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

Fowler, J., delivered the following dissenting opinion, in which Robinson, O. J., and Roberts, J., concurred: While the amount involved in this appeal is not large, yet the questions presented are important. The controversy here, as in the case of Tyson & Rawls vs. Western National Bank,77 Md.,412,recently decided by this .Court, grows out of the conflicting claims of the Western Rational Bank of Baltimore, and one of the depositors of Richolson & Sons, bankers in that city, who failed several years ago. The check which is the subject of this litigation was dated January 13th, 1892, and was drawn by Thomas J. Shryock & Co. on the Third Rational Bank of Baltimore to the order of John E. Reese, who, on the day of its date, endorsed it to J. S. Ditch & Bro., who on the following day endorsed it as follows: “For deposit to the credit of J. S. Ditch & Bro., per Cassidy.” Cassidy is a clerk of Ditch & Bro., and there is no question as to his authority to endorse. So endorsed, this check, with several others, amounting in the aggregate to $929.75, was deposited by one of the Arm of Ditch & Bro. in the bank of Richolson & Sons a short time before noon on the 14th January, 1892.

The deposit was at once credited by the Richol ²¹¹ sous in tlie pass-book of Ditch & Bro., and a similar credit was made upon the books of the former, who at once endorsed the check in question thus, “Eor deposit, J. J. Nicholson & Sons,” and deposited it in the Western Bank, receiving credit for the amount of the deposit as cash, both on their pass-book and also on the books of the Western Bank. It is conceded, of course, that Ditch & Bro. believed the Nicholsons to be solvent when the deposit was made in the latter’s bank, but it would seem that the Nicholsons themselves must have been aware that they were not in the solvent condition the appellants believed them to be, for within an hour, or perhaps two, after these deposits were made they had placed on record a deed of trust for the benefit of their creditors, and had closed the doors of their bank. On the day of the failure of the Nicholsons, Ditch & Bro. heard of it, and immediately requested Shryoek & Co., the makers of the check, to stop payment. This request was complied with, and the check having been duly protested, the Western Bank sued the makers.

Whereupon a bill of interpleader, setting forth the respective claims of the Western Bank and Ditch & Bro. was filed by Shryoek & Co., and a decree was passed by the Circuit Court No. 2 of Baltimore City requiring the Western Bank and Ditch & Bro. to inter-plead, the former as plaintiff and the latter as defendants. In accordance with this decree the Western Bank filed its bill, and Ditch & Bro. answered it. The bank alleged substantially that Ditch & Bro. endorsed the check in question to the Nicholsons, and deposited it with them a,s cash, and received credit therefor in their account with the Nicholsons, and that the Nicholsons thereby became the owners of the check, and having endorsed it to the Western Bank “for deposit,” and having deposited it with and received credit for it as cash by said bank, it became and is the bona fide holder of said check by reason of the facts* above mentioned, and because the Nicholsons were permitted to draw from the Western Bank the ²¹² funds represented by said check. The defense which Ditch & Bro. set up in their answer is that they endorsed the check “For deposit to the credit of J. S. Ditch & Bro.” to enable the Nicholsons to collect the same in the usual course of business, and received that character of credit usual to receive when checks are deposited by a customer with a bank for collection.

They deny, however, that by such deposit for collection the Nicholsons thereby became the owners of said check, or that they had a right to endorse the same to the Western Bank or to any one. Upon the bill, answer and testimony, the Court below decreed that the property in the check in question passed from Ditch & Bro. and vested in the Nicholsons, and that the latter conferred a perfect title upon the Western Bank. Prom this decree Ditch & Bro. have appealed,’ and the question is whether the Western Bank has a valid legal title. The general question of the relations between depositors and banks as regards their respective rights in and title to negotiable paper deposited by the former with the latter, is much embarrassed by a conflict of authority.

But after all, as we said in Tyson & Rawls, supra,the conflict is more apparent than real. It will be found that the views expressed by the highest tribunals in this country and England, when carefully examined, differ not so much in the principles announced as in the facts to which these general principles have been from time to time applied. In most of the cases in which it has been held that the. title to negotiable paper passed to the bank from a depositor, such paper was endorsed in blank or made payable to the bank. After stating the general rule that when a customer deposits money to the credit of his account, the bank becomes debtor and he is creditor, we said in the case just cited: “The consideration which a depositor receives for his money is the absolute and unconditional contract of the bank to pay his checks to the ex ²¹³ tent of Ms deposit.

And the same rale obtains in the case of checks, * * * * wherever, under the circumstances of the case, it is applicable; that is to say, where-ever the bank becomes the owner of the commercial paper, and the customer acquires the unconditional right to draw for the proceeds. When a check * * * * is endorsed mí blank or to the order of the bank, and the proceeds credited to the depositor as cash, the bank becomes the owner of the paper by virtue of the endorsement.” These quotations from such a recent case are sufficient to indicate our views in regard to the character of paper and the forms of endorsement there considered. But the endorsement in this case is neither an endorsement in blank nor to the bank. It is of a very different character from either, both in form and effect.

Its terms are “ For deposit to the credit of J. S. Ditch & Bro.” It was contended by Ditch & Bro. that tMs is a restrictive endorsement, and by the Western Bank that it is partly restrictive and partly absolute — restrictive as to all the world except the Nicholsons, and as to them absolute as soon as it reached their hands. If such an endorsement as tMs can be held to pass title to commercial paper, it must be so either because such is the clear meaning of the words used or because of some artificial or technical, but well known and settled, meamng given to the language of the endorsement by the custom and usage of banks and their customers, wMch indicates a transfer of title was intended, though not expressed. Of course, it is not, and could not be contended in this case that there is any such custom, for there is no evidence to sustain any such contention. What, then, is the fair and legal construction of this endorsement?

In the first place, we start with the presumption that the depositor does not intend to part with title to his paper, subject to be rebutted only by evidence of an express contract to the contrary, of of facts from wMch such contract must be in ²¹⁴ ferred. 1 Daniel Negotiable Instruments, sec. 340c. We shall presently consider the effect of the credit given to Ditch & Bro. in anticipation of the collection of the proceeds of the check by the Nicholsons, but before doing so we wish to ascertain the import of the language of the endorsement itself. It is apparent no words are used to indicate a transfer of title. On the contrary, it is conceded the endorsement here used is for the purpose of destroying negotiability in case of loss or miscarriage of the check.

If that be its object it is difficult to understand how such an endorsement, without something added thereto by special agreement, can be relied upon to establish title either in the Nicholsons or the Western Bank. The plain import of the endorsement would seem to be that the check was deposited for collection. What else could have been the object of the deposit? Certainly not for the purpose of getting an immediate credit, for it is in evidence that Ditch & Bro. not only had no agreement, allowing them to draw on uncollected checks, but that in point of fact their deposited checks were always collected before they were actually drawn on, and were not considered cash -until collected by the Nicholsons.

In the case of Beal vs. City of Somerville,50 Federal Reporter, 647, decided on the 5th May, 1892, by the U. S. Circuit Court of Appeals of the First Circuit, a case strikingly like the one at bar, and in which the endorsement was “For deposit. John F. Cole, Treasurer,” the following facts appeared: Cole, the treasurer of the city of Somerville, endorsed the checks as above and handed them to the receiving teller of the Maverick National Bank with a deposit ticket and also his pass-book, and the teller at once credited therein and on the books of the bank the total amount of the checks. When the checks were received by the bank it was irretrievably insolvent, and closed its doors the same day of the deposit at three o’clock. There was no agreement to allow the customer ²¹⁵ to draw at once on the proceeds of deposited checks.

It was held, irrespective of the question of insolvency, that title to the checks so endorsed did not pass. “ The transaction,” say the Court, Putnam, J., delivering the opinion, “ was primarily a deposit of checks with, secondarily a duty to be performed concerning them by the Maverick Bank.” After stating the general principle that a deposit of money creates the relation of debtor and creditor between the depositor and the bank, the opinion of the Court continues: “But with reference to the checks claimed by the city of Somerville, the word by which the transaction is ordinarily described may conveniently have, and therefore should have, its full natural force and meaning. A mere deposit would only require a bank to keep; but a usage requiring the , Maverick Bank to do in this case something more has continued so long, and is so notorious and universal that the law can take judicial notice of it, and it happens that its terms and limitations cannot be mistaken. The bank must use due diligence to collect, and, as collections are completed, the bank no longer holds the avails as bailee, but is authorized to mingle them with its other funds, and thus constitute itself a debtor.” And again: “Aside from the right of the bank to constitute itself a debtor from the time the checks are converted into cash or its equivalent, instead of a mere trustee or agent, no qualification of the strict legal relations created by a bailment is deducible from the general nature of the transaction, the terms in which it is expressed or the settled custom, or is shown by” the bank. The case just cited is one of much interest and importance, and the opinion of the Court bears the impress of the most careful consideration and research.

In Freeman vs. Exchange Bank, 87 Ga., 45 , an endorsement precisely like the one we are considering was held to be restrictive. The endorsement was “For deposit to the credit of S. A. Brown & Co.” The endorsers deposited ²¹⁶ the draft so endorsed in the National Bank of Kansas >City, which bank, by its cashier, endorsed the draft “ Pay Exchange Bank or order for collection, account of National Bank of Kansas City.” The draft was paid to the Exchange Bank, where the money was attached as the property of S. A. Brown & Co. And it was so held. The Supreme Court of Georgia say: “The agency created by the owners of this bill by means of this endorsement, had not been fully executed. The Kansas City bank was still the immediate agent under them, and the Macon (that is, the Exchange) bank was a sub-agent under it.

The latter held the money as a bailee for the ultimate use and benefit of the owners.” Again, quoting from the same opinion-“The maker of a restricted endorsement can follow the bill or its proceeds over any number of subsequent endorsements, the terms of his endorsement being notice of his title.” And, as we have said, it was held that notwithstanding the depositors, S. A. Brown & Co., had endorsed their paper, precisely as the paper in this case was endorsed, title did not pass, and the money attached in the hands of the Exchange Bank was condemned as the property of S. A. Brown & Co. It would too greatly prolong this opinion if we should examine the many cases in which various forms of endorsements have been held restrictive, and we shall only cite a few of them. “Pay S. V. W. or order, for account of Miners