When a bank refuse to do the particular thing requested with
securities delivered to it for that purpose only, it is its duty to
return the securities, and no general lien in its favor attaches to
them.
The fact that a bank has in its possession securities which were
sent to it for a particular purpose and which it is its duty to
return to the sender does not justify it retaining them for any
other purpose under a banker's agreement giving it a general lien
on all securities deposited by the sender.
A banker's agreement giving a general lien on securities
deposited by its correspondent will not be construed so as to give
it a broad meaning beyond its evident scope and in conflict with
the precept of duty, good faith, and confidence necessary for
commercial transactions; nor will a printed form prepared by the
banker be so extended by the construction of any ambiguous
language.
In this case, it was held that the retention by a bank of
securities for a purpose different from that for which they were
sent by its correspondent could not be predicated on the consent of
the latter, and that inaction of the correspondent could not be
construed as consent.
149 F. 127 affirmed.
The facts are stated in the opinion.
Page 215 U. S. 112
MR. JUSTICE WHITE delivered the opinion of the Court.
The predecessor of the present receiver of the American National
Bank of Abilene, Texas, sued, in April, 1905, to recover from the
Hanover National Bank of New York four promissory notes or their
value.
We shall refer to the corporations as the Abilene Bank and the
Hanover Bank.
At the trial, under instruction, there was verdict for the
Hanover Bank, and the judgment thereon was reversed. 149 F. 127. In
conformity to the opinion of the circuit court of appeals, on the
new trial, a verdict was directed in favor of the receiver, and to
reverse the affirmance of that judgment (
Hanover Nat. Bank v.
Suddath, 153 F. 1021), this writ of error is prosecuted.
The facts are these: prior to November, 1903, the Abilene Bank
was a correspondent of the Hanover Bank, and had an account with
the latter. The credit of this account was principally made up by
the proceeds arising from the
Page 215 U. S. 113
rediscounting by the Hanover Bank of commercial paper for
account of the Abilene Bank. On November 27, 1903, the Abilene Bank
signed an agreement concerning the right of the Hanover Bank, under
conditions stated, to attribute to the payment of debts due it by
the Abilene Bank securities in its hands belonging to the Abilene
Bank. In January, 1905, the Hanover Bank was contingently
responsible for commercial paper aggregating probably sixteen or
seventeen thousand dollars which it had rediscounted for the
Abilene Bank, and upon which the latter bank was ultimately
liable.
On January 9, 1905, the Abilene Bank transmitted by mail to the
Hanover Bank a note of the Hayden Grocery Company for $2,000, drawn
to the order of the Abilene Bank and by it indorsed, the letter
stating that the note was sent for discount and credit. On the next
day -- the tenth -- the Abilene Bank also transmitted by mail a
note drawn by R. H. Logan and W. R. Logan, to its order, and by it
indorsed likewise, with a statement that it was sent for discount
and credit. On the twelfth of the same month, the Abilene Bank
again transmitted to the Hanover Bank for discount and credit two
other notes, one drawn by L. W. Hollis for $3,500 and indorsed as
were the previous notes and a note of C. B. and W. F. Scarborough
for $1,500, likewise so indorsed, the letter of transmittal yet
again stating that they were sent for discount and credit.
The Hayden Grocery Company and the Logan notes, forwarded on the
ninth and tenth of January, reached the Hanover Bank on the
fourteenth, and on that day it telegraphed to the Abilene Bank,
declining to discount the notes, and by a second telegram said,
"[r]eferring to previous dispatch transfer or ship currency,"
which, according to the counsel for the Hanover Bank, meant to call
upon the Abilene Bank either to transfer a credit from some other
bank or ship currency direct. It is not shown that any reply,
either by telegram or letter, was made to the messages thus sent on
the fourteenth. The notes forwarded on the twelfth reached the
Hanover Bank on the sixteenth, and the latter at once
Page 215 U. S. 114
telegraphed, "[n]ot satisfactory," and confirmed the telegram by
a letter, saying: "We are not discounting enclosures for you, but
hold same as collateral to your indebtedness to us." The Abilene
Bank did not reply by telegram, but, on the same day, wrote to the
Hanover Bank as follows:
"We have just received your wire. The rediscounts we sent you
were mostly renewals, and in every instance, 'good as gold.'"
"Since the drop in cotton, collections are at a standstill, and
our clients expect us to stay with them, and we are obliged to ask
the same indulgence from our correspondents."
"Should you prefer, we will send our B/P with collaterals
attached."
"We trust you will accord us the leniency asked for."
On the morning of January 17, 1905, there stood on the books of
the Hanover Bank to the credit of the Abilene Bank the sum of
$616.15. On that day, a check on the Hanover Bank, dated January
11, 1905, drawn by the Abilene Bank for the sum of $3,825.45,
payable to the New York Life Insurance Company, as also some small
checks, passed through the clearing house. Upon attention's being
directed to the overdraft which thereby resulted, a telegram was
sent to the Abilene Bank, referring to the previous letters and
telegrams and asking that bank what it had done. No reply having
been received before the close of business on that day, the
vice-president of the Hanover Bank, after examining the written
agreement to which we have previously alluded, allowed the
overdraft to stand, and, to cover the same, made an entry of a loan
of $3,500 to the Abilene Bank which was placed to the credit of
that bank and, after absorbing the overdraft, left to its credit
the sum of $63.74. On the same day, the Hanover Bank wrote to the
Abilene Bank saying: "As your account showed overdrawn today over
$3,000, have made you a temporary loan of $3,500 against collateral
in our hands." On the next day (January 18), the Abilene Bank
closed its doors.
Page 215 U. S. 115
It is to be observed that, of the letters, the one by the
Hanover Bank written on the seventeenth of January and the one
written on the previous day by the Abilene Bank did not reach their
destination until after the failure of the Abilene Bank.
Thereafter, Richard L. Van Zandt was appointed receiver, and, as
we have said, commenced this action to recover the possession of
the four notes which had been transmitted to the Hanover Bank, as
above stated, or the value of such notes, and, in the course of the
action, the proceedings took place to which we have at the outset
referred. The ground relied upon for recovery was that, as the
notes had been sent to the Hanover Bank for discount for the
account of the Abilene Bank, upon the Hanover Bank's refusing to
discount them, that bank had no claim whatever upon the notes, and
had no right to apply them as collateral to the payment of the
voluntary overdraft which had been allowed on the seventeenth of
January, and thus obtain a preference to the extent of the
appropriation over the general creditors of the Abilene Bank. It
suffices to say that the defense of the Hanover Bank controverted
this contention, and asserted that the appropriation of the notes
was justified under its general bankers' lien or under the terms of
the special agreement of November 27, 1903. During the pendency of
the action, the Hanover Bank collected three of the notes, deducted
from their proceeds the sum of $3,725.86, then due, and paid to the
receiver the balance, and also delivered to him the uncollected
note, being the note of R. H. Logan and W. R. Logan, which had been
transmitted to the Hanover Bank on January 10 and was by it
received on the fourteenth.
It is contended that the appellate court erred in affirming the
ruling of the circuit court, directing a verdict for the receiver.
The grounds for this contention are that the evidence showed that
the Hanover Bank had the right to retain the four notes or the
balance of their proceeds by virtue of its general bankers' lien,
and, if not, as a result of the express
Page 215 U. S. 116
provisions of the agreement of November 27, 1903, and, in any
event, by the authority or consent of the Abilene Bank. Without
stopping to consider whether the third contention is not really
involved in the first two, we pass to their consideration in the
order mentioned.
1.
Was there a right of retention in the New York bank by
virtue of its general bankers' lien?
The rulings of this Court foreclose this question, since they
conclusively establish that a general lien in favor of a bank
cannot attach to securities which are delivered to it in order that
it may do a particular thing with them, and that, when it refuses
to do that thing, the duty to return exists. The general subject
was elaborately considered, and the authorities were fully
reviewed, in
Reynes v. Dumont, 130 U.
S. 354. In that case, securities had been sent to
bankers for a specific purpose. That purpose having been
accomplished, the securities were permitted to remain in the
custody of the bankers as depositaries, because they were in a good
market and a place convenient for procuring loans and because the
expressage upon their return would have been great. The right to a
general bankers' lien upon the securities was denied. Such a lien,
it was said, would arise
"in favor of a bank or banker out of contract, expressed or
implied, from the usage of the business, in the absence of anything
to show a contrary intention."
Ordinarily, it was declared the lien would attach in favor of a
bank upon securities and moneys of the customer, deposited in the
usual course of business, etc. It was, however, expressly declared
not to
"arise upon securities accidentally in the possession of the
bank, or not in its possession in the course of its business, as
such, nor where the securities are in its hands under
circumstances, or where there is a particular mode of dealing,
inconsistent with such general lien."
Biebinger v. Continental Bank, 99 U. S.
143, was one of the authorities cited in the opinion. In
that case, it appeared a deed had been deposited with the bank as
collateral security for the customer's current indebtedness
Page 215 U. S. 117
and discounts. After payment of this indebtedness and a
temporary suspension of dealings, the customer incurred new
indebtedness to the bank, but, as it did not appear that the money
was loaned or debt created on the faith of the deposit of the deed,
the bank's claim of a lien thereon was denied.
Bank of Montreal
v. White, 154 U.S. 660, is also a pertinent decision. Without
elaborating the issues which were there involved, it suffices to
say that, in an action to recover upon a promissory note, in order
to escape the contention that it was not an innocent holder, the
bank contended that, before the note was sent to it for discount,
the sender was under a promise to furnish security for advances to
be made, and therefore the rights of the bank as an innocent holder
were to be determined by the state of its knowledge at the time the
note was received, although the discount was declined, and not by
the state of knowledge existing when, at a subsequent date, the
note was actually discounted. In disposing of a contention that the
trial court had committed error in not giving an instruction which
the bank asked in accord with its contention as just stated, the
Court said:
"There can be no pretense in this case that the note in suit was
ever actually delivered to the bank as collateral security for past
or future indebtedness. In the letter transmitting it, the bank
manager was asked to discount it and place the proceeds to the
credit of the manufacturing company. In that event, the 'overdraft
kindly allowed on Friday' was to be charged against the credit; but
it is nowhere, even in the remotest degree, intimated that, if the
discount was declined, the note might be kept as collateral. The
charge asked and refused was therefore wholly immaterial, and the
judgment cannot be reversed because it was not given."
2.
Was the Hanover Bank entitled to retain the notes under
the terms of the agreement of November 27, 1903?
The material portions of the agreement are as follows:
"For and in consideration of one dollar [&c.], the
undersigned agree with said bank that all bills of exchange,
notes,
Page 215 U. S. 118
checks, and the proceeds thereof, and all other securities,
money, and property of every kind owned by the undersigned, or
either or any of them, or in which they or any or either of them,
have any interest, deposited with said bank, or which may hereafter
be deposited with said bank, or which may be in any wise in said
bank, or under its control, as collateral security for loans or
advances already made or hereafter to be made to or for account of
the undersigned, by said bank, or otherwise, may be held,
collected, and retained by said bank until all liabilities, present
or future, of the undersigned, or any or either of them, due or not
due, of every kind, to said bank, now or hereafter contracted,
shall be paid and fully satisfied."
For the Hanover Bank, it is contended that, although the notes
were not in its possession as collateral security for any debt due
it, nevertheless, as it had the physical possession of the notes
and they were not unlawfully in its hands, it had, under the
agreement, the power to make the advance to cover the overdraft and
to attribute, without the consent of the Abilene Bank, the notes in
question as collateral security for the loan which was made. The
construction upon which this proposition is rested gives to the
agreement the most latitudinarian meaning, and besides, in effect,
depends upon considering one or more clauses separately from their
context, thereby affixing to them a significance to which they
would not be entitled if considered in connection with the text in
which they are found. To illustrate: it is said the words which
give the power to the Hanover Bank to appropriate any securities
"deposited with said bank, or which may hereafter be deposited with
said bank, or which may be in any wise in said bank, or under its
control" are broad enough to embrace securities in the hands of the
Hanover Bank, without considering how they came into the possession
of that bank or without taking into account whether that bank had
any claim whatever aside from the agreement in question, and
without considering whether it was under the plain duty to
Page 215 U. S. 119
return the securities upon demand, and had no right to require
the performance of any act or duty by the Abilene Bank in respect
thereto. But this broad interpretation is, we think, unreasonable,
since it cannot be assumed, if there be room for implication to the
contrary, that the agreement was intended to confer the right upon
the Hanover Bank to appropriate securities merely because such
securities had come into its physical control, and with the
obligation to return on demand. We say this because it is manifest
that to attribute the broad meaning claimed would be in conflict
with the precepts of duty and good faith, and would be destructive
of that confidence and fair dealing so essentially necessary in
commercial transactions. In the light of these considerations, we
think the language relied upon should not receive the all-embracing
meaning sought to be attributed to it, but should be limited so as
to cause the same to embrace only property deposited with the
Hanover Bank, "or which may hereafter be deposited with said bank,
or which may be in any wise in said bank, or under its control,"
under circumstances and conditions which gave to that bank, by
operation of law or otherwise, some right to retain such property
for a particular purpose. And, irrespective of the meaning which we
attribute to the language relied upon, when independently
considered, we are of opinion that the want of merit in the
construction given to the agreement by the Hanover Bank is clearly
demonstrated when the context is brought into view. That is to say,
we consider that the provision of the agreement to which we have
just referred is qualified by the language which follows it --
viz., "as collateral security for loans or advances
already made or hereafter to be made, to or for account of the
undersigned, by said bank, or otherwise." In other words, the
provision just quoted, we think, must be considered as limitative
in its character, and as controlling therefore the previous
stipulations, thus confining the right to apply securities in the
possession of the Hanover Bank to such as had come into its
possession or control for the purposes
Page 215 U. S. 120
described. The contention that the words "or otherwise" deprive
the provision in question of its limitative effect is, we think,
clearly without merit, since that view cannot be upheld without
causing the words in question to dominate and destroy the meaning
of the agreement as derived from a consideration of all its
provisions. Particularly is this the case as those words are
susceptible of a meaning in harmony with the context -- that is to
say, may be held to give the right to retain securities under the
circumstances stated, even although the loan may not have been made
directly to the Abilene Bank -- as, for instance, where the
securities belonging to the Abilene Bank came into the possession
of the Hanover Bank as the result of a rediscounting of paper of
the Abilene Bank. Conclusive as we think are the reasons just
stated, they are additionally fortified by the consideration which
the lower court so cogently pointed out in the opinion by it
announced -- that is, that the contract was one prepared by the
Hanover Bank and embodied in a printed form in general use by that
bank, and therefore should have expressed its purpose beyond doubt,
and not ambiguously, if the language in question was intended to
convey the far-reaching meaning now sought to be attributed to
it.
3.
Was there otherwise a right of retention by the authority
or consent of the Abilene Bank?
By its answer, the Hanover Bank based its claim of right to
retain the notes in question solely upon its general bankers' lien
and the written collateral agreement. The letters to the Abilene
Bank, coupled with the statement of its vice-president, make plain
the fact that the sole reliance of the Hanover Bank in asserting a
claim upon the notes was, in reality, the written agreement. Thus,
by its communication of January 12, 1905, confirming the telegram
advising that the Logan and Hayden notes would not be discounted,
the Hanover informed the Abilene that it held the notes as
collateral for the indebtedness of the Abilene. Again, on the
seventeenth of the same month, following the allowance of the
overdraft,
Page 215 U. S. 121
the New York bank wrote: "As your account showed overdrawn today
over $3,000, we have made you a temporary loan of $3,500 against
collateral in our hands." And the belief of the vice-president that
the Hanover Bank was entitled to hold the four notes as collateral,
which led to the allowance of the overdraft, is clearly shown by
the record to have been induced by the terms of the collateral
agreement, which he at the time inspected. It may well be that the
check of January 11, 1905, for $3,825.45, was issued in the
expectation that it would be paid from the proceeds of the Logan
note of $2,000 and the Hayden note of $3,000, forwarded for
discount on January 9 and 10. But these and the subsequent notes
were not sent to be held as collateral security, but to be
discounted. The Abilene Bank had been notified by telegram not only
that the Logan and Hayden notes would not be discounted, but that
it should either transfer credits from other banks or ship
currency. The information plainly conveyed by this notification was
that checks drawn upon the faith of the discount of the notes
referred to must be protected with funds to be furnished. In
reason, the Hanover Bank was not entitled to act upon the
assumption that the inaction of the Abilene Bank was equivalent to
a request to pay the drafts as presented, and to hold as collateral
the notes which had been sent for discount. The Hanover Bank
should, on the contrary, in view of the action of the Abilene Bank,
have assumed the possibility that funds could not be supplied, and
that the Abilene Bank might therefore be unable to meet its paper
and be compelled to cease business. It is apparent that the Hanover
Bank, in allowing the overdraft, did not act upon the assumption
that the possession merely of the notes justified its reliance upon
them as a security for the advance. We say this because the record
leaves no doubt that the device of a temporary loan in order to
secure the payment of the overdraft was resorted to upon the faith
of rights supposed to inhere in the written agreement. There is no
basis therefore for the contention that, from the circumstances of
the
Page 215 U. S. 122
overdraft and the possession of the notes, a right of retention
existed, created by authority or consent of the Abilene Bank.
Affirmed.