'01
iftl>bM,
1tEPoltm,
,
'supreme'cotirt1rit tterrri. :As' 'ti)'< the"fu;l.tter , case' proceeded ,to "th'ebrrcuitcoutit; li.11d fut:tberJ:learil';'aild'lb a further January, 1887, , OnthlS )vhich
to the decree "PIaaeri" J'tn'e',,1885;' riBtle'were'ttssigned ils' rdicree of July, 1887; aM -WAS whe\her on 'this appeitl'L\nyof the matters tleterniined'by the decree of: Junet18851 open 'the ,,' , Bre tile of 1885. was a final of that term in respecting the appellate jurisdltition .of thi$ ail 'to all matters determineilby it. and that they are any, furtl,lerconsideratlon. It dispo!,ed of every matter of conthe parH:es. eX:llept as to the aluount orone Item. and referred to that., · ,. · fact. that. I,t WitS not di&o posed 91' of the dpcreeas to the defendAnts against whoni'the bill was disfuislJ!!4;, · . . " They, were no longerparUes to the lftiit: ,"tbfiappeal the subsequent decree not reinlltate ,them. AU the li1etits()f'the controversy pendi n g' between· them and the disposed; of. and CQuld'not,be agl&in reopened. except on ap'I
was' allowed
mel\rlin"
a:,
'!(o1 ,Anyfuttherrmewoftheauthoritiesclted and reliedpn to defeai this xnoti?h in this eaSe is as we are of opinioothat 'the IMteited settles'U1equestionhere Illade before us, 1n6tion should be denied; and it is'So ordered. andtbatthe1 ';"f: , I
.1
PARpri,Circuit Judge; haVing saHnthe circuit court the deciilli'otiappealed 1ru1U, tOok: no part in the heariug ()l dispOsitiuu w tbiI
mouun.
' " . ' , '
(Circu£t Court,
B. Do Ohio, W.D. June., 18112.) No."· .
L B.lmrS-VALrorrr OJ' 0.. VIOB l.'lie C. Bank in faith advanced, monlly oncollatel'al fo.-wardeil by the .vice !lUhe f. a114 theloall to the F. The vice president of the F. 'Bank diJ'eQted tbat the'loan be transferred to hiB individual credit, WbIChW. t.II d,one, Where,uP,bn he fraUdU,l&D,',,tlY"checked out the same for private purpose&., Hetdtthat the vfqe,prellidellt to negotiate the 1oaDo and til.., the validity tDereof was n,ot affected bybisfr/lud.
to"
a.
Rev. tilt. II. 6285,: ,which .provide,. respectively, that. the comptroller. ,oa appointing a r,eceiver for"an insolvep-t nB!;ional ban!f.1. shall adverf.!88 for proof of claimll, alid that heabaU make a ratiloble dividend of 1)nll moneys ,paid over to him " ,1lY the receiyel; au.ong $pse who tbeir CBnnQt be oo!1strued to 1lX the date of the suspension of the bll.n1l; date with reference to which all calc , ouJ,ations to creditorS iite' Illo be made aa a baaiB of dindends. .fter Bucll suspension, Qf. olaim with the Buch was reduced by trom pollaterals, It IIhould have beeu credited 'such collections WDeutiled, aoo the balance,then tQuud due used 8S $he buill for. ascertaining claimant's dividend.
B,UIl!:-NATIONAJ. B4frXs-INSOLVlINOY....SABlii OJ' ·DrVlDlINDB.
tI.· ABETRONG.
799
, '",
I.,
als, al)(1 in "June' advanced afurtber sum on further oollaterals." The C. Bank collected $75\000 on tbeMa1'cb collaterals the March loan, but entered a general credit thereof to the F. Bank. Hel4, that the oolleotions should hlLve been applieq. to the:Marchloon, aDd were propetly deducted therefrom in dethe amount which tlle C, Bank was entiUed the .after Itsfnsolvency. OF
(II' otl' COLI,l,-",BAIA,";; · .' . , ""ttl C. BanI!: bdvat'l'cedalarge sum of money to F; Bank fnHaroh ODeollater·
,," 'Among' tbe'QOll..-terals tosecun th8Maroh loaD was a note of W. fOl'l25,ooo. Indorsed.:by L. for aceorpmodatioD of the vice president of the F. Bank. Shortly before ',maturlty' of thts and other 'of the oollaterals, sa,id vice president reqnested ,:;' tha, 'b, , nWd forpaymtln,t, but, returned" promiS,ing,tbat other 00,119,teral should bI" s:gbstitllted tOI," them. all of which was done, except that the $25,000 note was 'Ddt returned. The F.' Bank did not order back thill t(ote; and shortly aftit<matu,redcwithout or notice of dishonor to L., the indorser, ,who solvent party to the ,DOte. BcZd,. tb,at the C. Bank. havinl!: by its "negligencefailed'to tilt, theindOriler, wlthsuoh note as 80 mucll receIved. on Its claim.· -, ' ;6. SAHB:-lIlJj:,BNIlBS. ' ,', '",' ," , ' ,: ' , " ,excnsE!t<l tlle C. Bank that the 11'. B!Wk not a party to the note in " qnestiofl,t1:ieC. Bank 'having received it as security fora Ill'an tothe F. Bank under c:jrcuJ:X1lltance& fl'OlD whica it,might naturally iDfer, the note to be the propertyot , , ' the,li'.Bapk., " , .' · '
HbLD*1t. '
;. ,'" The objeotion by the Co' Bank thatihe no11e'was lDadeand indorsed merely fortbe ,of' the vice pJ'6&ldent,'wbo not a party and that o.onseqrienily'the C. Bankcould*ot have recovered thereoD iithe indorser's)jabllity had been/preserved, liould riO'ti 'be' iti view of the faCt that the indorser h,ad paid tbreenQtes, ,compBnions to without,objeotion, and ofevi· .dence that hewas interested with the vioe president in procuring the loan which the n0t8 paitly secured. ," , "', }7;' BAlrE-INTBREST ON DrvInENns-EsTOPPEIL.
6.
PAPIlB.
"
, 'fhe C. B,an)t, refused,an o1fer of the receiver to par dividends on 1200.000, Wbioh'waS,abont the amount due to it ori the March loanafterdeduoting oollections , on oollil'te'I'als,was not 'entitled, to interest on such diVidends on aftlrmance of the aoUon of by t)J.e oourt. " . Asumcollected by the C. Bank on the collaterals after proof of its claim should not be deduetec1 therefrom 'inascertaining the amount on which it is entltledto a di videnc1. o)'i COLLATERAL8.
S.
'
In Equity. Suit by the: Chemi('.al National Bank against David Arm;8trong, receiver of the Fidelity, National Bank. Heard on the pleadings and evidenpe. Decree for defendant. , Statemeqt by 13AGE, DistdctJudge: On the 2dqf M:arch, 188:7, the Chemical National Bank, of New York, ,credited on lUl.books the Fidelity NationaU3ank, of Cincinnati, with a Ipan ,of 3300,000, at interest, on the faith of a letter from that bank, signeq, L. Harper, its ,vice president, dated February 28, .18tH. and inclosing its certificate of deposit No. 341;), to the o!der ofE. L. ,Hll.rper, and by 'him indorsed in blank. also inclosed. with the letter sundry bills receivable 8S 001There lateral. . The Jetter was signed by Harper, as vice. president, but was not copied in the letter book of the bank, and.it dof's not appear that anY Qtper, officer .of the bank knew of its existence. The Chemical. Natipnal Bank at the time notified the Fidelity Bank that it had placed .$;300,000 toits credit. .:m. L. Harper reoeived the notice, and at once that the sum so credited be tra,nsferred to his indiviJ.ualaccount, wlfich was dp:qe, and immediately II.fterwardll he checked it out for his .
nltPoRTER, vol. 50.
1887 sent to the _ _ents of the trallsactionsbetween the banks in' March. In each of $300,000 ,loan, was .9redited to the FidelitylJa.nk under date ofMal'ch 2,1887, as "loan" or "tem.loan." Ma.y 19,1887, the Fidel'Hy' Ba'ilk, by telegram, signed with its own nllwe, and hy confirming letter, signed "E. L. V. P.," requested the Ohemical Bank not to present any of the paperp1edge<ias collateral for the $300,000 loan as paYment would',be ati'anged for at the Fidelity Bank, andIlew paper woulqbe sent on the 20th in substitution for maturing cQl1aternl. The letterp'rdmised to pay on JUly 15th, -with interest· . On May 21, 1887, the Fidelity Bank, by letter signed by E. L. HarP., bill(il receivable as collateral for the $300,000 loan, and requested the return of certain of those previously transmltted,which would ma,ture in Mayor June, and the substitution was as requested, 'O'n,J.une 14,1887, the Fidelity :Bank sent to the 'Cllemical Bank over$m.,OOO,OOOfacevalue of other collateral, and requested other certain, adyanccs were made by the Chemic:¥ request. QnJune 21,1887, the Fidelity Bank J?ayment, and on June 27, 1887, the defendant, Armstrong, w!i$,'Il.PP(i)intedHs repeii(erJ)y the cODllptroller of the currency. C?ollections made of thecollaterals pledged to it by the Fidelity Bank: for the vanous advances stated above were all credited on the books of the Chemical Bank in one account, regardless of when the collateral 'Jas pledged,oriI\connectionwith whatparticular loan,; , theory. of oeing that it had a lien On all the collateral to secure all the advances. By the fall of 1887 more than enough had been colll'lpted upon the collaterals to satisfy all the loans, if applied to the theory upon which the credits were made. The Chemical Bank thereupon notified defendant, Armstrong, of this fact, and offered to remit to him the surplus cash collected, and return the'cdllate-ralstill however, contended that the co]]a.tern.lpledged in June, 1887, security only for the advances thereafter made, and that the Chemica1 Bank had no right to apply collections from that collateral to payment of the Marcn loan. Suit was thereupon brought: by' Arnlstrong, reb!liver, against the Chemical Bank, ,in the United States circuit court for the southern district of New York, for an accounting of tM June collateral upon this basis. That suit resulted in a aecree in favor of Armstrong for the surplus of the collections from the June colluterals over the June advances, with interest: The case is reported in 41 Fed. Rep. 234. The result was that the loan of March, 1887 1 was left unpaid, and the Chemical Bank had in its hands the unpaid collateral pledged in March and May, 1887, to secure that loan; also proceeds ofcolIateraIs paid, amounting to $75,000.. Thereupon the Chemical Bank made formal proof of claim upon that basis, asking to be enrolled as a creditor for $300,000, with interest at6per 'eent. from March 2, 1887,and to be paid dividends ratably with other creditors,untU the dividends andcbllections made and to be made from the collateral jshould equal the amount due upon the loan. The claim as made was rejected, the rejection being accompanied with an offer, in
CHEMICAL NAT. BANK
v.' ARMSTRONG.
801
substance, to pay dividends calculated upon the balance remaining due upon the claim after deducting the collections made, and to be made, from the collateral, and a further sum of $25,000 which it was clainled was lost through negligence of the Chemical Bank in not taking proper steps to collect a note for that amount held by it as collateral, made by J. W. Wilshire, and indorsed by J. V. Lewis, falling due June 28, 1887. Thereupon this suit was brought to compel the allowance of the claim as presented by the Chemical Bank, and the payment of dividends on the amount due at the time of the appointment of defendant as receiver, the dividends to cease when, together with the collections from the collateral, they should equal the amount due upon the claim. The answer sets up that the entire transaction was in furtherance of a scheme by Harper to swindle the Fidelity Bank; that the certificate of deposit for $300,000, which was forwarded to the Chemical Bank by Harper, was not entered on the books of the bank; that Harper had not that sum at that date on deposit in the bank; that the issuing of the certificate was not known to or authorized by the directors of the bank, and that the proceeds obtained from the Chemical Bank were not received by the Fidelity Bank, but were fraudulently appropriated by Harper to his own use. The defendant further sets up that, by reason of the default of the complainant, there was no demand of payment or notice of nonpayment of the note for $25,000, above referred to, made by Wilshire and indorsed by Lewis, and that therefore the amount of said note was lost, Wilshire being insolvent and Lewis abundantly able to pay, but claiming exemption by reason of said note not having been presented for payment at its maturity. and notice of nonpayment not having been given to him. The defendant further admits that the complainant presented the claim sued upon to him on the 25th of April, 1890, which was the first presentation thereof, and that he did then in writing offer to admit and pay dividends on the sum of $200,000; that being about the amount which the defendant believed to be due after making the credits which are set forth in the answer, and to which he claimed to be justly entitled, and further offered to pay said dividends and allow said sum without prejudice to the right of the complainant to sue for the residue of the claim as presented by it, which offer was refused. The evidence is undisputed that the Chemical Bank was not in any way a party to any fraud attempted and practiced by Harper, but dealt in good faith with the Fidelity National Bank. It further appears from the evidence that of the collateral held by the Chemical Bank as security for the $300,000 loan at the time of the failure of the Fidelity Bank, only four notes, aggreg:lting $19,200, and falling due in July and August, 1887, had at any time belonged to the Fidelity Bank. To whom the residue belonged prior to the pledge of the Chemical Bank does not appear. Among the collateral notes pledged in March were four for $25,000 each, drawn by Joseph W. Wilshire to the order of J. V. Lewis, and indorsed by him, all dated February 25, 1887 J and payable, rev.50F.no.10-51
802
PD:ElU.LBEPOB'l'ER, vol. 50.
five, and six months after their date. All these, notes by the maker, and indorser for the accommodaand given to him on their date. The note falling tion, ;Qf E. L. due in May, 1887, was returned in accordance with the request of May 21,1887. The"ppte,falling due in June, 1887, was in the possession of tile its matqrity, and is unpaid. No proper notice . of nonpayment was given to Lewis as indorser, and, as already stated, he, claims ,to be' discharged. ThE) two remaining notes were paid by Lewi,s at maturjty,ll.nd he also paid at maturity another note for $25,000, mad.e by Wilshire, dated Apri128, 1887, and payable five months after date to thf;'l of Lewie;, ,and indorsed by him. This note was among ,the substituted in May, 1887. These, payments by ;Lewi£? were the only pay;ments made on account ofanY oqhe ,collateral held for the 8800,000 loan prior to the commencement pi this suit, but ,since then comlH;omises have been made by the defenqantQf the four notes aforesaid of the Champion Machine Company, resulting in a payment ,of some ,cash and the su1;>stitution of other securities, and upon certain notes drawn by Whitely, Fassler & Kelley, and by E. L. Harper & Co., these being, among the notes pledged which the Fidelity Bank had no title. 'rhere has been paid to, the sum of $4,481.49 in cash, and the bonds of WrbHi'lly, Fassler,& Kelley secured by mortgage to the amount of $9,600. in his answer avers that the Fidelity Bank was not liable toJb',cQmplainant for the amount of said $300,000 loan, and that the 'is not entitled to prove ¢e same as valid as against the trust by him. ,The prayer ,of the !lnswer is that, if the court shall the Fidelity ;Bank was liable for the amount of said loan, all payments made to the complainant from the collateral paper not belongiqg to the Fidelity Banlt, and forwarded, by Harper to the complainant as security for said shall be credited thereon; that the amount of the shall be charged against the complainant, and credited on said lQaJljand that the balance of the collateral shall be first exhaus.ted, and the P'rocfedscredited on the loan, and the complainant be permitted to prove ,on\y, the amountr.emaining due on the loan after ' said credits· have been made. Wm. Worthington, for plaintiff. " : John W. Herron, for defendant. SAGE, Distri!Jt Judge, ('ajter,stati1lg the facts all above.) that the transaction of the:$3QO,OOO loan was fraudulent as between E. L. Harper and:the, FidelityBl\nk, and that he appropriated the entire proceedlil to ).lis individual use,' the claim of the Chemical Bank, which dealt in g()od faith and washlnocent of any knowledge or ,participation fraud, is ,not affected thereby. The negoof Harper, as vice president tiation of tbe loan :Ylas",ithin the of the, Fidelity Bank, ,and, ifheu!:led that authority fraUdulently for his OWll' advantage, the bank him to commit the fraud suffer the colls,equences, not the bank that made the loan an4
808 advanced tb'e money, under the representation and in the belief that if was conducting a fair, legitimate business transaction with the Fidelity Bank. The only questions to be decided are(1) Upon what,sum shall dividends be computed? (2) Shall the'Chemical Bank be charged with $25,000 WilshireLewis note, due Jl,1ne 28,1887', as if it had been collected? (3) Shall interest be allowed the Chemical Bank upon the sum which may be found due to it for dividends? In Lewis v. U. S., 92 U. S. 618. 623, the principle of equity that a creditor holding collaterals is not bound to apply them before enforcing his direct remedies against the debtor is recognized as settled. The authorities in support of the principle as stated are numerous. So far as it relates to the collaterals yet remaining in the possession of the Chemical Bank, there is no difficulty about its application in this case. The contention arises uponthe question whether the sums that have been paid to ancl received by the Chemical Bank on account of collateral notes pledged to it to secure the loan shall be first credited, and dividends paid on the residue; or, on the other hand, dividends shall be paid upon the entire amount as if those payments had not been made, and then the payments applied. The statutory provisions bearing upon the questions are sections 5235 and 5236, Rev. St. U. S. Section 5235 requires the comptroller, npon appointing a receiver for an insolvent national banking association, to give newspaper notice for three consecutive months, "calling on all persons who may have claims against such association to present the same, and to make legaJ proof thereof." Section 5236, so far as here material, requires the comptroller to make a ratable dividend of the moneys paid over to him by the receiver"On all such claims as may have been proved to his satisfaction, or adjudicated in a court of competent jurisJiction; and, the proceeds of the assets of such association are paid ov('r to him, shall make further dividends on all claims previollsly provl;ld or adjudicated." The contention for the complainant is that the statute fixes one time, with reference to which all calculations of the amount due to creditors are Lo be made as a basis for dividends, and that that time is the date of the suspension of the bank, at which counsel say the active trust in favor of creditors begins to run. The argument is that it will not do to take the maturity of the claim, for that throws out of view altogether, snd that the time when the proof of the claim is tendered cannot betaken, for that would introduce variations because of difference in dates of interest, and would permit a creditor having a high rate of interest to get an ad vantage over others, by postponing his time of proof, and thus swelling the amount due him: . For a similar reason it is urged that the date when the claim is allowed or adjudged cannot be taken. The contention is that the statute necessarily contemplates an estimation of all claims at one and the same instant of time; and that reason, as well as convenience, dictates thst time to be the date of the commencement of the trust; that is to say, the date
8{)4
REPORTER.
vol. 50.
of the suspension of the bank·. In support of this contention White v. Knox, 111 U. S. 784, 4 Sup. Ct. Rep. 686, is cited. That case is an authority for the proposition that aU creditors are to be treated alike with reference to the payment of interest. White had obtained judgment on the 23d of June, 1883, upon a claim which had remained due and unpaid from the date of the suspension of the bank the appointment of the receiver, which was about the 20th of December, 1875. Between that date and the judgment, the comptroller had paid to other creditors dividends amounting in the aggregate to 65 per cent. upon their respective claims as of the date when the bank failed. White's judgment included interest to the date of its rendition. and he claimed a dividend on the amount thus obtained. The comptroller paid him a dividend upon the same basis as that adopted for dividends to the other creditors. The difference between. that am<;>unt and the amount claimed by White 8,S the b!).s.is for his dividend was $21,379.66. 8Qit was brought to compel the payment of dividenp.s on that difference. The supreme court upheld that rule of distribution, Chief Justice WAITE saying, in the course of his opinion, that,"if interest is added on one claim after that date before the percentage of dividend is calculated, it should be upon allj otherwise, the qistribution wO"!lld be according to different rules, and not ratable, as the law requires." In none of the cases decided by the supreme court does it appear that any payment on account of the indebtedness of the creditor was made from the proceeds of co11aterals, Or otherwise, after the suspension of the bank and before the proof of claim. There are two or three cases in Pennsylvania in whichthe doctrine claimed by counsel for complainant is approved, but the weight of authority is the other way. In Lewis v. U. 8.,92 U. 8.618; CaSH. Bank, 100 U. 8. 446; and Eastern Townships Bank v. Vermont Nat. Bank, 22 Fed. Rep.186,-the claim proven wa!'l for the entire amount of the principal of the indebtedness as it existed when proven and at the date of the iailure of the bank, for nothing had been realized from collateral, and there had been no partial payments, and the question as to the time "With reference to which the amount due should be adjusted related exclusively to the payment of interest. In this case a different state of facts exists. After the suspension of the Fidelity Bank, and before the Chemical Bank malie any proof of its claim, it realized $75,000 from the payment of co11aterals, to wit, three of the WilshireLewis notes, as follows: $25,OpOon the 23d of July, 1887, $25,000 on the 24th August, 1887, an? $25,000 00n 14e 1st of October, 1887, the dates at which said notes respectively matured. These payments were entered up on the books of the Chemical Bank at the dates of their receipt to the of the general col4lteral account of the Fidelity Bank. The Chemical Bank treated the collaterals received in March and May and June as all belonging to one and the same account, or, in the language of the cashier of that bank in his testimony ,"as massedj" and so with the loans,the banka,cting on the .erroneous theory, alrealfy stated, that it had the right to apply the proceeds of all the collaterals to the payment of aU or any. part of the of the Fidelity Bank. The question
CHEMICAL NAT. BANK v. ARMSTRONG.
805
then is how the payment of these amounts, before the filing of the claim of the Chemical Bank with the receiver, is to be regarded. Was the Chemical Bank bound to credit them on its claim, or did it have thl> right to prove and receive dividends upon the entire claim, holding the amounts received from the collaterals back, to be applied, after the receipt of the dividends, to the residue of the claim? It is urged that the entries of credit ought not to conclude the Chemical Bank, because they were made upon the theory that the loans and the' collaterals were to be treated as belonging to one transaction. Conceding that the Chemical Bank is not concluded by the entries, how does the matter stand? The provision in section 5236 of the Redsed Statutes is for the' payment by the comptroller of ratable dividends "on all such claims as may have been proved to his satisfaction, or adjudicated in a court of competent jurisdiction." The first thing for a creditor to do, then, is to make proof of his.claim,and there seems to me to be no escape from the conclusion that the claim must be proven as it exists when the proof is made; What, then, was the true amount of the claim when the proof was made by the Chemical Bank? It had received negotiable securities as collat:eral. It is stated at page 213 in Schouler on Bailments that the rule deducible from the decisions is that "the pledgee of negotiable securities not only has the right, but is bound, in the exercise of ordinary diligencej to make presentment or collection on their maturity, and then apply the proceeds on the pledged account." In West v. Bank, 19 Vt. 403, Judge REDFIELD, on page 409, says: "It is true that if the security had been converted into money. Ilnd it is tween debtor and creditor, it ceases to be collateral, and operates directly as payment, so that the debt is thereby reduced, and the creditor can only go for the balance." In Sohier v. Lo'ring, 6 Cush. 537, the court held that. any proof sought to be made by a cre'Htor after he has been paid any part of his claim can be only for the unpaid balance. Judge LOWELL says in Re Souther, 2 Low. 320, that in bankruptcy no cred': itor can prove for more than his actual debt as it exists at the time of the proof, without obtaining an undue advantage over other creditors.: It was held by the court of appeals of Maryland in Bank v. Lanahan, 7' Atl. Rep. 615, decided January 5, 1887, that a creditor who had realized' on collaterals was entitled to a dividend, under an assignment for the benefit of creditors, for only the residue of his claim after deducting th6 amount realized on the collateral. The court said that it could n6t be denied that the sum received from the collaterals diminished the indebted·, ness, and that the creditor aad thereby actually received payment to a: certain extent. In Mason v. Bogg, 2 Mylne & C. 448, Lord Chancellor· COTTENHAM said that in equity a party might comein and prove without giving up or affecting his securities, except so far as the amount of his debt may be diminished by what he may receive; and in Kellock's Case, 3 Ch. App. 769, Sir WILUAM PAGE WOOD, in deciding the case, referred to the right of the creditor to stand upon his securities until they' are redeemed; and in People v.E. Remington & Sons, 121 N. Y., at page 336, 24 N. E. Rep. 793, the court said that the creditor was entitled to:
t.·,
FEDERALREPORtrER',vOl.
50.
ptove,aptnsHbe estate for what was' due to him, and receive a dividend upon· that amount without deduction onacnount of collateral held by him.! In. Wheeler v. Newbould, 16 N. Y. 392, the court of appeals held that,. 'where. negotiable securities are pledged for a loall, "the primary,.ao(;J:,indeed,the only, purpose of the pledge is to put it in the power of. the: pledgee to reimburse himself for the money ad..anced when it becomes dpe. and remains unpaid. The cuntract carries with it an im plication that the security shall be made effectual to discharge the 0bligation." The court further held that it would be presumed, in the absenoe of express stipulations to the contrary, that it was the intention of the parties to the contract that the creditor should, if he resorted to the pledge instead of the personal liability of the debtor, accept the money upon the, hypothecated securities, as it became due and payable, and apply· it· to the satisJaction of his debt. .The general law with reference to theappro.priation ofpaymt'nts is that, if the party who pays money does 110t. make a specific application at the time of the payment, the right of application devolves on the payee, and he must then exercise it, or the law will ;exercise it for him. It has been held that, if money is paid to the pledgee belore the maturity of the principal note, he has no right to apply the .proceed!! to the payment Of that note until it matures. and that in such case the money when received is a substitute for the collateral note on account of which it was paid. and is to be held upon the same terms and subject to the same rights and duties as the collateral note. Garlick v. James, 12 Johns. 148. But in this case the payments of the collateral notes were made after the maturity of the loan, and it was the duty of the Chemical Bank to apply them at once as credits upon its claim, upon the lOan against the Bank. A general credit was entered, and it mnststand as a credit against that loan. It results that when the Chemical Bank presented its there should have been credited upon it the amount renlized from collaterals, and the claim for 8300,000, the full amount, was rightly rejected. The next question is whether the Chemical Bank shall be charged with the $25,000 Wilshire-Lewis note, due June 28, 1887, as if it had been collected. The facts to this branch of the case have already been stilted in a general way, but it is now necessary to refer to them more particuhlrly. That note was among the collaterals originally pledged for the payment of the $300,000 loan. On the 19th of May, hemical Bank: "We 1887, the Fidelity National Bank telegraphed the send other bills to take. place. WilLwallt all returned herewithout presenting, as wead.vised parties to arrange payment here." On the same day the Fidelity Bank by letter, over *e signature of" E. L. HARPER, V. P.," wrote. the cashier of the Chemical Bank as follows: "Please do not present any of the collateral paper for payment. We have advised parties .we would back and charge up ht're. We will to-morrow send yOU,new notes. to take the place of ones maturing. We will pay the loan July 15th, and will ,pay. i,ntel'est till that date, if agreeable to you." The $25,000 note was not ordered back by the Fidelity Bank, but on the 21st of May, ,1887, sundry other bills receivable, which would mature
CHEMICAL' NAT.
807
in May 'or June, and which were held as collateral, were called homeby tbe Fidelity 8,nd others substituted. On the 28th of June, 1887, seven days after the suspension of the Fidelity Bank, and one day after the appointment ofArmstrong, as receiver, the $25,000 note matured. It was then held as collateral by the Chemical' Bank. There was no presentment or demand for payment, nor any notice of nonpayment to Lewis, the indorser, who was abundantly able to pay, wheress Wilshire, the maker, was insolvent. The cashier of the Chemical'Bank testifies in his deposition that the 28th of June came, and the note had not been returned to Cincinnati, and that night he discovered that fact,and wired Wilshire and Lewis at the place where he supposed they would be found, and where the note was payable, namely, Cincinnati. .He says that the loans were in the hands of the loan clerk; who didnotcaH his attention to the $25,00Q note, the note clerk acting on the presumption ,that the:telegram and letter of May 19th wf1lreauthodtYi but the cashier, happening that aflernoon to have sometime, got put the papers,and was looking them over,and, as he says, "was more than surprised to find this piece of paper on hand," referring to the note, and at once-.:.it wasthenabout;half past four-" did his duty and notified the parties." He also testifies that he knew of the failure of the Fidelity Bank on the 21st of June, he thinks. or the 22d. ' It is urged for the Chemical Bank that it had the right to assume that it was to do nothing with respect to presentment, demand, or notice of nonpayment of this note; that the instructions contained in the telegram and letter of May 19th continued in force until altered by positive directions. Also, that the evidence shows that the Fidelity Bank never was the owner of this note, andthpt, it was an accommodation note for the use of Harper, which the Chemical Bank, as an innocent purchaser for value before maturity, had the.right to enforce; but, as far as Lewis was concerned, that right existed only in case the Chemical Bank could not otherwise collect its debt as against him; that the lien of the Chemical Bank extended only so far as necessary {or its own protection, and, if Lewis had paid the note, he would have been subrogated to the rights olthe Chemical Bank against the Fidelity, and the securities belonging to that bank, after the Chemical Bank had bebm paid the residue of its claim; also that Lewis was practically a surety for the Fidelity Bank. which was the principal debtor. The argument for the defendant is that it appears from the evidence that the money on the $300,000 loan was borrowed by E. L. Harper in the name of the bank, but for hi!'! own use, without any authority or knowledge of the other officers of the bank. and by the perpetration of a fraud on all the parties concerned; and that the proceeds of the loan were immediately plared to hit! individual credit,and drawn for his own use. Counsel say that if Harper had paid that debt, or any part of it, he could not prove the sum so paid as a claim against the Fidelity National Bank, and that the sam.e rule applies to collections from collaterals furnished by him, whether belonging to or only controlled by him. The argument is further that the complainant had knowledge 'or
808
ftDEBAL BE;rOBTEB.
voL 50.
reason t<fstippose thnt the ool1aterals belonged to the Fidelity National Bank; that that would have been naturally and properly inferred by thecom.plainant from the manner in which it obtained possession of and the manner in which they were sent to it, and therefore the complainant cannot complain if the same results should follow as would hll.ve followed had they actually belonged to the Fidelity Bank. ,Astothe claim that the Wilshire-Lewis notes were accommodation notes loaned to Harper, and that no consideration was received for them .by Lewis and Wilshire; attention is called to the only testimony upon that .part of the deposition of Wilshire,-and to the fact that Lewis. who paid three of the notes as indorser, has neither testified nor made any claim of the kind stated. Harper's name does not appear upon those notes,and, according to Wilshire, nothing was said about paying them or in any way taking care of them. The transaction occurred at Wilshire's house, in Cincinnati. on the night of February 25, 1887, Wilshire, Harper, and Lewis being present, and all taking part in the conversation. Harper stated that he required additional funds to carryon a certain deal which he had on hand at that time, that he did not have the amount of ready money in possession, but that he could use paper, discounted either in his own .bank or elsewhere, and Wilshire testifies that notes were made for that purpose, but nothing at all was said as to who was to take up the notes. Harper spoke of the condition of the market, the favorable, outlook, and the necessity of having ample money to protect the deal; also, that while the deal was very promising, and the prospects for a successful termination favorable, yet with the opposition at Chicago it was best to be prepared to furnish additional margin when called for; that,. although the money was not needed then, it poslater on, and Harper wanted to be prepared for it. .Why Lewis was interested in assisting Harper does not appear from Wilshire's deposition. Wilshire himself Harper's broker. The argument is that, the paper having been, made to enable Harper to borrow money upon it, nei:therWilshire nor Lewis can plead that it was accommodation paper as against the party who loaned the money on the faith of it; and that,while it is true that the Fidelity Bank did not primarily lend the money on'that paper, it did loan its credit, and thus obtained the money and gave it to Harper, thereby accomplishing the object intended by Lewis and Wilshire, and therefore having. the same right to protectionon its credit as if it had primarily made the loan. lam satisfied that this is the correct view of the transaction, and that, ns to the three $25,000 noteS that were paid, inasmuch as Lewis and Wilshire knew that they were to be used to obtain money to aid Harper in a deal in which they were in some way sufficiently interested to furnish $100,000 of negotiable security, they would not be entitled to prove up any claim against the Fidelity Bank. This brings us backto the question whether the failure of the ChemiealBank to make demand of payment of the $25,000 note due June 28th waa warranted by the telegram and letter of May 19th... My conclusion is that it was not. Those ad vices were followed by the letter of May 21st, calling home certain of the securities
v.
ARMsTRONG.
809
which would mature in May and June, but not the $25,000 The omission of that note from that call was of itself sufficient to indicate that it was not the intention to order it back to Cincinnati. It remained as collateral in the hands of the Chemical Bank until its maturity. The Fidelity suspended payment on the 21st of June, and that fact was known to the Chemical Bank on that day or the day following. It was clearly the duty of the Chemical Bank to observe the ordinary rules binding upon the holder of negotiable securities as collateral, with reference to presentIl1ent for payment and notice of nonpayment. The failure to do so was a neglect which was called an "oversight,"and which, when it was discovered by the cashier, it was too late to remedy. The note should have been sent by the Chemical Bank to its correspondent Cincinnati, where it was payable, in time for presentment and and, in the event of nonpayment, of notice. This not having been done, the claim against the only solvent party to the note was lost, !lnd amount must be charged to the Chemical Bank as if the note had been paid. . . .; With reference to interest, this court has the right to take judicialI;ll?:' tice of the fact which appears in its own records, although it is nqt shown in evidence in this case, that no interest has been paid upon proven against the Fidelity Bank, excepting in cases where claims rejected by the receiver were subseqaently affirmed by the judgment of this Of some other court of competent jurisdiCtion. In such eases interest has been allowed from the date when dividends were withheld that should have been paid. There is another consideration which cannot be looked. When the complainant proved its claim for the entire amount of the $300,000 loan, the receiver offered to pay the dividends on $200,: 000, without prejudice to the right of the complainant to litigate its claim for the residue. The offer was rejected, with the result to lock up, pending the litigation, the amount which would have been paid in dividends on $200,000. Applying the maxim that he who seeks equity must do equity, the complainant will not now be allowed interest on the amount which was offered to and rejected by it. The true amount on which dividends should be allowed will be ascertained by add, ing to the principal of the loan interest thereon from the 2d of March, 1887, its date, to June 21, 1887, the date of the suspension of the Fidelity Bank, and then deducting the $75,000 realized from the three Wilshire-Lewis notes which were paid, and $25,000 on account of the $2.5,000 Wilshire-Lewis note that was not presented for payment nor protested. The claim of the complainant is subject to a further credit of$4,481.49, cash realized from the Whitely, Fassler & Kelley notes, and the notes of the Champion Machine Company, but that credit is not to affect the dividends, for the reason that it was realized subsequent to the proof of complainant's claim. Interest will be allowed on the amount of the dividends on the excess of complainant's claim over $200,000, to be reckoned from the date of the proof of the claim. .
810
1'm>ERAI,nRJllNBTJl}R, 1;' ;, I
vol 50.
SOUTHWESTERN TELEGRAPH!' &: TELEPHONE CO. 17. ROBINSON. (01lrcuit Oourt oj AppealS, F'ifth Oircuit. May 50, 1892,) TELEPlIONE CoMPANIES-NEGLIGENCE-SUSPBNDED
A mlephone company which for several weeks permits its wil'S to remain suspended across a public a tew feet from the ground. Is liable to a traveler who in contact thel'ewith during an electrical storm. and is injured by a discMrge Qf electricity which had been attraoted from theatmos.,here, since the electllicity would have lIeen harmless except for the wire.
.STORM.
In Error to the Circuit Court of the United States {or the Northern District ofTexlls. At Law. Action by J. B. Robinson against the Southwestern Telegraph & Telephone Company for personal injuries. Verdict and judgment forplainti/f. Defelldant brings error. Affirmed. Statement by BRUCE, District Judge: Plaintiff' in ,error was sued by defendant in error in the district court ot Cooke county, Tex., for damages in the sum of $12,000. He states his cause of action as follows: "Your petitioner, J. B. "Robinson, a resic1ent of Cooke county, Tex., comTt'legrapb & Telephone Company, a prh'ate pll\ining of the corporlitlon'fncorporated under the laws of the state of New York. but doing bilsiup.ss In tbe state of Texa!! and baving a legal office In Cooke cOunty, TexlIs, respectfUlly represents that on or about the 2Uth day of Octobl'r, A. D. 1889. tbe defendant owned and operated a telephone line between tbe cities of Gainesville and Dallas, Tex., and intermediate points. the sa,id being made by a single wire suspended by means of polf's in the ma'nner of telegraph wires. usually ahout thirty feet from the groond; that its said teleplJOue line or wire crossed the public higbway between Dallas and McKinney, known as the 'Dallas and McKinney Road,' about five miles south of Plano, in Dallas county; that at said points and over sai4,road on tho aforesaid date. allLl for several weeks prior thereto, the defendant negligently suffered and permitted its aforesaid wires to be and remain suspended uver said road within a few feet of the ground. and within such proxiuJlty thereto thattrl\velers 011 the said road unavoidably and necessarilycame in contact therewitb; that the said wire so suspended over said road, which was a public highway between two large cities. and daily traveled by many people in vehicles and on horseback, all of which was known to the defendant, was a dangerous and unlawful Obstruction of said road, and II public nuisance, and that the defendant 08 the aforesaid date, and long prior thereto, knew of tbe condition of ,said wire at said poiut, or migllt have known it by the eXflrcise of reasonable but permitted it to remain In the condition afo'resaid; .that the said wires are tbe best known conductors of: 'electricity, and are 'the 'only vehicles in general use for the transmission of electric currents,: and, during electric or thunder storm!!, such viIy ch;utged with Hlectr j city. of powHr s uilicient to wires ordinarily become, indict dQ great to tbose cUlJ1ing in contact with ttli'm, and that from tJ1i\1 fllct arises the PIl,c1llia,r danger of allowing such wires to remain suspenLieusolow·ttiat people .wdr:come in contact witb ihem.-all of which was on the aforesaid date liildlohg'prior thereto wpll known to the defendant. 01' might have been known to it by the exercisH of ordinary care; that on the afternoon of the aforesaid date, as plaintiff was traveling on horseback on tbe