Commercial Bank v. Marine Bank , 1 Abb. Ct. App. 405 ( 1867 )

J. M. Parker, J.

[After stating above facts.] — Without reference to the question whether this judgment could stand, upon the decisions of the supreme court of the United States, it is clear that it is not supported by the decisions of the courts of this State.

It may be remarked that it is not so certain that the defendants transmitted any paper to Lee & Co. for collection, on the credit of the draft in question, as to authorize the court to assume it as a fact against the consent of the plaintiffs. But there is no pretense that paper to the whole amount of the proceeds of the draft was so sent; and even if the fact were admitted that the paper claimed to have heen so sent was sent upon the credit of the draft, and if, as matter of law, it be admitted that defendants had the right to retain, from the proceeds, an amount equal to the amount of paper so sent and collected, still the plaintiffs were entitled to recover the difference between the amount of the proceeds of the draft and the amount of paper so sent and collected. Under the decisions of this court, the defendants could not hold any portion of such proceeds to satisfy balances which they had suffered to lie in the hands of Lee & Co. on the credit of the draft. This was very distinctly held in McBride v. Farmers’ Bank, 26 N. Y. 450. The doctrine of that case is, that a bank receiving from another notes for collection, obtains no better title to them, or their proceeds, than the remitting bank had, unless it becomes a purchaser for value without notice of any defect of title; and that it is not a purchaser for value, by reason of its having a balance against the remitting bank for which it had refrained from drawing, in reliance upon a course of dealings between the banks to collect notes for each other, each keeping an open account for such collection, treating all the paper sent for collection as the property of the other, and drawing upon’ the proceeds for balances at pleasure.

It is to be observed that the course of dealings between Lee & Co. and the defendants did not authorize either to draw upon the other for the amounts of the paper sent, until collected; the proceeds, after deducting the charges for collection, were alone credited, and no notes or drafts ever entered into their accounts until collected. There is, then, no ground for saying that the draft in question ever belonged to the defendants. It was said in McBride v. Farmers’ Bank, “ According to the decisions of the courts of this State, Paul & Pritchard could have set up any defense to their notes in the hands of the defendants, that existed in their favor as against the Canal Bank, or the Farmers’ and Mechanics’ Bank; and the defendants had no title to the notes that enables them to retain the money they received thereon as against the true owner.”

Precisely so in this case. Crocker could have set up any defense to the draft in the hands of defendants that existed in his favor as against Lee & Co. or the plaintiffs, so that the defendants had no title to the draft that enables them to retain, the money they received thereon against the true owner. Even as between the defendant and Lee & Co., no title to the draft ever passed to the defendants. If it had not been paid, and had gone to protest, there is nothing in the case which would have entitled the defendants to maintain an action upon it against Lee & Co.

If the defendants had been at liberty, in pursuance of the general arrangement between them and Lee & Co., to credit the draft on receiving it, and had done so, to form a fund upon which Lee & Co. were entitled to draw immediately, as was the case in Clark v. Merchants’ Exchange Bank, 2 N. Y. (2 Comst.) 380, then the defendants might, as against Lee & Co., have claimed ownership of the draft and of its proceeds. In that case this distinction is made the criterion. The court says: “ The material question, as stated by the court below, is whether the bill in question was transmitted [by the plaintiffs who were the owners] to Smith & Co. [their business correspondents] for collection, merely, or was to be credited to the plaintiffs, when received by the former, whether collected, or not.” The court below held that it was not, by the course of dealings between the parties, to be credited until collected, while this court held, that the proper inference from the facts proved was, that it was to be credited when received. " The error of the learned judge, I apprehend,” says Judge Gabdiheb, “ consists in the assumption that nothing was credited to Clark & Co. [the plaintiffs], in the course of business, until collected. This inference is opposed to the testimony of the only witnesses who speak as to the nature of the business, and mode of transacting it, and to instructions of the plaintiffs in the letter of May 15.” And it was because of that error that the judgment of the court below, which gave the proceeds of the bill to the plaintiff, was held erroneous, and reversed.

The case of Scott v. Ocean Bank, 23 N. Y. 289, is based upon the same distinction. These cases, I, think, warrant the conclusion that the defendants, having acquired no title to the draft itself, cannot claim to hold, as against the true owner, any portion of the proceeds.

In regard to the case at bar, however, it is sufficient, and all that I am authorized by the court to say is, that the court below erred in assuming that defendant had transmitted any paper to Lee & Co., on the credit of the draft, and holding that if defendants had delayed drawing the amount due 'them by reason of having this draft, the plaintiffs were not entitled to recover.

The judgment of the supreme court must therefore be reversed, and a new trial ordered.

All the judges concurred in the result.

Judgment reversed, and new trial ordered, costs to abide event.