J. S. Ditch & Bros. v. Western National Bank

Beyan, J., delivered the opinion of the Court. This case involves a question of considerable importance. Thomas J. Shryock & Co. drew their check for a hundred and eighty-seven dollars and fifty-five cents on the Third National Bank of Baltimore, payable to the order of John E. Reese. Reese endorsed it in these words: “Pay to the order of J. S. Ditch & Brother.” The next endorsement was in these words: “For deposit to the credit of J. S. Ditch & Brother.” Signed per T. P. Cassidy. It was admitted that Cassidy had due authority from Ditch & Brother to make and sign this endorsement. — 202 — Luther B. Ditch, a member of the firm of Ditch & Brothers, in person deposited this check, together with others in the bank of J. J. Nicholson & Sons, and they at the same time entered a credit of cash to the amount of all of these checks in the deposit book of Ditch & Brothers, and also in their own books. Ditch’s testimony on this point is as follows: “That he handed his deposit to Johns R. Nicholson in person; that his firm kept another pass-book with Nicholson & Sons, in which accounts were left for collection, on which promissory notes only were entered; that when these promissory notes Avere paid credit was entered on the regular deposit book. All checks whether out-of-town or city checks, were entered on the regular deposit book as cash; on a few occasions checks dated ahead were entered as cash. If necessary, or if they were short of funds, they checked immediately after the deposit was made. They made no special arrangement about checking on deposit. * *' * * That the paper left for collection, consisting of promissory notes, was not carried to the deposit books until the collection had been made, bnt all checks were entered in the deposit book when deposited as cash, as if they were so much currency, and they were at liberty to check against such deposits as soon as made, if they desired.” Matthew Aiken, general book-keeper of Nicholson & Sons, testified: “ That he knew J. S. Ditch & Bros.; that they had two account-s with his bank and a separate pass-book for each account, — one a deposit account, and the other an account for collection. The collections went to their credit when collected, and were then marked off their collection book and credited on the deposit book. The deposits made by Ditch & Bros, went to their credit on the books of Nicholson & Sons on the same day the deposit was made, and they were credited on the deposit book of Ditch & Bros, at the time the deposit was made ”;. and also “that the check in question forms a part of a credit of cash, $929.75, to Ditch & Bros, in their deposit book with Nicholson & Sons, on January 14th, 1892; and — 203 — that the amount of the credit was so entered on the deposit hook at the time the deposit was made, and was carried to then credit on the books of Nicholson & Sons”; and also, “that all checks deposited by Ditch & Bros, were entered on their deposit book as cash and subject to immediate withdrawal in currency or anything else.” When Ditch deposited this check, it is evident that he did not wish to have the money for it paid into his hand; because if he had wished the money it would have been as easy to obtain it from the Third National Bank as to deposit the check; and, secondly, because according to his owm testimony and Aiken’s, he could have drawn the money immediately if he had chosen to do so. Instead of the money he preferred a credit with Nicholson & Sons subject to his check; this was in all respects more convenient to him than the possession in hand of currency or coin. And this is what the endorsement plainly meant; the check was to be deposited and the amount of it was to be placed to the credit of Ditch & Brothers. The endorsement was in blank so far as the name of the endorsee is concerned; but wlien Ditch handed the check to Nicholson & Sons with the book in which his deposits were entered as cash, he evidently intended that the deposit should be entered in that book, and that he should receive credit for the amount of the check as cash, and that Nicholson & Sons should be the holders of the check as endorsees in blank. No form of wrords could have made his meaning plainer. And this meaning is in exact accordance with the endorsement. The endorsement showed that it was to be deposited in a banking house and that Ditch & Brothers were to receive credit for it; but the name of the banking house was not mentioned; it was left blank. By delivery Ditch designated the bankers with whom it wfas to be deposited, and who wrere to give the credit. If Nicholson & Sons .had paid to Ditch & Brothers the full amount of the check in coin or currency when it wns delivered to them, it is supposed that there would have been no question about — 204 — the nature and effect of the transaction. But they gave Ditch & Brothers what was preferred to the coin or currency; they gave them the unconditional right to get the coin or currency at any time they might see fit to call for it; thus relieving them from the trouble and risk attending the care and custody of it. Now, it is extremely difficult to see on what principle or by what process Ditch & Brothers could retain any interest in this check after they had delivered it to a blank endorsee and had received full and valuable consideration for it. It will not be alleged by any one that the banker did not give a consideration, valuable in the eye of the law, and sufficient to maintain the transfer of the check, when he made an absolute and unconditional contract with the depositor to pay his checks to the amount of the deposit. This point was decided in Tyson and Rawls vs. Western National Bank, 77 Md., 412. It has been asked what would be the condition of the bank in case this check should be dishonored when presented for payment. The answer is not difficult. In Tyson and Rawls vs. Western National Bank, supra,the Court thought that the bank would have against the depositor the ordinary remedies which belong to the endorsee of dishonored instruments of this character. It could certainly recover from him the amount of the check. And here we may notice a portion of the testimony which has been made the subject of a good deal of comment. Aiken testified as follows: “ It was not the custom of Nicholson & Sons to, charge back to the depositors the checks which had been deposited with them and were dishonored. The custom was to have returned the checks to the party and to get the money refunded.” John Ditch testified: “should any check be returned they (Ditch & Brother) had always to make them good. That the Nicholsons never bothered themselves about the unpaid checks.” This testimony merely shows that the bank was aware of its legal rights and that depositors paid voluntarily what they could have been compelled to pay by suit at — 205 — law. Persons engaged in mercantile pursuits would lose all commercial credit and standing if they did not promptly perform their plain and well understood obligations. In Tyson and Rawls vs. Western National Bank, the draft deposited was endorsed in these words: “For collection for account of Tyson and Rawls, Greenville, N C.” This Court held that this endorsement was not adequate to pass to the holders, the title to the draft, and that the evidence in the case did not show any other way by which it could have been passed. The Court also held that it was the clear understanding between the parties that Tyson and Rawls (the depositors) should not obtain an absolute and unconditional credit in consequence of the deposit. It being our opinion that Nicholson & Sons acquired title to this check, we must declare our carefully considered judgment. If other tribunals for whose learning and ability we entertain the greatest respect, have arrived at conclusions different from our own we do not feel called upon to abandon the deliberate convictions which we entertain. But we do not assume that there is a great contrariety in the opinions of the Courts on this question. A great many cases have been brought to judgment; but their facts have been diversified in great variety. It has always been held that the bank and the depositor could make their own contracts. Sometimes they have been made in express terms; and sometimes they have been inferred from the acts and conduct of the parties, and the regular and established course of dealing between them. It can readily be seen how broad a field of inquiry has been spread out before the Courts, and what diversities of facts and combinations of facts would probably be presented for their consideration. Among the great number of cases which have been earnestly pressed upon us, we will cite three in which the effect of an endorsement “for deposit” was considered. The first is National Commercial Bank vs. Miller & Co.,77 Alabama, 168. In this case the bank brought an action against Proskaner, and sued — 206 — out a garnishment which, was served on Miller & Co., private bankers, who were alleged to be. debtors of Proskauer. We will state the Court’s opinion in its own words: “The defendant^ in the name of ‘A. Proskauer'& Co., agents,’ opened in January 1883, a deposit account with the garnishees, who were bankers. On this account the defendant deposited checks payable to ‘A. Proskauer & Co., agents,’ which were entered in the pass-book, and drew checks, in the same name, ‘ on funds so deposited.’ The check in question was indorsed ‘ For deposit, A. Proskauer & Co., agents.’ The import and effect of such indorsement must be considered in the light of the attendant circumstances, and of the previous dealings between the parties. Where a depositor has for some time previously kept a deposit account with a banker, on which he was accustomed to deposit checks payable to him, entries of which were made in his pass-book, and to draw against such deposits, such an indorsement, in the absence of a different understanding, is presumptive of more than a mere agency or authority to collect. The special purposes for which an indorsement for deposit is made, under such circumstances may be readily inferred. It was a request and direction to the garnishees to deposit the sum to the credit of the defendant, and conferred on them, not only authority to collect, but also authority to put the check in such form, and use it in such manner, as in their judgment and discretion, having reference to the condition and necessities of their business, would make it most available to their protection. The effect of the indorsement, for the consummation of this purpose, is to vest the garnishees with the title to, and control of the check. If, in such case, the check is not paid, the banker depends for safety and indemnity on the liability of the drawer, and the security of the indorsement.” It appeared that Miller & Co., the garnishees, had presented the check for certification to the bank on which it was' drawn, and that it — 207 — was certified by that bank in these words:u Good for eight thousand dollars.” The Court say that the certification made a new and distinct contract between the holder and the certifying bank, which thereby became the debtor of the holder; and that the drawer and endorser of the check were released from all liability on it, and that as to them it was paid. The significance of the certification was a question in the case; because after it had been made, and after service of the garnishment, the defendant gave notice to Miller & Co., the garnishees, that he revoked their authority to collect it and that they were forbidden to present it for payment. But as it was already paid in legal effect to Miller & Co., they were the debtors of the defendant, and the notice was not efficacious to change the rights of the attaching creditor, or to displace the lien on the debt which he had acquired by service of the garnishment. We have mentioned the certification of the check and its consequences, because these matters were zealously urged in the discussion of this case. But we do not see how they bear any analogy to the facts on which the rights of the parties in the present case depend. The other two cases were thought to be still more decisive. In one of them,Freeman vs.Exchange Bank,87 Georgia, 45, the Court used this language: “ There being in evidence no facts extrinsic to the bill itself and its indorsements to throw light upon the question of title, we are not to be understood as holding that, such facts might not exert a controlling influence on the question. Indeed, there is authority for giving them such effect when duly proved. A deposit of paper in bank by a customer, he. indorsing it “ for deposit,” may operate to clothe the bank with title under certain circumstances. National Commercial Bank vs. Miller & Co., 77 Ala., 168.” The other case is Beal vs. City of Somerville, 50 Federal Reporter, 647. Checks were deposited in the ¡Maverick Rational Bank by the treasurer of the city of Somerville; each — 208 — of them was endorsed u for deposit.” The deposit was made about fifteen minutes before three o’clock in the afternoon; at three o’clock of the same day the bank closed its doors and never opened them again for business. At the time of the deposit it was irretrievably insolvent. Beal was appointed its receiver, and a bill in equity was filed against him by the city of Somerville. In the bill the facts just mentioned were alleged, and also the following: “The treasurer had for several years made deposits with the bank without any special agreement in regard thereto. There was no agreement that checks deposited should be considered as cash, or that the treasurer could draw against them before collection. The treasurer never drew a check for which his deposit was not sufficient without counting the proceeds of uncollected checks, except in a few instances, on a few occasions, by special* arrangement with the bank. There was no express understanding that the checks should be credited to the city immediately on deposit, but they were always so credited oh the pass-book at the time of the deposit.” * * * “ It was the practice of the Maverick and the other banks in Boston,' in some cases, to allow depositors to draw against checks deposited before such checks were collected, and in some cases not depending upon the bank’s opinion of the reliability of the depositor and the makers of the checks.” A demurrer was filed, admitting, of course, the facts stated. The Court in its opinion said among other things, Beal “ fails to show that the city had an absolute right to check against the deposit as soon as made, irrevocable by notice from the bank; and that such right did not exist must be received by this Court as a matter of judicial knowledge.” The decree determined that the checks were the property of the city. We have not made these long citations for the purpose of criticising these decisions, nor for the purpose of inquiring whether they sustain or oppose the judgment which we — 209 — have formed in the case before us. Our object has been to show the great variety in the facts and details of cases which have been adjudged, and to illustrate a sound juridical principle, that differing facts may justly lead to differing conclusions of law. John Ditch testified that “he regarded all the checks deposited by him as having been deposited for collection; otherwise why should they have to make good those which might be returned? ” The legal character and attributes of the deposit depend upon the endorsement and upon what was said and done at the time the deposit was made, and upon the regular and uniform course of dealing between the parties. The testimony of the witness was his opinion on a question of law. An exception was filed to it, and it was undoubtedly incompetent. The check on the day it was received by Nicholson & Sons was endorsed by them u for deposit ” and deposited in the Western Bank, where they kept an account. It was passed to their credit, subject to their check, and on the same day they largely overdrew their account. Later in the day they made an assignment for the benefit of their creditors, and it became known that they were totally insolvent. Although Nicholson & Sons acquired title to the check in the manner which we have stated, it is quite true that in a controversy with their trustee, Ditch & Brothers might successfully impeach the transfer for fraud and set it aside. But the question with the Western Bank stands on different grounds. It is a bona fide holder of a negotiable instrument for value, without notice of any facts which would invalidate the title of the endorsers from whom they obtained it. AJI commercial principle and usage require that such a title should be protected. At the request of Ditch & Brothers the payment of this-check was stopped by the order of Shryock & Company, the drawers. Shryock & Co. filed a bill of interpleader in Circuit Court No. 2 of the city of Baltimore, and the Court — 210 — required tlie Western Bank and Ditch & Brothers to litigate between them then- respective claims to the ownership of the check. The decree established the title of the Western Bank, and we affirm it. (Decided 15th March, 1894.) Decree affirmed, with costs. I sat in the former argument of this case, and I have examined the briefs of counsel filed, and I wish to state that I concur in the opinion of the majority. Henry Page.