When there have been, for several years, mutual and extensive
dealings between two banks, and an account current kept between
them in which they mutually credited each other with the proceeds
of all paper remitted for collection when received and charged all
costs of protests, postage &c., accounts regularly transmitted
from the one to the other and settled upon these principles, and
upon the face of the paper transmitted it always appeared to be the
property of the respective banks, and to be remitted by each of
them upon its own account, there is a lien for a general balance of
account upon the paper thus transmitted, no matter who may be its
real owner.
Page 42 U. S. 235
At the trial in the circuit court, it appeared upon the evidence
that the Bank of the Metropolis, one of the banking institutions of
the District of Columbia, had been for a long time in the habit of
dealing and corresponding with the Commonwealth Bank of
Massachusetts. They mutually remitted for collection such
promissory notes or bills of exchange as either might have which
were payable in the vicinity of its correspondent, which, when
paid, were credited to the party who sent them in the account
current kept by both banks and regularly transmitted from the one
to the other and settled upon these principles. The costs and
expenses, such as protests and postage, were, of course, charged in
such account.
The balance was sometimes in favor of one, and sometimes of the
other. On 24 November, 1837, the Bank of the Metropolis was
indebted to the Commonwealth Bank in the sum of $2,200, and in the
latter part of the year 1837, the Commonwealth Bank transmitted to
the Bank of the Metropolis, for collection in the usual way, sundry
drafts, notes, and other commercial paper which would fall due in
the ensuing months of February, March, April, May, and June. They
were endorsed by E. P. Clarke, cashier, and made payable to C.
Hood, cashier, and again endorsed by C. Hood, cashier, to G.
Thomas, cashier. Clarke was the cashier of the New England Bank;
Hood, of the Commonwealth Bank, and Thomas of the Bank of the
Metropolis.
On 13 January, 1838, the Commonwealth Bank failed, and on that
day Charles Hood, the cashier, wrote a letter to the Bank of the
Metropolis directing them to hold the paper which had been
forwarded, as above stated, "subject to the order of the cashier of
the New England Bank, it being the property of that institution."
When this letter was received, the account was examined, and it was
discovered that on that day the Commonwealth Bank was indebted to
the Bank of the Metropolis in the sum of $2,900.
The deposition of Charles Hood, which appeared to have been
taken under the act of Congress, was read in evidence by the
defendant in error. It stated, among other things, that
"the Commonwealth Bank never at any time owned any of said notes
or obligations, or any part or either of them, and had never
any
Page 42 U. S. 236
right, title, interest, claim, or lien thereon, but that the
same were at the time of the receipt and ever afterwards the
property of said New England Bank and subject to its order and
control."
The reading of this deposition was objected to in the court
below, and included in the bill of exceptions, but as the objection
was not argued in this Court, it is presumed to have been
abandoned.
The action was brought by the New England Bank against the Bank
of the Metropolis, and the judgment in the circuit court was in
favor of the plaintiff for the whole amount of the proceeds of the
notes and bills in question.
At the trial, a bill of exceptions was taken by the defendant
(the present plaintiff in error), which, after reciting the
evidence, concludes as follows:
"Whereupon, the counsel for defendants prayed the court to
instruct the jury that if it shall believe from the said evidence
that the Commonwealth Bank did for a series of years transact
business with defendants, and did from time to time transmit notes
and other commercial paper to defendants for collection, which were
all treated by both parties as if the same were the property of the
said Bank of the Commonwealth, which was credited in its account
current with the proceeds, and charged with the costs and expenses
which accounts were from time to time adjusted upon these
principles, that the notes and paper mentioned in said letter of 13
January, 1838, were endorsed and transmitted in the ordinary course
of business, without any notification that any other party or
person had any interest in said paper, were thus received by
defendants, and held by them; that while thus held by them, the
said Commonwealth Bank became insolvent or embarrassed in its
circumstances, and after such embarrassment the letters aforesaid
of 13 January, 1838, were written, and at the time of their receipt
by defendants, said embarrassed state of said Commonwealth Bank was
known to defendants, and there was at that period a large balance
on general account due defendants from said Commonwealth Bank, and
the said paper was all regularly endorsed by the cashier of said
Commonwealth Bank to defendants; the said defendants had a right to
receive said paper and the proceeds when recovered until such
balance was paid, and plaintiffs are not entitled
Page 42 U. S. 237
to recover, which instruction, as prayed, the court refused to
give."
MR. CHIEF JUSTICE TANEY delivered the opinion of the Court.
If this were a question between the two Boston banks and the
case depended upon their respective rights, the plaintiff in the
court below would undoubtedly have been entitled to
Page 42 U. S. 238
recover, for it is admitted that although the notes and bills
were endorsed to the Commonwealth Bank by the cashier of the New
England Bank, yet no consideration was given for them, nor any
advances of money made upon them; and they were placed in the hands
of the first-mentioned bank as the agent of the other, merely for
the purpose of collection. The question, however, is a different
one between the parties to this suit, and its solution must depend,
not upon the nature of the transactions between these two banks,
but upon the dealings between the Commonwealth Bank and the Bank of
the Metropolis.
It appears from the evidence offered by the plaintiff in error,
that for several years prior to the insolvency of the Commonwealth
Bank (which happened in January, 1838), there had been mutual and
extensive dealings between the two last-mentioned banks, and an
account current between them, in which they mutually credited each
other with the proceeds of all paper remitted for collection when
received, and charged all costs of protest, postage &c.
Accounts were regularly transmitted from the one to the other, and
settled upon these principles; and upon the face of the paper
transmitted, it always appeared to be the property of the
respective banks, and to be remitted by each of them on its own
account.
The balances in the account current fluctuated according to the
amount of paper they respectively transmitted, and these balances
it would seem were generally suffered to remain until they were
reduced by the proceeds of the notes and bills deposited with each
other in the usual course of their business. Thus, in November,
1837, the Bank of the Metropolis was debtor upon the account in the
sum of $2,200; but in January, 1838, when notice of the failure of
the Commonwealth Bank was received, that balance had been
extinguished, and the last-mentioned bank was debtor in the sum of
$2,900. It is not suggested that any information of the interest of
the New England Bank, in the paper in question, was ever
communicated to the Bank of the Metropolis until after the
insolvency of the Commonwealth Bank. And the question is whether
the plaintiff in error has a right to retain the proceeds of the
notes then in its hands to cover the balance of account due upon
these transactions.
If the notes remitted had been the property of the
Commonwealth
Page 42 U. S. 239
Bank, there would be no doubt of the right to retain, because it
has been long settled, that wherever a banker has advanced money to
another, he has a lien on all the paper securities which are in his
hands for the amount of his general balance unless such securities
were delivered to him under a particular agreement.
The paper in question was, however, the property of the New
England Bank, and was endorsed and delivered to the Commonwealth
Bank for collection, without any consideration, and as its agent in
the ordinary course of business, it being usual, and indeed
necessary, so to endorse it in order to enable the agent to receive
the money. Yet the possession of the paper was
prima facie
evidence that it was the property of the last-mentioned bank, and
without notice to the contrary, the plaintiff in error had a right
so to treat it, and was under no obligation to inquire whether it
was held as agent or as owner, and if an advance of money had been
made upon this paper to the Commonwealth Bank, the right to retain
for that amount would hardly be disputed.
We do not perceive any difference in principle between an
advance of money and a balance suffered to remain upon the faith of
these mutual dealings. In the one case as well as the other, credit
is given upon the paper deposited or expected to be transmitted in
the usual course of the transactions between the parties.
There does not, indeed, appear to have been any express
agreement that those balances should not be immediately drawn for;
but it may be implied from the manner in which the business was
conducted; and if the accounts show that it was their practice and
understanding to allow them to stand and await the collection of
the paper remitted, the rights of the parties are the same as if
there had been a positive and express agreement; and such mutual
indulgence on these balances would be a valid consideration; and,
like the actual advance of money, give the plaintiff in error a
right to retain the amount due on closing the account.
It is evident that a loss must be sustained either by the
plaintiff or defendant in error by the failure of the Commonwealth
Bank. We see no ground for maintaining that there is any superior
equity on the side of the New England Bank. It contributed to give
to the corporation which has proved insolvent
Page 42 U. S. 240
credit with the plaintiff in error, by the notes and bills which
it placed in its hands to be sent to Washington for collection,
endorsed in such a form as to make them
prima facie the
property of the Commonwealth Bank, and enabled it to deal with them
as if it were the real owner. The Bank of the Metropolis, on the
contrary, is in no degree responsible for the confidence which the
defendant in error reposed in its agent. And when this misplaced
confidence has occasioned the loss in question, it would be unjust
to throw it upon the bank which has been guilty of no fault or want
of caution, and which was induced to give the credit by the manner
in which the defendant in error placed its property in the hands of
an agent unworthy of the trust.
If, therefore, the jury find that the course of dealing between
the Commonwealth Bank and the Bank of the Metropolis was such as is
stated in the testimony; that they always appeared to be, and
treated each other as the true owners of the paper mutually
remitted, and had no notice to the contrary; and that balances were
from time to time suffered to remain in the hands of each other to
be met by the proceeds of negotiable paper deposited or expected to
be transmitted in the usual course of the dealing between them,
then the plaintiff in error is entitled to retain for the amount
due on the settlement of the account.
The question whether the balances were usually suffered to lie
for a time on account of negotiable paper actually deposited or
expected to be received, and which formed the consideration on
which the defense rested, is not perhaps as distinctly stated as it
might have been in the hypothetical instruction requested by the
plaintiff in error. But we think it is fairly to be inferred from
the language used in the prayer, by which the defense is put upon
the ground that the paper transmitted was treated by the parties as
the property of each other, and as the prayer was rejected without
any explanation or qualification, we have no reason for supposing
that a different construction was put upon it in the circuit
court.
The judgment must therefore be reversed.
Order
This cause came on to be heard on the transcript of the record
from the Circuit Court of the United States for the District of
Columbia,
Page 42 U. S. 241
holden in and for the County of Washington, and was argued by
counsel. On consideration whereof, it is now here ordered and
adjudged by this Court, that the judgment of the said circuit court
in this cause be and the same is hereby reversed, with costs, and
that this cause be and the same is hereby remanded to the said
circuit court, with directions to award a
venire facias de
novo.
