Beckwith v. President of the Union Bank — 6 N.Y. Super. Ct. 604

Majority

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Beckwith v. The President, Directors, and Company of the Union Bank.

Headnote

A bank has no lien upon money standing to the credit of one of its depositors, for the amount of a bill of exchange indorsed by such depositor, and discounted by the bank, but which bill has not yet matured.

An assignment by a depositor for the benefit of creditors, carries to the assignee all the right which the depositor had in his bank deposit, at the date of the assignment.

Notice of such assignment to the bank is necessary only to prevent the bank from paying the deposit on the checks of the assignor, or from parting with the funds of the bank on the faith of the deposit still belonging to him.

A bank depositor, who was an indorser on a bill held by the bank running to ma

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turity, and in whose favor there was a balance of account nearly equal to the bill, made a general assignment for the benefit of creditors. Soon after, and before notice of the assignment, the bill was protested, the assignor fixed as indorser, and the amount of the bill was charged to his account on the books of the bank. The bill was held by the bank, uncancelled when notice of the assignment was given. Held, that the assignee was entitled to recover from the bank the entire sum in deposit, without any deduction for the amount of the bill.

The right to set off a demand against an assignee has not been affected by the code of procedure.

(Before-Oakley, Oh. J., and Ddek and Paine, J. J.)

April 16 ;

May 10, 1851.

The suit was brought to recover the balance of a deposit, made with the defendants as bankers, by the firm of W. C. & A. A. Hunter. The Hunters kept an account in the Union Bank, the balance of which, on the 24th August, 1850, was $3600 in their favor. On that day, they made an assignment of all their property and effects to the plaintiff, for the benefit of their creditors. It did not appear that the batik had notice of this assignment till August 28th, when the plaintiff demanded -of them payment of the above balance, which payment they refused on the following' ground.

On the 19th July, 1850, the bank discounted for the Hunters, a bill of exchange drawn by Samuel Suydam on Suydam, Sage& Co. of New York, for $3914, in favor of and indorsed by the Hunters. The bill had been accepted by the drawees. The net proceeds, on its discount, were passed to the credit of the Hunters on the books of the bank. The bill matured August 27th, 1850, was protested for non-payment, and notice thereof given to the Hunters. On thé sam,e day, the bank charged the amount of the bill to the Hunters on the books of the bank, and claimed to have thereby applied to the payment of the bill, the balance of their deposit. On the 26tb August, the bank received from the Hunters a written notice, dated August 24, directing the bank to make no payments for their account, without their special authority. The bill was still in the bank, uncancelled.

The cause was referred by consent to a sole referee, who

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made a report in favor of the plaintiff. The defendants moved to set aside the report, and for a new trial.

W. Kent, for the defendants.

I. The assignment of W. C. & A. A. Hunter, made on 24th of August, 1850, passed no greater or other interest than the assignees possessed of and in the moneys in the bank. What were the rights of W. C. & A. A. Hunter? It may be conceded, for the purposes of the argument, that up to the time of demand and dishonor of the draft, and notice thereof, they have the right to draw the money. But it is equally clear that, if they did not draw the money, and the time elapsed, they were foreclosed of their right; and the bank became entitled to apply it to their debt. The assignment must be distinguished from a check given for a valuable consideration to a bona fide holder. This would be a specific appropriation of the money, and might pass title. But an assignment of all the debtor’s property, without distinguishing it, is, though valid in the law, nothing more than merely placing the assignee in the place of the assignor, quoad this money.

The bank, by the law merchant, has a banker’s lien; and without any right or set-off dependent on statute, has the right to apply the money, if not drawn by check for a valuable consideration, to a debt of the depositor when due. The assignee of the depositor, in the case before the referee, had no other right than his assignor.

II. If the assignment conferred any right to the fund in bank, the assignee was bound to give notice; and as he failed to give any notice until the draft held by the bank was due and dishonored, and the money held by the bank was applied to the debt, the bank ceased to be liable to pay the money to the assignee. See case in 3 Palm. 46, where question of notice did not arise.

III. The special notice given on the 26th August, but dated and drawn on the 24th August, removed the funds in bank

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from a general deposit to a special one; and then the bank had a lien upon it, for the debt being due on the draft.

IV. The assignment of W. C. & A. A. Hunter is not an assignment for a valuable consideration, so as to cut off the bank from their right to apply the money to their debt, if done, as it was, in good faith to a bona fide debt.

V. The bank acting in good faith, by the application of the depositor’s funds in payment of the note, and acknowledging payment, discharged the drawer of the bill of exchange. ' This result was caused by the negligence of the assignees of the Hunters to give notice. The bank, therefore, have lost rights in consequence of the negligence of the assignee; and therefore have a right to retain the money deposited.

A. O. Bradley, for the plaintiff.

I. While the Hunters owned the demand for which this action is brought, the defendants could not have set off against it the bill of exchange owned by them. They are not, therefore, within the statute of set off. (2 E. S. 354, § 18, subd. 7 and 8; Graves v. Woodbury, 4 Hill, 559 ; Spencer v. Barber, 5 Ibid. 568 ; Hackett v. Connett, 2 Edw. C. E. 73; Wells v. Stewart, 3 Barb. S. C. R. 40; Watts v. The City of New York, 1 Sand. S. C. R. 23.)

II. The assignment of the Hunters, made on the 24th of August, passed to the plaintiff all their title to the deposit in question ; and as their title was absolute, his became absolute. And as before the assignment the defendants were the debtors of the Hunters, so after the assignment they became the debtors of their assignee. (Story on Bailments, § 88.)

III. A lien is a right in one man to retain that which is in his possession, belonging to another, until certain demands of him, the person in possession, are satisfied. (2 Kent. Com. 634; Story on Agency, §§ 352, 353.) But no right of lien can arise, where from the nature of the contract between the parties, it would be inconsistent with the express terms or the clear intent of the contract.' (Ibid. § 362.) The deposit in this case, like

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all deposits, was withdrawable at the pleasure of the Hunters, while it belonged to them. ' If they had the right to withdraw, it is manifestly inconsistent with the clear intent of the contract that the bank should have the right to retain. (Story on Bail. §§ 4, 41, 42, 61, 88.)

IY. The defendants, in discounting the bill in question, looked solely to the personal responsibility of the parties. By that act, the defendants became merely the lawful holders of the bill for value, and with no other rights than that situation would bestow. These rights were to make collection from the parties liable on the bill, by persuasion or by suit, or in cases provided by statute, by set off. Such holder has no lien upon any thing but the bill, because credit is given to that alone. (Story on Agency, §§ 380, 381.)

Y. Bankers have a general lien upon all notes, bills, and other securities, deposited with them by their customers, for the balance due to them on general account. This lien is founded on the same grounds as those of insurance brokers and factors. It is given by law as a security for advances. But where no advances are made, or where the advance has been made on the credit of a particular security or person, no lien exists. (Lucas v. Dorien, 7 Taunt, 278 ; Vandeveer v. Willis, 3 Bro. C. R. 20; Davis v. Browsher, 5 T. R. 488; Jourdaine v. Lefebre, 1 Esp. N. P. C. 66; Bolton v. Puller, 1 B. & P. 539; Giles v. Perkins, 9 East. 12; Scott v. Franklin, 15 Ibid. 428; Bosanquet v. Dudman, 1 Stark. N. P. C.; Bollard v. Bygrave, 1 R. & M. 271; Story on Ag. §§ 380, 381.)

YI. No notice of the assignment was necessary. The only object of such a notice is to put the debtor on his guard against dealing with the assignor, or perhaps obtaining other demands against him, on the belief that he still continued the owner. (Graves v. Woodbury, 4 Hill, 559 ; Wells v. Stewart, 3 Barb. S. C. R. 40.)

YII. Charging the bill to the account of the Hunters did not, of course, discharge the drawer or any body else. It was a simple act of ordinary book-keeping. If the money had belonged to the Hunters, no act of charging would have been

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necessary. The set off would have been perfect without it. But not belonging to them, the defendant’s book-keeper could hardly divest the plaintiff of his right. Besides, the drawer was one of the firm of Suydam, Sage & Co., the acceptors, and payment alone would discharge them.

Till. Any special notice given by the Hunters on the 26th of August, after their title to the account had vested in the plaintiff, could have no effect upon his rights, whatever might have been its terms. But the present notice was simply against paying on their account. Their title to the money had passed from them to another, and it was manifestly just, therefore, that the depositaries of it should not thereafter 'apply it to their account. Yet the depositaries seek to do, by reason of the notice, what the express terms of the notice forbade — to pay it all for their account. That notice may have informed the defendants of their duty, but could not change the character of the deposite.

By the Court.

The fund to the credit of W. C. and A. A. Hunter, on the books of the Union Bank, arose from the discount of bills of exchange drawn by them on Suydam, Sage & Co., and accepted by the latter. One of these bills became due and was protested for non-payment, and it was thereupon charged by the bank to the account of W. C. and A. A. Hunter. At this period the bank knew of their failure, but did not know that they had made an assignment. . The assignment having been made in good faith, and transferring to the plaintiff all the property of the Hunters of every description, the deposit to their credit in the bank thereby became vested in the assignee. Therefore, when the bill fell due, and the Hunters became liable to the bank for its payment, there were no demands existing between them and the bank which could be the subject of set off. The money to their credit belonged to the plaintiff

In a suit between this plaintiff and another bank, in which thé facts are similar, it was conceded that there could be no set off in such a case previous to the code of procedure, but it was

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contended that under the code the rule is different, and that the right of the bank to set off their debt against the deposit is to be determined on the apparent state of facts existing previous to and at the time notice of the assignment was given to the bank, and we were referred to sections 111 and 112 of the code.

In this suit it is claimed that the bank having applied the money deposited to the payment of the protested bill without notice of the assignment of the deposit, the bank ceased to be liable; and, further, that by such application the drawer of the bill was discharged.

We have considered the subject and think these views are not sound. Under the former statute of set off, when the action was brought in the name of a party to a chose in action, by one to whom he had assigned it, the defendant seeking to make a set off was required to show that he had a right to make it against the nominal plaintiff at the time the assignment was made. The law preserved the equities of the parties, and the rights of an assignee were protected, although the suit was brought in the name of the assignor. Section one hundred and twelve of the code was intended to preserve in the same manner the rights of defendants, in cases where the suit was prosecuted in the name of the assignee, as required by the section next preceding. The effect of the provisions of the code was to leave the right of set off unaffected, and the case is to be decided according to the law of set off as established by the revised statutes. The only change made is in the form of the section.

The omission to notify the bank of the assignment before the draft became due does not alter the case. If the bank had paid over the deposit to the Hunters, or made advances to them or come under liabilities for them in respect of the deposit, it would have been protected against the assignee. But the situation of the bank has not been affected by the want of notice of the assignment. The charging of the protested bill to the account of the Hunters was not a payment of the bill, nor did it discharge any of the parties to it. The bill was still in the hands of the bank, uncancelled, and all the parties remained liable upon it as they were before the charge was made.