Miller v. Farmers & Mechanics' Bank

Ax/vev, J., delivered the opinion of the Court. As between the plaintiffs and Josiah Lee & Co., there could be no question or difficulty in regard to the right of the former, to the proceeds of the two promissory notes collected by the defendant; for it is expressly admitted that the notes were the property of the plaintiffs, and were endorsed by them, without value, to Lee & Co., simply for collection. But as between the plaintiffs and the defendant, a different question arises, and one that depends upon the nature and character of the dealings and transactions between the defendant and Lee & Co.; the principle being that whenever a banker or broker has advanced money to his customer, he has a lien on all the securities in his hands for the amount of [398] bis general balance, unless such securities are held under some special agreement. ■ The endorsements of the notes by the plaintiffs to Lee & Co. were unqualified; and the possession by the’ latter of this negotiable paper, with such endorsements thereon, imported property in the holder; and, without notice to the contrary, the defendant had a perfect right to treat Lee & Co. as the bona fide owners of the notes, and were not bound to make inquiry as to whether they held them as agents or otherwise. The notes were each drawn at six months, and matured and became payable — the first on the 27th, and the second on the 29th-, of October, 1860. They were transmitted by Lee & Co., who were bankers and brokers, in the city of Baltimore, to the defendant, at Westminster, in Carroll county, on the 8 th of October, 1860, specially endorsed to the latter, for collection. The notes were paid by the makers to the defendant at maturity, and the proceeds were immediately thereupon placed to the credit of Lee & Co., in an account current, which had been running between the defendant and Lee & Co. for several years. At the time of such payment, and credit in account, the defendant had no knowledge that the notes were not, in fact, the property of its correspondent, Lee & Co.; and the first knowledge received by the defendant to the contrary was communicated to it by Lee & Co., through letters dated the 15th of November, 1860, directing the notes or the proceeds thereof, if paid, to be delivered to the plaintiffs. Lee & Co. failed, and closed their house on the 30th of October, 1860, some fifteen days before knowledge came to the defendant that the notes belonged to the plaintiffs, and not to Lee & Co., according to their prima facie import. The balance on account against Lee & Co., and in favor of the defendant, was at the time of such failure, considerably more than the amount of the notes; and the balance still due the defendant on that account is $1,136.62, with interest. It was in evidence that the course of dealing between the defendant and Lee & Co., had been that the former sent to [399] the latter cheeks and negotiable paper for collection, and sometimes money; and that Lee & Co. sent to the defendant all the paper which they had for collection in Carroll county. That the balances in account were not drawn for on either side, but were from time to time allowed to remain, to be adjusted by means of collections and remittances. That Lee & Co., from time to time, redeemed some of defendant’s circulation, and sent it to the latter when it was credited in the account, there being but one promiscuous account kept between the parties. That after the receipt of the notes for collection, there were amounts larger than the aggregate sum received on the notes, charged in the account against Lee & Co., and which form a part of the debits upon which the balance was ascertained to be still due and owing to the defendant. Upon this state of the case the plaintiffs, by tlieir first prayer, which was refused by a divided Court, prayed that the jury be instructed that if they should find that the plaintiffs were the owners of the notes, and that they endorsed them in blank to Lee & Co., for collection, without value, and that the notes were specially endorsed by Lee & Co. to the defendant for collection, and were paid at maturity to the defendant, then the plaintiffs were entitled to recover, unless it should be further found that the defendant, after receipt of the notes, gave some new credit, or extended some existing credit, or made some new advances to Lee & Co., upon the faith of the notes. And by tlieir fourth prayer, which was also refused by a divided Court, the plaintiffs asked that the jury be instructed that if it was found upon the whole evidence in the case, that the defendant incurred no new responsibility on tbe faith of the notes to Lee & Co., and its transactions with them remained the same in all respects at the time of their insolvency, as they would have been, if the notes had not been transmitted to the defendant for collection, then the plaintiffs would be entitled to recover. These prayers make the only questions before us. 'Were they properly refused by the Court below ? [400] The right of the plaintiffs to maintain the action against-the defendant, we think, is clear. The plaintiffs had constituted Lee & Co. their agents for the collection of the notes in question; and although Lee & Co. appeared, from the character of the endorsements on the paper, to be the real owners thereof, and the defendant had no notice to the contrary, and the money received on the notes was placed to the credit of Lee & Co. by the defendant, still the rule is well established, “that- whenever by express agreement between the parties, a sub-agent is to be employed by the agent to receive money for the principal, or where an authority to do so may fairly be implied from the usual course of trade, or the nature of the transaction, the principal may treat the sub-agent as his agent, and when he has received the money, may recover it in an action for money had and received.” Wilson vs. Smith, 3 How. 763. We do not understand the application of this rule to be controverted; but it is contended, on the part of the defendant, that by the course of dealing between Lee & Co. and the defendant, the latter has the right to retain the proceeds of the notes in its hands, to be applied in part extinguishment of the general balance still remaining due on account from Lee & Co. And whether the defendant has the right so to retain the money received on the notes, depends upon a question of fact, and that is, was credit really given to Lee & Co. on the faith of these notes, endorsed to the defendant, before the receipt of knowledge that they belonged to the plaintiffs ? If such credit was in fact given, it can make no manner of difference whether it was in the form of advances of money, or balances on account of mutual dealings between the parties, suffered to remain undrawn for. In case the credit was extended- in either form, the right of the .defendant is clear, and the plaintiff must fail of recovery. For by placing in the hands of Lee & Co. the notes so endorsed as to make them prima faoie their property, the plaintiffs enabled the defendant, and all others, without notice, to deal with the holders as [401] if they were the real owners. And if loss is to be sustained, it is but fair that the plaintiffs, by whose misplaced confidence it has been occasioned, should bear it, rather than the defendant, which has been' guilty - of no fault, but was induced to give the credit by the manner in which the plaintiffs placed their negotiable securities in the possession of their agents. (Decided 13th March, 1869.) But, while such is the right of the defendant, if it has in fact been induced to extend a credit on the faith of the notes, by the act of the plaintiffs, yet, if no such credit was in fact given to Lee & Co. by it, or if given, subsequent indemnity has been obtained in any way for any loss that may have been occasioned thereby, then, it is clear, the plaintiffs would be entitled to recover the amount of the notes, as so much money had and received by the defendant to their use. Un4 less some credit ivas given, or some risk or responsibility incurred upon the faith of the notes, there would be no justice in allowing the defendant to retain the money, simply because it had passed the amount to the credit of Lee & Co., and they still owe a balance on account. The two rejected, prayers of the plaintiffs, in our opinion, fairly and fully presented the law of the case, and we think the Court below was in error in not granting them. The legal propositions embraced in them are fully sustained by the cases of Bank of the Metropolis vs. New England Bank, 1 How. 234; same case in 6 How., 212; Wilson vs. Smith, 3 How., 763; and Cecil Bank vs. Farmers’ Bank of Maryland, 22 Md., 148. Because of the error in refusing to grant the first and fourth prayers of the plaintiffs, the judgment of the Court below must be reversed, and the cause remanded for a new trial. Judgment reversed and procedendo awarded.