Fourth Street National Bank v. Yardley/Opinion of the Court
As between a check holder an the bank upon which such check is drawn, it is settled that, unless the check be accepted by the bank, an action cannot be maintained by the holder against the bank. Bank v. Millard, 10 Wall. 152; Bank v. Whitman, 94 U.S. 343.

It is also settled that a check drawn in the ordinary form does not, as between the maker and payee, constitute an equitable assignment pro tanto of an indebtedness owing by the bank upon which the check has been drawn, and that the mere giving and receipt of the check does not entitle the holder to priority over general creditors in a fund received from such bank by an assignee under a general assignment made by the debtor for the benefit of his creditors. Florence Min. Co. v. Brown, 124 U.S. 385, 8 Sup. Ct. 531; Bank v. Schuler, 120 U.S. 511, 7 Sup. Ct. 644.

That the owner of a chose in action or of property in the custody of another may assign a part of such rights, and that an assignment of this nature, if made, will be enforced in equity, is also settled doctrine of this court. Trist v. Child, 21 Wall. 441, 447; Peugh v. Porter, 112 U.S. 737, 742, 5 Sup. Ct. 361. For recent cases maintaining this principle and referring to the present state of the law on the subject in the various states, see James v. Newton, 142 Mass. 366, 8 N. E. 122; Bank v. McLoon, 73 Me. 498; and Lanigan's Adm'r v. Bradley & Currier Co., 50 N. J. Eq. 201, 24 Atl. 505.

While an equitable assignment or lien will not arise against a deposit account solely by reason of a check drawn against the same, yet the authorities establish that if, in the transaction connected with the delivery of the check, it was the understanding and agreement of the parties that an advance about to be made should be a charge on and be satisfied out of a specified fund, a court of equity will lend its aid to carry such agreement into effect as against the drawer of the check, mere volunteers, and parties charged with notice.

This is but an application of the general doctrine of equitable assignments or lines announced by this court in Ketchum v. St. Louis, 101 U.S. 306, where it was held, citing various authorities and text writers, that: 'A party may, by agreemtne, create a charge or claim in the nature of a lien on real as well as on personal property whereof he is the owner or in possession, which a court of equity will enforce against him, and volunteers or claimants under him with notice of the agreement.' It is immaterial, for the purposes of this case, to draw a line of distinction between equitable assignments and equitable liens or charges.

In Risley v. Bank, 83 N. Y. 318, two counts of a complaint were based upon a check drawn upon the defendant bank by a depositor, in favor of plaintiff, while the third count based the right to recover upon an alleged oral assignment of a part of an indebtedness owing by the bank to such depositor, to the amount of the check. The check in question was drawn May 20, 1861, by a bank in South Carolina upon a bank in New York. The trial court ruled that the plaintiff was not entitled to recover upon the causes of action founded upon the check and the verbal promise of payment, but that plaintiff was entitled to recover upon the third cause of action if the jury should find the facts to be as therein averred. A judgment upon a verdict in favor of plaintiff was affirmed, it being held (page 327), to quote the language of the court of appeals in the subsequent case of Coates v. Bank, 91 N. Y. 26, 'in substance, that when, in addition to the check, there was an oral agreement between the drawer and payee, by which the former, for a valuable consideration, agreed to assign so much of the indebtedness of the bank to him as was represented by the check, and the check was given to enable the payee to collect and recover the portion of the debt assigned, the agreement operated as an assignment, and was sufficient to vest in the payee a title to that portion of the debt.'

In the Coates Case the Emporia Bank interpleaded in an action brought by the assignee in insolvency of the Mastin Bank against Donnell, Lawson & Co., bankers in New York City, to recover a balance of a deposit account kept by the Mastin Bank with Donnell, Lawson & Co. The intervener, the Emporia Bank, claimed to be entitled to a part of such balance on the ground of an assignment thereof made to it by the Mastin Bank, under the following circumstances: The Mastin Bank owed the Emporia Bank, and was requested by the latter to transfer on account thereof funds to the credit of the Mastin Bank with Donnell, Lawson & Co. The Mastin Bank replied it would do so, and at once charged the Emporia Bank, and credited themselves with $5,000, and on the same day, by letter, informed the Emporia Bank that this had been done, and by letter also notified Donnell, Lawson & Co. to credit the account of the Emporia Bank with the sum named. The Emporia Bank also gave the Mastin Bank credit for the amount. The court of appeals said (pages 27, 28):

'These circumstances in the conduct of both parties establish an agreement, the effect of which, as between the Mastin Bank and the Emporia Bank, was to estop the former from setting up that so much of the credit to which they were before entitled from Donnell, Lawson & Co. did not belong to the Emporia Bank, and the Emporia Bank from saying that so much of the debt before due from the Mastin Bank to it had not been extinguished. Allen v. Culver, 3 Denio, 284-292. Written out, the contract indicated by the bank entries and the correspondence is one of assignment of so much of the credit or funds then to its credit with Donnell, Lawson & Co., to the Emporia Bank, and a discharge of a debt due by it to that bank. The whole was completed the moment the letter of the Mastin Bank to the Emporia Bank was placed in the post office. Graves v. Bank, 17 N. Y. 205; Brogden v. Railway Co., L. R. 2 App. Cas. 666, 692; Ex parte Harris, L. R. 7 Ch. App. 596; Barry v. Society, 59 N. Y. 587, 594; Bank v. Low, 81 N. Y. 566. * * * As between these parties the credit or funds had ceased to be the property of the Mastin Bank. The Emporia Bank was no longer creditor, because it was paid. The credit, or right to call upon Donnell, Lawson & Co. for the same amount, was the means of payment.'

It was also held (page 29), upon the authority of Heath v. Hall, 2 Rose, 271, and Burn v. Carvalho, 4 Mylne & C. 690, that, as rights of third parties were not involved, it was immaterial to plaintiff's right to recover that the Mastin Bank became insolvent, and made a general assignment for the benefit of its creditors, of which Donnell, Lawson & Co. were notified before receipt by them of the notice from the Mastin Bank to credit the Emporia Bank. The court found (page 30) that the entries made by the Mastin Bank on its books showed an intention on the part of the Mastin Bank to transfer to the Emporia Bank a specific amount of the deposit with Donnell, Lawson & Co., and, 'taken in connection with the letters between the parties, and the order and letter of advice sent to the New York firm, were equivalent to an actual transfer of credit, or of account, and therefore to an assignment, at least in equity, of the fund in the hands of Donnell, Lawson & Co.'

In Cleaner Co. v. Smith, 110 N. Y. 83, 88, 17 N. E. 671, it was again held, to quote from the syllabus in the case, that (page 83): 'While the mere delivery to a third person of a check or draft drawn by a creditor upon his debtor does not effect a legal transfer of the debt, where it appears that the intent was to make such a transfer, it is the duty of the court to carry out the intent.' The court, in that case, from a review of the evidence, deduced therefrom, as matter of law, an actual transfer of the debt owing by the parties upon which a check or draft had been drawn.

In the still more recent case of Bank v. Clark, 134 N. Y. 368, 32 N. E. 38, the doctrine of Risley v. Bank, and Cleaner Co. v. Smith, was expressly approved. 134 N. Y. 373, 32 N. E. 40. The controversy was between the payee of a check and a private banker upon whom it had been drawn, the defendant denying having been at any time indebted to the maker of the check. In affirming a judgment entered upon a verdict in favor of defendant, the court of appeals held, despite the fact that a check had been given, that the trial judge properly left it to the jury to determine under the particular circumstances whether the alleged debt had been assigned to the plaintiff.

In First Nat. Bank v. Dubuque S. W. Ry. Co., 52 Iowa, 378, 3 N. W. 395, the supreme court of Iowa held that a bill of exchange drawn upon a general fund, and not accepted by the drawee, does not operate as an assignment of the fund, but is evidence to be considered with other circumstances in determining the intention of the parties.

In Harrison v. Wright, 100 Ind. 515, a similar ruling was made. The supreme court of Indiana there reached the conclusion (page 538) 'that a check in the ordinary form upon the drawer's banker, without words of transfer, and drawn upon no particular designated fund, does not of itself operate as an appropriation or equitable assignment of a fund in the hands of the drawee, nor does it operate as an assignment of a part of the drawer's chose in action against the drawee.'

Among the considerations upon which this holding was based was the following (page 539):

'Second. In the absence of evidence to the contrary, or a showing of an intention to assign a part of a fund in the hands of the drawee, or a part of the drawer's chose in action against the drawee, it should be presumed that the payee or holder of a check takes it upon the credit of the drawer, of whom he may collect, if payment be refused by the drawee.'

In Gardner v. Bank, 39 Ohio St. 601, the controversy was between assigness in insolvency and the owners and payees of a check or draft made by the insolvents. The assignees in insolvency were held to stand in the shoes of the insolvent debtors, and to have only their rights in the premises, and it was adjudged that parol evidence that the draft was for the exact amount owing by the drawers, in connection with other facts appearing from the evidence, sufficiently established the intention to transfer the property in the fund, and constituted an equitable assignment thereof, good as against the general creditors of the insolvent.

In the subsequent case of Covert v. Rhodes, 48 Ohio St. 66, 27 N. E. 94, it was held that where a check had been given for a part of a sum on deposit, which was not presented for payment until after the maker had made a general assignment for the benefit of creditors, the holder acquired no priority over general creditors in the amount to the depositor's credit which had been surrendered to the assignee in insolvency. There were, however, no special circumstances existing in the case to take it out of the operation of the general rule applicable to a check or draft given in the ordinary course of business.

In Hopkinson v. Forster, L. R. 19 Eq. 74, it was held that a check is not an equitable assignment of the drawer's balance at his banker's, but that circumstances might co-exist to create a charge upon the amount owing. Thus, in answering the contention that a letter forwarded by the maker of a check to the payee created a charge on the debt owing, the master of the rolls observed (page 75): 'You can have no charge in equity without an intent to charge. The letter on which you rely was not written with any intent to charge the fund. It was a mere letter of instructions to the bankers.' So, also, in Shand v. Du Buisson, L. R. 18 Eq. 283, it was held that a bill of exchange drawn for the exact amount of a fund was not an equitable assignment of the fund. It was urged, however (pages 288 and 289), that the defendant was entitled to the fund, because he 'advanced money of his own for the payment of the debt of the debtor, and that upon a contract then entered into he was entitled to the money, and that the bill of exchange is only evidence of that contract.' The vice chancellor, after observing that the claim thus urged 'must rest upon evidence,' proceeded to consider the evidence adduced, and held it to be insufficient.

In Thomsov v. Simpson, L. R. 5 Ch. 659, it was sought to establish a lien on funds by reason of the purchase of a bill of exchange drawn upon the holder of the fund. Lord Hatherley said: 'It is extravagant to say that a man who has an agent employed to pay bills creates a charge on the funds in the agent's hands by the mere drawing of a bill. It is necessary to make out a contract to charge specific funds which were with the agent, or which were on their road thither; for, if there was only a personal contract, that would give nothing but a right of action.' In the same case, Lord Justice James observed (page 662) that 'when it is attempted to make out, in addition to the written contract contained in a bill of exchange, a collateral parol agreement, it is most important to have clear and satisfactory evidence as to the exact words used.'

In the case of citizens' Bank of Louisiana v. First Nat. Bank of New Orleans, L. R. 6 H. L. 352, it was attempted to establish a parol contract that certain bills of exchange payable 60 days after sight should be paid out of a specific fund. The house of lords, however, held that the evidence exhibited merely an ordinary mercantile transaction for the purchase of a bill of exchange, and did not establish that it was intended to specifically appropriate a portion of a particular fund to the payment of the bills in question. It was, however, clearly recognized that an oral understanding, entered into in a transaction where a bill of exchange was delivered, might constitute an equitable assignment of a fund, for, in commenting upon the averments of certain facts on the subject of an assignment, Lord Chancellor Selborne said (page 359): 'That is the first part of the case, and of course, if proved, it would have been a very clear case of contract for an equitable assignment.'

In the light of these principles, we proceed to consider the facts certified, in order to ascertain whether, in the transaction connected with the giving of the check in question, there was either an express agreement to assign the fund, or to give a lien or charge thereon, or whether, if not express, such agreement is necessarily to be implied from the conduct of the parties, the nature of their dealings, and the attendant circumstances. The facts, succinctly stated, are that the Keystone Bank, through its president, solicited the Fourth Street Bank to give to the former $25,000 of gold certificates, for which the Keystone Bank was to give its check against its reserve account in the Tradesmen's National Bank of New York City. At the same time that this request was made the president of the Keystone Bank made the further statement that his bank owed a balance at the clearing house which it could not meet, 'because its funds were in the city of New York,' and exhibited a memorandum showing the amount to its credit with the Tradesmen's Bank to be in the neighborhood of $27,000. In reliance upon such representations, and the statements made supported by the memorandum exhibited, the Fourth Street Bank delivered to the Keystone Bank the certificates requested, and there was delivered a check for $25,000 upon the Tradesmen's National Bank of New York. The draft in question was at once forwarded to the city of New York, and was presented for payment at the Tradesmen's Bank on the following morning, when payment was refused. At the time of presentment the Tradesmen's Bank had to the credit of the Keystone Bank $19,725.62 in cash and collection items amounting to $7,181.70, in all $26,907.32. Of this amount $18,056.21 had been remitted by the Keystone Bank on the day previous.

When we look at the situation of the parties and the character of the transaction disclosed by the facts just referred to, no difficulty is experienced in ascertaining the intent of the parties. Both were banking institutions,-banks of deposit. They were located in the same city. They were not correspondents the one with the other, and there was no deposit account kept by the one with the other. Indeed, so far as the usual course of commercial transactions was concerned, the banks were strangers. The application, therefore, by the Keystone Bank to the Fourth Street Bank for accommodation under these circumstances precludes the conception that the relation between the parties was purely one of a usual and customary nature.

It cannot be doubted that a mere request for the loan by the Keystone Bank from the Fourth Street Bank would have been so surprising that the contract would not possibly have been made without a statement of the reason which rendered the request necessary. It is equally clear that the mere statement of the situation which caused the request to be made would, in itself, from any standpoint of business prudence, have made it the duty of the Fourth Street Bank to refuse without full security. It follows that the same reason which imperatively required the Keystone Bank to disclose the cause for its request also rendered it absolutely essential, in order to obtain the loan, that it indicate a specific source or means of payment outside of and beyond its mere general credit; in other words, that it should tender ample security for the loan which it requested. The deduction arises that, as it cannot be reasonably conceived that the loan would have been made without the reference to and assignment of the particular fund from which alone the hope of immediate payment was to be reasonably expected, the parties must have and did intend to create a particular appropriation, charge, or lien on the property upon the faith of which they both dealt. The transaction, therefore, was a proposition to borrow on the one hand, accompanied with the disclosure that security was necessary and tendering the security, and on the other hand an acceptance of such proposal, and an advance made on the faith of it. Not to conclude that such was the agreement and contract contemplated and actually entered into by the parties, would lead to the impossible and contradictory theory that the minds of the parties could not and would not have met on the subject of the loan unless a prerequisite link to that meeting of minds existed, and yet at the same time to hold that the minds had met without the existence of that prerequisite which was the very essence and necessary foundation of the agreement.

Considered in other respects, a like conclusion follows. The Fourth Street Bank, as stated, was under no obligation to grant the request of the Keystone Bank. It was to derive no pecuniary advantage whatever from the proposed transaction. It was not in any sense for the convenience of the Fourth Street Bank that the contract was made, and the bank clearly contemplated an immediate reimbursement, if it delivered the certificates asked for. Had the transaction been an ordinary one,-that of a time, or even demand, loan, made with a person in good credit in the line of his business,-and not, as it was, an extraordinary transaction, we might well presuppose that it was the expectation of the Fourth Street Bank that the borrower should merely have on hand with the Tradesmen's Bank, when the check was presented, a sufficient amount to pay it.

But the Keystone Bank, in disclosing its hazardous situation, and indicating the specific fund dedicated to the payment of the solicited accommodation, did not represent that it expected to further check against the Tradesmen's Bank before the check which it proposed to give might be presented. The statements made clearly implied to the contrary, exhibiting, as they did, the embarrassment of the borrowing bank, arising from the need of available cash to meet its clearings, and proposing a transaction by which the Fourth Street Bank would obtain from a bank, but a few hours distant, the prompt and certain payment of its advance.

As stated, this was manifestly not an ordinary mercantile transaction, but one of an extraordinary character; and when we consider the situation and conduct of the parties, the disclosures made at the time of the contract, and weigh the probabilities of the case, it is impossible to infer otherwise than that it was intended that the particular fund in the Tradesmen's Bank should be not only the source from which payment of the check to be given should be made, but that the fund should be transferred and appropriated pro tanto for that purpose. It is, of course, true, that the method adopted to evidence the appropriation was a check drawn generally upon the Tradesmen's Bank, but, as already stated, the authorities are clear that when it is established that it was the intention and agreement of the parties to a transaction the a check drawn generally should be paid out of a particular fund, such check, as between the parties, will be treated as though an order for payment out of a specific, designated fund.

It is not material, as affecting the rights of the Fourth Street Bank in the fund, that the sum with the Tradesmen's Bank was not exclusively a cash indebtedness, but in fact consisted partly of cash then owing and of money or drafts in the course of transmission to or collection by the New York bank. The receiver took no greater rights in the property of the insolvent bank which came into his possession than that which the insolvent bank possessed. Scott v. Armstrong, 146 U.S. 499, 507, 13 Sup. Ct. 148.

As the Fourth Street Bank contracted and parts with its money on the faith of the representations of the Keystone Bank that there was to its credit in the Tradesmen's Bank a specific sum, and the fund which came into the hands of its voluntary assignee is the fund as to which the representations were made, the Keystone Bank and its assignee are in equity estopped from asserting, to the prejudice of the Fourth Street Bank, that the character and condition of the fund was otherwise than it was represented to be.

In answer to the suggestion, made in the argument at bar, that possibly the collection items may not have belonged to the Keystone Bank, but may have been the property of others for whom the bank merely held them for collection account, it suffices to say there is no intimation to this end in the facts stated. It is, consequently, unnecessary to determine any question as to priority of payment out of the fund, except that presented by the conflict between the Fourth Street Bank and the assignee in insolvency representing the general creditors of the Keystone Bank.

The first question propounded will therefore be answered in the affirmative, thus rendering it unnecessary to pass upon the second question certified, and it is so ordered.

Mr. Justice GRAY, Mr. Justice BREWER, and Mr. Justice PECKHAM dissent. 

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