Dodge v. Freedman's Savings and Trust Company

APPEAL from the Supreme Court of the District of Columbia.

The Freedman's Savings and Trust Company, on the seventeenth day of May, 1873, exhibited its bill of complaint in the Supreme Court of the District of Columbia, alleging that it owned and held certain unpaid and overdue promissory notes made by the defendant Dodge, and that certain real estate in the city of Georgetown, which had been conveyed in trust to the defendants Jones and Darneille, to secure the payment of said notes, had been unlawfully and fraudulently released from the operation of the deed of trust, and had been conveyed by defendant Dodge to the defendant Darneille, who had conveyed it to the defendant Dunlop, in trust for the benefit of the wife of the defendant Darneille.

The bill prays for the cancellation of the release, and also of the other conveyances; for a sale of all the property covered by the original trust deed; for the application of the proceeds to the payment of the notes; for damages, if any should be found, against Jones and Darneille; for judgment against Dodge for any balance of said notes remaining unpaid; and for general relief.

The defendant Dodge answered, admitting the making of the notes, and of the deed of trust to secure them, but insisted that the notes had been paid and extinguished through an arrangement between him and William S. Huntington for the purchase of one of the pieces of property included in the trust, and that the complainant obtained the notes after they were due and had been paid.

The other defendants made no defence, and a decree pro confesso was taken against all of them.

The case was heard upon the pleadings and evidence, and the court, at special term, dismissed the bill. This decree was, on an appeal to the general term, reversed, and a decree entered according to the prayer of the bill. The case is here on appeal by the defendants from that decree.

The defence rests entirely upon the allegation that the notes made by Dodge, in January, 1869, were paid in January, 1870.

Mr. Walter S.C.ox for the appellants.

The appellee acquired the notes after maturity, and when they had been paid. A deposit for collection means for payment. It does not authorize the bank to assign, but simply to receive a payment which extinguishes the note. The notices sent out by the bank are a demand for payment. No one had a right to take an assignment of the notes without the consent of the holders. When, therefore, some one goes and tacitly pays the money into bank when due, and takes up the notes, the legal effect is a payment and extinguishment, whether it be by the maker or a stranger. Even if done at the request of the maker, if there be no further agreement, it is none the less a payment, and gives only a right of action for money paid, laid out, and expended. Burr v. Smith, 21 Barb. 262; Eastman v. Plumer, 32 N. H. 238; Cook v. Lister, 13 C. B. 594.

The only doubt ever entertained was, whether the debtor's authority or ratification was necessary. There can be no doubt of such authority in the present case.

Again: as the bank had no authority to transfer the notes, a person dealing with it must be presumed to have knowledge of that fact, and that he would acquire no title by the transfer. This infirmity of title would follow the notes into the hands of any one else taking after maturity. Byles on Bills, p. 151; Texas v. White, 7 Wall. 700.

But, besides, in this case, the notes were taken by the appellee from or through Huntington. He paid them under an express contract to do so, and transferred them after that contract had been performed.

It is clear that the appellee did not give the money directly to the holders of the notes. Their actuary gave one check for the entire sum, much larger than any one note. It must have been given first to some third person, who either had paid, or thereupon paid, the notes. That person clearly was Huntington.

The notes, taken when overdue, were taken subject to all defences which Dodge might have made against the holders to whom they were paid, or against Huntington, who held them afterwards. Story on Promissory Notes, sect. 190; Andrews v. Pond et al., 13 Pet. 65; Fowler v. Brantley, 14 id. 318.

Mr. Enoch Totten for the appellee.

Dodge, the maker of the notes, has never paid a dollar on account thereof. He cannot now be heard to say that the notes were extinguished by the transaction between Huntington and the appellee. Gernon v. McCan, 23 La. Ann. 84.

The notes cannot be held to be paid and extinguished. The Trust Company surely did not intend to pay them. The fact that it took them into possession, and held them, shows this was not its intention. It acted in good faith.

When money is paid on account of notes by a third party not liable on them, the notes will be extinguished or not, according to the intention of the party paying. Harbeck v. Vanderbilt, 20 N. Y. 395. Payment to a bank of notes held by it for collection, by one not liable on the notes, does not amount to an extinguishment of them. Byles on Bills, 175; Pacific Bank v. Mitchell, 9 Met. 297; Deacon v. Stodhart, 2 M. & Gr. 317; Jones v. Broadhurst, 9 M., Gr. & Sc. 173.

Huntington did not pay out any money whatever; and, if he ever had the notes in his possession, he held them only as cashier of the bank, or as agent of the Trust Company.

If these notes, instead of being transferred to the possession of the Trust Company, had been retained by the respective holders, and actions at law had been by them instituted thereon against Dodge, notwithstanding the payment of the amount due on them by the Trust Company, a plea of satisfaction by the Trust Company, interposed on behalf of the defendant Dodge, would have been bad on demurrer. Clow v. Borst, 6 Johns. 37; Daniels v. Hollenbeck, 19 Wend. 408; Jones v. Broadhurst, 9 M., Gr. & Sc. 173.

MR. JUSTICE HUNT delivered the opinion of the court.