Street v. Old Town Bank

Miller, J., delivered the opinion of the Court. The Maryland Central Railroad Company had for several years made its deposits in the Old Town Bank. These were checked out by the company’s checks, from time to time, signed by its treasurer, and the usual depositor’s account was kept by the bank. The company needed money to pay the interest on its bonds,^hich fell due the 1st of May, 1884, and applied to the. bank for a loan of $5000.

The bank refused to discount the company’s note for that sum, unless each of its twelve directors would give his individual note for $500 as collateral security therefor. This was agreed to, and the company’s note for $5000, ⁴²⁷ payable at thirty days, and dated the 1st of May, 1884, was accordingly discounted, and the proceeds placed to the company’s credit in its account. The individual notes of the directors (one of whom was the defendant,) all bear the same date, 1st of May, 1884, and are all in the same form. Street’s note is as follows : “Bel Air, May 1st, 1884. “The Maryland Central Railroad Company having given its note of even date herewith to the Old Town Bank of Baltimore^ for the sum of, $5000, payable thirty days from date, and pledged its receipts for the month of May in payment of the same, I hereby agree and promise, in case of default in the payment of said note at maturity, to pay the Old Town Bank of Baltimore, thirty days from this date, the sum of five hundred dollars.” “J. M. Street.” Just prior to the giving of these notes, on the 25th of April, the Board of Directors of the Company passed a resolution to the effect “that all funds accruing in the treasury of this Company during the month of May next, shall be set apart and applied to the payment of the interest of the first mortgage bonds of this Company falling due on the first day of said month, or so much of said funds as shall be necessary to pay said interestand we shall assume that the bank had knowledge of this resolution at the time it discounted the Company’s note and received the collateral notes from the directors.

The receipts were duly paid into the bank, and the latter by order of the Company paid the interest coupons on their bonds. The aggregate amount of the receipts, including the proceeds of the $5000 note, was more than sufficient to pay the interest, and this note if the company had permitted it to be so applied. But during the running of the note, the Company checked out from the bank ⁴²⁸ more than $25,000, so that at its maturity the hank had no funds in hand to apply to the note. In fact, the company’s account was overdrawn on the 1st of May about $2000, and on and after the maturity of the note was always overchecked.

The authority of the 'treasurer to draw checks upon the bank was never countermanded by the Company, save by the resolution above cited, which related merely to the payment of the interest, and no notice of any countermand was ever given to the hank except as conveyed by that resolution. In the following autumn of 1884, the company passed jnto the hands of a receiver, and its note not having been paid, the bank brought suit against those of the directors, (including the appellant), who had refused to pay their individual collateral notes. The action is defended upon the theory that the resolution and the agreement between the Company and Street, recited in the latter’s collateral note, constituted an irrevocable pledge of the receipts for the payment .of the $5000 note, and neither the company nor the bank, had any right to apply the money to any other purpose until that note and the unpaid coupons were provided for and paid, and as the receipts were sufficient for that purpose, the note was, in fact, paid before its maturity. But we think it clear that this position is not tenable.

The resolution simply set apart