First National Bank of Nashville v. McClung

Cooper, J., delivered the opinion of the court. On January 29, 1877, H. L. McClung & Co., a firm doing business at Knoxville, executed their note ■of that date, payable sixty days thereafter, to W. H. Turley or order, at the Commercial Bank of Knoxville, for $2,500, with interest at the rate of ten per cent, per annum after maturity. This note was endorsed by W. H. Turley, and the Commercial Bank, and was discounted by the First National Bank of Nashville, the proceeds being received by the Commercial [493] Bank, for whose benefit the note seems to have been made, and by whom it was sent to the First National Bank. On February 1, 1877, the First National Bank returned the note by letter to the Commercial Bank “for coll. & or.” These abbreviations are proved to mean: “ Collect the note and place the amount to the credit of First National Bank’s account.” The note was entered on the ledger of the Commercial Bank to the credit of bills payable, in that way showing, according to the testimony of the bookkeeper of the bank, that the bank owed that much money. At the maturity of the note, April 2, 1877, it was charged to bills payable, thereby showing that the Commercial Bank now owed the First National Bank $2,500, instead of an outstanding note for a' like amount, and the sum called for, like other collections for that bank, was passed to the credit of the First National Bank. The 'Commercial Bank was the regular Knoxville correspondent of the First National Bank of Nashville, and the two banks kept running accounts with each other. At the end of each month, the First National Bank would order its balances remitted to New York, and the Commercial Bank would remit either the exact balance to credit of First National Bank, or an approximate amount. At the time the amount of the note was credited to the National Bank, the Commercial Bank had money sufficient to pay it, but no money was paid, and the bank was then insolvent. On the 4th of April, 1877, two days thereafter, the Commercial Bank stopped business, and made a general assignment of its property and effects for [494] the benefit of its creditors. This bill was filed on December 8, 1877, against the makers and endorsers of the note, and the trustee of the bank, to collect the note as still outstanding. The record discloses the facts to be as above recited. Of course, it is of no consequence to the complainant whether the Commercial Bank be held liable to it by reason of the endorsement of the note, or for the money treated as collected. In either event, the recovery will be. the same. The contest is, therefore, over the liability of the makers and the first endorser. We start out with the fact that the note was executed by them for the accommodation of the Commercial Bank, and that the bank was the principal debtor. It does not appear whether the relation of the parties to the paper was known to the First National Bank, except so far as it may be inferred from the fact that the Commercial Bank sent the note to the First National Bank, and received the proceeds of its discount. The Commercial Bank was the correspondent and collecting agent at Knoxville of the National Bank, and the usual course of dealings was to enter the amounts collected to the credit of the National Bank, and to send the credit balance at the end of the month to New York according to instructions. If the note in controversy had been altogether on third persons, it is very certain that a mere entry of the amount on the books of the bank, to the credit of the National Bank, without any actual collection of the money would not, ordinarily, release the parties to the paper. On the other hand, if the note had been executed by the [495] Commercial Bank alone, and had been sent to it “ for collection and credit,” the passing of the amount of the note at maturity to the credit of the National Bank, would ordinarily have been a good payment, for it would- have been all that the bank could do under the instructions. The question, then, is narrowed down to this: Does the fact that there were other parties on this paper, who were there for the accommodation of the Commercial Bank, or the condition of the bank at the time, change the result? The authority of the bank was to collect, which necessarily meant that it might collect from any party bound upon the note. It might,. therefore, collect from itself, precisely as it would have done if it had been the only party liable. It was further directed what to do with the money collected, namely, to place it to the credit of the National Bank on its books. If, therefore, it then had the money with which to pay, and did actually appropriate it in the mode prescribed by passing it to the credit of its correspondent, it is difficult to see how the result could be otherwise than a payment of the debt, and a release of the accommodation sureties: Dan. Neg. Inst., sec. 1221. The proof is that it did have the money with which to pay, and, although insolvent, continued to do business for that and the following day. The entry • of the credit was, under the direction given, as effective as if a depositor had brought in on that day the check of another customer, and had it entered to his credit. The bank may be said to have acted in bad faith, in view of its actual condition, to both class of custom [496] ers, but its action would be good nevertheless, and the loss would fall upon the party dealing with it: Eyles v. Ellis, 4 Bing., 112. The decree of the chancellor will be reversed, and the bill dismissed with costs.