Tyson v. Western National Bank

Bryan, J., delivered the opinion of the Court. Tyson and Rawls brought suit against the Western Bank of Baltimore. The facts, so far as they are material, are as follows: The plaintiffs, who were bankers in Greenville, North Carolina, for two years- before the transactions now in question, kept an account with Nicholson & Sons, bankers in the City of Baltimore. They from time to time forwarded by mail to Nicholson & Sons drafts, checks and notes of different persons, and they were endorsed in this manner: “Eor collection for account of Tyson and Rawls, Greenville, N. C." Nicholson & Sons would at once pass to the credit of Tyson and Rawls upon their ledger account as cash, all checks and sight drafts, and would promptly inform them by mail of the amount of such credit.

Tyson and Rawls were entitled to check against such credits as soon as they were entered, and Nicholson & Sons treated and used as their own property the sight drafts and checks so cred ⁴¹⁵ ited, in the same manner as if they had been deposited over their counter in the ordinary way; but Tyson and Rawls did not know and did not inquire how Nicholson & Sons treated and dealt with such drafts and checks. If any of the sight drafts or checks which were, credited as cash were dishonored by the parties on whom they were drawn, Nicholson & Sons would charge the account of Tyson & Rawls with them, and give them notice by mail. When promissory notes or time drafts were mailed to Nicholson & Sons, they were not entered to the credit of Tyson & Rawls until they had been collected. There was no special agreement between these parties in regard to their relations with each other, except such as arose from their course of dealing.

On the ninth of January, 1892, Tyson & Rawls forwarded to Nicholson & Sons a cheek of P. E. Braswell on the State Bank of Commerce, Hendersonville, North Carolina, for four hundred dollars, payable to the order of Jarvis & Blow. They had discounted this check, and they endorsed it for collection for their account; Nicholson & Sods credited it to them as cash, and so informed them by mail, and endorsed it for value to the Western National Bank of Baltimore. The bank collected the check on or about the twenty-fourth of February, 1892, and it retained tire proceeds as its own property. On the eleventh of January, 1892, Tyson & Rawls forwarded to Nicholson & Sons a sight draft of J. C. Cobb & Brother on Cobb, Brothers & Gfillian, of Norfolk, Virginia, for eight hundred dollars.

They had discounted this check, and they endorsed it to Nicholson & Sons for collection for their account. Nicholson & Sons credited it to them as cash, and so informed them by mail, and endorsed it for value to the Western National Bank of Baltimore. The bank collected the draft on the fourteenth of January, 1892, and it holds the proceeds as its own. Nicholson & Sons failed on the ⁴¹⁶ fourteenth of January, 1892, subsequently to their endorsement of the check and draft to the Western National Bank ; but they were insolvent at the time they received the check and draft from Tyson & Rawls, and upon a proper investigation of the business, this fact would have been apparent to the surviving partner, who had charge of the affairs of the firm ; but it was not known to Tyson & Rawls nor to the Western Bank.

Nicholson & Sons had an account with the Western Bank in which the check and draft were credited as cash ; they overdrew their account and have never made it good. Tyson & Rawls never checked to the full extent of their credit with Nicholson & Sons; but always kept a balance in their favor, and at the time of their failure had a balance greater than the amount of the proceeds of the check and draft in question. It is admitted that both parties to this suit have acted in good faith in all of their dealings in the matters now in issue. It is well settled that when á customer of a bank deposits money to the credit of his account, the money becomes the property of the bank.

The customer is creditor and the bank is debtor, with all the ordinary incidents belonging to that legal relation. There is.no fiduciary connexion between them. The depositor parts with his money, and the bank contracts an obligation to pay such checks as he may draw to an amount not exceeding the sum deposited. The consideration which the depositor receives for his money is the absolute and unconditional contract by the bank to pay his checks to the extent of his deposit.

And the same rule obtains in the case of checks, drafts and promissory notes, wherever, under the circumstances of the case, it is applicable; that is to say, wherever the bank becomes the owner of the commercial paper, and the customer Acquires the unconditional right to draw for the pro- ⁴¹⁷ coeds. When a check, draft or promissory note, is endorsed in 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. And, in case it is not paid at maturity, it has the ordinary remedies which belong to the endorsee of instruments of this character which have been dishonored. In the present case the check and draft were deposited with Nicholson & Sons with an endorsement in these words: “For collection, for account of Tyson & Rawls.” This endorsement was not adequate to pass to Nicholson & Sons the title to these papers.

It has been so held by this Court, and the Supreme Court of the United States, and other Courts. In Sweeny vs. Easter, 1 Wallace, 166, it was said: “The words ‘for collection’ evidently liad a meaning. That meaning was intended to limit the effect which would have been given to the endorsement without them, and warned the party that, contrary to the pm’pose of a general or blank endorsement, this was not intended to transfer the ownership of the note, or its proceeds.” In White vs. National Bank, 102 United States, it was said: “The plain meaning of it (the endorsement) is that the acceptor of the draft is to pay it to the endorsee for the use of the endorser. The endorsee is to receive it on account of the endorser.

It does not purport 'to transfer the title of the paper or the ownership of the money when received. Both these remain, by the reasonable and almost necessary meaning of the language, in the endorser.” The same meaning was attributed to such an endorsement in Cecil Bank vs. Farmers Bank of Maryland, 22 Md., 148 . It would be superfluous to make further citations on this point. The endorsement did not pass the title, and no other way has been shown in this case, by which it could have been passed.

Entering the amounts represented by these paj)ers as cash to the credit of Tyso?i ⁴¹⁸ & Rawls, is very far from having such an effect. It was the clear understanding that this was not an absolute and unconditional credit; hut that it was to be charged hack to the depositors in case the paper should not he paid at maturity. The paper was not sent to Nicholson & Sons to he discounted, or to he purchased by them; but it was entrusted to them as agents to collect it; and Nicholson & Sons could not treat it as a discount, or purchase except by making an agreement to that effect with their correspondents. It probably suited their mutual interest and convenience to make these qualified entries.

The depositaries probably had sufficient confidence in 1he pecuniary ability of these depositors to give them a credit for the short time that would intervene before the maturity of sight drafts. It is a very common practice with bankers to deal in this manner with their customers who are in good credit. In the argument, this entry was likened to a collection of the commercial paper by the depositary. It was not in point of fact a collection.

Nor was it similar in its effects and consequences. When a collection is made, the proceeds are placed absolutely and unconditionally to the credit of the depositor; and he is no longer under any responsibility on account of the paper deposited; as that question has been irrevocably settled by payment. In point of fact when collected the paper has