Opinion
No. 32199.
June 15, 1936. Suggestion of Error Overruled October 5, 1936.
1. PLEADING.
Where original bill sought merely to correct entry on books of collecting bank charging principal bank with renewal notes which collecting bank had unauthorizedly accepted, amendment, setting forth prior dealings and failure of collecting bank at such times to disclose maker's financial difficulties, and alleging that if so informed it would not have accepted prior renewals, held to present different cause of action, justifying sustaining of demurrer thereto.
2. BANKS AND BANKING.
By accepting notes presented for collection, collecting bank became agent of forwarding bank for that purpose, charged with duty either of collecting notes and crediting forwarding bank with money so collected, or of returning them to forwarding bank.
3. BANKS AND BANKING.
Principal bank was under no obligation to collecting bank, which had without authority accepted renewals of notes sent it for collection, to have undertaken collection of such notes by prompt legal proceedings, since unauthorized surrender of original notes by collecting bank to maker was a conversion of the notes by which collecting bank became liable to principal for their value.
4. TROVER AND CONVERSION.
Purpose which the law seeks to accomplish by giving owner of property right of action against converter is, not to enrich owner at expense of converter, but to compensate him for damages sustained by the conversion, the measure of which, in absence of circumstances warranting punitive damages, is value of property at time of conversion.
5. TROVER AND CONVERSION.
Value of note, for purpose of determining damages for its conversion, is prima facie that which appears on its face, in view of presumption that maker of note will pay it, but converter has right to overcome such presumption by showing that note is of less or no value.
6. EVIDENCE.
In suit by principal bank seeking to charge collecting bank with loss resulting when collecting bank unauthorizedly accepted renewals of notes sent it for collection, reports of appraisers of estate of bankrupt maker were not admissible to show value of maker's property prior to filing of petition in bankruptcy, since appraisal was made after business of bankrupt ceased to be going concern and introduction of report instead of appraisers prevented cross-examining of appraisers (Bankr. Act, secs. 1, 67c, 11 U.S.C.A., secs. 1, 107(c)).
7. EVIDENCE.
In suit by principal bank seeking to charge collecting bank with loss resulting when collecting bank unauthorizedly accepted renewals of notes sent it for collection, report of trustee of bankrupt maker was inadmissible to show value of bankrupt's property prior to filing of petition in bankruptcy (Bankr. Act, secs. 1, 67c, 11 U.S.C.A., secs. 1, 107(c)).
8. BANKRUPTCY.
"Fair valuation," as used in section of Bankruptcy Act providing that person shall be deemed insolvent whenever his property shall not at a fair valuation be sufficient to pay his debts, is not the value that would or did prevail at sacrificed or forced sale (Bankr. Act, sec. 1, 11 U.S.C.A., sec. 1).
APPEAL from chancery court of Hinds county. HON. V.J. STRICKER, Chancellor.
Wm. I. McKay, of Vicksburg, O.B. Triplett, Jr., of Forest, and Lotterhos Travis, of Jackson, for appellant.
It was error for the court below to sustain a demurrer to the amendment to the bill of complaint. After remand of the case, leave of court was obtained and an amendment to the bill of complaint filed. The doctrine is so well established that upon remand of a case, even where the court has given specific instructions as to the procedure in the trial court, the parties shall have the right to amend the pleadings just as fully as they could have before the first appeal was taken, that it seems unnecessary to cite authorities.
Griffith's Chancery Practice, sections 697 and 700; Perkins v. Watson, 92 Miss. 452, 46 So. 80; Haines v. Haines, 98 Miss. 830, 54 So. 433; Middleton v. Davis, 105 Miss. 152, 62 So. 164; Strauss v. National Parlor Furniture Co., 76 Miss. 343, 24 So. 703; Barataria Canning Co. v. Ott, 88 Miss. 771, 41 So. 378; Burroughs v. Vance, 75 Miss. 696, 23 So. 548; People's Bank v. Pennington, 137 Miss. 653, 102 So. 386.
It was error for the court below to permit proof that general creditors of Hiawatha Milling Company received only five per cent through the bankruptcy.
It was error for the court below to permit the report of the trustee in bankruptcy to be placed in evidence.
On a trial of the question of insolvency of a person who has gone into bankruptcy it is held that the test is not what his assets subsequently brought, nor what the subsequent history of his properties may be.
Chicago Title Co. v. Roebling, 107 F. 71; Rutland County Bank v. Graves, 156 F. 168; In re Cleveland Discount Co., 9 F.2d 97.
It was error for the court below to sustain the defendants' motion after the conclusion of the trial and permit introduction in evidence of the appraisers' reports with reference to the properties of Hiawatha Milling Company.
Freeman v. State, 108 Miss. 818, 67 So. 460.
The court below committed error in dismissing the bill of complaint, but to the contrary the court should have granted the complainant a decree for the full amount of the note, plus interest from February 21, 1930, plus a ten per cent attorneys' fee, less, however, the credits already made on said note. Since the Capital National Bank had no authority to take renewal notes on behalf of the Bank of Forest, the debit of fifteen thousand dollars made against the Bank of Forest on February 21, 1930, should be cancelled.
7 C.J. 605.
Since the Capital National Bank unlawfully surrendered and permitted to be cancelled the note which matured February 21, 1930, the measure of damages of the Bank of Forest, as the owner of the note, is the face amount thereof.
19 A.L.R. 555; Federal Reserve Bank v. Malloy, 68 L.Ed. 617, 31 A.L.R. 1261; Anderson v. Gill, 79 Md. 317, 29 A. 527; Bank of Shaw v. Ransom, 112 Miss. 440, 73 So. 280; Capitol State Bank v. Lane, 52 Miss. 677; Parodi v. State Savings Bank, 74 So. 280, 113 Miss. 364; Peoples Gin Co. v. Canal Bank, 144 So. 858; Mangum v. Ball, 43 Miss. 288; 2 Paton's Digest, sec. 1467-A; National Bank v. American Bank, 74 Am. St. Rep. 527; Kirkland v. Bank, 58 N.E. 753; First National Bank v. Commercial Bank, 242 P. 356; National Bank v. U.S.F. G. Co., 71 F.2d 618; Fifth National Bank v. Ashworth, 2 L.R.A. 491; Bank v. Union Trust Co., 23 L.R.A. 611; A.L.I. Restatement Agency, sec. 402.
In the case at bar the Capital National Bank was not authorized to deliver the note owned by the Bank of Forest to the Hiawatha Milling Company except upon payment in cash. Hence, when delivery was made without payment in cash the Capital National Bank became liable for the amount of the note, plus interest.
There are a great many authorities squarely on the proposition that the collecting agent becomes liable for the face amount of the paper when it accepts anything besides cash in settlement and surrenders the original paper. Although we would like very much to quote some of these opinions to the court, we feel that in the interest of keeping this brief within reasonable limits we can only cite these cases to the court so that the court may examine the cases if it deems further authority necessary on this proposition.
Andrew v. Darrow Bank, 217 N.W. 438; Virtue v. Danberry Bank, 218 N.W. 58; Gowling v. Amer. Express Co., 76 S.W. 712; Bank v. First National Bank, 83 S.W. 537; Landa v. Bank, 94 S.W. 770; Hobby v. King Trailer Co., 273 S.W. 650; Essex Nat. Bank v. Bank, Fed. Cas. No. 4532 (CC Ill.); Commercial Bank v. Union Bank, 11 N.Y. 203; Nunnemaker v. Lanier, 48 Barb. 234; Revere Bank v. National Bank, 66 N.Y.S. 662; McClure v. Osborne, 86 Ill. App. 465; First National Bank v. Commercial Bank, 242 P. 356; 6 Michie, Banks and Banking, sec. 65, page 110.
If the damages are to be based on the actual value of said note, the complainant is entitled to recover the full amount thereof, because by attachment proceedings it could have obtained complete protection if the Capital National Bank had not been guilty of a breach of duty. The burden of proof is on the Capital National Bank to show insolvency at the time when the attachment could have been obtained.
7 C.J., Banks and Banking, 623, sec. 297, and note 52; 19 A.L.R. 555, 560; 2 Paton's Digest, par. 1465-A; First National Bank v. Bank, 58 F.2d 553; Citizens Bank v. Third National Bank, 49 N.E. 171; Nat. Revere Bank v. Bank, 64 N.E. 799; Patten v. Merchants Bank, 86 Am. Dec. 273; First National Bank v. Bank, 33 Am. Rep. 618; 32 Am. Dec. 569, annotation; First National Bank v. First National Bank, 252 S.W. 594; Dern v. Kellogg, 74 N.W. 844; Omaha Bank v. Kiper, 82 N.W. 102; Fitch v. Scott, 3 How. 314; A.L.I. Restatement, Agency, sec. 381; Partee v. Crawford, 163 So. 389; Citizens Bank v. Third National Bank, 49 N.E. 171; National Bank v. American Bank, 74 Am. St. Rep. 527; Lord v. Hingham Nat. Bank, 71 N.E. 312; Armory v. Delamirie, 1 Strange 505, 93 English Reprint 664; U.S.C.A., Title 11, sec. 107, clauses "c" and "f," and annotation 151, and sec. 1, clause 15; Black on Bankruptcy, sec. 236; 7 C.J. 197, sec. 292; McGill v. Commercial Credit Co., 243 Fed. 637; In re Chappell, 113 F. 545; Schuette v. Swank, 109 A. 531; Stern v. Paper, 183 F. 228, 198 F. 642; Rutland Bank v. Graves, 156 F. 168; In re Cleveland Discount Co., 9 F.2d 97; In re Klein, 197 F. 241; Empire State Trust Co. v. Fisher, 57 A. 502; Arnold v. Knapp, 84 S.E. 895.
The burden of proof is on the Capital National Bank to prove insolvency, if it is to reduce the amount of damages to less than the face amount of the paper.
7 C.J., 622; In re Ann Arbor Co., 278 F. 749; First State Bank v. Fox, 10 F.2d 116; Jenkins v. North Pole Ice Co., 83 Pa. Super. 360; Keystone Brewing Co. v. Schermer, 88 A. 657; Lamb v. Kelley, 125 S.E. 102; Jobbers' Co. v. Goldstein, 265 S.W. 1085; Freeman v. State, 108 Miss. 818, 67 So. 460.
The evidence shows in fact that at the time when the Bank of Forest could have obtained an attachment but for the wrongful conduct of the Capital National Bank, the Hiawatha Milling Company was solvent under the bankruptcy definition.
7 C.J. 37; Freeman v. State, 108 Miss. 818, 67 So. 460.
We especially call attention to the fact that on the first appeal this court held the defendants liable and reversed the case for further proof, if needed, to determine the amount of the liability. Such proof was introduced in the present record and on this record a final judgment should be entered.
McCoy v. Tolar, 128 Miss. 202, 90 So. 628; Hattiesburg Bottling Co. v. Price, 143 Miss. 14, 108 So. 291; Davis v. Dansler Lbr. Co., 126 Miss. 812, 89 So. 148; Couret v. Connor, 123 Miss. 456, 86 So. 277; Grenada Grocery Co.. v. Tatum, 113 Miss. 388, 74 So. 286; Hinds v. Cole, 123 Miss. 254, 85 So. 199; Joe Duck Kwong v. Levee Commissioners, 164 Miss. 250, 144 So. 693; Fowlkes v. Hardin, 109 Miss. 318, 68 So. 468; Booker v. Federal Land Bank, 164 So. 877.
As we understand it the court desires a brief on the question whether the Bank of Forest might have maintained an action against Hiawatha Milling Company on the notes maturing February 21, 1930, after said notes had been surrendered to Hiawatha Milling Company by the Capital National Bank and new notes taken, maturing May 15, 1930. This question must be answered in the negative.
Immediately when the Capital National Bank surrendered the entire lot of paper to Hiawatha Milling Company and took renewals on February 17, 1930, the Hiawatha Milling Company was thereby protected from any claim of liability or responsibility prior to maturity of the new paper.
The fundamental basis of the entire law of negotiable paper is that one who deals with the holder of negotiable paper, when acting in good faith and without actual notice of defects in the title, will be protected. This is the fundamental difference between the law of negotiable instruments and the law of ordinary personal property.
3. R.C.L., Bills and Notes, secs. 12, 190; A.L.I., Restatement, Agency, sec. 6, Comment (b); McGee v. Carver, 141 Miss. 463, 106 So. 760; Gidden Motor Co. v. Johnston, 155 Miss. 328, 124 So. 367.
As to the effect of the taking of renewal notes by the holder of negotiable paper, we find the rule to be clearly established that no action can be brought until maturity of the renewal notes.
3 R.C.L., Bills and Notes, sec. 439; 8 C.J., Bills and Notes, sec. 636.
Under the law of agency the Capital National Bank had apparent authority and, therefore, actual power to take renewals.
2 Am. Jur., Agency, sections 101 and 102, 104; A.L.I., Restatement, Agency, secs. 8, 43, 49, 32-48 and 50-81; Wilkins v. Commercial Bank, 6 How. 217; Wilcox v. Routh, 9 S. M. 476; Thurmond v. Carter, 59 Miss. 127; Germania Life Ins. Co. v. Bouldin, 100 Miss. 660, 56 So. 609; Birdsong v. Craig, 111 Miss. 708, 72 So. 136; Myers Const. Co. v. Batson, 156 Miss. 689, 126 So. 822; Kelly v. Simplex Co., 156 So. 520; Gallinger v. Lake Shore Traffic Co., 67 Wis. 529; E.D. Keys Co. v. Union Pacific Tea Co., 81 Vt. 420; Kent Com., secs. 616 and 615; Walsh v. Pierce, 12 Johns 300; Ins. Co. v. McCain, 96 U.S. 84; Hazard v. Treadwell, 1 Str. 507; Hooe v. Oxley, 1 Wn. (Va.), 19, 1 Am. D. 425; 2 C.J., Agency, sections 202, 211 and 218.
Alexander Satterfield, of Jackson, for appellee.
The action of the court in allowing reopening of evidence was proper.
The court below properly sustained demurrer to the amendment to the bill of complaint.
No evidence was introduced at the former hearing bearing upon the real or actual value of the notes, and the case was reversed and remanded "for the reformation of the pleadings and the development of the case to that end, if the parties deem it necessary." The complainant made no motion to amend to present any allegations with reference to the value of the notes, but did offer an amendment which brought in a new, different and distinct cause of action.
Such causes of action arising at a different time with reference to this renewal of the indebtedness, and based upon entirely different principles of law, were totally improper amendments to the bill of complaint in this case, especially when the case had been decided on its merits in the Supreme Court and was remanded for the purpose of fixing the amount of damage only.
Peoples Bank v. Pennington, 137 Miss. 654, 103 So. 144; Y. M.V.R.R. Co. v. Scott, 108 Miss. 871, 67 So. 491, L.R.A. 1915E 239; Chapman v. Machine Co., 78 Miss. 438; Porterfield v. Butler, 47 Miss. 167; Fisher v. Mississippi-Tennessee Railroad Co., 32 Miss. 359.
We believe that it is clear in this case that by the amendment the complainant completely deserted the ground which he took in the original bill of complaint and the amendment did not in any manner support and fortify the same.
Hardy v. O'Pry, 102 Miss. 197, 59 So. 73; Lion Oil Refining Co. v. Crystal Oil Co., 156 So. 593; Thompson v. Hill, 119 So. 320, 152 Miss. 390; American Cotton Oil Co. v. House, 118 So. 722; Hixon Lbr. Co. v. Thorn, 158 So. 909; Gladney v. Gladney, 106 So. 768, 141 Miss. 366.
Assuming that the Capital National Bank should not have surrendered and permitted to be cancelled the notes which matured February 21, 1930, the measure of the damages which the Bank of Forest suffered should not be held to be the face amount of the notes.
Federal Reserve Bank v. Malloy, 68 L.Ed. 617; State v. Love, 150 So. 196.
There is nothing in the record which establishes that any action taken by the Capital National Bank "changed the rights and obligations of the parties to the paper." The actions of the Capital National Bank in trying to secure the renewal notes for itself, other affiliated banks and the Bank of Forest, did not change the obligation of the Hiawatha Milling Company to the Bank of Forest.
Anthony Brothers v. Bank of Sebastopol, 118 So. 198.
The true rule supported by the overwhelming weight of authority is that the damages are measured by the actual loss suffered by the owner of the paper in consequence of the negligence or misconduct of the bank.
Interstate National Bank v. Ringo, 83 P. 119; Central Exchange National Bank v. First National Bank, 214 S.W. 660; Royal Bank of Canada v. Universal Export Corp., 10 F.2d 669; Bank of Keo v. Bank of Cabot, 294 S.W. 49; Behringer v. City National Bank, 296 S.W. 674; 7 C.J. 623, par. 297; Meadville First National Bank v. New York Fourth National Bank, 77 N.Y. 320; 3 R.C.L. 631, par. 260; Northwestern National Bank v. Peoples Bank, 19 A.L.R. 555; Mangum v. Ball, 43 Miss. 288; Fitch v. Scott, 4 How. 314.
If the Capital National Bank were held liable for the face amount of the notes, regardless of their real value, the Bank of Forest would be allowed to make a profit out of the transaction. In other words, if they were in fact uncollectible, and their real value was five per cent, but the Bank of Forest was allowed to recover from the Capital National Bank their face value less the five per cent received, the Bank of Forest would make a profit out of error of the Capital National Bank to the extent of ninety-five per cent of the face of the paper. We do not believe that equity will allow any person to make a profit out of another's mistake. The most that they can ask is to have the court keep them from suffering a loss by such mistake, or as the Supreme Court states it, to be recompensed for the "loss sustained." The only loss sustained here is the difference between the amount received by the Bank of Forest and the actual real value of the notes, if there is any such difference.
Federal Reserve Bank v. Malloy, 68 L.Ed. 617, 31 A.L.R. 261.
Plaintiff has burden of proving actual loss, if any, sustained because of acceptance of renewal note by collecting bank.
Anthony Brothers v. Bank of Sebastopol, 118 So. 198; Bank of Keo v. Bank of Cabot, 294 S.W. 49; 2 Michie on Banks and Banking, page 1474; 7 C.J. 622, sec. 295; 3 R.C.L. 622.
Complainant suffered no actual loss because of action of defendant in accepting renewal notes.
Remington on Bankruptcy, par. 1764.
The authorities are overwhelming that the inventory and appraisals, the amounts received by the sale of the properties, and other facts reflected in the record of bankruptcy are competent evidence bearing upon insolvency.
Remington on Bankruptcy, sections 1756 and 1757; Collier on Bankruptcy, par. 1, pages 24-26; In re Miller, 104 Fed. 764; In re Haskin, 109 Fed. 789; Reiter v. Bierstein, 287 Fed. 429.
There is certainly no question that the Bank of Forest did not lose any of its rights to sue the Hiawatha Milling Company in any way it saw fit, because of the unauthorized attempt of the Capital National Bank to renew its paper.
The appellant, Bank of Forest, is placed in the unusual dilemma of urging that the renewal is void, and then trying to hold itself bound as if the renewal was valid. If the renewal was void, then there was no renewal. A failure to return the old notes, after the void attempt to renew them, did not destroy the original liability of the Hiawatha Milling Company on the old notes.
It is manifestly inequitable to hold that the old notes belonged to the Bank of Forest and the renewal notes belonged to the Capital National Bank.
This is a technical law suit. It is seeking a recovery on a mere book entry — asking that the credit remain and the debit be eliminated. It seeks to avoid the act of renewal, but to place upon themselves the burden that a valid renewal would have inflicted — it seeks to predicate liability on the mere fact of a failure to return the old notes, when the liability remained the same, with the same parties and the same amount, and they were not required to accept the renewal notes. The Bank of Forest does not want the renewal notes nor the old notes. They want to penalize the Capital National Bank for its unintentional mistake in assuming it had the right to renew the paper of the Bank of Forest as it had done for thirty years or more.
As between the Bank of Forest and the Hiawatha Milling Company the Bank of Forest was the principal and the Capital National Bank the agent. The Hiawatha Milling Company could not have defended an action on the notes by insisting on the fact that the notes had been renewed and were not then due.
Mr. Sherrod knew that the authority of the Capital National Bank as a collection agent was circumscribed and limited. Such authority was limited by the laws of Mississippi, by custom, and by direct instructions to the agent.
21 R.C.L. 908, par. 85; 1 A.L.I., Restatement, Agency, pars. 166, 167.
We insist that since the attempted renewal of the Hiawatha Milling Company notes was unauthorized and therefore void, the Bank of Forest had the same rights after the attempted renewal as before. Assuming, however, for arguments sake, that the renewal of the notes as to the Hiawatha Milling Company had been effected, what effect would this have on the rights of the Bank of Forest to protect itself by legal action for the period from February 21 to February 28, 1930.
Why couldn't the Bank of Forest have attached the Hiawatha Milling Company at law, even if the debt was not due?
Sec. 138, Hemingway's Code.
Would not the Bank of Forest have the right to come into equity, join Hiawatha Milling Company and bank, allege the unauthorized renewal, and other equitable rights and attach the nonresident defendant, Hiawatha Milling Company, under this code section without bond?
Independently of the nonresident attachment statute in chancery, the Bank of Forest could have maintained an attachment suit in equity.
Zecharie v. Bowers, 1 S. M. 584; Dolman v. Moore, 70 Miss. 267; Gordon v. Warfield, 74 Miss. 553; Trotter v. White, 10 S. M. 607.
What was the effect of the rejection of the renewal offered by the Capital National Bank to the Bank of Forest? Does the rejection of the renewal by the Bank of Forest ipso facto make the Capital National Bank a purchaser of the paper? Certainly the rejection of the renewal should do no more than to entitle the Bank of Forest to exercise its rights under the old paper. We are constrained to believe that no efficacy will be attributed to the methods by which these transactions were handled at the Capital National Bank. The memorandum credits and debits created no liability nor enlarged any rights that the parties had. This was a mere detail of handling paper and a system of record entries. When the renewal was rejected the natural and proper result was that the matter returned to the original status quo, and a mere courteous notice to the Hiawatha Milling Company by the Bank of Forest would have secured the return of the old notes in lieu of the renewal notes, and the Bank of Forest could have proceeded on the old notes just as if the renewal had not been attempted.
We respectfully urge that we have established by the record that even if the Bank of Forest had taken any action by attachment or otherwise against the Hiawatha Milling Company during the week immediately preceding the filing of the bankruptcy petition, such action would have availed nothing, since the Hiawatha Milling Company was then insolvent.
Argued orally by Fred Lotterhos, for appellant, and James Alexander, for appellee.
This is the second appearance of this case in this court. On the former appeal we said: "This case is unusual in many of its aspects," to which we may now add that it became more so after its return to the court below. It began with a bill in equity seeking the cancellation of a charge on the appellee bank's books against the appellant for three promissory notes of the Hiawatha Milling Company, which the appellee bank had forwarded to the appellant for purchase by it, which notes the appellant rejected, and requested the cancellation of the charge therefor against it. Without any amendment of the bill of complaint the case was proceeded with on the second trial as if the question at issue was the liability vel non of the appellee bank for a loss claimed to have been sustained by the appellant because of the method pursued by the appellee bank in dealing with three notes of the Hiawatha Milling Company forwarded by the appellant to it with instructions to collect and credit to the appellant.
The appellant's bill of complaint alleges, in substance, that on and prior to February 21, 1930, the complainant was doing a general banking business at Forest, Miss., and had with the defendant bank at Jackson, Miss., a deposit to its credit. It frequently purchased from the defendant bank commercial paper, and on February 21, 1930, that bank without any request from the complainant so to do mailed the complainant three five thousand dollar notes of the Hiawatha Milling Company, each dated February 17 and due May 15, 1930, in a letter stating that it had charged the complainant's account therewith. The appellant declined to accept the notes, tendered them to the defendant bank, and demanded the cancellation of the charge to it therefor, which it refused to do. Afterwards the Hiawatha Milling Company was adjudged a bankrupt, and by agreement with the defendant bank that its rights herein would not be prejudiced thereby the appellant filed the notes in the bankruptcy proceeding, on the termination of which it received two dividends thereon aggregating seven hundred sixty dollars and ninety cents. During the year 1933 the defendant bank ceased to do business, entered into and is now in liquidation; because of this wrongful fifteen thousand dollar charge against it the complainant's account with the defendant bank was fourteen thousand two hundred thirty-nine dollars and ten cents less when it went into liquidation than it would have been had the fifteen thousand dollar charge not been made; because of which the complainant received seven thousand one hundred nineteen dollars and fifty-five cents less from the liquidators when distributing the two dividends than it would have received had the fifteen thousand dollar charge to it not been made.
The prayer of the bill is: "That its (the complainant's) deposit account in and with the defendant bank be reformed and corrected, as of February 21, 1930, so as either to cancel said unlawful charge of $15,000.00, or to credit the same with said sum of $15,000.00, and to charge the same with said sum of $450.10 as of Dec. 8, 1930, and with the said sum of $310.80 as of Apr. 3, 1931, so as that, on the date the defendant bank went into liquidation, the complainant's deposit be increased by the sum of $14,239.10; that defendant be required to pay to complainant the sum of $7,119.55 in cash on such corrected deposit, and to pay complainant, on the basis of such corrected deposit, the same percentage of dividends as are paid to other depositors; that complainant be granted a mandatory injunction, commanding the defendants so to reform and correct said account and to make payments thereon as so reformed and corrected; that complainant be paid interest at the legal rate on the said sum of $7,119.55 to date of payments; and complainant prays for general relief." The bank's liquidators, A.B. Campbell, S.C. Hart, and J.T. Brown, together with the bank itself, were made defendants to the bill.
The defendants filed a joint answer to the bill, in which they admit that the defendant bank forwarded three Hiawatha Milling Company notes to the complainant and charged them to the complainant on its books; that the complainant refused to accept them, tendered them to the defendant bank, and demanded the cancellation of its charge against it therefor, and that the defendant bank refused to accede thereto; that thereafter the Hiawatha Milling Company was adjudged a bankrupt; and that the complainant, pursuant to its alleged agreement with the defendant bank, filed these notes in the bankruptcy proceeding and received the alleged dividend thereon. The answer then proceeds to set forth, as what actually occurred, a state of facts very different from that alleged in the bill of complaint, which, in substance, is as follows: The complainant purchased from the defendant bank in 1927 three notes of the Hiawatha Milling Company of five thousand dollars each, on the maturity of which it forwarded them to the defendant bank, which took renewals therefor and forwarded them to the complainant which accepted them. This was in accord with the usual custom of the two banks in dealing with each other, and these notes were several times thus renewed. The last of these renewal notes of the Hiawatha Milling Company accepted by the complainant matured on February 21, 1930, on or about which date they were forwarded to the defendant bank and renewal notes therefor, due May 15, 1930, were accepted by the defendant bank in accordance with the usual custom of the two banks. When the notes that matured on February 21, 1930, were received by the defendant bank, in accordance with its usual custom, it credited the complainant therewith on its books of account, and when it received the renewal notes therefor from the Hiawatha Milling Company it charged the complainant therewith and forwarded the notes to it. The defendant bank did not intend, by crediting the complainant with the notes, to thereby become the purchaser thereof, both the credit and debit entries relative thereto being mere bookkeeping entries to preserve a record of what was done, all of which was known to the complainant. The answer then denies that the complainant's deposit was reduced by these bookkeeping entries, and that the complainant is entitled to the relief prayed for.
On the first trial no attempt was made by the complainant to prove the allegations of its bill of complaint, i.e., in substance, the defendant bank offered to sell the complainant three notes of the Hiawatha Milling Company, which offer the complainant rejected, but nevertheless the defendant bank charged the complainant therewith. The issue then tried was whether the defendant bank had the right to deal with the Hiawatha Milling Company notes, which matured on February 21, 1930, in the manner set forth in its answer, and (it seems) if the defendant did not have that right, then what damage, if any, was sustained by the complainant thereby. Among other evidence introduced was the letter of instructions in which the complainant forwarded the notes to the defendant bank, which, in effect, was to "collect and credit" to the complainant. The court below rendered a decree holding that the defendant bank had the right to deal with the notes as it did and dismissed the bill of complaint. On appeal to this court that decree was reversed. Bank of Forest v. Capital National Bank, 173 Miss. 99, 160 So. 578, 581, 101 A.L.R. 589. The court then said: "The evidence was not addressed to the question of the real value of the notes at the time the renewals were taken. The chancellor did not reach the question as to the extent of the liability of the Capital National Bank because he held that there was no liability at all, either for the face value of the notes or their actual value. We hold that under this record there is liability on the part of the Capital National Bank, but we leave open the question as to the extent of the liability and reverse the decree and remand the cause for the reformation of the pleadings and the development of the case to that end, if the parties deem it necessary." No judgment of liability was there rendered against the appellees, but, as appears from the court's minutes, the case was remanded for a trial de novo.
On the return of the case to the court below, the complainant filed an amended bill of complaint, the first paragraph of which alleged that "the complainant reiterates its entire original bill of complaint, including the prayer thereof," and in subsequent paragraphs set forth, in substance, the prior dealings between the two banks as to the Hiawatha Milling Company notes, somewhat as set forth in the answer to the original bill, and that each time the complainant accepted renewals of the Hiawatha Milling Company notes taken by the defendant bank in lieu of others sent it by complainant for collection, the Hiawatha Milling Company was, to the defendant bank's knowledge, in serious financial difficulties, which bank failed to discharge its duty of advising the complainant thereof; and that if the complainant had known of the financial difficulties of the Hiawatha Milling Company it would not have accepted the renewal notes and could have then collected them, and prayed for a decree for the damage it thereby sustained. A demurrer to this amended bill was sustained, and the case proceeded to trial on the original bill, the answer thereto, and proof, resulting in the bill of complaint being again dismissed.
The first error assigned is the sustaining of the demurrer to the amendment to the original bill. The two grounds of this demurrer are that the amendment changes the scope and purpose of the original bill, and that the case was remanded by the Supreme Court "for the purpose and sole purpose of ascertaining the damage, if any, that the complainant suffered by reason of the failure of the Capital National Bank to regard the technical instruction of the complainant in its letter for collection and credit of February 12th, 1930."
No error was committed in sustaining this demurrer, for the amendment changed the scope and purpose of the original bill, presented new and different cause or causes of action, and prayed for relief different from that prayed for in the original bill — a complete departure therefrom. Griffith's Miss. Chancery Practice, sec. 389, et seq.; 21 C.J. 523; People's Bank v. Pennington, 137 Miss. 653, at page 690, 102 So. 386, 103 So. 144, at page 146. The sole purpose of the original bill was to correct an entry on the books of the defendant bank, which were then in the hands of its liquidators, charging the complainant with notes of the Hiawatha Milling Company which the defendant bank had offered to sell the complainant and which offer the complainant had refused. The amendment set forth distinct and different cause or causes of action growing out of prior dealings between the two banks in which the liquidators of the defendant bank may or may not be interested, as to which we express no opinion.
It is true that when this court reversed the former decree and remanded the cause it said that the pleadings could be reformed if the parties so desired, but that suggestion, of course, only extended to such reformation as the parties were entitled to make under the rules of pleading and practice. Whether the complainant had the right to amend its bill of complaint so as to set forth its cause of action growing out of the charge by the appellee bank to the appellant of the renewal notes of the Hiawatha Milling Company, taken by the appellee bank in lieu of the notes of that company maturing on February 21, 1930, sent by the appellant to the appellee bank for collection, is not before us, and we express no opinion thereon.
After the demurrer to the original bill was sustained, the case proceeded to trial, as hereinbefore set forth, on the original pleadings. The complainant, as on the first trial, made no effort to prove the cause of action set forth in its bill of complaint, but the evidence of both complainant and defendants was directed to the violation vel non of the duty of the defendant bank to either collect or return to the complainant the notes of the Hiawatha Milling Company maturing on February 21, 1930, deposited with it by the complainant for that purpose, and if it violated this duty whether the fifteen thousand dollar charge against the complainant on the books of the defendant bank should be canceled. This was not the issue tendered by the bill of complaint on facts therein stated, but is based on facts set forth in the answer thereto, in which connection see Griffith, op. cit., sec. 612; 21 C.J. 676. Without expressing any opinion on the propriety of the course here pursued, since the appellees did not object thereto but joined therein, we will proceed with the case on the assumption that it was tried on the correct issue.
On the former appeal this court held that the record then before it disclosed that the Capital National Bank was without authority to accept the renewal notes from the Hiawatha Milling Company; that the extent of its authority was to collect them and credit the appellant therewith. The evidence on the second trial as to liability is not materially, if at all, different from the evidence thereof on the first, so that we come at once to the measure of the appellant's damages and the proof thereof.
By accepting the notes for collection, the appellee bank became the agent of the appellant for that purpose, charged with the duty either of collecting the notes and crediting the appellant with the money so collected, or of returning them to the appellant. This duty it failed to discharge. See opinion on former appeal herein.
The appellees say that when the appellant declined to ratify its renewal of the notes, the appellant then had the right to so notify the Hiawatha Milling Company, the maker of the notes, and to demand from it the payment thereof; and should payment have been refused the appellant could have collected the notes by legal proceedings promptly instituted; from which it follows that the damages here claimed by the appellant were occasioned by its own negligence.
We will assume, but merely for the purpose of the argument, that the appellant had this right and could have collected the notes by prompt legal proceedings. Nevertheless, the appellant was under no obligation to the appellee bank so to do, for the unauthorized delivery of the notes by the appellee bank to the Hiawatha Milling Company, the maker thereof, was not a mere act of negligence, but was a conversion of the notes, and the appellant had the right to so treat it, for which the appellee bank became liable to the appellant for the value of the notes. Capitol State Bank v. Lane, 52 Miss. 677; 1 Mechem on Agency (2 Ed.), sec. 1257; 2 Restatement, Agency, sec. 402, par. (e), and comment (e) under section 426. This value is not absolutely determined, as the appellant contends, by the face of the notes. The purpose, which the law seeks to accomplish by giving an owner of property a right of action against one who by converting it deprives him thereof, is not to enrich the owner of the property at the expense of the converter, but to compensate him for the damages he sustained by the conversion, the measure of which, in the absence of circumstances warranting punitive damages, is the value of the property converted at the time of the conversion. Ingram Day Lumber Co. v. Robertson, 129 Miss. 365, 92 So. 289. There is a presumption that the maker of a note will pay it, consequently its value is prima facie that which appears on its face, but the note may be, in fact, worthless, or of less value than it appears on its face to be, consequently the party sought to be charged therewith has the right to overcome this prima facie presumption by showing that the note is of no value or of a less value than it appears to be on its face. 26 R.C.L. 1150. See, also, note to Ackerman v. Green, 6 Ann. Cas., at page 841.
Among the cases relied on by the appellant to support its contention that the face of the notes determine their value are Bank of Shaw v. Ransom, 112 Miss. 440, 73 So. 280, 281, People's Gin Co. v. Canal Bank Trust Co., 168 Miss. 630, 144 So. 858, 146 So. 308, and Federal Reserve Bank of Richmond v. Malloy, 264 U.S. 160, 44 S.Ct. 296, 68 L.Ed. 617, 31 A.L.R. 1261. In Capitol State Bank v. Lane, supra, a recovery for the face of the paper was allowed, but the court said: "If they [the drawers of the check] were insolvent, and that would make a difference, the bank should have shown it." The case is therefore authority only for the face of the paper being prima facie the amount of damages recoverable. In the Bank of Shaw Case, in which there was no conversion of the paper, a recovery for the face thereof was allowed. The court said that what there occurred "was dangerously near a payment," but it did not decide the case on that ground, but evidently on the ground that the plaintiff, because of the conduct of the collecting bank, had lost not only the ability to collect from the drawee of the check, but had also lost the right to collect it from the drawer thereof.
In People's Gin Co. v. Canal Bank Trust Co. and Federal Reserve Bank of Richmond v. Malloy, the check deposited for collection was forwarded by the collecting bank through another bank direct to the drawee bank for collection and remittance to the bank from which it received the check. The drawee bank charged the check to account of the drawer, who then had sufficient funds on deposit with it to cover the check (in the Malloy Case, see the opinion of the trial court [(D.C.) 281 F. 997]). The drawee bank then forwarded to the bank from which it received the check its own check therefor, which check proved to be worthless. The check deposited for collection, therefore, had been paid, and the failure of the depositor to receive the amount collected therefor was caused by the negligence of one of the collecting banks.
There is no evidence, and we do not understand the parties to claim, that these Hiawatha Milling Company notes had a value other than what could have been collected from that company thereon; the appellees' contention being, as we understand it, that the Hiawatha Milling Company was insolvent when the notes matured on February 21, 1930, which was less than four months prior to the filing of the petition on which it was adjudged a bankrupt.
The pertinent evidence bearing on this contention is, in substance, as follows: The notes were payable to "ourselves or bearer," and were indorsed by the Hiawatha Milling Company in blank; they were deposited with the appellee bank for collection on the 12th and, as hereinbefore stated, were payable on the 21st of February, 1930. The Hiawatha Milling Company then had ample property in this state out of which the notes could have been collected by legal process, and as it was a foreign corporation, an attachment could have been sued out and levied on the property, thereby fixing a lien thereon. If this were all the evidence contained, the actual value of the notes would be the face value thereof. But it further appears that on the 28th day of February, 1930, a petition was filed against the Hiawatha Milling Company by some of its creditors, alleging that it was insolvent, and praying that it be adjudged a bankrupt. An answer to this petition denied that the Hiawatha Milling Company was insolvent, but alleged its willingness to be adjudged a bankrupt. On the 22d day of May, 1930, a judgment was rendered by the federal court declaring the Hiawatha Milling Company a bankrupt without adjudicating its insolvency. This decree, therefore, does not determine the solvency or insolvency of the bankrupt at the time the petition was filed.
The National Bankruptcy Act of the United States, Code Ann., title 11, Bankruptcy, c. 7, sec. 107(c), provides: "A lien created by or obtained in or pursuant to any suit or proceeding at law or in equity, including an attachment upon mesne process or a judgment by confession, which was begun against a person within four months before the filing of a petition in bankruptcy by or against such person shall be dissolved by the adjudication of such person to be a bankrupt if (1) it appears that said lien was obtained and permitted while the defendant was insolvent and that its existence and enforcement will work a preference, or (2) the party or parties to be benefited thereby had reasonable cause to believe the defendant was insolvent and in contemplation of bankruptcy."
The schedules filed by the Hiawatha Milling Company in the bankruptcy proceeding were introduced in evidence by the appellant, and in order to prove the insolvency of the Hiawatha Milling Company for the time intervening between the maturity of the notes and the filing of the petition in bankruptcy, the court permitted the appellees, over the objection of the appellant, to introduce in evidence the report of the appraisers appointed in May and June, 1930, as to the value of the property, and the report of the trustee setting forth what he realized by a sale of the property and distributed to the bankrupt's creditors, and also to introduce in evidence, of which no complaint is made, that when the bankrupt petition was filed the Hiawatha Milling Company suspended operations, and held its property intact thereafter until it surrendered possession thereof under the bankruptcy proceeding.
The Supreme Court of the United States has not yet decided whether the report of the appraisers of a bankrupt's estate is admissible in evidence for the purpose of showing the value of the bankrupt's property prior to the filing of the petition in bankruptcy; and there seems to be some conflict in the state and lower federal court decisions relative thereto. But we agree with Remington in his treatise on Bankruptcy, vol. 4 (4 Ed.), sec. 1756, that such reports should not be admitted in evidence for that purpose. The appraisal of a bankrupt's estate "is to secure for the benefit and protection of all parties concerned a designation and estimation of the property which passes into the hands of the trustee, and for which, in the first instance, he is accountable." Remington, op. cit. vol. 6, sec. 2523. And the appraisal is made after the business of the bankrupt ceases to be a going concern. Moreover, by introducing their report, and not the appraisers themselves, the opposing litigant is deprived of the opportunity of cross-examining the appraisers, and ascertaining the method pursued by them in arriving at the value placed by them on the property. The report of the trustee was also inadmissible. Section 1 of the Bankruptcy Act (11 U.S.C.A. sec. 1) provides that "a person shall be deemed insolvent within the provisions of this title whenever the aggregate of his property, exclusive of any property which he may have conveyed, transferred, concealed, or removed, or permitted to be concealed or removed, with intent to defraud, hinder, or delay his creditors, shall not, at a fair valuation, be sufficient in amount to pay his debts." This fair valuation is not the value that would or did prevail at a sacrificed or forced sale. Remington, op. cit. vol. 4, sec. 1747 et seq.; Liberty National Bank of Roanoke v. Bear, 265 U.S. 365, 44 S.Ct. 499, 68 L.Ed. 1057, 3 A.B.R. (N.S.) 8.
The dividend in the bankruptcy proceeding received by the bankrupt's creditors would have been admissible in order to show what the appellant received from the trustee in bankruptcy on the renewal notes which were filed in that proceeding under the agreement hereinbefore set forth, but for the fact that the amount so received was admitted by the appellant, which amount we do not understand is challenged by the appellees.
But the appellant says that even if admissible in evidence these records do not disclose that the Hiawatha Milling Company was insolvent at the time the renewal notes were taken; that it appears from their report and other evidence that they failed to appraise and value a large part of the bankrupt's property. The evidence disclosing this fact is not specifically pointed out by the appellant, and our examination of the record has failed to bring it to light. Should we be mistaken in this, we will be glad to re-examine that question on a proper and timely suggestion therefor, and if the appellant's contention should then appear to be true, we will dispose of the case in the light thereof.
Reversed and remanded.