430
87 FEDEJRAt' REPORTER.
liof should' the that the appelIantC. H. Coster' J1as bought or owns plU1;of the debt which the petitioner represented make his compensation any the less. The decree of the circuit court should be affirmed, and it is so ordered.
BOWEN v. NEEDLES NAT·. BANK (M;URPHY,·· Inte.rvener). ({'1!rl'nlt Court, S: D. Oalifornia. NO,·652. CHECKS':"'N Default In presenting a check, as dIstinguished 1!rom a bJll of exchange, is by absence of prejudIce to the drawer. 2. SAME.....DlSTINGUISHMENT FROM: BILl' Dll' PARTlCULAR INSTRU' An in$trpment drawn by ot a national bank In Oallfornla upon a national bank in NeW-York; in the foilowlng form: "Pay to the order of.,....;...-., - ,tQ be a check, not a bill of exchange. S. NA'l'IONA:(. OF DEBT. An agreement by a national bank, to guaranty the payment of a debt of a third p,arty, solely for his benefit, is ultra vires. 4. GUARAN'l'Y--'-WHAT CASE. A'ptomlse by a bank to pay any' checks that may be drawn upon It by a certaIn pe:rson Is not a of such checks. 'but ,a guaranty. wITHQU'l' ., . A bank, certifying a check without funds is not liable except' to Ii. bona . fide holder. ' ., '. 6. NATIONAL BANK-ACCOMMODATION lND·ORSEMENT. Accommodation· indorsements or acceptances by. a· national bank are ultra vires, and voId in the hands of holders with notice. 7. SAME-ULTRA VIRES-ESTOPPEL TO RAISE DEFENSE. A bank is not estopped to deny its authority to make an ultra vires promise,' where it has not received the fruits of the and where the promisee had notice of the facts giving rise to the illegality. 8. ILLEGAL CONTRACTS-MEANS OF EXECUTWN. Negotiable Instruments exeeuted a means of carryIng out an illegal contract are void in the hands of holqers with notice. 9. NATION,U. 'l'he defendant, a national bank In California, agreed with the plaintiff in New York any checks drawn upon it by one B. Upon the faith of this promise, plaintiff honored several such checks, which were· paid in the follOWing manner: Defenpant made Its cashier's checks upon the C. Nat. Bank, In New York, at which bank it had no funds, and sent them to plaintiff, at the same time sending the C. Nat. Bank drafts on B. to cover its checks. Later, certain o·f these' cashIer's checks proved worthless, the drafts not being collectible, and were not presented to theO. Nat. Bank; but no prejudice to defendant by reason .of such was shown. Held, the promise of the defendant, bank was ultr.a'vir¢s, and void as to the plaintiff, he being chargeable, under the with notice of the facts giving rise to the Illegality. . . .
l1a;f2, 1898.)
This was an action at lrow by Abner T. Bowen against the Needles National Blink to· recoveri the amount' of certain checks. For decisions on motions, see 76 79 Fed. 49. Works& for plaintiff. . . . .' Gardiner, Harris & Rodman and HenTy O. Dillon, for defendant.
BOWEN ·V.NEEDLES NAT. BANK.
431
WELLBORN, District Judge. In this case there was waiver of jury, and trial' by the court. The action was originally brought agaJnst' the Needles National Bank, May 8, 1895. Some months prior thereto said bank had become insolvent, and was, by the comptroller of the currency, placed in the hands of a receiver, Daniel Murphy, who intervened in this action, August 22, 1896. Plaintiff unites in his complaint four causes of action, each of the first three stated under three separate counts, so drawn as to meet the various legal aspects of the case. The first cause of action is an ins'trument in writing, as fonows: ·'N. N. B. The Needles National Bank. No. 2,307. "Duplicate $8,775. Needles, California, Sept. 10, 1894. "Unpaid. "Pay to the order of A. T. Bowen and Co. $8,775.00 eighty-seven hundred and seventy-five and nO/l00 dollars. "W. S. Greenlee, 4 7 "Cashier. S "To Chase NatIonal Bank, "New York, N. Y."
Said instrument, termed in the complaint a ''bill of exchange," is, accurately speaking, as shown later on, a check; and, since the distinction indicated is a material one, I shall hereafter, in alluding to said instrument, observe its appropriate designation. The second and thil'd causes of action are in all respects the same as the first, except that the checks therein mentioned were drawn, respectively, September 12, 1894, for $8,300, and September 17, 1894, for $5,3-64. The fourth cause of action is thus Mated in the complaint: "That on the 25th day of April, 1894, the plaIntiff having theretofore advanced moneys to one Isaac E. Blake upon checks drawn by saId Blake upon the plaintiff as A. T. Bowen & Co., and not being willing to advance further sums without some guaranty from the defendant, the said defendant, on the said 25th day of April, 1894, in writing, promised and a.greed with plaintiff that it would pay all checks signed by the said Blake and drawn upon the plaintiff as A. T. Bowen & Co. That, acting upon the said written promise of the defendant, the plaintiff thereafter, upon checks drawn by the said Blake for the following sums, and upon the following dates, respectively, to wit, September 4, 1894, September 5, 1894, September 10, 1894, and September 11, 1894, for the sums of $8,750, $8,300, $5,300, and $3,500, respectively, advanced to the saId Blake the said sums of money upon the dates mentioned. and thereupon presented to the defendant the saId checks for said sums, and upon receipt by saId bank of the said three first-named checks the defendant issued its three several drafts for the sums above mentioned, payable to the order of this plaintiff, upon the Chase National Bank of New York, and delivered the same to this plaintiff; but that at the time saId drafts were drawn and delivered to the plaintiff, and ever sInce, there has been no money on deposit or in the hands of the said Chase National Bank out of which said dl'aftil could be paid, and the same have become dishonored, and remain wholly due and unpaid. That the saId sums of money, respectively, not having been paId by and through saId drafts drawn by the defendant, the plaIntiff thereupon demanded payment of the defendant of saId sums, including the saId sum of $3,500, but the defendant has wholly failed and refused to pay said sums or either of them, or any part thereof, and the whole thereof Is now wholly due and unpaid."
87 FEDERAL REPORTER.
'The defenses relied on, and stated in the order in which it will be convenient for me to consider thE!m,are, substantially: First. A conspiracy between Blake and the plaintiff to defraud the defendant through certain false representations and practices, particularly set forth in the complaint in intervention. Second., That before the checks sued on were drawn it was agreed between plaintiff,defendant, and the said Blake that said checks were to be paid' by counterdrafts on Blake in New York City, and not otherwise; and that the defendant was to be saved and kept free from harm by this arrangement. Third. That on September 12, 1894, said Blake gave the note of himself and, wife to plaintiff for $37,100,and that plaintiff accepted said note in full payment and satista'etion of all the d'emands sued on. Fourth. That the checks mentioned in the first three causes of action, and the written promise mentioned in the fourth, were out consideration. Fifth.,. That said checks were never presented to the drawee' for acceptance or payment. Sixth. That said written promiS'e was, in effect, a guaranty of the payment of the debt of a third person, made solely for his benefit, and ther.eforeultra vires; or, if said promise be considered an original undertaking, stilI Blake, as ",as known to plaintiff, had no funds on deposit with the defendantto pay his drafts, and therefore said promise, viewed as an original undeMaking,was made without authority, and is void; ,and thaJ,s'ince the checks mentioned in the first three causes of action were drawn in attempted execution of said promise, without funds, and solely for the benefit of Blake, they likewise are void. The intervener filed a cross complaint, but abandoned it aHhe trial. Defendant also' filed a cross complaint, claiming balance of $69.45, and asks judgment on the same. Some of the facts of the case are admitted; others are' in dispute. As to the latter, the evidenceisV'oluminous, and J shall not undertake to review it, but simply state my findings therefrom, together with the admissions of the pleadings. The material facts thus pearing are these: Defendant drew the checks .sued on in settlement of drafts for corresponding amounts drawpby Blake on itself, and payable to the order of A. T.Bowen & Co., the name under which plaintiff conducted a banking business in the city of New York. Plaintiff, as he testifies, advanceg to, Blake the various amounts of money called. for by said drafts on or about their respective dates, to wit, the 4th, 5th, and 10th ()f September. When Blake drew said drafts, he had no funds on deposit with the defendant for their payment. 'fhe checks sued on were not paid by the drawee, nor for payrilent. Defendant did not, at the time were or subsequent to the dates of said checks, have funds with the Chase National Bank to meet them, but at the time of forwarding said checks toplaiiItiff also drew and forwarded to the Chase National Bank drafts. for on said Blake. From the prOluises of BI,ake and his previous cOJDpIiances therewith defendant had reason to believe that said drafts on him would be paid, and tMt 'the Chase National Bank, thus provided with fundS, would honor the checks' issued to plaintiff. The defendant has suffered no loss or injury from the failure to present said checks for payment. The
BOWEN V. NEEDLES NAT. BANK.
433
checks sued on were drawn pursuant to a written promise of doefendant, referred to in the fourth cause of action, and evidenced by the following telegl"3.llls and letters: "Received at the Western Union Building, 195 Broadway, N. Y., April 25, 1894. Dated Needles, Calif., 25. "To A. T. Bowen & Co., 71 Broadway, New York: We will pay checks signed Isaac E. Blake by W. L. Beardsley. "Needles National Bank." ''The Needles National Bank, Needles, California, April 25th, 1894. "A. T. Bowen & Co., New York City-Gentlemen: We hereby beg leave to confirm our telegram to you of even date, 'We will pay checks signed Isaac E. Blake hy W. L. Beardsley.' signed 'Needles National Bank.' "Yours, truly, W. S. Greenlee, Cashier." "The Needles National Bank, Needles, CaL, August 22nd, 1894. "A. T. Bowen & Co., New York City-Gentlemen: I am in receipt of telegraph communications from Chase National Bank that our draft No. 2,200 for $7,500, payable to the order of Bowen & Co., has been refused payment until advices received from us guarantying the amount received. I immediately guarantied the amount to be $7,500, and I trust I have put you to no great inconvenience. It is simply a clerIcal error, which happens to us all some time or other, and in future we will endeavor to be more careful. I have telegraphed you to please pardon our error, and that we wish you to still continue your friendly relations with Blake and Mr. Beardsley. and that we guaranty absolutely the payment of Mr. Blake's checks as heretofore. I am truly sorry the mistake has occurred, and can venture the assertion that It wlll not happen again. The Keystone Mine has just uncovered a large body of high-grade ore, and,. if the vein continues as It is now for the next thirty days, 1t will make a big showing. Again asking your pardon, I remain, with best wishes, W. S. Greenlee, Cashier." "Very truly yours,
Plaintiff's advances to Blake commenced in January, 1894, and continued down to September following. During this period, ciany checks, aggregating thousands of dollars, were drawn by Blake on the defendant, payable to the order of the plaintiff, and checks issued therefor by the defendant on the Chase National Bank. The means by which defendant supplied the Chase National Bank with funds to meet said bills of exchange were, as hereinbefore stated, drafts drawn by defendant, through said National Bank. on Blake. All of said checks and drafts down to and excepting those specifically mentioned in said complaint were duly honored and paid. The first oolilmunication between plaintiff and Greenlee, cashier of the defendant, probably about the time the first check was drawn, was a letter dated January 22, 1894, stating the inclosure, and that there would be no charge for remitting. On February 10, 1894, another check of $1,900 was forwarded by plaintiff to the defendant, with the added inquiry: "Please give us what Information you can relative to Mr. Isaac E. Blake's financial standing. Is he always prompt In meeting his financial obligations, and absolutely rellable In every way? Is he careful, capable, conservative, or the opposite?"
To this inquiry the bank, over the signature of its president, responded as follows: to your kind letter of inquiry regarding Mr. I. E. Blake, I am pleased to state that he has been one of the foremost men 01 ILis city IDenver} 87 F.--28
434 for '
Cd
and ibi!! i
: , - , . . r r : . : ' ;,
credit ,and absolute reliability is, I" _
Then follows the statement of investments, "in, :tltis ;vjcjnity," wh,icij were likely to fortune, On t4.e 4th of August, defendant's cash.ier, by letter, give!) a assurance of Bhlke's' financial standing and"credit, with a: reference to the particular properties in wh,ich he' was'hterested, and which promised large returns. On 'September 5th the plaintiff wrote to the bank as follows: " , , , "Do the by represent the amount of products of the Keystone Mine or the, receipts ,o':CN:erada Southern Railroad, and are the amollnts of money deposited 'With yon to meet them before drafts are drawn, or are they drawn on you as they wish?" . ' "
,
.
,The bank resp<lllds to this inquiry, September 12tli; as follows: "lean say this:, That the money is deposited In New ,York to cover ail checks drawn on this bank by Mr; Blake, and Mr.. Blake's checks will be paid by, this bank as heretofore."
On September 12, to the' pla.intiff, in settlement of the advances theretofore made to Blake by plaintiff, the note of himself and Agnes N. Blake; as shown by the following agreement: ," ' :"', "New York, Sept. 12,1894. "Whereas, IsaacE. Blake and Agnes N. Blake have given their note dated Sept. 12th, lE94,for thlrty.seven tho'usand one hundred dollars ($37,100.00), and Isaac E. Blake has given; his note for one hundred seventr-seven and 52/ 100 dollars ($177.52), being the amount of the follOWing: '. $ , 296 73 W. L. & M.E. BeR1dsley note (balance) W. J. :Mann note...............................·· ;:.··.· · 606 90 Bk. at 9/1/94 ... ,......... 25 00 , Isaac E.Blake's draft NeedleS Isaac E. Blake'Sdrait Needles 'Bk. at 9/4/04............ 8,750 00 Isaac E. Blake's draft Keedles Nat. Bk. at 9/5/94, ';;;'.. ,;.. 8,30000 , Isaac E. Blake's draft Needles Nat. Bk. at 9/10/94 "....... 5,300 00 Isaac,El, draft NeedleS Nat. Bk. at 9/11/94. ..... ". 3,500 ,00 1. E. Blake, tWq notes dated 5/15/94, $5,000.00 ell.ch.......... 10,195 00 Overdraft onn 'account "', ··· , ., " . ; ··· 303 89 $37,277 52 liege of holding drafts that may ,be Issu,ed by the Needles ·National Ba;nk (for drafts on, lilllld., bank. drawn by 'L E, Blake) to, retll.in, all the security amount of said notes ,are paid, then possible on said claims, but, to !sald Blake. '' such drafts are to be , ' ,, . ' E. Blake." ",:" "N. Y., Sept. 12th, 1894. , "This certlfiies thlittsaacE} Blake'li.nd Agnes N. BlIikehlive abandoned and given up th'elr'legal residence In Colbrado, and are now'residents of New,York ' IsaacE. Blake.'" City and state of New York. "It Is understood and agreed that:A.. '1'. Bowen & Co. are to have the prlv-
If defendant isuot liable on any of the causes of action set up in the coIllPliaiIit, ,then' there of $69.45,due the defendant ' " ' from the plaintiff. The conclusions which I have reached as to the several relied on are as follows: 1. h large amount of testimony has been introduced for the avowedpUl'Pos:e of showing collusion between the plaintiff and Blake to defraud the defendantj' but the testimony, I think, is insufficient
435
for that purpose. Besides, so far as concerns the statement of plaintiff to the Bradstreet Company, touching the value of the stock of the Utah Nevada Company, and the values of the properties owned by said company, the defendant's witness Mr. Greenlee testified positively that that statement did not influence the defendant in the issuance of the checks sued on. 2. The evidence fails to show any agreement between plaintiff, defendant, and Blake that Blake's checks were to be paid by means of counterchecks on Blake in New York City, and defendant thus saved harmless. 3. The notes of Isaac E. Blake and Agnel:! N. Blake executed to plaintiff September 12, 1894, were not given in satisfaction of the alleged liabilities . sued on. The agreement of that date, signed by Isaac E. Blake, expressly provides to the contrary, as follows: "It is understood and agreed that A. T. Bowen & Co. are to have the privilege of holding drafts that may be Issued 'by the Needles National Bank (for draftB on said bank drawn by 1. E. Blake) to retain .all the security possible on said claims, but, when the amount of said notes are paid, then such drafts are to be surrendered to said Blake."
. 4. The advances of money by plaintiff to Blake, while it is true the defendant received no part of the same, were sufficient eration for the checks sued on, and also for the written promise, which ·is the basis of plaintiff's fourth cause of action. The law is too well settled to require any citation of authority that detriment to the promisee, as wellils benefit to the promisor, is sufficient consideration to support a contract. 5. Whether or not said instruments ought to have been presented for payment depends, it seems to me, under the peculiar facts of this case, upon the question whether or not said instruments are to be classified as checks or bills of exchange. While, according to some authorities (1 Daniel, Neg. Inst. § 1567; Civ. Code Cal. § 3254), checks are a species of bills, yet, in this opinion, for the purpose of convenient and clear statement only, I shaU, as do some of the text writers (1. Morse, Banks, §. 380), treat the check as an independent and distinct instrument from the bill of exchange. While, perhaps, an occasional case may be found holding otherwise, the great weight of authority is to the effect that want of prejudice or injury to the drawer of a bill of exchange never excuses default in making presentment. 2 Daniel, Neg. Inst. p. 207, § 1170. The rule in California as to what does excuse such default is as follows: "Presentment of a bill of exchange for acceptance or payment, and notice of Its dishonor, are excused as to the drawer, if he forbids the drawee to accept, or the acceptor to pay the bill, or If, at the time of draWing, he had DO reason to believe that the drawee would accept or pay the same." Civ. Code Cal. § 3220, "Among the. Circumstances under which the drawer has a right to expect that his bill will be hOllored, and consequently to reqUire strict presentment and notice, may' be named: '. · · Where a third party has promised to provide the drawee with funds." 2 Daniel, Neg. Inst. § 1076.
See, also,ld. §§ tion is as follows:
The last paragraph of the latter sec-
"But the bonafide expectation of the drawer, based upon his relations with the drawee, alid the provision he has made, 'or Intends to make, and does
FllJDERAt-!
make, are, It seems to UEl, the circumstances to be regarded. If he has '10 furids in. the drawee's hfinds' when. he draws, and yet provides. them beftt'e preselltmeltt, he 'should 'ha'VEl notice; ,Uhe. 'had funds when he drew, but w:lthUrew them forfeits the right to It.' If the drawer has any which, at the, time the blU he has a right to expect it to be honored, wesbould say he should have 'demand and notice; for it would be presumed that such 'arrangement was contemplated when he drew."
6 Bing. 623,:.s.c:31 Rev. Reports, 510, is strongly in point.. 'In that calle it was'h,eld that: "The drawer of a dishonored bill is entitled to notice of dishonor, although he knows the bill will not be paid by the acceptor: provided he has reason to expect It will be paid by another person, or has a remedy over against that person." , ,. 'I.
See, also, Tied. Com. Paper, p. 615, .§ 355, note 1. The rule enunciated in the above quotations, and the reasons therefor, have. been clearly stated as follows: "It Is conceded on both sides that there were no funds in the hands of the drawee. The fact of drawing without funds, In the absence of other proof to explain It, Is a fraud, for the bm is negotiated under the faith that the drawel' has or'wUl,place effect""nthe.hands of the drawee to meet the bm; and If he had DO et'rects in the hands drawer, and knew that none would be placed there, and that the drawee would not meet the bill, the whole transaction is deemed fraudulent OIl the part of the drawer. Another, but sUbordinate, reason is given for this exceptlon,-that the drawer cannot, in such case, be in any, way injured ,Wlljl\t of notice of nonpayment. But It Is the fraud in dr!lwlng and delivering ,such a bill UpOI;l which the exception substantially rests, for bankruptcy 01' notorious insolvency of the drawee, or proof that in fact no injury resulted from want of notice, will not excuse the holder from giving the drawer notice. Notice, therefore, under this exception, is to be dispensed with in tholle cases where the drawer had no reason to expect, when he drew the bill, that it would be paid. Thus, in the case of Rucker v. Hiller, 16 East, 43, It was laid down that the drawer is entitled to notice if he have reasonable ground to expect the bill will be paid, although he have no assets in the acceptor's hands. So, in the case of Lafitte v. Slatter, 6 Bing. 623, In which the d,e+endant drew a bill on Qne Tebbs, under the expectation that a third person, not a party to the bill, who owed him, would provide funds for Its payment, but neglected to d.o so, It was held that the defendant was entitled to notice of nonpayment. Indeed, the rule is too well settled, both by English and American cases, to admit of question, that if the drawer has reasonable grounds to expect that the drawee will receive, through the transactions of the drawer, or from some one else, funds to meet the bill, although the drawer had nb assets in the hands of the drawee, the drawer is, notwithstanding, entitled totlotice of nonpayment. 2 Smith, Lead. Cas. (Hare & W. Notes) 55!'Miser'v.Trovinger's Ex'rs, 7 Ohio St. 286.
See, also, French's Ex'x v. Bank, 4 Oranch, 141, Dickins v. Beal, 10 Pet. 572, and MoRae v. Rhodes, 22 Ark. 315. With reference to checks, however, the rule is quite different, and is thus declared in Oalifornia: ' "A check is subject to all the provisions of this Code concerning bills of exchange,excepUhat:. (1) The drawer alldlndorsers are exonerated by delay in preseutment, only to the extent of the injul'y which they sufl'er thereby. · · ." Civ. Oode Cal. § 3255.
This rule,!ls'to checks
stated as follows:
"But t.here is this difference between bills and checks as to the consequences of negligence 91' delay in ,a.nd notice: Tbe failure to make a prompt presentment on dar, and to give promptly the notice of dis-
BOWEN V. NEEDI,ES NAT. BANK.
437
honor, in the case of bills, will discharge the drawer and indorsers, .even though they have not suffered in any wise by the delay or neglect; but in the case of checks the drawer is not discharged by such neglect or delay, if he has not suffered any injury in consequence of it." Tied. Com. Paper, p. 723, § 442.
See, also, 2 Daniel, Neg. Inst. §§ 1587, 1588. Thus it will be seen that the vital question on this branch of the case is whether or not the instruments sued on in the first three causes of action are checks; for, if checks, failure to present would be excused, because no injury or loss resulted therefrom. If, however, they were not checks, but bills of default in presentment would not be excused; for, although no injury or loss resulted from the failure to present, yet when the instruments were drawn the defendant had reason to believe that they would be paid. In California a check is defined thus: "A check is a bill of exchange drawn upon a bank or banker, or a person described as such upon the face thereof, and payable on demand, without Interest." Clv. Code Cal. § 3254.
The definition given by one of the text writers already mentioned is as follows: "A check may be defined to be a draft or order having essentially the characteristics of a bill of exchange, and differing from the bill (1) In being drawn on a bank or banker, (2) apparently and presumptively against a deposit of funds, and (3) payable on demand without grace. The attempt to define checks by comparing them with bills of exchange Is frequently criticised as furnishing an Incomplete definition. But the definition given In the text is sufficlent to point out the essential characteristics of a check, without requiring a second discussion of those principles which are common to both bills and checks; while the points of differentiation between the two kinds of paper are more clearly and prominently set forth." Tied. Com. Paper, § 430.
Another definition is as follows: "A check is (1) a draft or order (2) upon a bank or banking house, (3) purporting to be drawn upon a deposit of funds (4) for the payment, at all events, of a certain sum of money (5) to a certain person therein named, or to him or his order, or to bearer, and (6) payable instantly on demand. * * * Any instrument fUlfilling the above description may, we think, be safely denominated a bank check; and the definition given Is sustained by many authorities, though not In the language of the text. Writers upon negotiable instruments have differed in their definitions of this species of commercial paper, some falling short of giving all its distinguishing qualities, and some ascribing to it qualities which it is not absolutely necessary that It should possess. And there Is none which can be safely relied on as a guide in answering the question, Is this paper a check1" 2 Daniel, Neg. Inst. § 1566.
The same author, elaborating this definition, says further: a check is payable instantly on demand. This Is, as we conceive, the touchstone by which a check Is tested. Usually no time of payment Is expressed upon its face, but all commercial instruments in which no time of payment is expressed are understood to be, and Impliedly are, payable on demand; and, when so payable by Implication or In express terms; they are payable instantly, without the allowance of grace, which pertains to those payable on a particular day. The whole theory and use of a check points to Its Immediate payability, as its distinguishing feature, and Its name Imports it. A person deposits money with his bank or banker, where It.is subject at any time to his order. By an order he appropriates so much of It to another person, and the bank or banlrer, In consideration of Its temporary
8'1 FEDERAL REPORTER. use of ligrees to pay it In whOle or In parcels, to the depositor's order, 'when But he does not agree to contract to pay at a future day by acceptlince,and the depositor cannot require It." 2 Daniel, Neg. Inst. § 1572. "
The two chief characteristics of checks are found in the instruments here sued on. They are dra#ri, and purport to be drawn, on a bankjand, in the ,\>Iace'llre payable instantly, on demand. They d() D;otspecify on thel1' face the times of payment; but when this is the.ca,se the instrument ,is presumed to be payable on demand., Tied. Com. Paper, § 24; 1 Daniel, Neg. lnst.§Q99; 2 Daniel, The,f,act that they are payablein another state than the .Qne in which they ar,e, dJ;llwn dpes not change, their charas ,checks. 1 Morse, Bankl'l, '§37Q. A draft drawn in one state on a bank in another is' check, and, in point of fact, checks are very muchused in tlie''United States in transmitting one state to allother., ',2 'paniel, Neg. 1567. My conclusion is that the instruments sued QD possess the tics of, and are, checks, ,and, that, lnasmnch" the, defendant, was in no way injured or prejridiced by plaintiff's failure to present said checks, presentment is excused. See, also, Bull v. Bank, 123 U. S. 105, 8 SUp. Ct. 62; ;Marbourg v. Brinkman, 23 Mo. A.pp. 513; Story, Bills, §§ 4 473; 1 pa,ni¢l, Neg. lnst.' §§ 469, 472, n9tes. 6. ,The re,mainingqueetions to be determined are whe,ther or not the written promise mentioned in the, fourth cause of action was unauthorized, and, if unauthorized, whether or not the ,defendant is estopped froql. asserting such want of authority. If the defendant was without authority to, make said promise, and is not estopped from pleading such want of authority"then it follows not only that there can be no recovery on the fourth cause of action, but also that there can be no recovery on the first ,three causes of action, because the checks respectivel;}' mentioned in said three causes of action were simply means whereby the defendant, with()ut funds having been provided by Blake. attempted to execute the promise set up in the, fourth cause of action. It is well settled tbat a national bank has no authority to guaranty t1:).e payment of a debt of a third person, solely for bis benefit; andi,a promise of that sort, whether made by the cashier or board of directors, is ultra vires. Seligman v. Bank, 21 Fed. Cas. 1036; Batik v. Pirie, 27 C. C. A. 171, 82 Fed. 799. The latter is doubtless the latest case to be found on the subject, having been decided September 13, 1897. In that case the court " says: "The aet of congress under which the bank wa,s organized .confers no auto guaranty tbepayment of debts contracted' by thorlty upon national third parties; .and acts of tliat nature, Whether performed by the cashier of his own motion or liy direction of the board of-directors, are neceSSarily ultra vires. A national bank may Indorse or guaranty the payment' Of commercial paper which It holds when it' rediscountS' or disposes of the same in the ordinary courseof busIness. Such power, it seems, a national bank may exercise as Incident to the express authqrity conferred on such banks by the national banking act to' dlscount and negotiate promiSI!lOrYnotes, drafts, bills of ex'" change, alid other evidences of debt (People's Bank v.,National Bank, 101 U. S. 181,183; n.s. Nat: Bank: v; First Nat. Bank, U. S;<App. 67, 24 C. C. A. 597, and'19 Fed. 296); but it has 'never been supposed that the board
BOWENV. NEEDLES NAT. BANK.
439
of directors of a nationai bank ean bind It by, contracts of suretyship or guaranty which are made for, the sole, benefit ,anda!ivantage of others. The national banking act confers no such authority In express terms or by fair implication, and the exercise of' such power by such corporation would be detrimental to the interests of depositors, stockholders, and the public generally. Norton v. Bank, 61 N. H. 589; State Bank ,v. Newton Nat, Bank, 32 U. S. App. 52, 58, 14 C. C. A. 64, and 66 Fed. 691, 694; Bank v. Smith, 40 U. S. App. 690, 23 C. C. A. 80, and 77 Fed. 129. In contemplation of law, therefore, the vendors knew, when they sold the goods In controversy, that the guaranty in question was of no avail as a security, even though they supposed that it had been executed with the sanction of the board or directors. It results from this view that, If we were able to admit that the presentation of the guaranty to Carson, Pirie, Scott & Co. carried with it an implied representation that It had been executed by direction of the board of directors, and that the bank was In a sound financial condition, yet we would not be able. to concede that either of these representations was material, inasmuch as the plaintiffs below must be presumed to have known that the guaranty imposed no legal obligation upon the guarantor." Bank v. Pirie, 27 C. C. A. 171, 82 Fed. 801.
See, also, Bank v. Smith, 23 O. C. A. 80, 77 Fed. 129, and Flannagan v. Bank, 56 Fed. 959. It is true that in the last-mentioned case Judge Ross, who decided it, says, in the course of his opinion, that if the promise of the defendant had been a promise to pay a check drawn on itself, and plaintiffs had parted with their money on the strength of the promise, defendant would have been held liable; citing Garrettson v. Bank, 47 Fed. 867. This, however, was merely a passing observation, outside of the facts, and, moreover, the case cited in its sup· port-Garrettson v. Bank-did not involve any question as to the powers of a national bank. It should be further noted that the supposed promise which Judge Ross said would have been enforced was a promise to pay a stated check for a given amount, and there were no circumstances to put the promisee upon notice; that the promise was merely matter of accommodation to the drawer. The same is true of the Garrettson Case. . In' Farmers' & Mechanics' Bank v. Butchers' & Drovers' Bank, 16 N. Y. 128,-one of the cases cited by plaintiff,-the court says: "The defendant is a bal\k.ing corporation, organized under the general bankIng law of this state; and It is, I think, a sound position that such a corporation exceeds its powers when It becomes the mere surety for another upon a contract in which it has no Interest, or lends Its credit In any form 'for the exclusive benefit of other parties. Such a contract Is ultra vires, and cannot be enforced against the bank by any person cognizant of the faqts."
Plaintiff, however, contends that the written promise mentioned in the fourth cause of aetion, being a contract to pay checks drawn on itself, was, in legal effect, the certification of said checks, and an original undertaking, binding upon the defendant,-citing anum· bel' of cases; among others, Merchants' Bank v. State Bank, 10 Wall. 604, 648, and Farmers' & Mechanics' Bank v. Butchers' & Drovers' Bank, supra, wherein the power of a bank to certify checks is upheld. While the rule enunciated in plaintiff's citations, that a bank has power to certify checks, is now well established,-indeed, so far as national banks are concerned, has been legislatively de· clared (Rpv. St. U. S. § 5208; Merchants' Nat. Bank v. First Nat. Bank, 7W. Va. 544),-it does not apply here. The promIse of tl'le
440
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FlllPlllRAL
defendant in the case at, differs as widely in substance as it does in form from the certification' of a check. In Merchahts' Bank v. State Bank, supra, the court, referring to the certification of a check, says:, . "It implies that the check Is drawn upon sufficient funds In the hands of the drawer, that they have been set apart fol' its satisfacUon, and that they shall. be so applied whenever the check is presented for payment." .'
.promise did not. eXisting checks f(lr fixed sums, but to future dealings,without limit as to time or .amount. It was a broad promise, to pay all advances of money which plaintiff might thereafter make to Blake on the latter"s checks, i. e. checks drawn the complaint is: "That on the 25th' day of April, 1894, the plainWf, having theretofore advanced moneys to one Isaac E. Blake'upon checks drawn by said Blake upon the plaintiff as A. X.Bowen &, Co., and not being willing to advance further sUmS without some' guaranty from 'the' -clefendant, the .said defendant, on the said 25th day of April, 1894, in writing, promised and agreed with plaintiff that it would paY.all checks signed by the said Blake and 'drawn upon the plaintiff ,as A.T. Bowen &, Co."
No such implications were possible here, for the reason that de-
The statement in this quotation that the checks therein mentioned were to be drawn on plaintiff, I think, was inadvertently made by the pleader, since the evidente shows, and such is plaintiff's contention in his brief; that the checks which defendant promised to pay were checks payable to as A.T. Bowen & Co., and drawn, riot on A. T. Bowen & Co.,';qllton the defendant; and, if plaintiff were entitled to recover on such a'promise, the court would direct or pertuit the complaint to be amended so as to cohform. to the evidence. Treating the promise Of defendant asa promise to pay checks drawn 01;1, itself,it will still be.observed that plaintiff counts upon that:prorilise as a guaranty, and, moreover, the defendant, in its let· ter to plaintiff of August 22, 1894, says: ,,* · · We guaranty absolutely the payment of Mr. Blake's checks as heretofore." Now, men do not guaranty their own debts, nor do they employ that word to designate an original undertaking. "A guaranty is a promise to answer for the debt, default or miscarriage of another person." Oiv. Code Cal. §2787. When, therefore, we find that the defendant, ina letter written.to the plaintiff before the transactions sued on took place, refers to its promise as a guaranty, and that the plainadopts, tiff, when he COmes to sue the .defendant upon the in" his pleading, the same designation, it is fair.to conclude that Roth the plaintiff and defendant, considered said, promise, not an o,riginal undertaking, but precisely what they called it, a guaranty; that is, a promise to answer for the debt of another person,-Blake. In determining whether a promise isaguaranty or an original under. taking, the langUage made use, of, the situation and surroundings of the parties, and every other faatand circumstance, bearing upon the question, should be tllken into, consideration (Brandt, Sur. § 64); and where a promise is, in substance, a promise to pay the debt of another, no matter what its form, it is a guaranty, not an original If, however, as contended by plainundertaking (ld. § .60 et
441
tiff, defendant's promise to pay Blake's checks was, in legal effect: a certification of the checks covered by said promise, and therefore an original undertaking y still the defendant would not be liable thereon, for the reason that Blake did not have on deposit with defendant funds to pay said checks, and plaintiff, as I shall show later on, was at least constructively notified of that fact. That a bank cer· tifying a check without funds is not liable thereon to anyone except a bona fide holder has been decided in numerous cases. Cook v. Bank, 52 N. Y. 96; Claflin v. Bank, 25 N. Y. 293; 1 Morse, Banks (3d Ed.) § 413, subd. "C." It is true that the act of congress of March 3; 1869, above referred to as section 5208 of the Revised Stat· utes of the United States, after providing that "it shall be unlawful for any officer, clerk, or agent of any national banking association to certify any check drawn upon the association unless the person or company drawing the check has on deposit with the association, at the time such check is' certified, an amount of money equal to the amonnt specified in such check," further. provides that "any check so certified by duly authorized officers shall be a good and valid obligation against the association." This latter provision, however, I am satisfied, does not apply where the check is in the hands of the original payee, who knows, or is chargeable with constructive notice, that the check was drawn in violation of ,law. In Farmers' & Me· chanics' Bank v. Butchers' & Drovers' Bank, 16 N. Y. 132, one of the cases cited by plaintiff, the court says: "Hence it cannot be pretended that a person who should take and pay value for a check, with knowledge that the bank had no funds of, the drawer to meet it, would acquire any valid claim against the bank, although such check was certified by the cashier, himself."
From the circumstances of the case at bar, I am satisfied that plaintiff is chargeable with constructive notice of the fact indicated. He knew that the checks which he received from the defendant were not always promptly paid by the Chase National Bank, and that the deposits with the Chase National Bank to meet the checks were sometimes made after such checks were drawn. Mr. Mills, cashier of the Chase National Bank, in his deposition testified that: "Messrs. A. T. Bowen & Co.'s representative called upon me from time to time, and made inquiry in regard to certain deposits received from the Needles National Bank, and he informed me that they had discounted or purchased drafts drawn by Isaac E. Blake on the Needles National Bank, and that the Needles National Bank remitted their checks onthe Chase National Bank in payment; and that, as certain checks were not good, he informed me that they received Nevada South· ern bonds as collateral to the indebtedness." He further says: "The drafts on Isaac E. Blake, which were sent us drawn by the Needles National Bank, were entered for collection by us, and occasionally there was a delay in their payment; and Messrs. A. T. Bowen & Company had checks for similar amounts drawn on us, which we declined from time to time, for the reason that the drafts on Isaac E. Blake were not promptly paid." Referring to these transactions and conversations, the witness further testifies, "At one time A. T. Bowen & Co.'s representative called, I should say, daily." Answer·
442
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ingthe qnestlbn the 12th of witness says, "Yes; Drefusals were made by us, I think, in' A.ugust" ·Thesemattersj thus testified' to:.by: Mr. Mills, together of dealing between the plaintiff and Blake with the i dnd the defendant, were, I think, sufficient· ta put the plaintiff on inquiry as to whether or not Blake was drawing. against funds acfually on deposit with the' defendant. However this may be, plaintiff, by his own letter of September 5th, hereinbefore copied, shown himself with constructive notice that Blake had no funds on deposit WIth the defendant.. ,In· that letter he inquires: "Do the drafts drawn by Mr. Blake represent the amounts of products of the Keystone Mihe,or the receipts of Nevada Southern Railroad, and . are the amounts of money-deposited with you to meet them before 'drafts are drawn, or are they drawn on you as they wish?" This letter, it will be observed, was written before plaintiff had advanced any of the money involved in this suit, except that covered by the check mentioned in fhe first cause of action, and oIlly one day after that advancement was made. Of course, there must have been circumstances within the plaintiff!s knowledge to put him upon this inquiry, otherwise it wouIa not have been made; and the rule is well settled that "every person who has actual notice of circum· stancessiIfficientto put a prudent man upon inquiry as to a particular fact has constructive notice of the fact itself in all cases in which, by prosecuting such inquiry, he might have learned such fact." Oiv. Code Cal. § 19. While the language above quoted is that of ofOalifornia; yet it may be accepted, I think, as the general rule on the subject of constructive notice. To plaintiff's letter of inquiry defendant replies, September 12th, as follows: "I can say this:' That the·money In New York to cover all checks drawn;on· thiS . bank by Mr. Blake, and Mr·. BI!lke's checks will 'be paid by this bank a$ ".';
This. reply was but a confirmation of the suspicion. which plaintiff obviously entertained, and clearly informed him that Blake had no funds on deposit with the defendant to meet his drafts, but that provision for' their payment wa&made by deposits in New York. Had this replty ot the defendant boon received by the plaintiff. before he advanced money on Blake's checks, plaintiff would have had actual notice that the checks were drawn without funds to meet theDi. As the reply was not received,howeV'er, until after said advances, it cannot be said, to said checkiii,' ;tliat the facts communicated in said reply were within plaintiff's actual knowledge; but, as I have already stated, his own letter otSeptember 5th shows that he did have constructive notice of said facts. This interpretation of said letter is confirmed by plaintiff's attorneys in their brief, on page 9, lines 18 to 22; inclusive, where they say:
as
"It is evidEnt that the plaintiff had for some reason become uneasy, and desired to get. all the securityhe·c(')uld. He had written to the bank on the 5th for defUlite 'lDformation pn the. qQestipn whether Blake was drawing on funds actually in the bank, and other particulars, but had received no reply."
So that, under the facts of this case, even if the defendant had certified Blake's checks, it would not have been liable thereon.
BOWEN V.NEEDLES NAT. BANK.
443
Plaintiff further insists that the undertaking of the defendant, being a promise to pay checks drawn on itself, was an original undertaking, and that defendant had authority to bind itself in that way. This contention is closely to the one last considered, and what I have there said in reference to the lack of .power in a bank to eel" tify checks where there are no funds to pay them is equally applicable here. To the authorities which I have already cited may be added the following extract: "It maybe stated, however, with entire confidence, that the cashier of a bank has no power to involve its funds by indorsing or accepting for theaccommodation of third parties. As already seen, the treasurer of a corporation has no such power; nor can the directors themselves involve the funds of the stockholders, and what may ultimately become a trust fund for creditors, by thus obliging strangers. But as cashiers have a general power to indorse' negotiable paper, such indorsements would be good against the bank in favor of an innocent purchaser of the paper before maturity." 4 Thomp. Corp. § 4800.
See, also, Bank v. Wells, 79 N. Y. 498. Plaintiff further contends that, inasmuch as he advanced moneys on Blake's drafts, the defendant is estopped from denying its authority to make the promise set up in the fourth cause of action. This contention, in my opinion, is vulnerable. Without reviewing the numerous cases cited by plaintiff in his brief, it is sufficient to note, as a material distinction between most of them and the case at bar, that here the defendant's promise was given solely for Blake's accommodation; and, furthermore,-:-which is a more conclusive answer to plaintiff's contention,-he is not in the position of a bona fide holder without notice. He knew that he was dealing with a national bank, which had no power to bind itself by a guaranty, or by a promise to pay checks drawn on it, in the absence of deposits to meet such checks; and he had constructive notice that Blake had no funds on deposit with the defendant, and, therefore, that the defendant's promise to pay Blake's drafts, whether considered as a guaranty or an original undertaking, was in violation of law. The -cases cited by plaintiff in support of the alleged estoppel, namely, People's Bank v. National Bank, 101 U. S. 183, and American Nat. Bank v. National Wall-Paper Co., 23 C. C. A. 33, 77 Fed. 85, are inapplicable. In each of these two cases the decision of the court rested upon the fact that the bank against whom the estoppel was asserted had received and appropriated the fruits of the transaction in question. Besides, in the former of said two cases, the bank had :authority to make the guaranty. there sued on, since it was made in transferring notes of which the bank was the holder, and, as stated by the court in Commercial Nat. Bank v. Pirie, supra, "a national bank may indorse or guaranty the payment of commercial paper which it holds, when it rediscounts or disposes of the same in the ordinary course of business." From. all the facts of the case, I am of opinion that the real nature of· undertaking, mentioned in the fourth cause of action, although in form a promise to pay drafts drawn on itt;\elf, was a guarantY,.and so recogI;lized by both parties. If,however, said undertaking be considered an, originalpromise,still it was ill direct violation of law, bp.ca'..lse
4:44
did not have on deposit with the defendant funds to meet his checks, and of that fact plaintiff had constructive notice. For the reasons above indicated, there can be ,no recovery on the fourth cause of action. Nor can there be any recovery on the first three causes of action, for the reason that theeheckstherein mentioned were drawll without funds, solely for tbebenefit of Blake, and were simply the meansw):lereby the defendant attempted to execute the unauthorized and illegal promise mentioned in the fourth cause of action. The defendant is entitled to recover, on its cross complaint. Judgment entered conformable to thisopinion.
NEW YORK, N. H . .& H. R. CO. v. SAYLES. (Circuit Court ot Appeals. Second Circuit. No. 84. CoNTRACT LIMITING LIABILITY Oll' CARRIER-CLAUSE IMPRESSED UPON FREIGH'l' RECEIPT. . .- .
April 15, lS98.)
A clauseliinitlng the liability of the carrier Impressed In red Ink upon one corner of' the paper upon which :the freight receipt Is printed in black Ink. and at right ,angles to the text ot the receipt. Is no part of the contract, unless 110 broughtto the knowledge of the shipper as to imply his assent thereto on his acceptance of the receipt.
This cause comes here on writ of error to review a judgment of the circuit court, Southern district of New York, in the amount of $3,773:90, entered upon the verdict ofa jnry. See 81 Fed. 326. The plahitlff In error was defendant below. The facts are as follows: The dlllycauthorized agent bf the' plaintiff shipped on October 3, 1895, tW() horses belonging to plaintiff from Portland to Pawu,cket. The horses were' ldlIed In an: accident upon the road ot, defendant., . It-was alleged, and .not denied, that the accident happenli!d through the negligence of defendant com· pany. There wall evidence tending to show that the horses were worth $3,700. The case waS 'left to the jury todeterml\le what was the contract entered intoat the time of shiDment, with Instructions that. unleRs they found an agreement tolimit amount of recovery, was entitled to the full value of the horses. ,At the tIme 'of shipment, Dlaintiff's agent signed the following documen4 and dellvereqthe same to the agent of the railroad: , -, Live Stock Receipt. . . "10/3/1895. , "Forward th,e j;ll'operty mentioned below, marked and numbered as in margin, to F. C. Sayles; at Pawtucltet, Rhode Island. subject to the rules and regula· tlons in the freight· receipt presented with this, and which are accepted to bejust and reasonable!' -
signed this, nor that he had authority It,ls not disputed that defendaI!t's to sign it, nor that the freight receipt referred to therein was in tact presented to him. It reads as follows: "Boston & Maine Railroad. "Live Stock Receipt. .[Red Ink.]
"10/3/189-. "Received of - - , under the' contract hereinafter contained, which Is accepted '!lnd agreed to as just and reasonable, and which is' entered Into severally with each carrier, tile property mentioned below. marked and numbered as per