First National Bank v. Henry

HARALSON, J.

The undisputed facts are, that on the 2d of October, 1900, the plaintiff, A. G. Henry, deposited, with the defendant bank $12,000, taking a certificate of deposit as follows: “First National Bank of Decatur. $12,000.00. Decatur, Alabama, Oct. 2, 1900. A. G. Henry has deposited in this bank, twelve thousand •dollars payable to the order of himself, Dec. 15, 1900, on the return of this certificate properly endorsed. Interest, at 3 per cent, if left twelve months. W. W. Little-john, Cashier.”

The money that this certificate represented, was the money of and belonged to the plaintiff, and was not the money of his firm, Knight, Henry & Co., at that time existing, or of the corporation afterwards formed under the same name, of which lie and others were stockholders, nor of any other person, so far as appears. Knight, Henry & Co., had no claim to this money. It was wholly that of plaintiff. The corporation of Knight, Henry & Co., and plaintiff were as distinct and independent as two persons could be.

- It is shown that thereafter, on December 15, 1900, the plaintiff surrendered said certificate of deposit (of the 2d of October 1900), and deposited (in said bank) the amount therein and thereby called for, to the credit of Knight, Henry & Co., receiving therefor a deposit slip or ticket in words and figures as follows:

“First National Bank. Deposited by Knight, Henry & Company, Decatur, Alabama, 12/15, 1900, by A. G. Henry $12,000.00, to be protected for benefit of A. G. Henry by compress receipts or bills of lading sufficient to cover above amount, said receipts to be deposited with the bank by Knight, Henry & Company in like manner as other similar accounts. W. W. Littlejohn, Cashier.”

On the same date, the plaintiff took from Knight, & Co., their note for $12,000, which was as follows: “Decatur, Alabama, December 15th, 1900. By September 1, 1901, we promise to pay to A. G. I-Ienry or order, through the First National Bank of Decatur, Ala., twelve thousand dollars tor value received, at 6 per cent. And we hereby waive all exemptions under the laws of the state of Alabama, and agree to pay ten per cent, attorney’s fees if collected by law. (Signed), Knight Henry & Co., by J. W. Knight, Secretary and Treasurer.”

This was the same money for which the foregoing certificate of deposit was given by the bank. If the note had been paid in whole or in part by the maker, that would have been a satisfaction to the payee, the plaintiff, to the extent of the payment, and between the bank and him, there could have existed no indebtedness for the amount of the payment growing out of that certificate of deposit, and the money remaining in the bank would have .belonged to the makers of said note. It turned out as the evidence tended to show that there were some payments made on said note, and to the extent of such paments, if made, the jury were charged that the note was entitled to credit. The note as has been suggested, was simply the promise of Knight, Henry & Co., to repay the money which they were to get under the terms and stipulations of the contract entered into between the bank and Henry, without effect upon the transaction between Henry and the bank. “The effect of the whole transaction was that Henry loaned the money to Knight, Henry & Co., taking from Knight, Henry & Co., their note, and the money was left in the hands of the bank to be turned over to Knight, Henry & Co., when Knight, Henry & Co., deposited with the bank collateral,for the benefit of Henry. So, the plaintiff held the double, though not. inconsistent obligation of Knight, Henry & C'o., for the money, if they got it from the hank, and also the obligation of the bank, not to let them have the money without the specified collaterals.

It is not disputed that the bank did not comply with the stipulation in the certificate of deposit to protect the $12,030 for the benefit of plaintiff, by taking and holding for Henry compress receipts or bills of lading sufficient to cover the amount, although it lent Knight, Henry & Co., the full amount.

The cashier testified, that the plaintiff about the 1st of September, 1901, demanded the $12,000 or the compress receipts or bills of lading, and he told him that the bank did not owe him anything, that he owed the bank; that they did not have any such collaterals for him; that they had some on hand but none for him. The plaintiff testified also, that about the 1st of September, 1901, he demanded the money or bills of lading, and the cashier told him that they did not have anything — compress receipts, bills of lading or the money.

There are 12 counts in the complaint, and, as stated by counsel, the first 6 of the 12 rely upon the breach of the agreement entered into between plaintiff and the bank, whereby the bank contracted to protect the $12,-000 for the benefit of the plaintiff, by taking bills of lading and compress receipts to cover that amount if loaned. These counts are all based on the breach of this contract, framed to meet the varying phases of the evidence. The seventh, eighth, ninth, tenth and eleventh counts are common counts for money had and received, money paid, money lent and money due by account.

The case was tried upon the general issue and the plea of payment and set-off.

The court below, at the request of the plaintiff charged the jury, that if they believed all the evidence, they should find for the plaintiff, and that the measure of his recovery would he the $12,000 sued for, together with the interest thereon, less a credit of $1,267.45 of date September 2, 1901, and less a further credit of $1,000, if the jury should find from evidence that Henry consented to release this $1,000.

There are in the case a vast number of assignments of error, 135 on pleadings alone. It would be an almost endless and an unnecessary task to pursue these assignments, since they are referable to and determinable by a few leading facts and principles.

In construction of the certificate of deposit, counsel for defendant in brief say: “The first part of the instrument is not different from any ordinary deposit slip. It evidences merely the deposit of $12,000 to the credit of Knight, Henry & Go., by A. G-. Henry. Added to this was simply the stipulation: Ho be protected for the benefit of A. G. Henry by compress receipts and bills of lading sufficient to cover amount; said receipts to be deposited with the bank by Knight, Henry & Co., in like manner as other similar accounts.’ There are but two constructions in the case, and that is whether the collateral was to be deposited before the withdrawal of the funds, or any part thereof (whether the bank’s receipt of the collaterals was to be a condition precedent to the use by Knight, Henry & Co., of the money deposited to their credit); and second, whose duty it was to see that the deposit was protected.” Much argument is indulged in by them to show, that the collaterals provided for were not to be deposited before the withdrawal of the funds by Knight, Henry <& Co., and that they alone and not the bank, were authorized to handle the collaterals. It is also insisted by them, that the certificate as to taking collaterals, was ultra vires as to the bank, its cashier and Knight, Henr^ & Co.; that Knight, Henry & Co., ivas not a corporation, etc.

The contention of the plaintiff, which seems to us to be reasonable and according to the terms of the certificate of deposit, is that by this contract the bank in substance agreed, that it would protect this $12,000 for the benefit of A. G. Henry by taking from Knight, Henry & Co., compress receipts and bills of lading, sufficient to cover the amount of the $12,000 that it let go to Knight, Henry & Co.; or, that the bank agreed that it would have and hold at all times either the $12,000, or compress receipts or bills of lading deposited by Knight, Henry & Co., sufficient to cover the $12,000, or so much thereof as the bank let them have. That is the plain and unambiguous language of the certificate, and it defies argument to make it plainer. The bank is bound by it, unless released therefrom on some other principle. It guaranteed the protection stipulated, and it would seem to be against all reason, that Knight, Henry & Co., the party to whom the money was to be lent, and against whom protection was to be sought, should have the entire control of the collaterals, as to whether any should be furnished or not, and the amount and character. The contention seems to be that the bank had the right to let the money go to Knight, Henry & Co., without the deposit of any collaterals whatever and that the obligation to put collaterals in the bank rested wholly upon Knight, Henry & Co., a corporation, that was not even a party to the contract. If this were true, the letter as well as the spirit of the contract would be abrogated.

It is contended that Knight, Henry & Co., was not a corporation, hut the contention seems to be without merit. The reason for the insistence is, as it Avould seem, as suggested by plaintiff’s counsel, that a partnership had existed under the name of Knight, Henry •& Co., and if a partnership and not a corporation, then Henry was responsible for the money taken from the bank by Knight, Henry & Co., and. this would destroy his right of action against the bank. An examination of the record shows that the company was incorporated on the 23d of November, 1909, by proceedings instituted for that purpose in the probate court of Jefferson county. A declaration was filed in said court signed by A. G. Henry and Robert N. Bell, on the 26th o'f October, 1900, giving the names aad residences of the subscribers, the name of the company, Knight, Henry & Co., a cotton company, the purposes for which organized, and the nature of the business to be carried on, its principal place of business, the amount of the capital stock and the number of shares into which it was to be divided, etc.

A commission was, accordingly, duly issued to said parties, authorizing them to open books of subscription. Afterwards, on the 26th of October, 1900, a report was made and filed by the subscribers; that they were called to meet together, that 50 per cent, of the proposed capital stock had been subscribed in good faith, etc., and that they had organized under the name of “Knight, Henry & Co., a cotton company,” by the election of a board of directors, a president, secretary and treasurer, etc. On the 23d of November following, a certificate of incorparation was regularly issued to said parties by the judge of probate, certifying that the said parties, their associates and successors were duly organized as a corporation under the name and style of Knight, Henry & Co., for the purposes expressed in their said declaration, etc.

So far as has appeared, the proceedings seem to have been in close conformity to chapter 28, art. 11, of the Code of 1896 (sections 1251-1260). Furthermore, the record shows, without conflict, that the bank dealt with Knight, Henry & Co., as a corporation in this transaction. Henry testified tliat when fie made the deposit, fie called the attention of Mr. Littlejohn, the cashier, to the incorporation, and stated to him, that he was no longer a partner of Knight, Henry & Co.; that the business was incorporated; and Mr. Littlejohn testified that, “on December 15, 1900, when Mr. Henry made this deposit, he said that the business that they were carrying on was a corporation business. I wrote his certificate of deposit and took for it the deposit slip of Knight, Henry & Co. He said the business had changed, that the business of Knight, Henry & C'o., was a corporation.”

“When parties contract with each other as corporations, they are in respect of such contracts estopped to deny corporate existence.” — C. & C. G. Co. v. F. L. Co., 121 Ala. 340, 25 South. 506.

Much has been said with the view of showing that the transaction of this deposit with the bank was ultra vires. Primarily, deposits with a bank are special or general, special like stocks, bonds, and other securities, and sometimes money, to be specially kept and returned to the owner, or money deposited for a fixed period of time, or on unusal conditions, which is mingled in the general funds like a general deposit, and is repaid therefrom; or money which is to he applied by the bank at the depositor’s request for specific purposes. — 5 Cyc. 313.

In the same volume (pages 558, 559 )it is said: “A national bank can purchase notes and bills; rediscount notes or collateral security; borrow on its own notes; deal in national bonds; compromise a debt; pay money and take securities in settlement; receive special deposits, besides those usually received by banks; endorse and guarantee paper, and issue a certificate of deposit.” In that respect its powers seem to be as ample as other banks.

In National Bank v. Graham, 100 U. S. 699, 25 L. Ed. 750, it is laid down, that, a national bank is lable for damages occasioned by the loss, through gross negligence, of a special deposit made in it with the knowledge and acquiescence of its officers and directors; that gross negligence on the part of a gratuitous bailee, though not a fraud, is in legal effect, the same thing, and that the doctrine of ultra vires has no application in favor of corporations for moneys converted by them.

Whether the principle of ultra vires invoked in this case has application, it is, perhaps, unnecessary for us to decide. The evidence shows without dispute, that the bank commingled its own collaterals for other cottons, to secure its own debts, with the collaterals if any which it held to secure the debt of plaintiff, in such a way that it was impossible to distinguish between them, — the one set from the other. In such condition, all the collaterals became the property of plaintiff to secure his debt. The principle has been thus stated: “When the trustee mixes the trust money with his own, so- that it cannot be distinguished what particular part is trust money and what part is private money, equity will follow the money by taking out the amount due the cestui que trust. * * * An agent is bound to keep jlie property_of the principal separate from his own. If he mixes it up with his own, the whole will be taken^Both at law and in equity, to be the property of the principal until the agent puts the subject-matter' under such circumstances FhaFIt may be distinguished as satisfactory as it might have been before the unauthorized mixture on his part. In other words, the agent is put to the necessity of showing clearly what part of the property belongs to him, and so far as he is unable to do this, it is treated as the property of the principal. * * * It would be inequitable to suffer the fraud or negligence of the agent to prejudice the rights of the principal.” — Harrison v. Smith, 83 Mo. 210, 53 Am. Rep. 571; 1 Story’s Eq. § 468; M. Bank v. Walker, 130 U. S. 267, 9 Sup. Ct. 519, 32 L. Ed. 959; Burnes v. Campbell, 71 Ala. 272.

The evidence in the case shows that the bank did not • keep any collaterals it may have taken to secure the plaintiff’s money distinguishable from any other, and when plaintiff applied for his money or his collaterals, he was informed that the bank had neither for him.

It appears that Knight, Henry & Co., became insolvent and assigned, and the bank received from the assignee payment for the compress receipts it had at the time plaintiff made demand on it. The cashier testified, that on the occasion of his demand, the bank had some receipts, but they were all to secure the bank, and he made no further demand.

The proof shows, as has been stated, that the bank received pay for these collaterals. The principle applies, that a national bank having laAvfully received property must account for it or its proceeds notwithstanding some ultra vires agreement connected with the transaction. As contended by counsel, it cannot escape liability to Henry for the $12,000 which he placed in its hands by pleading that it made with him an ultra vires agreement to pay out this money to some third person upon the production and deposit of collaterals for his benefit, when the evidence shoAvs it paid out the money without taking the collaterals agreed upon. The bank, as appears, is whole, has lost nothing by the transaction, and Henry is out the larger part of his money. “Corporations are liable for every Avrong of which they are guilty, and in such cases the doctrine of ultra vires has no application,” and “corporations are liable for the acts of their servants, Avhile engaged in the business of their employment in the same manner and to tbe same extent that individuals are liable under like circumstances.” — Merchants’ Bank v. State Bank, 10 Wall. 605, 644, 645, 19 L. Ed. 1008; Logan County N. B. v. Townsend, 139 U. S. 67, 11 Sup. Ct. 496, 35 L. Ed. 107; First N. B. of G. F. v. Anderson, 172 U. S. 573, 19 Sup. Ct. 284, 43 L. Ed. 558.

“The measure of damages which the holder is entitled to receive of the hank or other collecting agent who has been guiffy of negligence or default in respect to it is the actual loss which has been suffered. The loss is prima facie the amount of the bill or note placed in its or his hands; but evidence is admissible to reduce it to a nominal sum.” — 1 Dan. on Nego, Instruments, § 329; McPeters v. Phillips, 46 Ala. 496.

“The owner of goods in the possession of another party who, without legal excuse refuses to deliver them to the owner on demand may sue in tort for a conversion, or he may waive the tort and treat the wrongdoer as a purchaser and sue and recover upon account for their value.” — Bradford v. Patterson, 106 Ala. 401, 17 South. 536; Potts v. First N. B., 102 Ala. 286, 14 South. 603.

It was proposed to be proved that the prices of cotton fluctuated and at times was low. Unless the bank showed that it had taken the warehouse receipts or bills of lading sufficient to cover the amount, which it did not attempt to do, it could not avail the bank to show that there had been shrinkage in the value of cotton. That question could only arise in the event the bank should show th.at it had once taken collaterals sufficient to cover the amount;.that it still had the identical collaterals on hand for the benefit of plaintiff, and that they had diminished in value on account of a shrinkage in the price of cotton. The bank insisted it had no collaterals for the benefit of plaintiff.

The judgment below is affirmed.

. McClellan, C. J., and Dowdell and Anderson, JJ., concur.

On Rehearing.

On application for rehearing Weakdey, O. J., and Dowdell-and Anderson, JJ., concur in the result.