215 U.S.

Argument for Defendant in Error.

Mr. Percy S. Dudley for plaintiff in error:

Plaintiff in error had the right to retain the notes under the express terms of the collateral agreement. Auten v. Bank, 174 U. S. 125, 145; Hiscock v. Varick Bank, 206 U. S. 28, and cases cited. As to scope of words "or otherwise" see Farr v. Nichols, 132 N. Y. 327. As bailee of the notes the Hanover Bank had a lien on them. Benjamin on Sales, § 2, Am. note. As to construction of the agreement, see Gillet v. Bank, 160 N. Y. 549; Sattler v. Hallock, 160 N. Y. 291, 297; Church v. Hubbart, 2 Cranch, 233; Hutchinson v. Manhattan Co., 150 N. Y. 250; 21 Am. & Eng. Ency. Law, 2d ed., 1016. Plaintiff in error had the right to retain the notes by virtue of its bankers' lien. 1 Daniel's Neg. Inst., 5th ed., 342; 1 Morse on Banks, 4th ed., § 324; Reynes v. Dumont, 130 U. S. 354, 390; Biebinger v. Continental Bank, 99 U. S. 143; Bank of Montreal v. White, 154 U. S. 660; Petrie v. Myers, 54 How. Pr. 513, distinguished, and see Armstrong v. Chemical Bank, 41 Fed. Rep. 234; Continental Bank v. Weems, 60 Texas, 489.

The receiver of the Abilene Bank took the assets subject to the claim of the Hanover Bank and obligation existing when he took possession. Scott v. Armstrong, 146 U. S. 499; Rankin v. City Nat. Bank, 208 U. S. 541.

The Hanover Bank had the consent of the Abilene Bank to retain the notes. Mailing the letters was a delivery and had the Abilene Bank mailed cash it would have been subject to lien of Hanover Bank although not delivered until after the failure; it is so also as to these notes. McDonald v. Chemical Nat. Bank, 174 U. S. 610; Ruggles v. Am. Cent. Ins. Co., 114 N. Y. 415.

Mr. Edward B. Whitney, with whom Mr. Francis F. Oldham was on the brief, for defendant in error:

The Hanover Bank had no general lien on the notes involved. Brandao v. Barnett, 12 Cl. & Fin. 787; Story on Agency, 381; 1 Morse on Banks, 4th ed., 597; Bank of Mel.

Opinion of the Court.

215 U. S.

v. N. E. Bank, 1 How. 234, 239; Leese v. Martin, L. R. 17 Eq. 224, 235; Reynes v. Dumont, 130 U. S. 354. These and other cases all hold that where securities are sent for a specific purpose the recipient cannot hold them for any other purpose but must return them. 1 Jones on Liens, 2d ed., 244; Lucas v. Dorrien, 7 Taunt. 278; Petrie v. Myers, 54 How. Pr. 513; Bank of Montreal v. White, 154 U. S. 660. The bank becomes a trustee to apply the securities as directed by the sender. Libby v. Hopkins, 104 U. S. 309.

The Hanover Bank had no lien on the notes under the agreement and there was no other agreement or consent under which that bank could hold them. There was no proposal or acceptance as to the collateral loan and payment of overdraft. 9 Cyc. 293; Meyrell v. Surtees, 25 L. J. Ch. 257, 262; Scott v. Armstrong, 146 U. S. 511.

MR. JUSTICE WHITE delivered the opinion of the court.

The predecessor of the present receiver of the American National Bank of Abilene, Texas, sued, in April, 1905, to recover from the Hanover National Bank of New York four promissory notes or their value.

We shall refer to the corporations as the Abilene Bank and the Hanover Bank.

At the trial, under instruction, there was verdict for the Hanover Bank, and the judgment thereon was reversed. Van Zandt v. Hanover Nat. Bank, 149 Fed. Rep. 127. In conformity to the opinion of the Circuit Court of Appeals, on the new trial a verdict was directed in favor of the receiver, and to reverse the affirmance of that judgment (Hanover Nat. Bank v. Suddath, 153 Fed. Rep. 1021) this writ of error is prosecuted.

The facts are these: Prior to November, 1903, the Abilene Bank was a correspondent of the Hanover Bank, and had an account with the latter. The credit of this account was principally made up by the proceeds arising from the rediscount

ing by the Hanover Bank of commercial paper for account of the Abilene Bank. On November 27, 1903, the Abilene Bank signed an agreement concerning the right of the Hanover Bank, under conditions stated, to attribute to the payment of debts due it by the Abilene Bank securities in its hands belonging to the Abilene Bank. In January, 1905, the Hanover Bank was contingently responsible for commercial paper, aggregating probably sixteen or seventeen thousand dollars, which it had rediscounted for the Abilene Bank, and upon which the latter bank was ultimately liable.

On January 9, 1905, the Abilene Bank transmitted by mail to the Hanover Bank a note of the Hayden Grocery Company for $2,000, drawn to the order of the Abilene Bank and by it indorsed, the letter stating that the note was sent for discount and credit. On the next day-the tenth-the Abilene Bank also transmitted by mail a note drawn by R. H. Logan and W. R. Logan to its order, and by it indorsed likewise, with a statement that it was sent for discount and credit. On the twelfth of the same month the Abilene Bank again transmitted to the Hanover Bank for discount and credit two other notes, one drawn by L. W. Hollis for $3,500, and indorsed, as were the previous notes and a note of C. B. and W. F. Scarborough, for $1,500 likewise so indorsed, the letter of transmittal yet again stating that they were sent for discount and credit.

The Hayden Grocery Company and the Logan notes, forwarded on the ninth and tenth of January, reached the Hanover Bank on the fourteenth; and on that day it telegraphed to the Abilene Bank, declining to discount the notes, and by a second telegram said: "Referring to previous dispatch transfer or ship currency," which, according to the counsel. for the Hanover Bank, meant to call upon the Abilene Bank either to transfer a credit from some other bank or ship currency direct. It is not shown that any reply, either by telegram or letter, was made to the messages thus sent on the fourteenth. The notes forwarded on the twelfth reached the Hanover Bank on the sixteenth, and the latter at once teleVOL. CCXV-8

graphed, "Not satisfactory," and confirmed the telegram by a letter, saying: "We are not discounting inclosures for you, but hold same as collateral to your indebtedness to us." The Abilene Bank did not reply by telegram but on the same day wrote to the Hanover Bank as follows:

"We have just received your wire. The rediscounts we sent you were mostly renewals and in every instance 'good as gold.'

"Since the drop in cotton, collections are at a standstill, and our clients expect us to stay with them, and we are obliged to ask the same indulgence from our correspondents. "Should you prefer, we will send our B/P with collaterals attached.

"We trust you will accord us the leniency asked for."

On the morning of January 17, 1905, there stood on the books of the Hanover Bank to the credit of the Abilene Bank the sum of $616.15. On that day a check on the Hanover Bank, dated January 11, 1905, drawn by the Abilene Bank for the sum of $3,825.45, payable to the New York Life Insurance Company, as also some small checks, passed through the clearing house. Upon attention being directed to the overdraft which thereby resulted a telegram was sent to the Abilene Bank, referring to the previous letters and telegrams, and asking that bank what it had done. No reply having been received before the close of business on that day, the vice-president of the Hanover Bank, after examining the written agreement to which we have previously alluded, allowed the overdraft to stand, and to cover the same made an entry of a loan of $3,500 to the Abilene Bank, which was placed to the credit of that bank, and after absorbing the overdraft, left to its credit the sum of $63.74. On the same day the Hanover Bank wrote to the Abilene Bank, saying: "As your account showed overdrawn to-day over $3,000, have made you a temporary loan of $3,500 against collateral in our hands." On the next day (January 18) the Abilene Bank closed its doors.

It is to be observed that of the letters, the one by the Hanover Bank, written on the seventeenth of January, and the one written on the previous day by the Abilene Bank, did not reach their destination until after the failure of the Abilene Bank.

Thereafter Richard L. Van Zandt was appointed receiver, and, as we have said, commenced this action to recover the possession of the four notes which had been transmitted to the Hanover Bank as above stated, or the value of such notes, and in the course of the action the proceedings took place to which we have at the outset referred. The ground relied upon for recovery was that as the notes had been sent to the Hanover Bank for discount for the account of the Abilene Bank, upon the Hanover Bank refusing to discount them that bank had no claim whatever upon the notes, and had no right to apply them as collateral to the payment of the voluntary overdraft which had been allowed on the seventeenth of January, and thus obtain a preference to the extent of the appropriation over the general creditors of the Abilene Bank. It suffices to say that the defense of the Hanover Bank controverted this contention, and asserted that the appropriation of the notes was justified under its general bankers' lien or under the terms of the special agreement of November 27, 1903. During the pendency of the action the Hanover Bank collected three of the notes, deducted from their proceeds the sum of $3,725.86 then due, and paid to the receiver the balance and also delivered to him the uncollected note, being the note of R. H. Logan and W. R. Logan, which had been transmitted to the Hanover Bank on January 10 and was by it received on the fourteenth.

It is contended that the appellate court erred in affirming the ruling of the Circuit Court, directing a verdict for the receiver. The grounds for this contention are that the evidence showed that the Hanover Bank had the right to retain the four notes or the balance of their proceeds, by virtue of its general bankers' lien; and, if not, as a result of the express