Branch Banking and Trust Co. v. Bank of Washington

Bobbitt, J.

Upon waiver of jury trial, the court’s findings of fact, if supported by competent evidence, are as conclusive as the verdict of a jury. Moreover, a finding of fact to which no exception is taken is presumed to be supported by competent evidence. Constitution of North Carolina, Article IV, Section 13; Goldsboro v. R. R., 246 N.C. 101, 107, 97 S.E. 2d 486, and cases cited. Plaintiff’s .assignments of error must be considered in the light of these well established legal principles.

Plaintiff assigns as error the court’s finding of fact and legal conclusion that Washington Hog Market, not defendant, was the drawee in the drafts, and the court’s legal conclusion that defendant did not accept the drafts. Plaintiff contends defendant was in fact and in law the drawee, accepted them, actually or constructively, and 'is obligated on the drafts to plaintiff as owner and holder thereof.

Under G.S. 25-143, “(t)he drawee is allowed twenty-four hours after presentment in which to decide whether or not he will accept the bill.” (Our italics) Under G.S. 25-144, “(w)here a drawee to whom a bill is delivered for acceptance destroys the same or refuses within twenty-four hours after such delivery, or within such other period as the holder may allow, to return the bill accepted or nonaccepted to the holder, he will be deemed to have accepted the same.” (Our italics) Plaintiff contends defendant’s failure to pay or return the drafts within twenty-four hours after it received them constituted acceptance of the drafts by defendant. This contention assumes defendant was the drawee. ■

Washington Hog Market purchased hogs from H & N Hog Market. H & N Hog! Market asserted Washington Hog Market was indebted to it, for hogs' listed on the invoices, in the amounts for which the drafts were drawn.

H & N Hog Market had no account with defendant. Defendant was not indebted or otherwise obligated to it. Washington Hog Market, which had an account with defendant, had not authorized defendant to charge these drafts or any drafts to its account.

A bill of exchange is defined as “an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer.” G.S. 25-133. Absent evidence of special arrangements, the reasonable inference is that a draft is addressed to a party obligated to the drawer to make such payment.

A check is defined as “a bill of exchange drawn on a bank payable on demand.” G.S. 25-192. It is an order to the bank on which it is drawn to .pay the amount thereof and charge it to the drawer’s account. In respect of a check, the bank on which it is drawn is the drawee; and, when presented to the drawee, the provisions of G.S. 25-143 apply.

G.S. 25-94, to which plaintiff directs our attention, provides: “Where the instrument is made payable at a bank it is equivalent to an order to the bank to pay the same for the account of the principal debtor thereon.” But this provision contemplates a situation where the drawer of the instrument has or purports to have an account with the bank at which the instrument is payable.

To support its said contention, plaintiff cites Mt. Vernon Nat. Bank v. Canby State Bank (Oregon), 276 P. 262, 63 A.L.R. 1133. In that case, the drawer drew a draft on itself, payable at a bank with which the drawer had an account. The opinion states: “Although in form a draft, it has all the essential elements of a check.” Again: “When the drawer made this check payable at the. Canby State Bank, it was equivalent to an order on that bank to pay the same and charge to its account.” (Our italics) Decisions relating (1) to checks, or (2) to drafts where the drawer draws the draft on itself, payable by or at a bank where the drawer has an account, where the bank, upon payment, can charge the amount thereof to the account of its depositor, are not relevant to the present factual situation.

It seems clear all parties understood the drafts were forwarded to defendant as collecting agent, not as drawee. The Vice-President of the Bank of Halifax testified: “I knew that these drafts were being drawn upon the Washington Hog Market. I knew that the Washington Hog Market had to accept and pay these drafts.” Moreover, plaintiff forwarded the drafts to defendant “for collection and return of proceeds” and, by letter of February 1, 1960, requested defendant to present “these drafts for payment and if not paid return to us so we might clear our records.”

Plaintiff contends, apart from G.S. 25-143 and G.S. 25-144, defendant’s alleged negligence in failing to return the drafts promptly to plaintiff or notify plaintiff of their nonpayment by Washington Hog Market, constituted a constructive acceptance by defendant of the drafts. The significance of defendant’s negligence, if any, is discussed below. Presently, it is sufficient to say: If defendant was not the drawee, it cannot be held liable on the drafts on the theory that it constructively accepted said drafts as drawee. The court’s legal conclusion that defendant “did not accept the said drafts,” assigned as error by plaintiff, was correct.

A drawee (unless also the drawer) becomes liable for the payment of a draft only upon his acceptance thereof. G.S. 25-68. “Until the instrument is accepted, the payee or holder of the bill must look to the drawer for his protection. The liability of the drawee to the payee or holder accrues when he makes a valid acceptance of the bill and when it is in the possession or is delivered to one who is entitled to enforce the engagement contained in the acceptance. The legal in-tendment of the acceptance is that the acceptor engages to pay the instrument according, but only according, to the tenor of his acceptance. It is, in short, a promise to pay.” 8 Am. Jur., Bills and Notes § 524; 10 C.J.S., Bills and Notes § 171; G.S. 25-67.

Washington Hog Market, when notified by defendant of its receipt thereof for collection, did not pay or otherwise accept the drafts. Whatever its indebtedness or liability to H & N Hog Market for purchase price for hogs, Washington Hog Market is not liable to anybody on the drafts absent its acceptance thereof.

Under the circumstances, the evidence was amply sufficient to support the court’s findings of fact and legal conclusions that the drawee in each of these drafts was Washington Hog Market; that the drafts were forwarded to defendant for collection from Washington Hog Market, not for acceptance by defendant as drawee; and that defendant did not accept the drafts and is not liable thereon. In a strikingly similar factual situation, it was so held by the Supreme Court of Texas in Tyler Bank & Trust Company v. Saunders, 317 S.W. 2d 37.

Having reached the conclusion defendant is not liable to plaintiff on the drafts, we consider now whether defendant is liable to plaintiff for the amount of the drafts as damages caused by the alleged negligence of defendant. In this connection, it is noted: While the court found defendant acted in good faith in its efforts to collect the drafts, to which plaintiff excepted, no finding of fact was made as to whether defendant was negligent. Decision was based on a finding of fact and legal conclusions, to which plaintiff excepted, (1) that plaintiff had not been damaged by defendant’s conduct, and (2) that plaintiff is not the real party in interest and therefore cannot maintain this action.

The author of the Annotation in 19 A.L.R. 555, 656, citing decisions from many jurisdictions, says: “Despite expressions to be found in some cases to the effect that the measure of damages for breach of duty by a bank in respect to the collection of commercial paper is the face of the paper involved, the true rule, supported by the overwhelming weight of authority, is that the damages are measured by the actual loss suffered by the owner of the paper, in consequence of the negligence or misconduct of the bank; at least, in the absence of bad faith, or positive wrongdoing, or failure to return the paper.” In support of this statement, these North Carolina decisions are cited: Stowe v. Bank, 14 N.C. 408; Bank v. Kenan, 76 N.C. 340; Bank v. Trust Co., 172 N.C. 344, 90 S.E. 302, and on subsequent appeal, Bank v. Trust Co., 177 N.C. 254, 98 S.E. 595.

We think the evidence amply sufficient to support the court’s finding of fact that defendant acted in good faith in its efforts to collect the drafts. There is no evidence of positive wrongdoing on the part of defendant. Defendant returned the drafts to plaintiff immediately when requested to do so. The drafts were presented by defendant to Washington Hog Market. Negligence, if any, on the part of defendant, consists in the failure to notify plaintiff promptly of its inability to collect the drafts from Washington Hog Market.

H & N Hog Market was a regular customer of the Bank of Halifax. When each draft was drawn, H & N Hog Market had nothing more than a creditor’s claim against Washington Hog Market. The draft procedure was adopted as a method of collecting the debt.

When the drafts were deposited in the Bank of Halifax, the account of H & N Hog Market was credited with the amount thereof subject to the terms and provisions of the agreement set forth in Finding of Fact #5. It was agreed the Bank of Halifax was to act “only as depositor’s collecting agent” and assumed “no responsibility beyond the exercise of due care.” It wras further agreed: “All items are credited subject to final payment in cash or solvent credits. This Bank will not be liable for default or negligence of its duly selected correspondents nor for losses in transit, and each correspondent so selected shall not be liable except for its own negligence.”

The Bank of Halifax, a regular customer of plaintiff, stamped its endorsement on the drafts and promptly forwarded them to plaintiff. Upon receipt, plaintiff credited the account of the Bank of Halifax with the amount thereof subject to the terms and provisions of the agreement set forth in Finding of Fact #6. It was agreed plaintiff was to act “only as depositor’s collecting agent, until actual final payment in cash or solvent credits; and when such items are credited to. depositor’s account it is with the understanding that same is subject to final payment and that any such items may be charged back at any time before final payment, and that until final payment, the Branch Banking & Trust Company may refuse payment of any check or draft drawn against such uncollected items.” It was further agreed: “Branch Banking & Trust Company’s liability is limited to the exercise of due care.” Again: “. . . Branch Banking & Trust Company wall not be held liable for failure, default or neglect of any such payor bank or of any duly selected correspondent, or for losses in transit.” Plaintiff promptly forwarded the drafts to defendant “for collection and return of proceeds.”

There is no evidence of negligence on the part of the Bank of Halifax. Nor is there evidence of negligence on the part of plaintiff. No reason appears why plaintiff was not legally entitled to charge the amount of these uncollected and unaccepted drafts to the Bank of Halifax, or why the Bank of Halifax, in turn, was not legally entitled to charge the amount thereof to H & N Hog Market. Indeed, they were entitled to do so under the express terms and conditions of the agreements under which credit had been given. The credits given “were purely temporary and conditional.” American Barrel Co. v. Commissioner of Banks (Mass.), 195 N.E. 335.

Since the drafts were neither paid nor accepted by the drawee, the only persons liable thereon were these: Bank of Halifax, as endorser, was liable thereon to plaintiff; and, in turn, H & N Hog Market, the drawer, was liable thereon to the Bank of Halifax. Apart from the express agreements under which the drafts were deposited and credited, the words “NO-PROTEST,” -were plainly printed on each draft. Thus, the drawer (H & N Hog Market) and initial endorser (Bank of Halifax) remained liable thereon notwithstanding a failure to make formal protest, presentment or notice of dishonor. G.S. 25-118; G.S. 25-116; G.S. 25-117; Shaw v. McNeill, 95 N.C. 535; Pearson v. Westbrook, 206 N.C. 910, 174 S.E. 291; Daniel on Negotiable Instruments, Seventh Edition, Vol. II, § 1262.

Plaintiff concedes it received the drafts originally as agent for collection and was not, originally, the real party in interest under G.S. 1-57. Bank v. Rochamora, 193 N.C. 1, 136 S.E. 259; Worth Co. v. Feed Co., 172 N.C. 335, 90 S.E. 295; Bank v. Exum, 163 N.C. 199, 79 S.E. 498. It contends it became the owner and holder of the drafts and the real party in interest by reason of its admission of liability to the Bank of Halifax under the circumstances set forth below.

On February 1, 1960, plaintiff requested defendant to present “these (listed) drafts for payment and if not paid return to us so we might clear our records.” On February 2, 1960, defendant, upon receipt of plaintiff’s letter, returned the drafts to plaintiff. Thereupon, as plaintiff’s President testified, plaintiff “undertook to charge them back to the Bank of Halifax.” Again: “The Bank of Halifax refused to accept the charge.” The Bank of Halifax returned the drafts to plaintiff. On February 5, 1960, plaintiff’s Vice-President wrote defendant, addressing the letter to defendant’s Cashier. This letter, in part, reads: “Our depositor has refused to accept these items, due to the length of time they were held by you. Please forward us your check less your usual charge in payment of these items.” Plaintiff enclosed with said letter a “Letter of Transmittal” dated February 5, 1960, on which the drafts were listed, in which it was stated the drafts were enclosed “for collection and return of proceeds.”

Plaintiff made its first demand on defendant for payment after plaintiff’s customer, Bank of Halifax, “refused to permit us to return the drafts ... on account of the passage of time.” “ (S) orne time later,” so plaintiff’s President testified, when asked “a point-blank question,” plaintiff “admitted its liability on the drafts to the Bank of Halifax.” This stipulation appears in the case on appeal: “. . . the Bank of Halifax declined to accept these items to be charged back to its account by the Branch Banking and Trust Company on the ground of the delay involved.” This statement of plaintiff’s President is of interest: “The Branch Bank does not assert any claim against the Bank of Halifax or the drawer of these drafts at this time.” (Our italics)

It is understandable that plaintiff would be disposed to acquiesce in the contention of the Bank of Halifax, its customer, and the Bank of Halifax would be disposed to act in the interests of H & N Hog Market, its customer. However, nothing in the .record indicates the collected balance in the account of the Bank of Halifax with plaintiff was less than the amount of the drafts. Nor does it appear that the collected balance in the account of H & N Hog Market with the Bank of Halifax was less than the amount of the drafts. The Vice-President of the Bank of Halifax testified: “I had no suspicions about its (H & N Hog Market) financial condition. They were regular customers of our bank. They were solvent at the time as far as I know. We did not call them or attempt to charge these items back to our customers, the H & N Hog Market.”

When plaintiff “admitted its liability” to the Bank of Halifax, absolutely or tentatively, it admitted a liability that did not exist. Its gratuitous admission of liability conferred no legal rights on plaintiff. The Bank of Halifax had no legal right to maintain an action against defendant on the drafts. Any right of action the Bank of Halifax had against defendant was for such loss, if any, as it suffered on account of defendant’s negligence. Such an action, “not arising out of contract,” was not assignable. G.S. 1-57.

Plaintiff’s legal rights were neither increased nor decreased by reason of its said admission of liability. Any right of action it had or now has against defendant was and is for such loss, if any, as it suffered on account of defendant’s negligence. No such loss is alleged or shown. This action is by plaintiff, as the alleged owner and holder of the drafts, to recover the amount thereof. Loss resulting from plaintiff’s gratuitous admission of nonexistent liability to the Bank of Halifax cannot be considered a loss proximately caused by defendant’s negligence.

Each of the cases cited by plaintiff is factually distinguishable. It is deemed sufficient to consider in detail only Trust Co. v. Bank, 166 N.C. 112, 81 S.E. 1074, and on subsequent appeal, Trust Co. v. Bank, 167 N.C. 260, 83 S.E. 474, referred to in plaintiff’s brief as the leading case and as setting forth the grounds on which “plaintiff framed its complaint.”

In Trust Co. v. Bank, supra (166 N.C. 112), the plaintiff appealed from a judgment of nonsuit entered at the close of plaintiff’s evidence. The judgment was reversed and the cause remanded for trial. As disclosed by plaintiff’s evidence, the factual situation was as follows: (1) The action involved a check drawn on defendant (drawee) by Cone, its depositor. (2) The payee, Latham, Alexander & Co., was a customer of plaintiff. It deposited the check with plaintiff and was given immediate credit. (3) In accordance with their prior agreement, the payee drew out by his checks on plaintiff the amount of said deposit. (4) Defendant, after receipt of said check, did not pay it but held it for two days and then returned it, indicating it had been protested for nonpayment, notwithstanding its customer had funds to his credit more than sufficient to pay the check. (5) At or about the time defendant received the check, it also received word its depositor had attempted to commit suicide; and thereupon, having ascertained its depositor’s financial condition, defendant charged against its depositor’s account the sum of $10,000.00 to cover a note in that amount due by its depositor to defendant. (6) Meanwhile, plaintiff’s depositor went into bankruptcy. It had no funds on deposit with plaintiff out of which the check could be realized. (7) Defendant’s depositor, the drawer of the check, was also insolvent. It is noted: Plaintiff’s depositor had become bankrupt. Hence, plaintiff suffered actual loss because it could not charge back or otherwise collect from its depositor. None of the forwarding banks, which occupied the status of plaintiff herein, was a party to the action.

Plaintiff stresses these evidential facts: The drafts were forwarded by the Bank of Halifax to plaintiff along with numerous checks, “for collection and remittance — Credit.” When forwarded by plaintiff to defendant, the drafts were designated Cash Drafts on the Letters of Transmittal. Plaintiff contends the drafts were forwarded in each instance as cash items.

Checks, when presented to a drawee bank for payment, are subject to the twenty-four hour rule prescribed by G.S. 25-143 and G.S. 25-144; but these drafts, forwarded to defendant for collection by it from Washington Hog Market, were not subject to the provisions of G.S. 25-143 and G.S. 25-144. It is noted that a draft may be payable “on demand or at a fixed or determinable future time.” G.S. 25-133. The notation, “Cash Draft,” indicates it is payable on demand.

Plaintiff’s President testified: “In our bank cash items mean checks and other credit instruments that are received for immediate credit.” (Our italics) He testified further: “Our bank had forwarded various other drafts prior to these drafts to the Bank of Washington drawn on the Washington Hog Market. The Bank of Washington would make remittance to us by sending us a bank draft. Until we received that bank draft we couldn’t know whether the drafts had been paid by the Washington Hog Market or not.” (Our italics)

Prior drafts, all of which were ultimately collected by defendant and remitted to plaintiff, had been held by defendant for various lengths of time before collected by defendant. In October and November of 1959, eight such drafts had been held by defendant, pending collection thereof from Washington Hog Market, for periods of time varying from fourteen to twenty days. Although plaintiff, by letter of February 10, 1960, after the present controversy had arisen, demanded that defendant pay to it the amount of the eight drafts now in controversy “plus 6% interest for the length of time they have been held by you,” nothing appears to indicate plaintiff ever called on defendant for the payment of 6% interest on prior (collected) drafts for the length of time they were held by defendant pending collection.

The term “cash item” is not defined by statute. If it has a precise meaning in banking circles, the evidence does not disclose such meaning. In our view, the evidence tending to identify these drafts by the label, “cash item,” is competent for consideration, along with all other circumstances, as bearing upon whether defendant was negligent, in a properly constituted action by a party in interest, namely, a party who has suffered actual loss on account of the alleged negligence of defendant. Plaintiff having failed to establish it has suffered actual loss on account of the alleged negligence of defendant, such evidence, whatever its probative value, is not pertinent to present decision.

Plaintiff suggests defendant’s negligence caused H & N Hog Market to sell and deliver hogs to Washington Hog Market and thereby suffer loss on account of the alleged negligence of defendant. We are not now concerned with whether H & N Hog Market has a cause of action against defendant grounded on negligence. Suffice to say, no person connected with H & N Hog Market testified. There is no evidence as to the time, terms or other circumstances of the sales by H & N Hog Market to Washington Hog Market. Nor is there evidence as to dealings, if any, between H & N Hog Market and Washington Hog Market during the time defendant held the drafts or subsequent thereto.

In Grant County Deposit Bank v. McCampbell (C.C. 6th), 194 F. 2d 469, 31 A.L.R. 2d 909, cited by plaintiff, similar drafts were considered. But there the action was by the drawer of the drafts, not by a forwarding bank, against the collecting bank and the drawee. This would seem to be the proper procedure. In such action, the facts as to the dealings and relationships between the drawer and the drawee would be fully disclosed.

We do not hold the evidence insufficient to support a finding of fact that defendant was negligent. As to an action grounded on negligence, decision here, as in the court below, is on the ground plaintiff has failed to show it has suffered actual loss on account of defendant’s conduct, its gratuitous admission of liability to the Bank of Halifax under the circumstances here disclosed being insufficient to establish a loss proximately caused by defendant’s negligence.

The conclusions reached require that the judgment of the court below be, and it is, affirmed.

Affirmed.

Rodman, J., took no part in the consideration or decision of this case.