Holmes & Barnes v. Shawnee Milling Co. , 1926 La. App. LEXIS 275 ( 1926 )

ON REHEARING.

ELLIOTT, J.

Our former opinion and decree, concerning the rights of Holmes & Barnes, Ltd., seeking to enforce the payment of a debt due them by Shawnee Milling Co., by attaching the proceeds of a draft drawn by Shawnee Milling Co. upon them, in favor of Bank of Topeka, has not changed. Their right is fixed by that' of Shawnee Milling Co., it is no greater than that of their debtor.

We also contend, in our former opinion, that the alleged error in the draft has not been established. It was drawn by P. E. Tally, bookkeeper for Shawnee Milling Co., and can not be reformed for error, even if such existed on the part of the payee, if there was none on part of the drawer.

But we have come to the conclusion, after re-examination of the law and the evidence op the subject, that Bank of Topeka was the owner and possessor of the draft at the time it was paid as the result of a previous purchase and delivery made at Topeka, Kansas.

H. D. Wolf, cashier, and H. W. Bowman, Jr., teller of Bank of Topeka, both testify that their bank purchased the draft and bill of lading attached. Mr. Tally, bookkeeper of Shawnee. Milling Co., does not say whether the draft was purchased or not, he states what was done and leaves it for the courts to decide whether or not a purchase resulted. The testimony of Mr. Wolf and of Mr. Bowman is supported by tbe deposit slip, showing how the draft ■vvas received in their bank, and the general course of dealing on the part' of Bank of Topeka and Shawnee Milling Co. and their relative situations, as regards each other at the time. The deposit slip, which includes the ’ draft in question, shows that Shawnee Milling Co. deposited it' in Bank of Topeka as cash. The word “cash” is not used on the deiposit slip, but that was the effect immediately given to and received as a result of what was done. The evidence shows that Shawnee Milling Co. received the equivalent of cash, on the day the deposit was made, by means of checks which it drew ’against the deposit and which were paid.

The draft says on its face “for collection”, and at the bottom of the deposit slip, the following appears in print “checks lost in. transit or on which payment is refused, will be ’charged back to depositor’s account, this bank acting only as agent and assuming no r’esponsibility beyond due diligence on its part”. These words in the draft and printed statement on the deposit slip is the main ground, supporting the claim of Holmes & Barnes, Ltd., that the draft when paid was the property of Shawnee Milling Co.; but we have come to the conclusion that these words in the draft and the printed statement on the deposit slip are not the controlling factors in the matter of ownership and possession at the time the draft was paid. The draft was also endorsed by Bank of Topeka for collection, but that form of endorsement was necessary, on account of the form in which the draft had been drawn. As for' the printed statement on the deposit slip, that the bank receiving the check “acts only as agent, etc.”, that yields to and is governed by the proved intent of the parties to the contrary at the time the slip was made, showing that the parties to the slip, did. in effect and in fact, intend and perfect at the time, a sale and delivery of the draft and bill of lading attached. The evidence shows that the draft was drawn and taken with bill of lading attached, to Bank of Topeka, for the purpose of having it cashed and the proceeds credited to Shawnee Milling Co., to the end, that the credit might be drawn out that day. P. E. Tally, bookkeeper for Shawnee Milling Co., testified that he did not know what arrangements, if any, had been made on the subject; but that Bank of Topeka, credited Shawnee Milling Co. with the draft, along with other drafts,’ and that the credit thus created was used as a checking account. That Bank of Topeka charged Shawnee Milling Co. interest and exchange on credits thus given, until the drafts were actually paid. That this draft was taken to Bank of Topeka for the purpose of having the proceeds credited to the account of Shawnee Milling Co., which was done. That’ the whole amount of the deposit was actually drawn out by Shawnee Milling Co. The deposit sli® bears date June 27, 1924. The account of Shawnee Milling Co., with the Bank of Topeka, on the morning of that day, shows that it was overdrawn to the extent of $12,064.67. That Shawnee Milling Co., during that day, deposited in the bank $4,910.35 which included the draft drawn on Holmes • & Barnes, Ltd., and checked out $4,511.00, which left ’the account' overdrawn to the amount of $11,654.43, and shows that the overdraft continued daily until June 30th, when it stood $13,719.42.

We think that the effect of this actual credit given and received at the time, on account of the draft, the existing and continuing overdraft and the course of dealing between the parties to the deposit slip, establishes between them a purchase of the draft and bill of lading by implication. That Shawnee Milling Co., having drawn the dr^ft for the purpose of depositing it to its credit as cash and having actually deposited it' and received cash for it, corresponding to the credit given, that it, in effect sold and delivered the draft and bill of lading attached to Bank of Topeka and divested itself of right' and title to the proceeds; vesting same in the bank.

The fact that the bank customarily charged interest on credits thus given to the drawer until the draft was actually paid, was not inconsistent with ownership and possession of the draft on part of Bank of Topeka.

The printed statement at the bottom of the deposit slip, that the check would be charged' back if it was not paid and that the bank assumed no responsibility beyond due diligence, was not inconsistent with a purchase and delivery as between Bank of Topeka and Shawnee Milling Co., drawer and payee, because if the draft had not been, paid, the Bank of Topeka would have had the right to charge it back, as a matter of law, provided there was no express agreement to the contrary. The only Louisiana case that we have found with apparent bearing on the questions in controversy is Louisiana Ice Co. vs. State National Bank. 1 McGloin 135, cited by plaintiff and relied on to show that the title of Shawnee Milling Co. was not divested by a deposit for collection; also supports the claim of Bank of Topeka, because it in effect, holds that if the depositor draws out the proceeds, he thereby makes the payee the owner and possessor of the draft for himself. The Supreme Court in Interstate Trust & Bankers Co. vs. Irwin, 138 La. 325, p. 336, 70 South. 313, referring to the contention of one of the parties said: “The defendant relies upon the .doctrine that when a bank discounts a note and credits the maker with the proceeds, the bank is not a holder for value, unless the credit is absorbed by an antecedent debt, or until it is exhausted by withdrawal.” The court did not pass on the doctrine, but speaks of it as if there was no objection to it on the part of the court.

In Burton vs. U. S., 196 U. S. 283, the syllabus reads in part:

“The deposit of checks in a bank and drawing against them by a customer, constitutes the relation of debtor and creditor, and the bank becomes the absolute owner of the checks so deposited, and not the agent of the customer to collect them. This relation is not, in the absence of any special agreement, effected by the rights of the bank against the customer and as liability therefor, in case the checks are not paid.”

In that case, according to- the report, the check did not have on its face the words “for collection” and the* proceeds were not immediately checked out, but it holds that a check deposited and checked out in due course, creates the relation of debtor and creditor and makes the bank which received the check, the absolute owner of the same and not the agent of the depositor, for the purpose of collecting the check.

In Ruling Case Law, Yol. 3, Subject, Banks, pp. 524 and 525, Section 152, the entire section must be read to get the proper , illustration which the author endeavors to give, but on account of its length we quote only a part of it as follows:

“If, on the other hand, there is a definite understanding at the time of the deposit, that such paper is deposited as cash, it is clear that the title passes to the bank. But where a check endorsed in blank is deposited without any definite understanding as to the way it is to be treated, but is credited by the bank to the depositor as cash and is so entered on the depositor’s cash book, the question frequently arises whether the title to the check passes immediately to the bank, or remains in the depositor. Prima facie, according to the weight of authority, the passing to the credit of the depositor of a check, bearing an endorsement, not indicating that it was deposited for collection, merely passes title to the bank. Still, according to the weight of authority, the rule above stated is not an absolute rule, is prima facie merely and yields to the intention of the parties, expressed or implied from the circumstances. * * * The intention of the parties as to the controlling factor may be shown in different ways and it would seem that the right accorded to the depositor, to draw upon the funds, is especially material as showing an intention that title should pass to the bank.”

Section 261, pp. 682 and 633:

“* * * Also, as we have heretofore seen, when checks or drafts are deposited by a customer and are regarded by both parties as amounting to so much cash, the title to such paper passess immediately and the relation of debtor and creditor arises. The transaction is equivalent to a purchase of the check or draft by the banker and he becomes responsible to the depositor for the amount thereof. To produce this result however, it must appear that the check or draft was received as a deposit, to be treated as cash and that such was the ihtention of both parties. If it was deposited for collection merely, it is quite plain that the bank does not take title, but merely acts as agent for collection. The property in the check or draft remains in the depositor and the relation arising from the transaction is not that of debtor and creditor, but as principal and agent.”

The subject is continued in Section 262, p. 634, and the author says that when a check or draft is credited as cash, it follows that the bank takes title to the proceeds immediately, upon crediting the check or draft as cash. The checking out amounts to a receipt of the ¡price and constitutes a purchase and delivery of the check or draft. The above language is supported by Commercial Bank of Pennsylvania vs. Armstrong, 148 U. S. 50.

Alexander vs. Birmingham Trust & Savings Bank, decided by the Supreme Court of Alabama, is cited by plaintiff as authority, that title to the draft remained in Shawnee Milling Co.; but in reality, the case supports the claim of Bank of Topeka. The report shows that it was an attachment suit, in which the attachment was maintained. The following excerpts are taken from the report, 16 A. L. R., pp. 1079, see p. 1081. "Indeed, there is no pretense that said bank became the purchaser of the draft,” etc.' And in the column opposite same page, Stone River National Bank vs. Lerman Mill Co., 9 Ala. App. 322, is cited, commencing at the bottom of the page and continuing on page 1082 as follows:

“Likewise, it appears that the deposit was conditional, as here, and it was held, that such an assumption of a conditional liability did not render the claimant bank, in fact, a purchaser of the draft, though formally, it might appear so. As pointed out in the opinion, the case would have been different, had the claimant bank actually purchased the draft, or had by agreement, credited the amount of it on a debt owed the claimant by the defendant. The deposit was conditional, with no pretense of a purchase and the mere fact that the drawer of the draft was at the time, indebted to First Naional Bank, to an amount in excess thereof, could have no material bearing on the result, in the absence of any agreement or understanding of any chedit to be given on account thereof, or any ¡pretense on the part of the bank, that credit was to be given or expected. Indeed the language used on the deposit slip, clearly indicates to the contrary. The First National Bank' therefore, was but the agent of the Fisher Company, in the collection of the draft.”

The court says in the case quoted, that the judgment would have been different if the bank and payee had actually purchased the draft, or had by agreement credited the amount of it on a debt owed the bank by the drawer.

Fourth National Bank of Montgomery vs. W. G. Bragg, decided by the Supreme Court of Virginia, II A. L. R., p. 1034, is very similar to the case we have in hand. It does not appear from the report that the draft involved in the case was deposited for collection; but it' deals with a draft deposited as cash, passed into a checking account and was immediately checked out by the drawer, before the seizure of the proceeds. It seems that a man named Covington, drew a sight' draft at Montgomery, Alabama, and with bill of lading attached, deposited same in Fourth National Bank of Montgomery, in which he had a regular checking account. The item, with others, deposited at the same time, was treated as cash and subjected to check. Covington made other deposits, checking against them, finally overdrawing his account. While this was going on, the draft proceeded on its way to the drawee, the Manchester Mills, at' Richmond Virginia, and was paid as soon as it was presented. After payment, but on the same day, W. G. Bragg attached the proceeds at Richmond, upon which Fourth National Bank of Montgomery intervened, claiming the proceeds as owner, giving rise to the very question we have in hand in the case before us. The only difference being that the draft in the Virginia case does not appear to have had on its face the words “for collection”. The court said p. 1036:

“The important question in this and in all similar cases is, whether it can be said that the draft with bill of lading attached, was taken by the bank in such a way as to constitute an assignment of and payment for the bill.”

The opinion reviews and cites many authorities. The court agreed with two Alabama decisions, cited p. 1 — 41 to the effect that — “the controlling distinction is between a deposit for collection and an unqualified and unconditional deposit' for credit and treated as cash. In one, the title remains in the depositor, in the other it [passes to the bank.” The syllabus, page 1034, reads in part:

“A bank which credits the amount of a draft to the depositor and permits him immediately, to 'draw against it becomes the owner of the draft and the bill of lading attached to it, although it reserves the right to charge back the amount in case the draft is not paid.”

“When a bank takes an assignment of a bill of lading and pays the accompanying draft of the shipper for the value of the goods, the bank becomes a bona fide holder and no attachable interest in the goods or proceeds remains in the shipper.” * * *

“The contract arising from the deposit of a draft in a bank, with the understanding that it may be checked, against and charged back, if not paid, is to be construed by the law of the state, where the bank depositor resides and the draft was drawn, and not by that of the state of the drawee."

According to these Virginia and Alabama cases, the Shawnee Milling Co. draft, in favor of Bank of Topeka, though drawn for collection, having been immediately credited to Shawnee Milling Co. as cash, and the proceeds checked out before the draft was paid by Bank of Baton Rouge, the checking account of Shawnee Milling Co. being overdrawn at the time and continuing to be so, because the property of Bank of Topeka, as soon as it was received; the act of the parties, amounting to a purchase of the draft by implication.

Old National Bank of Spokane vs. Gibson, decided by the Supreme Court of Washington, 6 A. L. R. page 247, is a case almost parallel with the case we now have in hand. In that case E. J. Gibson drew a draft against his account in Fidelity National Bank in favor of J. A. White, a customer of the Old National Bank. White deposited it in Old National Bank for collection, but the deposit slip showed that White received immediate credit for it as cash. White checked out the proceeds immediately. When the draft reached Fidelity National Bank on which it was drawn, (payment was refused; Gibson having stopped payment. Old National Bank then brought suit against Gibson to recover the amount, alleging that it had purchased the draft, upon which the questions' we have in hand in this case were considered and decided by the court. The court says, pages 248 and 249:

“The contention is that * * *, White having received from the Old National Bank, the full amount of his balance, in reliance upon, the check now in suit, then on deposit with it, the relation of principal and agent which had theretofore existed between White and the appellant bank, was terminated; that upon making such payment it ceased to hold the check for collection and became a holder in due course under the statute. The question then to be determined is whether having originally received the check as agent for collection, the bank, by honoring White’s cheeks to an amount which entirely exhausted his balance, including the deposited check, thereby became a holder for value.”

The court decided that Old National Bank hecamse the owner and holder of the draft for value. Four of the nine justices of the court dissented, but the author of A. L. R. says the majority opinion is in line with the preponderance and prevailing authority in the United States on the subject.

According to the majority opinion, if a bank takes a check or sight draft from a customer, nominally for collection, and gives the customer immediate credit for it as cash, and the customer checks out the entire amount before the payment of the check is stopped, the bank will be regarded as a purchaser qf the draft in due course and for value, as the result of an implied agreement to that effect, with right to compel the drawer to pay it, even though there was no consideration, as between the drawer and the drawee and though the bank could have, as a matter of law, charged the draft back against the drawer if his account had' been sufficient for the purpose.

Charles D. Scott vs. W. H. McIntyre Co., City National Bank of Auburn, interpleader, decided by the Supreme Court of Kansas, L. R. A. 1915-D, extensively quoted in intervenor’s brief, is also almost exactly like the case we have in hand. The syllabus reads in part:

“Where a draft, with bill of lading attached, is delivered to the bank in whose favor it is drawn, which forwards it to a correspondent for collection, and gives immediate credit to the depositor, the proceeds while in the hands of the correspondent bank, are to be regarded as belonging to the payee named in the draft, as against a creditor of the depositor who attempts to reach them by garnishment, after the account as increased by the deposit has been overdrawn, and this notwithstanding the practice of the first named bank, to charge its depositor interest on such items from the time of giving credit, until the proceeds are actually received and to charge back the amount in the event of non-payment and notwithstanding that a serial number was placed on the draft by the original bank, in sending it out for collection and that a witness testified to a general practice of bankers to place such numbers on items received for collection, but not upon those received as cash.”

In that case it appears that' W. H. McIntyre Co. drew a draft with bill of lading attached on Scott, in favor of City National Bank of Auburn. The draft was drawn for collection, but was deposited in Bank of Topeka as cash. McIntyre Co. received immediate credit and checked the credit out, their account being overdrawn at the time and continued to be for some time thereafter. Scott, a creditor of McIntyre Co., paid the draft to Bank of' Topeka and then immediately seized the proceeds in the hands of Bank of Topeka, upon which Bank of Auhurn, Indiana, intervened, claiming the proceeds. The case involved the right to charge interest on the credit until the draft was paid and the right to charge it back, if it was not paid. The Kansas court, citing authorities, held that the Bank of Auburn was the owner and possessor of the draft, the result of a purchase by implication, the consent' • of McIntyre Co. to sell and that of Bank of Auburn to buy, being shown by the deposit as cash, accompanied by possession and the immediate receipt of the price by checking it out.

In the case we have in hand, the ownership of the draft and bill of lading and the delivery of the same, results from the understanding and dealings between Bank of Topeka and Shawnee Milling Co. in Kansas. The proceeds of the draft, answering to the deposit and credit given, were checked out on the day the same was received. The drawer and payee having dealt with each other in Kansas, the rights of the payee are fixed by the law of that state. Civil Code of Louisiana, Art. 10. The law of Kansas not having been proven, will be presumed to like our own. The deposit slip in this case, shows that the draft' in question was deposited by Shawnee Milling Co. in Bank of Topeka as cash on June 27, 1924, and was checked out the same day. According to our law on the subject, Act 64 of 1904, Sections 25 and 26, Bank of Topeka gave value for the draft. Under Section 52, clause 3 and 4, it was a holder in due course.

The proposition as well as the assent to a, contract', may be express or implied. Civil Code, Art. 1811. To receive goods from a merchant without an express promise and to use them, implies a contract to pay the value, creates a sale by implication, Civil Code, Art. 1816. All of the essential element's of a sale, exist in this case, Civil Code, Arts. 2439 and 2456. The delivery of a draft may take place' by the use made of it by the party receiving it, with the consent of the party from whom it was obtained, Civil Code, Art. 2481.

As between the Shawnee Milling Co. and Bank of Topeka, if Shawnee Milling Co. had vested in Bank of Topeka all their right, title and interest in and to the draft at Topeka and before it reached the drawee at Baton Rouge, and we now hold that they had done so, it follows that Holmes & Barnes, Ltd., have no right to take the proceeds from Bank of Topeka and have same applied to the payment of the amount due it by its said debtor.

The decree of this court heretofore entered in this case is now set aside; the judgment appealed from is annulled, avoided and reversed and judgment rendered in favor of Bank of Topeka, intervenor, as prayed for in its petition. It is further ordered that the sheriff of the Parish of East Baton Rouge and Louisiana National Bank of Baton Rouge, restore the proceeds of the draft in question to Bank of Topeka and that the plaintiff Holmes & Barnes, Ltd., pay the -cost in both courts.