chattel or a chose in action may, by inquiry, in most cases, ascertain the right of the person from whom he takes the title. But it is generally impracticable to trace the source from which the possessor of money has — 497 — •derived it. It would introduce great confusion into commercial dealings if the creditor who receives money in payment of a debt is subject to the risk of accounting therefor to a third person who may be able to show that the debtor obtained it from him by felony or fraud. The law wisely from considerations of public policy and convenience, and to give security and certainty to business transactions, adjudges that the possession of money vests the title in the holder as to third person dealing with him and receiving it in due course of business and in good faith upon a valid consideration. If the consideration is good as between the parties, it is good as to all the world.” — Stephens v. Board of Education, 79 N. Y. 183, 186, 187 (35 Am. Rep. 511). Even in those states where payment of an antecedent debt is not ordinarily regarded as a valuable consideration, it seems that the receipt of such money in good faith for such a payment precludes its recovery by one from whom it was wrongfully taken or diverted. — 2 Pom. Eq. Jur. (2d Ed.) § 1048. The rule is well settled “that a bank or broker has a lien on all moneys and funds of a customer, coming into his or its possession in the course of their dealings, for any balance of general account due from the customer.” In re Tallassee Mfg. Co., 64 Ala. 567, 595. And “the moment any advance or loan by the bank is made to the depositor, in the form of an overdraft, a discount, acceptance, etc., then the lien or right is born, and may be applied by the bank (and the bank only) to the payment of such indebtedness till it is fully discharged.” — Wynn v. Tallapoosa County Bank, 168 Ala. 469, 489, 53 South. 228, 236. What then were the rights of these parties? It is clear that, as against Ellis, the defendant bank became the owner of the money thus deposited, and at the same — 498 — time became his debtor on account to that amount, and that it had a lien on such deposit for the general balance due to it from Ellis with the right to appropriate thereto so much of the deposit credit as was sufficient to discharge the depositor’s indebtedness to it. It is equally clear, we think, that by the rescission of its mortgage contract with Ellis, on account of the antecedent fraud, the plaintiff bank became entitled to the specific money it paid to Ellis so long as he retained it; and that, when its identity was lost by its payment to another who received it in good faith in the general course of his business, without notice of the fraud, plaintiff’s claim to the specific money was necessarily destroyed. And, if it were paid to such third person for any valid legal consideration, he would be under no obligation, legal or equitable, to repay it to plaintiff. — Kimmell v. Bean, 68 Kan. 598, 75 Pac. 1118, 64 L. R. A. 785, 104 Am. St. Rep. 415, citing the authorities. Crediting Ellis’ deposit account with the amount deposited by him was in no sense the payment of a consideration to him for the money thus received. Had the defendant bank actually appropriated Ellis’ deposit account to the payment and extinction of its valid claims against Ellis, before it received notice of plaintiff’s right and claim thereto, it seems, according to the weight of authority, that the money, or rather the deposit account, would have been freed of the equity with which it was otherwise charged in favor of plaintiff.— Smith v. Des Moines Nat. Bank, 107 Iowa. 620, 78 N. W. 238; Kimmel v. Bean, 68 Kan. 598, 75 Pac. 1118, 64 L. R. A. 785, 104 Am. St. Rep. 415. There are, however, several cases to the contrary: Cady v. South Omaha Nat. Bank, 46 Neb. 756, 65 N. W. 906; Id., 49 Neb. 125, 68 N. W. 358; Davis v. Panhandle Nat. Bank — 499 — (Tex. Civ. App.) 29 S. W. 926. In this case the pleadings do not show that defendant ever made any such appropriation of the deposit account at all, and the undisputed fact is that it did not do so. In equity and good conscience this money deposited by Ellis, or, more properly, the depositee bank’s obligation to repay the amount of it to Ellis, belonged, not to Ellis, but to the plaintiff bank. General or implied assumpsit is an equitable action, and lies to recover any money which ex aequo et bono belongs to the plaintiff. There are no technical difficulties in the way here, and we have no hesitation in declaring that the quoted counts of the complaint stated a good cause of action, and that on the facts shown plaintiff would have been entitled to recover also on the common count in general assumpsit. And, for the same reasons, defendant’s special pleas did not state a good defense. It results that the tidal court did not err in its rulings on the demurrers. We consider now the action of the trial court in excluding certain questions propounded by defendant to plaintiff’s witnesses on cross-examination. Among the essential elements of fraud, as a ground of action for damages or for rescission, is the fact of plaintiff’s right to rely on the false representations, and the fact that he did rely on them. In relation to these issues, defendant sought to elicit from two of plaintiff’s witnesses the following circumstances: (1) That plaintiff had a mortgage on the same property the year before; (2) that plaintiff, at the time of its first business dealings Avith Ellis dating a long time back, knew that he Avas financially embarrassed; (3) that plaintiff’s business dealings with Ellis as a county official “had been the subject of criticisms;” (4) that plaintiff’s cashier, Avho made the loan to Ellis, knew at that time that Ellis was not extensively engaged in farming. — 500 — Defendant also asked the witness Ellis, who had testified to borrowing money from plaintiff for six or eight years, (5) “if he had been giving commercial paper or mortgages all along,” without stating what he expected the answer to be. These circumstances could have no-tendency whatever to put plaintiff on notice of the nonexistence of the six mules presently claimed by Ellis to be owned by him. Indeed, if they have any relevant tendency at all, it would be rather opposed to appellant’s contention. It is to be noted, also, that circumstance 3 is flagrantly objectionable as being both hearsay and opinion; and that, the question as to circumstance 5 not indicating a relevant answer, no error is apparent from its rejection. —Roberts v. State, 68 Ala. 515, 524. The tidal court did not err in excluding these several questions. At the request of the plaintiff in writing, the trial court instructed the jury, that, if they believed all the evidence in the case, they should find for the plaintiff, and this, it is urged, was not authorized by the evidence. The basis of plaintiff’s right to the nioney in question is not merely the rescission of the contract, as agreed to by Ellis after his deposit of the money, but primarily it here depends upon his right of rescission antedating defendant’s receipt of the money from Ellis. The fact of prompt rescission is clearly shown without dispute in the evidence. As supporting the right of rescission, it appears without dispute (1) that Ellis made a false representation of a material fact to plaintiff; (2) that this representation was one upon which plaintiff had a right to rely; (3) that it was in its nature calculated to induce reliance upon it, and to induce the giving of the credit sought.; (4) that it was made for the purpose of securing credit; (5) that credit was contemporaneously given to Ellis. — 501 — It is argued that the remaining essential, viz., the actual reliance of plaintiff npon the representation as an inducement to advance the money to Ellis, rests in inference, and is therefore a question for the jury upon all the evidence. The only direct evidence of the effect of the representation is to be found in the statement of Maxwell, cashier of the plaintiff bank, who represented the bank in the transaction with Ellis, that the loan was made on the faith of the mortgage given as security therefor. But, excluding from consideration the evidential value of this statement, the rule is well settled, both on reason and authority, that when a party has acted on a representation such as the one here shown, and he seeks rescission on the ground of the fraud, in the absence of rebutting circumstances, there arises a presumption in his favor that he relied upon and acted upon the representation, and the burden is upon the other party to overcome such presumption by evidence to the contrary. — 2 Pom. Eq. Jur. (2d Ed.) §§ 891, 892. And one claiming under the fraud-feasor stands in this respect in his shoes, and must, of course, assume the same burden. We find in this record no evidence which has any tendency to rebut the presumption of law that plaintiff’s extension of credit to Ellis was the natural and proximate result of plaintiff’s reliance upon Ellis’ claim and upon his ownership of the six mules. Hence there was no question to be submitted to the jury, and the general affirmative charge for plaintiff was properly given as to the stated counts in assumpsit. But the charge, as given, was upon the complaint generally, and was as applicable to the count in trover as to those in assumpsit. It should have been restricted to the latter, and was certainly misleading without such restriction. Defendant’s recourse, however, was to re — 502 — quest a qualifying charge. Indeed, it seems clear, as already declared, that on the trover count defendant would have been entitled to the general affirmative charge had it been requested in appropriate form. It was not requested, however, and defendant was content, instead, to request the giving of charges 3 and “B” which define the proof to be made by plaintiff as a prerequisite to recovery under the trover count. Both of these charges are faulty, in that they incorrectly state the measure of proof to be required of plaintiff; for it is not necessary to absolutely “prove-to the jury” or “satisfy the jury,” but only to prove to their reasonable satisfaction, or reasonably satisfy them. Hence, as frequently held by this court, the trial court was not in error in refusing to give these charges as thus named. — L. & N. R. R. Co. v. Sullivan Co., 126 Ala. 103, 27 South. 760. Plaintiff having the right to rescind the mortgage contract with Ellis, its surrender to him of the mortgage instrument, or its cancellation thereof, as á condition to rescission, was a question between it and Ellis only, and either of which Ellis might waive as he did, even if it were conceded that he might require either of these acts to be done by plaintiff. The rescission was sufficiently shown by the evidence, and was effectual and complete. Finding no error in the record prejudicial to defendant, the judgment will be affirmed. Affirmed. All the Justices concur.