
    Scott, Plaintiff and Appellant, v. The Ocean Bank, Defendant and Respondent.
    1. Where a person having an account with a Bank, and being at the time its creditor, remits to it a bill of exchange “for his credit,” such person having prior thereto made remittances to the Bank and drawn drafts upon it, and, by arrangement between them, was to be allowed interest at the rate of four per cent on his average balances;, such Bank does not by the mere receipt of such bill become the owner of it, in such sense that it can divest the remitter’s title, by transferring it as security for a precedent debt.
    2. Although, by making such a transfer of it, the Bank may be charged by the remitter for its amount, still he is at liberty to pursue it and recover its proceeds from any one to whom it has been paid, and to whom it was transferred by such Bank as mere security for a precedent debt.
    3. Such a transferree is not a holder for value, within the commercial meaning of that phrase, so as to have a right to retain the proceeds against the •true owner, notwithstanding it may have been taken without notice of any defect in the title of the Bank.
    (Before Hoffman and Pierrepont, J. J.)
    Heard, May 2;
    decided, July 28, 1859.
    This is an appeal by William D. Scott,' the plaintiff, from a judgment in favor of the Ocean Bank in the city of New York, the defendant, rendered on a trial had on the 21st of June, 1858, before Mr. Justice Slosson, without a jury.
    The action was brought by the plaintiff as assignee of one James L. Lyell, to recover the proceeds of a bill of exchange remitted by the latter in August, 1857, to the Ohio Life Insurance & Trust Company at its office in New York, for the credit of said Lyell, and transferred by said Trust Company to the defendant, and by the latter collected.
    The bill of exchange was received by said Company in New York on the 20th of August, 1857. It was presented for acceptance and accepted the same day. It was dated August 17,1857, was drawn by the “Bank of British North America,” for $2,000 payable at three days’ sight “ to the order of E. Ludlow, Cashier,” and was directed “to Messrs. R. Bell and J. H. Grain, New York,” and was accepted by them August 20th, 1857, “payable at Merchants’ Bank.”
    The bill of exchange was forwarded to said Company in a letter reading thus:
    “ Bank of British North America,
    “ London, C. W.,' 17th August, 1857. “E. Ludlow, Esq., Cashier:
    “Dear Sir—I beg to inclose draft on Bell & Grain for $2,000, for credit of James L. Lyell, Esq., in Detroit.
    “Yours, &c.,
    “ G. Taylor, Manager.”
    The Judge found as facts:
    “ That the said James L. Lyell was a banker at Detroit, in the State of Michigan, and kept an account with the Ohio Life Insurance and Trust Company, at its office, in the city of New York; that from time to time, between June, 1857, and the 24th day of August, 1857, he made remittances to said Company, and drew drafts upon it; that he was a large depositor with said Company, of moneys and bills, and that there was an arrangement between him and said Company, that he should be allowed interest, at the rate of four per cent per annum, on his average balances.
    “ That on the said 24th day of August, the said Company failed and suspended payment.; that on said last mentioned day, the said Lyell had standing to his credit on the books of said Company, exclusive of the bill of exchange mentioned in the complaint, a cash balance of $108,483,56.
    “ That on the 20th day of August, 1857, the said Company, in the usual course of business, received for account of said Lyell, the draft set forth in the complaint, which draft was remitted directly to said Company, by order of said Lyell, in the letter accompanying the same, which was given in evidence; that said Lyell had been in the habit of remitting to said Company, in this way; that on the 20th day of August, said draft was presented by said Company to the drawees, for acceptance, and by them accepted and returned to said Company, in whose possession it remained, and was held until said 24th day of August; that it was known to some of the officers of said- defendant the day before its failure, that said Company would probably fail; and that some of the officers of the defendant were invited to be present, and negotiations were had to which they were privy, to see if said Company could be savéd from failing.
    “That on the morning of said 24th day of August, when said Company failed, but before its failure was actually announced, the President of said defendant went to said Company, and received from it a batch of securities, to secure the indebtedness of said Company to the defendant, and among them the draft set forth in the complaint; that the defendant neither advanced nor paid any new consideration on receipt of said draft, but the same ■was taken as security for an antecedent indebtedness; that defendant received the proceeds of said draft at maturity; that said Lyell was not credited with said draft by said Company, before it was passed to "the defendant.
    That said Lyell, on the 24th"day of December,- 1857, duly assigned to the plaintiff all his claim - and demand against the defendant for ór on account of said draft, or the proceeds thereof, as set "forth in the complaint.
    “ That after said draft had been collected by the defendant, said Lyell applied to the Company, and 'ascertained the facts in relation thereto.
    “ That after the said assignment to the plaintiff, and before suit brought, the plaintiff made a demand on the defendant for the proceeds of this draft; that this action was commenced on the 5th day of January, 1858 ; that the President of the defendant did not know, on the morning of the 24th of August, that said Company would fail; that its officers stated to him that they expected to go through, and he believed it; that the proceeds of said draft were applied by the defendant, by giving said Company credit in. account therefor, in extinguishment of so much of the defendant’s account against said Company,, which was more than the amount of such proceeds.
    “ That after the stoppage of said' Company in New York, it continued to do business at Cincinnati!, Ohio; and that said Lyell drew his drafts on said Company,, from time to time, during the month of September, 1857, to the amount of $98,236.81.
    “ That the defendant, when it received said draft, knew nothing of Lyell’s claim to it; and that it first heard of such claim through the demand of his assignee,, the plaintiff, in December, 1857.
    
      “ That after the commencement of this action, but without the knowledge of said Lyell or the plaintiff, the book-keeper of the assignees of said Company credited the said Lyell, in his account therewith, with the proceeds of said draft.”
    The Judge held::
    “ First. That, as. matter of law, the ordinary relation of debtor and creditor existed between the Ohio Life Insurance and Trust Company and Lyell, in respect of the account of said Lyell with said Company,.including the $2,000 draft in question; that said Lyell was entitled to have a credit in said account for the amount of the draft, on the receipt thereof by said Company; and that said draft and1 the proceeds thereof, received thereon, became, as between it and Lyell, the property of the Company, and could be used by it as its other funds were used. The Ohio Life Insurance and Trust Company was entitled, and had a right, to pass said draft to the defendant in part payment, or as collateral security for its. own indebtedness to the defendant; and that neither the said Lyell nor the plaintiff had any right to pursue or reclaim the proceeds of said draft in the hands of the defendant; and that said defendant was entitled to retain the same.
    “ Second1. That, upon the facts above found, the said plaintiff was not entitled to maintain his action; and that the defendant was entitled to judgment, dismissing the complaint with costs.”
    The plaintiff duly excepted to each of said conclusions of law.
    Judgment having been entered upon the said decision,, the plaintiff appealed from it to the General Tferm.
    
      
      F. F. Marbury, for appellant.
    I. There was no agreement, and no understanding or mode of dealing, between Lyell and the Ohio Life Insurance and Trust Company, by which he had a right to draw, and the Company was bound to accept, otherwise than upon cash to his credit.
    In this case, Lyell never drew, nor was entitled to draw, by arrangement, except upon -his own proper moneys on deposit.
    It appears distinctly in this case how the account of Lyell with the Ohio Life Insurance and Trust Company stood on the 24th August, 1857, namely, he had, on that day, a balance to his credit of over $100,000 in cash, and, certainly, had no occasion, then or at any other time, so far as appears, to seek or require any favor or assistance from the Company.
    This, unlike the case of Clark v. The Merchants Bank, (1 Sand. S. C., 498, and 2 Comst., 380,) is a case of a customer with a banker. The parties are not exchange brokers, receiving funds, and making drafts upon each other, with the right, on the part of each, to have credit for paper remitted, and to draw thereon, whether collected or not. Uothing of the kind existed in this case. The Ohio Life Insurance and Trust Company was simply the agent and depositary of Lyell, to receive his moneys and pay his drafts thereon, when requested.
    In this case, there is not a particle of evidence to indicate that the acceptance of Bell & Grain was to be passed to Lyell’s credit until collected. It was not so passed. The right of the Ohio Life Insurance and Trust Company, as Lyell’s agent, to receive payment at maturity, gave it no right to transfer the acceptance before maturity, on account of a precedent debt of its own.
    II. An examination of the note 3 to section 228 of Story’s Agency, and of the cases cited therein, to which Justice Gabdineb refers, will demonstrate, beyond any peradventure, that if the facts in Clark v. The Merchants' Bank had been like those in the present case, the Court of Appeals would never have reversed the judgment of this Court.
    To those cases may be added the recent case of ex parte Bark-worth in re Harrison, (4 Jurist, E. S., 547,) where the whole subject is discussed with great clearness. (See, also, Lawrence v. Stonington Bank, 6 Conn., 521; McBride v. Farmers' Bank of Salem, 
      25 Barb., 657; Van Amee v. The Bank of Troy, 8 id., 312; Haynes v. Foster, 2 Cromp. & Mees., 237; 1 Arch. N. P., 194.)
    III. The defendant can make no pretension to the character of being a bona fide holder for value, without notice. - (Youngs v. Lee, 2 Kern., 555.)
    If the Ohio Life Insurance and Trust Company would not have been justifiable in withholding this acceptance from Lyell, if he had demanded it specifically on the 24th day of August, 1857, as it clearly would not have been, the defendant having no better title than the Trust Company, cannot retain the proceeds against the true owner. The judgment should be reversed, and judgment rendered for the plaintiff for the amount claimed, with interest and costs.
    
      F. L. Fancher, for respondent.
    I. The draft, in question was not sent forward “ for collection merely,” but was intended as a deposit for the credit of Lyell.
    1. Lyell was a general creditor of the Ohio Life Insurance and Trust Company. When that Company failed, he had no right to withdraw any specific assets, and did not assume to have. He had a general deposit with the Company, precisely as any dealer has with a Bank.
    2. When he deposited, by cash or receivables, it became the property of the Bank, and the dealer Lyell became the creditor of the Bank for the amount. Lyell had the right to check for this money at any time, and exercised that right until long after this transaction.
    II. Lyell was a dealer with, and depositor in, the Trust Company : when he remitted or delivered to the Company his receivables, they were treated as cash, and he had credit therefor. The Trust Company were not to. remit the proceeds of the bill to Lyell, but to give him credit for them. He drew, not for the specific proceeds, but generally, treating the Company as his debtor.
    III. This relation of debtor and creditor had long been recognized, and is unequivocally admitted. The allowance of interest on his deposits shows this, and establishes the right of the Company to the money. (Clark v. Merchants' Bank, 2 Comst., 380; Chapman v. White, 2 Seld.. 417.)
    
      IY. Lyell was a creditor of the Trust Company for a large amount, and, as such, drew his checks or drafts on his general balance for nearly a.month after this transaction.
    Large payments were made on account of that indebtedness, as well on account of this draft and its proceeds as of any other deposit.
    To allow the plaintiff, now, to recover the specific proceeds of this draft, or their equivalent, would be unjust, and would, in effect, make a new contract for the parties. Non constat all the other indebtedness stands in the same category, and other plaintiffs may spring up with assignments of similar claims.
    Y. Lyell never had the legal title to this draft. It was a voluntary deposit in the Bank of British North America for the credit of the Trust Company.
    Even if it had been a draft forwarded by Lyell for collection only, it has been well decided that the Ohio Life Insurance and Trust Company are the agents of the Bank of British North America, and not the sub-agents of Lyell; and, therefore, not answerable to him. (Allen v. Merchants' Bank of New York, 22 Wend., 228; Montgomery County Bank v. Albany City Bank, 3 Seld., 459; Commercial Bank of Pennsylvania v. Union Bank of New York, 1 Kern., 203.)
    But here the ownership was in the Trust Company, from the time that Lyell deposited the money. This money was, in effect, deposited in the Trust Company at the date of the draft, and he could not, after that, control it: certainly not after it reached the Trust Company.
    YI. The Ocean Bank are holders for value. The Bank-took it on account of a debt. If this draft had been supposed not to belong to the Trust Company, the Ocean Bank could have applied for another in its place. And a debt, when thus paid, pro tanto, by a bill or note, is a sufficient consideration. (Bank of Salina v. Babcock, 21 Wend., 499.)
    The claim of the Bank is, therefore, more meritorious than the claim of the plaintiff. The judgment of the Special Term was correct, and should be affirmed, with costs.
   By the Court—Hoffman, J.

The defendants cannot, in my opinion, under the decision in Stalker v. McDonald, (6 Hill, 96,) even as modified or explained in White v. The Springfield Bank, (3 Sandf. Sup. C. R., 222,) be treated as purchasers for value, so as to hold the acceptance or its proceeds against a real owner, who had never parted with his property in it. The defendants did not, when they took the acceptance, by any unequivocal act, treat it as extinguishing so much of the debt of the Company. They only credited the Company in general account, upon a previous indebtedness, after they had collected the amount. It was the proceeds which they so applied. (Youngs v. Lee, 2 Kern., 555.)

The case, therefore, appears to depend upon the point chiefly contested by counsel, viz.: Whether the Ohio Trust Company was not, in point of law, the real owner of the draft, and as such transferred a good title to the defendants. The first conclusion of law of the learned Judge states the point, and contains the proposition that the draft was actually the property of such Company.

On the 20th of August the draft was received; on the same day it was presented and accepted. It was never passed to the credit of Lyell until after this action was commenced.

On the 24th of August it was delivered to the defendants, and on the 26th was paid.

This dealing with the acceptance by the Company may have made it responsible to Lyell for the amount on the 24th of August, as absolutely as if they had received and credited that amount; yet it does not necessarily follow that the right to pursue the acceptance is lost by a right to recover from the Company.

Again, it is very difficult to conclude from the facts in this case, th.at the Company was bound to credit even an acceptance, in account with Lyell, so as to require it to honor his drafts before its payment. “ He had been in the habit of remitting in this way.”. He was a large depositor with the Company of money and bills.” “ This draft was sent to the Company in the usual course of business.” “ He was to be allowed interest at four per cent on his average balances.” He had a cash balance to his credit on the 24th of August of over $108,000. He proceeds to draw upon this during the month of September, to the amount of over $98,000, and his drafts are paid at the office in Cincinnati'.

I find it difficult to concur with the learned Judge, “ that Lyell was entitled to have a credit in account for this draft on its receipt by the Company.” The habit of remitting and depositing money and bills does not necessarily imply this. The habit of business is as consistent with meeting drafts on actual funds, as upon acceptances or securities unpaid; and there is no previous established' habit proven to define its nature. The allowance of interest would naturally be on actual cash balances only.

In the decision of Clark v. The Merchants' Bank, (2 Comst., 880,) no fact was considered as of higher importance than this: “ Whether the draft there in question was to be credited to the plaintiff, when received by Smith & Company, whether "collected or not ?”

When that draft was sent it was accompanied with notes to the amount of $2,496.08 expressly for collection, and with $17,975.62 (including the $7,000 draft in question) in notes, bank bills, &c., per account No. 1. The amount was $20,471.70, and with the remittances, advice was given of drafts on the fund for $20,832.26. “As the mode of dealing had been continued for years, and was perfectly understood by all parties, the plaintiffs had a right to draw against the funds remitted, and Smith & Co. were bound to accept. The whole fund was, by the course of dealing, treated as cash.”

Again, it is observed by the Court “ that the case is much stronger than that of a customer with a banker. The parties were exchange brokers, mutual correspondents, receiving funds for and making drafts upon each other. Unquestionably it was their intention to keep each other in funds to answer the bills drawn by them respectively. Bqt in case the paper transmitted should be unavailable, a principal object of the arrangement was to prevent these drafts being returned dishonored, by making it the duty of the correspondent to accept and pay notwitstanding." No such mutual account and dealing is found in the present case.

The authorities cited by Justice Sandford, when Clark v. The Merchants' Bank was in this Court, (1 Sandf., 498,) show how clearly the rule is that the property in notes or bills, transmitted to an agent or banker, vests in him only when he has become absolutely responsible for the amount to his customer. Unconditional liability and ownership become correlative. How the former is made out, is matter of evidence; but the principle and good sense of the law seems to be that an owner does not lose his property, the possession of which is committed to another, unless he has chosen to constitute that other his debtor for it, and that other has assumed the liability, and both facts are satisfactorily established, or unless an authority is sufficiently established under which the holder was entitled to use the security for his own business purposes, and thus confer a valid title upon another, even for an antecedent debt.

In ex parte Barkworth in re Harrison, (4 Jurist, N. S., 547,) the question was as to short bills, and the Court say that the point was whether there had been any agreement between the customer and the bankrupt, that the bills should be the absolute property of the bankers. The banker was in the habit of crediting unpaid bills transmitted to him by the customer directly as cash, not carrying them short. But there was no evidence that the customer knew of this or drew upon the fund on the ground of such credit. Upon the bankruptcy of the banker, there were bills in his hands of the customer not due, and a cash balance also in his favor. It was held that the customer had a right to the bills as against the assignees. There was not evidence to show that the bills constituted an immediate debt from the banker to the customer.

The present case does not in my opinion fall within the liberal rule of The Bank of the Metropolis v. The New England Bank, (1 How. U. S. R., 240; 6 id., 212,) but is governed by the principle of the case of Lawrence v. The Stonington Bank. (6 Conn. R., 521.)

The Ohio Company did not so place themselves in the situation of an absolute debtor to Lyell, as to make themselves owners of the draft. There is no evidence to prove that Lyell had given any authority for the use of his securities transmitted to the Company for their own purposes.

There is no course of business or dealing proven from which such a power can be deduced. The Company took the draft for collection mereljr. It was Lyell’s property in their hands when they transferred it to the defendants, and the defendants, upon the facts as to such transfer, acquired no better title than the Company possessed.

We think that the judgment must be reversed and a new trial had, with costs to abide the event.

Ordered accordingly.  