Elm City Lumber Co. v. Childerhose, 167 N.C. 34 (1914)

Oct. 14, 1914 · Supreme Court of North Carolina

167 N.C. 34

ELM CITY LUMBER COMPANY v. CHILDERHOSE & PRATT et al.

(Filed 14 October, 1914.)

1. Appeal and Error — Objections and Exceptions — Unanswered Questions— Briefs — Exceptions Abandoned.

When answers to questions are excluded from the evidence by the trial judge, the character and relevancy of the. testimony sought to be elicited should appear in the record on appeal; and where exceptions of record are not discussed in appellant’s brief they are taken as abandoned.

2. Bills and Notes — Negotiable Instruments — Banks and Banking — Holders in Due Course — Custom—Evidence.

Where the evidence tends to show that a foreign bank is a holder of a draft in due course and has sent it through its correspondent banks for collection, a custom of charging back unpaid drafts by the forwarding bank to its customers may not be shown by one draft which had been charged back, which was in no wise connected with the transaction involved in the suit; nor can the custom of the collecting bank in this respect be received as evidence of the custom of the forwarding bank.

3. Bills and Notes — Negotiable Instruments — Banks and Banking — Holders In Due Course — Discount—For Collection — Bills of Lading Attached— T rials — Instructions.

In this case there was evidence that a foreign bank discounted a draft, bill of lading attached, placed the money to the credit of the drawer, who checked it out, and then sent the draft to a Philadelphia bank for collection, from whence it reached the local bank of the drawee and was paid; but before remittance made the funds were attached by the drawee. The 'foreign bank interpleaded and the plaintiff maintained that from the amount the interpleader received on the draft and from its custom to charge it was evidently a charge made for collection and not a discount of the paper. Held, the instruction of the court defining a holder in due course is correct (Revisal, 2201) ; and the rights of a purchaser of a draft with bill of lading attached defined in the instructions are within the principles of Mason v. Cotton Mills, 148 N. C., 498; and the charge is further approved upon the question of whether or not the interpleader was a holder in due course, or the transfer was made for collection or a transfer in order to secure the bank for money advanced.

Appeal by plaintiff from Daniels, J., at April Term, 1914, of CkaveN.

This is an action to recover damages accruing upon a contract for tbe sale of bay, bought by tbe plaintiffs from Cbilderbose & Pratt, in wbicb tbe proceeds of two drafts, drawn by Cbilderbose & Pratt on tbe plaintiff and paid by it, were attached in tbe bands of tbe Peoples Bank of New Bern.

Tbe Bank of Ottawa intervened, alleging that it was tbe owner of tbe proceeds of tbe drafts, and tbe only issue in controversy is as to ownership, raised by tbe interplea.

Tbe drafts were introduced in evidence, and on each was tbe word “collection.”

T. A. Uzzell testified for tbe plaintiff: “I am easbier of tbe Peoples Bank, and was easbier in 1912. In 1912 we received drafts from tbe Girard National Bank of Philadelphia on tbe Elm City Lumber Company. ¥e bave record of a draft for $211.03 and one for $161.30; tbey were sent to us for collection. [Tbe drafts introduced in evidence identified by witness.] Tbe regular indorsement stamp of tbe Girard National Bank appears on botb drafts; tbe green stamp bas tbe word ‘collection’ on it. "We did not give tbe Girard National Bank any credit on our books for these amounts before tbey were paid. In receiving drafts of tbis kind, sometimes we would remit proceeds less collection charges, and sometimes credit tbe bank’s account and give them notice of tbe credit on tbe collection.”

Cross-examination: “Tbe drafts were made payable to tbe Bank of Ottawa, and were sent to us through our correspondent, tbe Girard National Bank. Tbe former is a Canadian bank and tbe latter an American bank. I don’t know whether or not tbe bank of Ottawa bought tbe drafts. They indicate on tbe face tbey were sent here for collection. We receive drafts in different ways. Sometimes as cash items and collection items; it depends bow tbe draft is sent to us; it could be sent to tbe Girard either as cash or collection, and be sent to us in tbe same way.”

Eedirect: “Tbe form of this draft is tbe usual form furnished to customers of banks. Tbis is tbe form furnished by us to our customers and that we bave on our counters. When drafts come to tbe bank, we notify tbe drawee that we bave it for collection. We either send our collector or mail notice of same. In tbis instance we would notify Elm City Lumber Company we bold draft on them for Cbilderbose & Pratt, and tbe Bank of Ottawa would not appear on tbe notice. Tbe stamp across tbe corner of tbe draft means we are not to surrender tbe bill of lading attached to tbe draft, only upon payment of tbe draft, and if necessary bold tbe item for arrival of tbe goods. We would bave no authority to turn tbe goods over until tbe payment of tbe draft. It is tbis direction in stamp across corner of draft, not in tbe regular printed form.”

Defendant offered tbe following evidence:

J. G. Burgess, witness in behalf of Bank of Ottawa, interpleader, who testified as follows: “I reside at Ottawa. I am manager of tbe Chau-dier Branch of tbe Bank of Ottawa; that is equivalent to cashier in your country. I bave been manager over three years, and in tbe banking business sixteen years. I am acquainted with Cbilderbose & Pratt. In regard to tbis bay, Mr. Pratt brought tbe drafts to me in tbe bank and tbe bills of lading also. On 29 April, 1912, Mr. Pratt brought into tbe office of tbe Bank of Ottawa these two drafts with bills of lading attached, drawn at sight on the Elm City Lumber Company, one for $211.03 and one for $161.30, and asked that they be discounted and placed to their credit, Childerhose & Pratt, which I did, less our commission, and they withdrew the money the same day the drafts were brought in. I have the original entry sheet on which the entry was made. I attended to this and checked it over, and it was under my inspection, and I checked it over and put my initials on the sheet. On the original record I find $161.30 and $211.03; that is the discount sheet and that the ledger sheet [witness indicates different sheets]; the original entry is in the discount sheet, and that is checked by me as correct, also the other one. After the money was placed to the credit of Childerhose & Pratt, and the money withdrawn by them, we forwarded the drafts to the Girard National Bank, who are our agents for the Southeastern and Southern States practically, for collection. This collection- was to be made for us. Childerhose & Pratt did not have any interest in the collection. They had received the money and had no further interest. The collections were ours, and we sent the drafts to the Girard National Bank and they sent them to the Peoples Bank and were to return the money to us. I did not know, of course, to whom the Girard National Bank would send them; the proceeds were to be paid to us. Since then Childerhose & Pratt have dissolved. Childer-hose & Pratt were paid by the bank $371.33; the full amount was $372.60, the difference between the two represented the discount. "We have not received any money upon the drafts, because Elm City Lumber Company attached the funds.”

Cross-examination: “We charge interest at 7 per cent in Canada. Interest on $372.60 for fifteen days would be $2.50. We did not take their paper at a loss. You claim collection took fifteen days. It should not have taken that long. I left Ottawa Saturday at 4:30 p. m., 'arrived in New Bern at 9 :30 a. m. Tuesday following. This draft was not paid until thirty days after it was presented to us into the Peoples Bank. The draft is stamped 26 May, and discounted 29 April. The interest on that amount of money for thirty days would have been three times the amount charged for collection. It should not have been that long. I do not know how long it would take to come from Ottawa — the freight transportation. I left Ottawa Saturday at 4:30 and was here Tuesday at 9 :30. As far as I know, Childerhose & Pratt are solvent. They did not carry a pretty good account with us; the ledger accounts show a balance of from $600 down to $10; I do not consider that big. We had several drafts from Childerhose & Pratt. We never charged back to them any draft on the Elm City Lumber Company. One of the drafts, I know, was returned.' All these dealings occurred within four or five days. There is a draft for $235.55 made in the same manner as tbis. I don’t know that we charged this draft back after it was returned. These were discounted 29 April and the $235.55 was on 25 April. If the drafts had been returned to the Bank of Ottawa we would have returned them to Childerhose & Pratt. This is our usual method; we might have got the bill of lading and charged them back to their account. I don’t know — with their permission, we might have charged them back. We have never made any demand on Childerhose & Pratt for payment of this money. They signed the draft for which this collection was made. Of course, I cannot recall any case when the person signing the dr'aft was not liable when the draft was not paid, but I have had them. Childerhose & Pratt had no money when I left Ottawa. Ohilder-hose & Pratt have both left Ottawa; been gone about a year; I don’t know where they have gone. They dealt in real estate and commissions. They shipped varied amounts of hay each month; I don’t know that they were doing a large business. I knew the two drafts were for hay. We had the bills of lading, which showed they were for hay. I did not know anything about any contract between them and the Elm City Lumber Company. We did not look up the Elm City Lumber Company in a commercial agency.”

Eedirect: “JThe reason you didn’t investigate the commercial rating of the Elm City Lumber Company was because when they drew the drafts they attached the bills of lading for the hay?”

Plaintiff objected. Objection overruled, and plaintiff excepted.

At this stage of the case the court excluded from the consideration. of the jury all evidence relating to the draft charged back, and the court instructed the jury not to consider that evidence. Plaintiff excepted. The loose-leaf sheets from the book of the Bank of Ottawa showing account of Childerhose & Pratt with the bank, including the draft charged, were afterwards introduced in evidence without objection.

His Honor, among other things, charged the jury as follows:

“The Bank of Ottawa undertakes to sustain its contention that it is the owner upon the ground that it is a banking institution in Canada, and that in the ordinary course of business, Childerhose-& Pratt, conducting business in their city, came to the bank with the two drafts, which have been described in the answer drawn in favor of the Bank of Ottawa, and sold those drafts to the Bank of Ottawa, or procured the Bank of Ottawa to discount them, and at the same .time indorsed the bills of lading to the bank as security for the amount. They allege that they paid for the drafts and the two bills of lading, and that the bank, at the time that was done, advanced $371.33, about $1.40 less than the face of the drafts, and that it placed this money to the credit of Childerhose & Pratt upon the books of the bank; that the defendants Childerhose & Pratt, being customers of the bank, drew the money out of the bank that same day by checks, or witbin a day or two; that the bank sent the drafts with the bills of lading to their correspondent bank, the Girard National Bank of Philadelphia, and that that bank, in the ordinary course of business, sent to its correspondent in New Bern for collection against the Elm City Lumber Company; that the drafts were presented and collected, paid by the plaintiff, and that the plaintiff took the bills of lading and got the hay. Now, the Bank of Ottawa contends that by reason of those facts, which it says are the facts which I have just recited, and which it says has been established, that it became the owner of the bills of lading and therefore the owner of the liay as security for the amount that it had advanced upon the drafts, and that when those drafts were collected the Bank of Ottawa was the owner of the. proceeds of the drafts of $372.60 now, or at least then, in the Peoples Bank of New Bern, afterwards attached in this action.”

Plaintiff excepts to this part of his Honor’s charge.

2. “Now, if this evidence satisfies you by its greater weight that the Bank of Ottawa discounted the drafts mentioned in the ordinary course of business and became the holder thereof in due course and at the same time took' an assignment of the bills of lading mentioned in the inter-plea for security for the amount advanced to Ohilderhose & Pratt upon those drafts, then you should .answer this issue ‘Yes.’ ” Plaintiff excepted.

3. “The holder in due course is the holder who has taken an instru- , ment under the following conditions: That the instrument is complete

and regular on its face. There is no contention here that it is not. Second, before it was overdue and without notice that it had been previously, dishonored. There is no evidence here that they were overdue or had been previously dishonored. Third, that they were taken in good faith and for value; and, fourth, that at the time they were negotiated to the bank it had no notice of any infirmity in the instrument or any defect in the title of the person who negotiated them. To constitute notice of infirmity in an instrument or defect in the title of the person negotiating same, the person to whom it is negotiated must have actual knowledge of the infirmity or defect, or knowledge of such facts that his actibn in taking the instrument amounts to bad faith.” Plaintiff excepted.

4. “Under these definitions, your first inquiry would be, Were these papers transferred in the ordinary course 'of business to the Bank of Ottawa, and did the bank take them in good faith for value? The only testimony on that point is that of Mr. Burgess, the cashier of the bank. He tells you the circumstances under which he took the papers; he testified that he had no knowledge of any contract between Ohilderhose & Pratt and the Elm City Lumber Company; that they were shipping these two car-loads of bay and that they were drawing for tbe money; tbat tbe bills of lading covering tbe shipment of bay were indorsed and transferred to his^bank; tbat be charged them tbe usual bank discount for tbe drafts and took an assignment of tbe bills of lading as security for tbe money advanced by tbe bank; and tbat tbe money was placed to tbe credit of Cbilderbose & Pratt on tbe books of tbe bank, and tbat almost immediately tbat money was drawn out of tbe bank.” Plaintiff excepted.

5. “If this evidence satisfies you by its greater weight tbat tbe paper was discounted at tbe bank in tbe ordinary course of business, and tbat tbe proceeds of tbe drafts,- after deducting tbe commission or discount,, were placed to tbe credit of Cbilderbose & Pratt; tbat tbe bank at tbe same time took an assignment of tbe bills of lading and Cbilderbose & Pratt drew this money out of tbe bank in a day or two and got tbe benefit of it, then in tbat event it would constitute tbe Bank of Ottawa tbe bolder for value.” Plaintiff excepted.

6. “Tbe next question is whether tbe bank took tbe drafts with notice of any infirmity. (I don’t understand tbat there is any question as to defect in title or any evidence offered on that point.) Tbe defendant Bank of Ottawa contends tbat it bad no notice, and offers in support of tbat contention tbe testimony of tbe cashier, who says tbat tbe bank took tbe papers in good faith for value and without any notice tbat there was any contract between plaintiff and Cbilderbose & Pratt, and tbe only infirmity tbat could have been was tbat tbe bay was defective or tbat in shipping tbe bay there was a breach of warranty, in tbat it should be No. 2 timothy bay; and be says, further, tbat Cbilder-bose & Pratt never told him anything about tbe contract; tbat be never knew anything about it. So if you find tbe facts to be as testified to by tbe witness for tbe Bank of Ottawa, tbat it took this paper under tbe circumstances claimed to have existed, then you will find tbat tbe bank took it for value; tbat it took it without notice of any infirmity or defect, if you are so satisfied by tbe greater weight of tbe evidence.” Tbe plaintiff excepted.

7. “Tbe bolder bank has a prior interest, who takes an assignment of tbe bills of lading as security for tbe amount .advanced on tbe drafts and becomes owner of tbe goods to an extent sufficient to secure tbe two drafts, if be gets them under tbe circumstances I have outlined, tbat

•is, in good faith for value, without any notice of infirmity or defect, and having gotten tbe bills of lading in tbat way, it bolds tbe property covered by them, and it has tbe right to enforce its claim as against an attaching creditor, as in this case of plaintiff.” Tbe plaintiff excepted.

There was a verdict in favor of tbe bank, interpleader, and from tbe judgment rendered thereon tbe plaintiff appealed.

Moore & Dunn for plaintiff.

D. L. Ward for Bank of Ottawa.

AlleN, J.

Tbe first and third exceptions, to the "refusal to permit a witness to answer certain questions, cannot be considered, because there is nothing in the record to show what evidence would have been elicited (Stout v. Turnpike Co., 157 N. C., 366), and the fifth, sixth, and seventh exceptions are abandoned, because not discussed in the brief. Rogers v. Mfg. Co., 157 N. C., 484.

The question intended to be presented by the second exception does not clearly appear, as no evidence had been introduced at the time the exception was taken that any draft had been charged back; but if, as indicated in the brief of the appellant, the draft referred to was not one of those the proceeds of which are in litigation, and the evidence was offered to prove the custom of the Bank of Ottawa, it was incompetent for that purpose, as one item among many others differing from it cannot establish a custom.

It also appears that the plaintiff afterwards had the benefit of the evidence, as sheets from the books of the bank were introduced showing the item.

The evidence offered to prove the custom among the banks of New Bern to charge back drafts returned unpaid could not affect the rights of the Bank of Ottawa, and the witness stated that he knew nothing of the custom in Ottawa.

The other exceptions are to parts of the charge to the jury, which we have set out, and in which we find no error.

The definition of a holder in due course is taken almost literally from section 2201 of the Eevisal, and the statement of the rights of a purchaser of a draft with bill of lading attached is in accord with the principles declared in Mason v. Cotton Co., 148 N. C., 498, and in other decisions.

His Honor did not charge the jury that the bank was a holder in due course if it took the drafts for collection, and, on the contrary, told the jury: “The plaintiff, on the other hand, contends that under this evidence you ought to find that the bank merely took the drafts and bills of lading as a collecting agent, and that it never acquired any property by way of security for anything advanced, if anything was advanced, and, taking them that way, it had no property right in them, and, having ■ no property right in them, it had no interest in the hay or the proceeds from the hay; and the plaintiff calls your attention to the testimony of Mr. Burgess, that the charge upon this transaction was but $1.40, and contends from that you ought to find that that amount ’was paid, not as a discount on the purchase of the paper, but was merely a collecting fee or commission for collecting, and nothing more. If yon are satisfied from the evidence that tbe bank merely took the paper for collection and charged a commission for collecting, then that would not be a purchase and the bank would not be the holder in the ordinary course of business, because in order to become holder it must have paid, as it contends, the difference between this charge and the face value of the drafts and credited the amount to Childerhose & Pratt, who must have drawn the money out of the bank. If they took up the paper for collection and charged a commission for collection and placed the proceeds to the credit of Childerhose & Pratt, and you are satisfied, from all the evidence, that it was the custom of the bank that when drafts were not paid, which had been so obtained, to charge them back to the drawer, that would be evidence for you to consider upon the question of whether or not this was a mere transfer for collection or a transfer in order to secure the bank for money advanced.”

We have carefully considered the exceptions taken, and find

No error.