Peaslee-Gaulbert Co. v. Dixon, 172 N.C. 411 (1916)

Nov. 9, 1916 · Supreme Court of North Carolina

172 N.C. 411

PEASLEE-GAULBERT COMPANY, Inc. v. R. L. DIXON.

(Filed 9 November, 1916.)

1. Banks and Banking — Bills and Notes — Place of Payment — Deposits—Order to Pay — Payment.

Where the bank of deposit of the maker of a note is the one specified as the place of its payment, and also the one to which the note is sent at maturity for collection, the maker’s written order on the note to the bank to pay it from his deposits is sufficient; and where the bank accepts this order and retains the note without entry on its books for twelve days, then its doors are closed and a receiver appointed, the payee of the note is held responsible for the acts of its agency for collection, and a plea of payment is good. In this case the maker’s deposits were barely sufficient, at the time, but more than sufficient on the day following and then continuously so.

2. Banks and Banking — Bills and Notes — Place of Payment — Order to Pay-Statutes.

A note payable at the bank of the maker’s deposit is, of itself, an order on the bank to pay the note at maturity for the account of the maker. Revisal, sec. 2237.

Civil ACTION tried before Cline, J., at December Term, 1915, of Caswell.

This is an action on a note, tried in tlie! Superior Court, on appeal from a justice of tbe peace, on tbe following agreed facts, tbe plea of tbe defendant being payment:

1. That tbe plaintiff is a corporation located and doing business in tbe State of Kentucky.

2. That the defendant is a citizen and resident of tbe county of Caswell, State of North Carolina.

3. That on 15 September, 1914, tbe defendant signed and delivered to tbe plaintiff bis promissory note in words and figures as follows:

15 September, 1914.

Sixty days after date I promise to pay to tbe order of Peaslee-Gaulbert Company, Inc., $100, for value received. Negotiable and payable without offset at tbe Rank of Caswell, Milton, N. C. We, tbe makers and indorsers of this note, hereby waive tbe benefit of our homestead exemptions as to this debt. (Signed) R. L. Dixow.

4. That tbe plaintiff deposited tbe note with its bank in Louisville, Ky., for collection, which said bank forwarded same directly to tbe Bank of Caswell for collection.

5. That said note was, on 16 November, 1914, presented to tbe defendant by Henry Hines, employee of and collector for the Bank of Caswell. Tbe defendant wrote across tbe face of tbe note, “Charge to my account,” and thereunder signed bis name, “R. L. Dixon,” and returned tbe said note to tbe said Henry Hines. Tbe said Henry Hines accepted tbe indorsement of tbe defendant and took tbe note to tbe Bank of Caswell and delivered tbe same to tbe cashier, who received the note and looked at tbe indorsement placed thereon by Mr. Dixon, and said it was all right. Tbe defendant beard nothing further from tbe bank about tbe note, nor received any information from tbe plaintiff or any other source that tbe Bank' of Caswell did not make proper remittance to plaintiff, nor that said bank bad not charged tbe same to defendant’s account, until after tbe bank examiner took charge of said bank.

6. That on said 16 November, 1914, tbe defendant bad to bis credit in tbe Bank of Caswell tbe sum of $98.98, and on tbe next day, 17 November, 1914, be deposited tbe sum of $101, and later at different times made two other, deposits thereafter in said bank, and at all times from and after 16 November, up to tbe time tbe said Bank of Caswell was taken in charge by the State examiner, to wit, 28 November, 1914, bad more than sufficient funds in said bank to pay tbe said note.

7. That tbe said Bank of Caswell closed its doors on 28 November, 1914, tbe bank examiner taking charge thereof on tbe said 28 November, 1914, and said bank was placed in tbe bands of a receiver.

8. That S. A. Hubbard, bank examiner, found tbis note in tbe Bank of Caswell on 28 November, 1914, and returned it to tbe plaintiff.

9. That tbe said note was not charged to tbe defendant upon tbe books of tbe said bank, nor was there any entry on tbe bank books showing payment to tbe plaintiff.

10. That tbe defendant, in filing bis claim against tbe receiver of tbe Bank of Caswell as a creditor, by reason of bis deposits in tbe bank, deducted frofii tbe amount of bis said claim against tbe bank by reason of bis deposits tbe sum of $100, tbe amount of note sued on herein.

Upon tbe foregoing facts bis Honor charged tbe jury as follows:

“The issue in tbis case which we are now trying is, ‘Is tbe defendant indebted to tbe plaintiff, and if so, in what amount?’ I instruct you, under tbe whole evidence, if you believe it all, as a matter of law following in connection with tbe evidence it would be your duty to answer tbis issue, ‘No; nothing.’” Plaintiff excepted.

The jury having returned tbe verdict for tbe defendant, as set out in tbe record, bis Honor entered judgment accordingly. Plaintiff excepted and appealed.

M. C. Winstead and Carver & Winstead for plaintiff.

Ivie, Trotter & Johnston for defendant.

AlleN, J.

His Honor sustained tbe plea of payment of tbe defendant, and tbe question for decision is whether tbis ruling is correct on tbe agreed facts.

Tbe note was payable at tbe Bank of Caswell, and tbis was “equivalent to an order to tbe bank to pay tbe same for tbe account of tbe principal debtor thereon” (tbe defendant). Eev.-, sec. 2237.

In addition to tbis, tbe Bank of Caswell was tbe agent of tbe plaintiff for collection (3 R. C. L., 639; 7 C. J., 597; Bank v. Floyd, 142 N. C., 187), and when the note was presented to tbe defendant for payment be wrote on it a direction to tbe bank to- charge to bis account, which tbe cashier said was all right.

Tbe note remained in tbe bank for twelve days, with tbis order indorsed thereon unrevoked, and while tbe amount to tbe credit of tbe defendant when tbe order was given was slightly less than tbe note, and tbe bank bad no right without special authority to accept a part payment (7 C. J., 615), the defendant on the next day after tbe order was given deposited with tbe bank money amounting to more than tbe note, and thereafter kept more than that amount to bis credit.

These facts, in our opinion, constitute a payment of tbe note.

The question has been decided in favor of tbe defendant by tbe courts of New York, which, like our State, has adopted the uniform Negotiable Instrument Law, in an opinion supported by reasoning satisfactory to us, from which we quote at some length.

“The plaintiff knew when it sent' the note to its agent that if the makers were in funds it would be paid by charging it to their account. Thus the subsequent transaction is to be viewed as though it had occurred directly between the plaintiff and the defendants, the latter being depositors of the former. What would constitute, payment between the immediate parties should equally constitute payment though an agent for one intervened. The case in brief is this: A bank, the holder of a note, or the agent of the holder .to collect, has funds in its hands upon which the makers are entitled to draw; after the note is due it is directed to charge the note against that credit, and says it will do so. All that is necessary to constitute payment is the intention to make the application, which may be evidenced in a variety of ways, e. g., by bookkeeping entries, by canceling the note and surrendering it to the makers, by the drawing of a check by the makers and its acceptance in payment by the bank. It must be borne in mind that the plaintiff selected an agent to collect, knowing that in the usual course of business payment would be made by a mere transfer of credits. If the makers had actually gone to the bank and passed the necessary currency over its counter to pay the note, with a direction thus to apply it,, that would plainly have constituted payment. (Smith v. Essex County Bank, 22 Barb. (N. Y.), 627.) If they had sent a check drawn on the bank to pay the note, the acceptance of it would have been per se an appropriation of the funds of the drawer, or, to be accurate, of the funds subject to the drawer’s order, to the payment of the note. Oddie v. National City Bank, 45 N. Y., 735; 6 Am. R., 160; Commercial Bank v. Union Bank, 11 N. Y., 203; Pratt v. Foote, 9 N. Y., 463. The verbal order, with the statement of the president of the bank that it would be acted upon, was the equivalent in legal effect of -a written order and its acceptance. It is to be noted that in the second of the cases just cited the bank to which payment was made was an agent to collect. That mere bookkeeping entries, or even the cancellation and surrender of the paper, is but evidence of and does not constitute payment is established by the cases holding that where payment is made by a draft or check which is not paid, the paper can be reclaimed and an action maintained upon it. See Burkhalter v. Erie Second Nat. Bank, 42 N. Y., 538, and cases cited. The converse must be true, that payment may be made without that particular evidence of it. . . . In considering the cases on the question of payment, it is essential to keep in mind the precise relation of the parties. The agency of the Watkins bank is the vital fact in this case. If it in fact accepted an appropriation, of tbe maker’s credit witb it in payment of the note, that should constitute payment in view of the fact that the plaintiff in sending the note to it for collection must have expected that payment would be made in exactly that way. That risk at least is taken in appointing a bank, where a note is payable, agent to collect it. It is not important how the bank evidenced its acceptance of the maker’s verbal order, or whether it did anything- to remit the proceeds to its principal. . . . The act and the evidence of it must not be confused. The act in this case was the acceptance of the maker’s verbal order to charge the note to their account. Making the bookkeeping entries would merely have created evidence of that act. When that verbal order was accepted the maker’s credit was irrevocably appropriated pro tanto to the payment of the note precisely as though a written order in the form of a check had been presented and accepted. . . . Thereafter it was of no concern to the defendants what bookkeeping entries were made by the plaintiff’s agent or whether it remitted the proceeds of the note.” Bank v. Smith, 215 N. Y., 76; 7 C. J., 627; Shafer v. Olson, 43 L. R. A. (N. S.), 762.

As was said in 3 R. C. L., 641, referring to the right of a collecting bank to receive a check on itself as a payment, the defendant should not have been required “to go through the idle ceremony of withdrawing the money from the bank and paying it back to the bank.”

The defense of the defendant in this action is stronger than in the New York case because here the defendant gave a written order to charge to his account, and while this order was held by the bank, he paid in money more than the amount of the note to- the bank.

No error.