Exeter Bank v. Gordon

RichaRdson, G. J., delivered the opinion of the court.* With respect to the two drafts upon H. G. Nelson, en — 78 — dorsed and delivered to the cashier of the bank by Stephen L. Gordon, there seems to have been no neglect on the part of the bank. The drafts were duly presented and protested for non-acceptance, and notice of the non-acceptance given to S. L. Gordon. This was all the bank was bound to do. The acceptance having been refused, it was not necessary to present the drafts for payment. Bayley on Bills 215; 3 John. 202, Mason vs. Franklin; 8 Mass. R. 460, Lenox vs. Cook; Douglas 55, Milford vs. Mayor; 3 East 481, Ballingalls vs. Gloster. Nelson’s note, which was endorsed and delivered to the cashier by S. L. Gordon, it is conceded in the argument, was delivered upon the same terms as those upon which the drafts had been delivered. The bank was to collect it and apply the proceeds to the payment of such debts of the Gordons as the directors should select. If that debt has been lost by the negligence of the bank, it is tantamount to a receipt of the money by the bank, and it ought perhaps to be considered as a payment, pro tanto, of the judgment in favor of the bank against the Gordons : because that judgment includes all the demands to which it could have been rightfully applied in payment. What duties then were imposed upon the bank by taking the note ? S. L. Gordon had previously delivered to the bank drafts for the money clue on the note, which drafts Nelson had refused to accept. The note itself was then delivered to the bank to collect. The question now to be settled is. not whether the bank did enough to enable them to charge S. L. Gordon as endorser, or whether under the circumstances he could have been made liable as endorser ; but whether the bank has so conducted as to make the note its own, so that it must now be considered as payment in part of the debts on account of which it was received. The bank was bound to use ordinary diligence ; but it was not bound to send a special messenger to secure the — 79 — debt, or to send the note to be sued immediately, unless it contracted so to do. The case states that the cashier frequently wrote to Nelson for payment; and it does not appear that the bank contracted to do any thing more than this. But the assent of S. L. Gordon to the arrangement made soon after the bank took the note, between the cashier and Nelson, as to the acceptances of E. E. Lewis, is a decisive answer to any complaint on the part of S. L. Gordon of the delay in commencing the suit against Nelson. How long it was before that arrangement was ascertained to have failed does not appear. But Gordon, having assented to that course to secure the debt, has no ground of complaint that a suit was not sooner commenced. Besides, Stephen L. Gordon having written to Nelson not to pay the note which the bank had until another note was paid, he ought to be estopped to say the note has been lost by the negligence of the bank. For aught that appears, the bank may have as good ground to say that they were precluded from receiving the money by his interference, as he has to say that any thing has been lost by their negligence. There is then nothing in the case which shows that the bank has by its negligence made the note its own ; and this ground of defence fails entirely. The next question is, whether the bank has made the note its own by the compromise, so that it must now be considered a payment in part of the notes on account of which it was received ? It is very manifest that the note must be considered as placed in the hands of the cashier as a pledge, or security, with authority to collect and apply the proceeds to the payment of debts due to the bank. It is without doubt a well settled general rule, that the pledgee has no right in such a case to compromise for a less sum than the sum due on the face of the security. Story on Bailment 214; 15 Mass. R. 534, Bowman vs. Wood; 12 Johnson 146, Garlick vs. James. — 80 — There arc, however, exceptions to this rule. But admit-ing, for the present, that the general rule is applicable to this case, the question will then be, has the wrongful act made the bank accountable for the whole sum due on the note, or only for the value of the note ? There seems to be no reason to suppose that the compromise was not, on the whole, highly advantageous to the Gordons and the bank. And the complaint of this defendant is, not that any thing was in fact lost by it, but that it was made without authority. If the bank had wrongfully taken the note and converted it to their own use, they would have been answerable only for the value. 2 Caines' Cases 215; 3 Mass. R. 364; 4 Greenleaf 274; 12 John. 484, Clowes vs. Hawley; 2 B. & P. 451; 3 John. 432; 10 ditto, 172 and 471; 3 Starkie's Ev. 1503; 8 Taunton 264; 1 Cowen 240; 1 Pick. 503; 17 Mass. R. 247; 6 Greenleaf 226; 1 Barnw. and Adolphus 528; 1 C. & P. 625; 10 Pick. 415. And we are of opinion, that if the compromise in this case is, under the circumstances, to be considered as a wrongful disposition of the note, which was lawfully in the possession of the bank, it cannot and ought not to place the bank in a worse situation than it would have been, if the note had been wrongfully taken from the possession of the owner and converted to the use of the bank. It is said that this case is analogous to the case of an executor or administrator, who compounds a debt due to the estate of the deceased for less than the amount. But how is the law in such a case ? The general rule is, that a release of a certain debt due to the testator makes it assets in the hands of the executor, because it shall be intended he would not have made the release unless the money had been paid. And it seems to have been holden, in former times, that a release in such a case was conclusive evidence that the executor had received the money; and he was chargeable — 81 — with the whole amount, although he might have received only a part. Lovelass on Wills 48; 4 Pickering 50; Wentworth's Executor 70—71, and 158—159; Comyn’s Digest, “ Administration” I, 1 and 2; Cro. Eliz. 43; T. Jones 88; 2 Levintz 189; 9 Mass. R. 352. But in modern times, a more reasonable and ecgaitable view of the subject seems to have been gaining ground. In many cases, an executor can obtain nothing unless by way of compromise ; and it is supposed that no court would now hold an executor liable for the whole debt in a case where he had, upon a compromise on the whole advantageous to the estate, released the debt on receiving a part ; for that would be to make him liable for the whole, merely because by his care and diligence he had been able to save a part. 2 Eq. Ca. Ab. 454, pl. 13; 3 P. Williams 381; 7 John. 411—412. If, then, we follow that analogy in this case, we must hold that the bank is liable only for what it received, if the compromise was on the whole advantageous to all concerned. A release by the endorsee of a note to the maker is a bar to an action against the endorser, if made without his assent, even in cases where made upon a compromise which might be beneficial to the endorser. But this depends upon the particular nature of the relations which subsist betrveen the parties to negotiable instruments. The endorsee is not in such a case the agent of the endorser. And the release, to be effectual to the maker, must be a release to the endorser, who might otherwise have a remedy over against the maker. On the whole, we are of opinion that if the bank had not, under the circumstances, authority to make the compromise, still it has not made itself responsible for the whole amount of the note, so as to make it payment of the note mentioned in the mortgage. If Stephen L. Gordon has sustained any damage by the — 82 — compromise, he may have his remedy. But we find no principle that can render the bank accountable for the whole amount of the Nelson note, unless the part not received can be considered as lost by the course they have pursued. : It is by no means clear, that under the circumstances the bank had not a right to make the compromise. Story, in his treatise on bailment, says a pledgee has no right, unless perhaps in a very extreme case, to make a compromise. Story's Bailment 214. This was perhaps an extreme case. Nelson was insolvent. Nothing could be collected by process of law. In such a case, the delivery of the note to the bank, to be collected without any restriction, affords a fair ground to presume that a power to compromise was intended to be given. And this presumption is greatly strengthened by the circumstance that the Gordons were also insolvent, and that it was the interest of the bank to make the most of the note against Nelson. But however this may be, we are of opinion that there must be Judgment on the verdict. Footnotes [*] Parker, J., having formerly been of counsel did not sit.